Notice2025-06563
In the Matter of the Application of Green Impact Exchange, LLC for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission
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
April 17, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 73 (Thursday, April 17, 2025)</title>
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[Federal Register Volume 90, Number 73 (Thursday, April 17, 2025)]
[Notices]
[Pages 16207-16222]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-06563]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102853; File No. 10-244]
In the Matter of the Application of Green Impact Exchange, LLC
for Registration as a National Securities Exchange; Findings, Opinion,
and Order of the Commission
April 11, 2025.
I. Introduction and Procedural History
On May 9, 2024, Green Impact Exchange, LLC (``GIX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a Form 1 application (``Form 1'') under the Securities
Exchange Act of 1934 (``Act''), seeking registration as a national
securities exchange under Section 6 of the Act.\1\ The Commission
received comments on the Form 1.\2\ On October 21, 2024, the Commission
instituted proceedings pursuant to Section 19(a)(1)(B) of the Act \3\
to determine whether to grant or deny GIX's application for
registration as a national securities exchange under Section 6 of the
Act.\4\ After issuance of the OIP, the Commission received a letter
from GIX responding to comments.\5\ On January 16, 2025, the Commission
extended, pursuant to Section 19(a)(1)(B) of the Act,\6\ the time
period for granting or denying the Form 1 for an additional 90 days,
until April 19, 2025.\7\ On February 4, 2025, GIX
[[Page 16208]]
filed an amendment to the Form 1 (``Amendment No. 1'').\8\ On February
28, 2025, GIX filed another amendment to the Form 1 (``Amendment No.
2''), which replaced and superseded Amendment No. 1 in its entirety.\9\
Amendment No. 2 was published for comment in the Federal Register on
March 12, 2025.\10\ On March 6, 2025, GIX consented, pursuant to
Section 19(a)(1)(B) of the Act,\11\ to an extension of the time period
for granting or denying the Form 1 for an additional 90 days, until
July 18, 2025.\12\ On March 17, 2025, GIX filed Amendment No. 3 to the
Form 1 (``Amendment No. 3'').\13\ The Commission received no comments
on the Form 1, as amended by Amendment Nos. 2 and 3.
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\1\ 15 U.S.C. 78f. The Form 1 is available on the Commission's
website at: <a href="https://www.sec.gov/rules-regulations/other-commission-orders-notices-information/green-impact-exchange-llc-form-1-application-exhibits">https://www.sec.gov/rules-regulations/other-commission-orders-notices-information/green-impact-exchange-llc-form-1-application-exhibits</a>. See also 15 U.S.C. 78s(a)(1) (stating that the
Commission shall, ``[w]ithin ninety days of the date of publication
of such notice (or within such longer period as to which the
applicant consents),'' grant the registration or institute
proceedings to determine whether the registration should be denied).
\2\ The public comment file for the Form 1 (File No. 10-244) is
available on the Commission's website at: <a href="https://www.sec.gov/comments/10-244/10-244.htm">https://www.sec.gov/comments/10-244/10-244.htm</a>.
\3\ 15 U.S.C. 78s(a)(1)(B).
\4\ See Securities Exchange Act Release No. 101397, 89 FR 85264
(Oct. 25, 2024) (``OIP'').
\5\ See letter from James G. Buckley, Chief Regulatory Officer,
GIX, dated Nov. 25, 2024.
\6\ 15 U.S.C. 78s(a)(1)(B).
\7\ See Securities Exchange Act Release No. 102223, 90 FR 8228
(Jan. 27, 2025).
\8\ In Amendment No. 1, GIX amended Exhibits B (information
about, among other things, rules of GIX not included in Exhibit A),
B-1 (copy of the proposed GIX Rule Book), C (information regarding
subsidiaries or affiliates), H (information about GIX's listing
applications), H-2 (Corporate Governance Certification), H-3 (Dual
Listing Agreement), H-5 (Sustainability Governance Standards
discussion), and J (list of officers, governors, members of all
standing committees, or persons performing similar functions).
Overall, the principal change in Amendment No. 1 was the replacement
of the proposed Green Governance Standards with proposed
Sustainability Governance Standards. Subsequently, on February 28,
2025, GIX filed Amendment No. 2, which replaced and superseded
Amendment No. 1 in its entirety. See infra note 9.
\9\ In Amendment No. 2, GIX amended Exhibits B, B-1, C, H, H-1
(Dual Listing Application), H-2, H-3, and J of the original Form 1
primarily to eliminate the Green Governance Standards from GIX's
listing rules and delete any references to the Green Governance
Standards from the application. GIX also withdrew Exhibit H-5
entirely. Amendment No. 2 is available on the Commission's website
at: <a href="https://www.sec.gov/rules-regulations/other-commission-orders-notices-information/green-impact-exchange-llc-form-1-application-exhibits">https://www.sec.gov/rules-regulations/other-commission-orders-notices-information/green-impact-exchange-llc-form-1-application-exhibits</a>. For purposes of this order, references to these listed
Exhibits will be to the amended Exhibits filed with Amendment No. 2.
\10\ See Securities Exchange Act Release No. 102535 (Mar. 6,
2025), 90 FR 11865.
\11\ 15 U.S.C. 78s(a)(1)(B).
\12\ See letter from James G. Buckley, Chief Regulatory Officer,
GIX, dated Mar. 6, 2025. See supra note 2.
\13\ In Amendment No. 3, GIX amended Exhibit C-3 (proposed First
Amended and Restated Bylaws of Green Exchange, PBC (``GEPBC
Bylaws'')) to clarify the language in Article VI, Section 6.11.
Amendment No. 3 is available on the Commission's website at: <a href="https://www.sec.gov/rules-regulations/other-commission-orders-notices-information/green-impact-exchange-llc-form-1-application-exhibits">https://www.sec.gov/rules-regulations/other-commission-orders-notices-information/green-impact-exchange-llc-form-1-application-exhibits</a>.
The changes in Amendment No. 3 are technical amendments that do not
require notice and comment.
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The Commission has reviewed the Exchange's registration
application, as amended, together with the comment letters received, in
order to make a determination whether to grant such registration. For
the reasons set forth below, and based on the representations set forth
in the Form 1, as amended, this order approves GIX's application, as
amended, for registration as a national securities exchange.
II. Statutory Standards
Pursuant to Sections 6(b) and 19(a) of the Act,\14\ the Commission
shall by order grant an application for registration as a national
securities exchange if the Commission finds, among other things, that
the proposed exchange is so organized and has the capacity to carry out
the purposes of the Act and can comply, and can 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.\15\
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\14\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), respectively.
\15\ See also supra note 1 (discussing the time for Commission
action following publication of notice of an application for
exchange registration).
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As discussed in greater detail below, the Commission finds that
GIX's application, as amended, for exchange registration meets the
requirements of the Act and the rules and regulations thereunder.
Further, the Commission finds that the proposed rules of GIX are
consistent with Section 6 of the Act in that, among other things, they
are designed to: (1) assure fair representation of the exchange's
members in the selection of its directors and administration of its
affairs and provide that, among other things, one or more directors
shall be representative of investors and not be associated with the
exchange, or with a broker or dealer; \16\ (2) 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, and remove impediments to
and perfect the mechanisms of a free and open market and a national
market system; \17\ (3) not permit unfair discrimination between
customers, issuers, or dealers; \18\ and (4) protect investors and the
public interest.\19\ The Commission also finds that the proposed rules
of GIX are consistent with Section 11A of the Act.\20\ Finally, the
Commission finds that GIX's proposed rules do not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.\21\
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\16\ See U.S.C. 78f(b)(3).
\17\ See U.S.C. 78f(b)(5).
\18\ See id.
\19\ See id.
\20\ 15 U.S.C. 78k-1.
\21\ 15 U.S.C. 78f(b)(8).
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III. Discussion
A. Ownership and Governance of GIX
GIX is a Delaware limited liability company \22\ that will be
wholly owned by its sole member, Green Exchange, PBC (``GEPBC''), a
Delaware public benefit corporation.\23\ GEPBC will be the entity
through which the individual investors who are ultimate owners of the
Exchange will hold their ownership interests in the Exchange.\24\
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\22\ See Certification of Formation of Green Impact Exchange,
LLC.
\23\ See Certificate of Incorporation of Green Exchange, PBC.
\24\ See Form 1, Exhibit C and Exhibit K.
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1. GIX Board of Directors
The Board \25\ of GIX (``Exchange Board'') will be its governing
body and will possess all of the powers necessary for the management of
its business and affairs, including governance of GIX as a self-
regulatory organization (``SRO'').\26\ Specifically:
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\25\ ``Board'' means the Board of Directors of GIX. See Article
I, Section 1.01 of the proposed First Amended and Restated Limited
Liability Company Agreement of Green Impact Exchange (``GIX LLC
Agreement'').
\26\ See GIX LLC Agreement, Article VII, Section 7.02. See also
Form 1, Exhibit J.
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<bullet> the Exchange Board initially will be composed of 10
Directors; \27\
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\27\ See GIX LLC Agreement, Article VII, Section 7.03(a). The
term ``Director'' is defined in GIX LLC Agreement, Article I,
Section 1.01 and Article VII, Section 7.01. A Director may not be
subject to statutory disqualification. See GIX LLC Agreement,
Article VII, Section 7.06(d).
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<bullet> one Director will be the Chief Executive Officer (``CEO'')
of GIX, who shall be considered a Holdco Investor Director; \28\
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\28\ See GIX LLC Agreement, Article VII, Section 7.03(b)(i).
``Holdco Investor Director'' means a Director who has been nominated
by GEPBC pursuant to Section 3.01(c) of the GEPBC Bylaws to
represent GEPBC's interests on the Exchange Board. See GIX LLC
Agreement, Article I, Section 1.01.
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<bullet> at least 50% of the Directors of the Exchange Board shall
be Non-Industry Directors,\29\ and the remainder shall be Industry
Directors; \30\
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\29\ ``Non-Industry Director'' means a Director who is an
Independent Director or any other individual who would not be an
Industry Director or Member Representative Director. See GIX LLC
Agreement, Article I, Section 1.01.
\30\ ``Industry Director'' means, among other criteria, a
Director who is or has served within the prior three years an
officer, director, or employee of a broker or dealer, excluding an
outside director or a director not engaged in the day-to-day
management of a broker or dealer. See GIX LLC Agreement, Article I,
Section 1.01, for a description of all of the circumstances
regarding when a Director would be considered an Industry Director.
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<bullet> two Industry Directors (in addition to the CEO of GIX)
shall be Holdco Investor Directors; \31\
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\31\ See GIX LLC Agreement, Article VII, Section 7.03(b)(ii) and
(c)(ii).
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[[Page 16209]]
<bullet> two Directors shall be Member Representative Directors
\32\ and counted as Industry Directors; \33\ provided that if the size
of the Board is increased or decreased, at least 20% of the Directors
on the Exchange Board shall be Member Representative Directors; \34\
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\32\ See GIX LLC Agreement, Article VII, Section 7.03(b).
``Member Representative Director'' means a Director who has been
appointed as such to the initial Exchange Board pursuant to Section
7.04 of the GIX LLC Agreement or elected by GEPBC after having been
nominated by the Member Nominating Committee or by an Exchange
Member pursuant to the GIX LLC Agreement and confirmed as the
nominee of Exchange members after majority vote of Exchange Members,
if applicable. A Member Representative Director must be an officer,
director, employee, or agent of an Exchange Member that is not a
Unit Holder. See GIX LLC Agreement, Article I, Section 1.01. A
``Unit Holder'' means a beneficial owner who owns, directly or
indirectly, Units of GIX. An Exchange Member may be, but is not
required to be, a Unit Holder. See GIX LLC Agreement, Article I,
Section 1.01. ``Units'' means the limited liability company
interests issued by GIX to Company Members. See GIX LLC Agreement,
Article I, Section 1.01. ``Company Member'' means GEPBC and any
other Unit Holders as may be added under the terms of the GIX LLC
Agreement. See GIX LLC Agreement, Article I, Section 1.01.
``Exchange Member'' means any registered broker or dealer that has
been admitted to membership in GIX. An Exchange Member shall have
the status of a ``member'' of the Exchange as that term is defined
in Section 3(a)(3) of the Exchange Act. See GIX LLC Agreement,
Article I, Section 1.01.
\33\ See GIX LLC Agreement, Article VII, Section 7.03(b)(iii).
\34\ See GIX LLC Agreement, Article VII, Section 7.03(b)(iii).
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<bullet> at least two of the Non-Industry Directors shall also
qualify as Independent Directors; \35\ and
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\35\ See GIX LLC Agreement, Article VII, Section 7.03(b)(iv).
``Independent Director'' means a Director who has no material
relationship with GIX or any affiliate of GIX 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 GIX or GEPBC. See GIX
LLC Agreement, Article I, Section 1.01. In addition, the Exchange
Board shall have a ``Lead Independent Director,'' who shall be an
Independent Director selected by the Non-Industry Directors and will
facilitate the functioning of the Exchange Board independently of
management of GIX and provide independent leadership to the Exchange
Board. See GIX LLC Agreement, Article VII, Section 7.03(d)(i) and
(ii). See also GIX LLC Agreement, Article VII, Section
7.03(d)(ii)(A)-(K) for further description of the responsibilities
of the Lead Independent Director.
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<bullet> during such time as GIX operates a listings business, one
of the Non-Industry Directors shall be an officer or director of an
issuer (``Issuer Director'') and one of the Non-Industry Directors
shall be a Public Investor Director,\36\ provided that in each case,
such Director must not be associated with GEPBC. A Public Investor
Director also must not be associated with an Exchange Member.\37\
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\36\ ``Public Investor Director'' means a Director who is a
representative of public investors, provided that a Public Investor
Director shall not be associated with an Exchange Member. An
Independent Director may be a Public Investor Director. See GIX LLC
Agreement, Article I, Section 1.01.
\37\ See GIX LLC Agreement, Article VII, Section 7.03(b)(v).
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The initial Directors of the Exchange Board will be appointed by
GEPBC and will serve until the first annual meeting of Company
Members.\38\ The first annual meeting of Company Members will be held
within 90 days after the Commission grants GIX's exchange
registration.\39\
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\38\ See GIX LLC Agreement, Article VII, Section 7.03(e).
\39\ See GIX LLC Agreement, Article VII, Section 7.03(e).
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In addition, GEPBC will appoint the initial Nominating Committee
and Member Nominating Committee, consistent with each committee's
compositional requirements, to nominate candidates for election to the
Exchange Board.\40\ The Nominating Committee and Member Nominating
Committee, after completion of their respective duties for nominating
directors for election to the Board for that year, will recommend
candidates to serve on the succeeding year's Nominating Committee or
Member Nominating Committee, as applicable.\41\ Exchange Members will
have rights to nominate and elect additional candidates for the Member
Nominating Committee pursuant to a petition process.\42\
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\40\ See GIX LLC Agreement, Article VIII, Section 8.07(b).
\41\ See GIX LLC Agreement, Article VIII, Section 8.07(b).
\42\ See GIX LLC Agreement, Article VII, Section 7.04.
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The Nominating Committee will nominate candidates for election to
the Board.\43\ For Member Representative Director positions, the Member
Nominating Committee, composed solely of Member Representative
Committee or Panel Members,\44\ will solicit input from Exchange
Members, and Exchange Members may submit petition candidates.\45\ If no
candidates are nominated pursuant to a petition process, then the
initial nominees approved and submitted by the Member Nominating
Committee will be nominated as Member Representative Directors by the
Nominating Committee.\46\ If a petition process produces additional
candidates, then the candidates nominated pursuant to the petition
process, together with those nominated by the Member Nominating
Committee, will be presented to Exchange Members for election to
determine the final designees for any open Member Representative
Director positions.\47\ In the event of a contested election, the
candidates who receive the most votes will be selected as the Member
Representative Director designees by the Member Nominating
Committee.\48\
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\43\ See GIX LLC Agreement, Article VII, Section 7.04(a).
\44\ ``Member Representative Committee or Panel Member'' means a
member of any Committee or hearing panel who is an officer,
director, employee or agent of an Exchange Member that is not a Unit
Holder. See GIX LLC Agreement, Article I, Section 1.01.
\45\ See GIX LLC Agreement, Article VII, Section 7.04(b). See
also GIX LLC Agreement, Article VII, Section 8.07(c).
\46\ See GIX LLC Agreement, Article VII, Section 7.04(b)(iii).
\47\ See GIX LLC Agreement, Article VII, Section 7.04(b)(iii).
\48\ See GIX LLC Agreement, Article VII, Section 7.04(b)(iv).
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The GIX governance provisions are consistent with the Act. In
particular, the requirement that the number of Member Representative
Directors must be at least 20% of the Board and the means by which they
will be chosen by Exchange Members provides for the fair representation
of members in the selection of directors and the administration of GIX
and therefore are consistent with Section 6(b)(3) of the Act.\49\ As
the Commission has previously stated, 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.\50\
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\49\ 15 U.S.C. 78f(b)(3).
\50\ See, e.g., Securities Exchange Act Release Nos. 101777
(Nov. 27, 2024), 89 FR 97092 (Dec. 6, 2024) (File No. 10-242) (order
granting exchange registration of 24X National Exchange LLC
(``24X'')) (``24X Order''); 100539 (July 15, 2024), 89 FR 58848
(July 19, 2024) (File No. 10-240) (order granting exchange
registration of MIAX Sapphire, LLC) (``Sapphire Order''); 88806 (May
4, 2020), 85 FR 27451 (May 8, 2020) (File No. 10-237) (order
granting exchange registration of MEMX LLC (``MEMX Exchange''))
(``MEMX Order''); 85828 (May 10, 2019), 84 FR 21841 (May 15, 2019)
(File No. 10-234) (order granting exchange registration of Long Term
Stock Exchange, Inc. (``LTSE Exchange'')) (``LTSE Order''); 79543
(Dec. 13, 2016), 81 FR 92901, 92903 (Dec. 20, 2016) (File No. 10-
227) (order granting exchange registration of MIAX PEARL, LLC)
(``MIAX PEARL Order''); 68341 (Dec. 3, 2012), 77 FR 73065, 73067
(Dec. 7, 2012) (File No. 10-207) (order granting exchange
registration of Miami International Securities Exchange, LLC (``MIAX
Exchange'')) (``MIAX Order''); 58375 (Aug. 18, 2008), 73 FR 49498,
49501 (Aug. 21, 2008) (File No. 10-182) (order granting exchange
registration of BATS Exchange, Inc.) (``BATS Order''); 53128 (Jan.
13, 2006), 71 FR 3550, 3553 (Jan. 23, 2006) (File No. 10-131) (order
granting exchange registration of Nasdaq Stock Market, Inc.)
(``Nasdaq Order'').
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In addition, with respect to the requirements that the number of
Non-Industry Directors equal or exceed the number of Industry Directors
(which include Member Representative
[[Page 16210]]
Directors) and that at least two Non-Industry Directors shall also
qualify as Independent Directors, the proposed composition of the
Exchange Board satisfies the requirements in Section 6(b)(3) of the
Act.\51\ The Commission previously has stated that the inclusion of
public, non-industry representatives on exchange oversight bodies is an
important mechanism to support an exchange's ability to protect the
public interest.\52\ Further, the presence of public, non-industry
representatives can help to ensure that no single group of market
participants has the ability to systematically disadvantage other
market participants through the exchange governance process. Public
directors can provide unbiased perspectives, which may enhance the
ability of the Exchange Board to address issues in a non-discriminatory
fashion and foster the integrity of the Exchange. For similar reasons,
the additional composition requirement that applies during such time as
GIX operates a listings business (i.e., the requirement that one
Director be an officer or director of an issuer and one Director be
representative of public investors, in each case, not associated with a
Company Member \53\) is consistent with the requirements of Section
6(b)(3) of the Act.
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\51\ 15 U.S.C. 78f(b)(3).
\52\ See, e.g., MEMX Order, supra note 50, at 27452; LTSE Order,
supra note 50, at 21843; MIAX PEARL Order, supra note 50, at 92903;
MIAX Order, supra note 50, at 73067; BATS Order, supra note 50, at
49501; and Nasdaq Order, supra note 50, at 3553.
\53\ See GIX LLC Agreement, Article VII, Section 7.03(b)(v).
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2. Interim Board
GEPBC will hold a special meeting to appoint interim Directors of
the Board (``Interim Board''), which will include interim Member
Representative Directors.\54\ Upon appointment of the interim
Directors, the Interim Board will meet the Exchange Board composition
requirements set forth in the GIX LLC Agreement.\55\ The Interim Board
Directors will serve only until the first annual meeting of Company
Members, which will be held within 90 days after the Commission grants
the Exchange's registration as a national securities exchange.\56\ The
Exchange represents that it will complete the full nomination,
petition, and voting process set forth in the GIX LLC Agreement, which
will provide persons that are approved as Exchange Members after the
date that the Commission grants the Exchange's registration as a
national securities exchange with the opportunity to participate in the
selection of Member Representative Directors as promptly as possible
after the effective date of the GIX LLC Agreement.\57\
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\54\ See Form 1, Exhibit J.
\55\ See id. See also GIX LLC Agreement, Article VII, Section
7.03.
\56\ See GIX LLC Agreement, Article VII, Section 7.03(e).
\57\ See Form 1, Exhibit J.
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3. Exchange Committees
GIX has proposed to establish several named committees of the
Exchange Board, including: an Appeals Committee,\58\ a Regulatory
Oversight Committee,\59\ and a Governance and Sustainability Oversight
Committee (``GSOC''),\60\ as well as the Nominating Committee and
Member Nominating Committee, discussed above.\61\
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\58\ See GIX LLC Agreement, Article VIII, Section 8.01. The
Appeals Committee will preside over all appeals related to
disciplinary and adverse action determinations in accordance with
GIX rules. See GIX LLC Agreement, Article VIII, Section 8.06.
\59\ See GIX LLC Agreement, Article VIII, Section 8.01. The
Regulatory Oversight Committee will be responsible for establishing
the goals, assessing the performance, and fixing the compensation of
the Chief Regulatory Officer and for recommending personnel actions
involving the Chief Regulatory Officer and senior regulatory
personnel. See GIX LLC Agreement, Article VIII, Section 8.08(c).
\60\ See GIX LLC Agreement, Article VIII, Section 8.01. The GSOC
will recommend to the Exchange Board corporate governance principles
applicable to GIX, including those related to environmental, social
responsibility and sustainability matters; assist the Exchange Board
in its annual evaluation of the performance and effectiveness of the
Independent Lead Director, the Exchange Board and its committees;
and perform such other duties as the Exchange Board and/or the
Chairperson may direct. See GIX LLC Agreement, Article VIII, Section
8.09(b).
\61\ The Exchange Board could also establish additional
committees. See GIX LLC Agreement, Article VIII, Section 8.01. All
committees of the Exchange Board will be subject to the control and
supervision of the Exchange Board. See id.
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The Appeals Committee will consist of two Independent Directors,
and one Member Representative Director.\62\ Each member of the
Regulatory Oversight Committee must be an Independent Director.\63\ The
GSOC will consist of at least three members, including one Holdco
Investor Director, one Member Representative Director, and one Non-
Industry Director.\64\
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\62\ See GIX LLC Agreement, Article VIII, Section 8.06.
\63\ See GIX LLC Agreement, Article VIII, Section 8.08(e).
\64\ See GIX LLC Agreement, Article VII, Section 8.09(a).
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The GIX proposed named committees, which are similar to the named
committees maintained by other exchanges (with one exception),\65\ are
designed to help enable the Exchange to carry out its responsibilities
under the Act and are consistent with the Act, including Section
6(b)(1), which requires, in part, an exchange to be so organized and
have the capacity to carry out the purposes of the Act.\66\
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\65\ See, e.g., MEMX Order, supra note 50, at 27453. See also
Securities Exchange Act Release No. 78101 (June 17, 2016), 81 FR
41142 (June 23, 2016) (File No. 10-222) (order granting exchange
registration of Investors' Exchange, LLC) (``IEX Order''); Article
IV, Section 4.1 of the Eleventh Amended and Restated Bylaws of Cboe
Exchange, Inc. The one exception is the GSOC, which acts in an
advisory capacity on matters relating solely to the governance of
GIX itself, not its Members or listed companies. See infra note 60.
\66\ 15 U.S.C. 78f(b)(1).
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B. GEPBC and Regulation of the Exchange
When GIX commences operations as a national securities exchange, it
will have all of the attendant regulatory obligations under the Act. In
particular, GIX will be responsible for the operation and regulation of
its trading system and the regulation of its members. Certain
provisions in both the GIX and GEPBC governing documents are designed
to facilitate the ability of GIX to fulfill its regulatory obligations
and to help facilitate Commission oversight of GIX. The discussion
below summarizes some of these key provisions.
1. Ownership Structure; Ownership and Voting Limitations
As stated above, GIX will be owned by GEPBC. The proposed GEPBC
Bylaws include restrictions on the ability to own and vote shares of
Capital Stock \67\ of GEPBC.\68\ These limitations are designed to
prevent any party to the GEPBC Bylaws 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.
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\67\ ``Capital Stock'' means any and all shares of stock of
GEPBC, including, without limitation, shares of common, preferred,
or other preference stock. See GEPBC Bylaws, Article I, Section
1.01.
\68\ These provisions are consistent with ownership and voting
limits approved by the Commission for other SROs. See, e.g., LTSE
Order, MIAX PEARL Order, MIAX Order, and BATS Order, supra note 50,
and IEX Order, supra note 65; see also Securities Exchange Act
Release Nos. 76998 (Jan. 29, 2016), 81 FR 6066 (Feb. 4, 2016) (File
No. 10-221) (order granting exchange registration of ISE Mercury,
LLC) (``ISE Mercury Order''); 70050 (July 26, 2013), 78 FR 46622,
46624 (Aug. 1, 2013) (File No. 10-209) (order granting exchange
registration of ISE Gemini, LLC) (``ISE Gemini Order''); 62158 (May
24, 2010), 75 FR 30082 (May 28, 2010) (CBOE-2008-88) (Cboe
demutualization order); 53963 (June 8, 2006), 71 FR 34660 (June 15,
2006) (SR-NSX-2006-03) (NSX demutualization order); 51149 (Feb. 8,
2005), 70 FR 7531 (Feb. 14, 2005) (SR-CHX-2004-26) (CHX
demutualization order); and 49098 (Jan. 16, 2004), 69 FR 3974 (Jan.
27, 2004) (SR-Phlx-2003-73) (Phlx demutualization order).
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In particular, for so long as GEPBC shall control, directly or
indirectly, GIX,
[[Page 16211]]
no person,\69\ either alone or together with its related persons,\70\
will be permitted to own, directly or indirectly, of record or
beneficially, Capital Stock constituting more than 40% of any class of
Capital Stock.\71\ A more restrictive condition will apply to the
broker-dealer members of the Exchange, who will be prohibited from
owning, directly or indirectly, either alone or together with their
related persons, more than 20% of any class of Capital Stock.\72\ If
any stockholder \73\ purports to sell, transfer, assign, pledge, or own
any shares of GEPBC in violation of these ownership limits, GEPBC will
be required (to the extent funds are legally available) to redeem the
shares in excess of the applicable ownership limit at their par
value.\74\
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\69\ See GEPBC Bylaws, Article I, Section 1.01 (defining
``Person'').
\70\ See id. (defining ``Related Persons'').
\71\ See GEPBC Bylaws, Article V, Section 5.05(a)(i). There are
limited exceptions to these prohibitions. See infra notes 76-78 and
accompanying text.
\72\ See GEPBC Bylaws, Article V, Section 5.05(a)(ii). This
restriction, unlike others discussed below (see infra note 76-78 and
accompanying text), cannot be waived. See GEPBC Bylaws, Article V,
Section 5.05(c)(ii).
\73\ See GEPBC Bylaws, Article I, Section 1.01 (defining
``Stockholder'').
\74\ See GEPBC Bylaws, Article V, Section 5.08(a). GEPBC shall,
promptly upon the occurrence of any automatic conversion pursuant to
GEPBC Bylaws, Article V, Section 5.08, authorize and issue such
number of shares of nonvoting shares as is necessary to effect the
conversion, and shall reflect the resulting changes in its books and
records relating to Capital Stock. Notwithstanding anything to the
contrary, the failure to reflect the conversion in the books and
records of GEPBC shall not invalidate such automatic conversion,
which shall be deemed to be effective notwithstanding any such
failure. See GEPBC Bylaws, Article V, Section 5.08(d). In addition,
in the event that any redemption has resulted in any stockholder
owning such number of shares that is in violation of the ownership
limits, GEPBC will be required to redeem those shares pursuant to
the limitation provisions. See GEPBC Bylaws, Article V, Section
5.08(g).
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In addition, no person, alone or together with its related persons,
may, directly, indirectly, or pursuant to any agreement, vote or cause
the voting of Capital Stock or give any consent or proxy with respect
to Capital Stock representing more than 20% of the voting power of the
then-issued and outstanding Capital Stock (``Voting Limitation'').\75\
Further, no person, either alone or together with its related persons,
may enter into any agreement, plan or other arrangement with any other
person, either alone or together with its related persons, under
circumstances that would result in the Capital Stock that is subject to
such agreement, plan, or other arrangement not being voted on any
matter or matters or any proxy relating thereto being withheld, 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 Capital
Stock that would represent more than 20% of such voting power.\76\
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\75\ See GEBPC Bylaws, Article V, Section 5.05(a)(iii).
\76\ See id.
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Except with respect to Exchange Members and their related persons,
GEPBC will be permitted to waive the 40% ownership limitation and the
20% Voting Limitation pursuant to a unanimous resolution of the GEPBC
Board,\77\ if it makes certain determinations.\78\ Any such waiver will
not be effective unless and until approved by the Commission.\79\
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\77\ See GEPBC Bylaws, Article V, Section 5.05(c)(ii).
\78\ See GEPBC Bylaws, Article V, Section 5.05(c)(ii). The
required determinations are that such waiver will not impair the
ability of the Exchange to carry out its functions and
responsibilities as an ``exchange'' under the Act and the rules and
regulations promulgated thereunder; that such waiver is otherwise in
the best interests of GEPBC, its stockholders, and the Exchange;
that such waiver will not impair the ability of the Commission to
enforce the Act and the rules and regulations promulgated
thereunder; and that such Person and its Related Persons are not
subject to any applicable ``statutory disqualification'' within the
meaning of Section 3(a)(39) of the Act. See GEPBC Bylaws, Article V,
Section 5.05(c)(ii) and (d). These provisions are consistent with
ownership and voting limits approved by the Commission for other
SROs. See, e.g., MEMX Order, LTSE Order, MIAX PEARL Order, MIAX
Order, and BATS Order, supra note 50; ISE Mercury Order and ISE
Gemini Order, supra note 67; IEX Order, supra note 65; and
Securities Exchange Act Release No. 61698 (Mar. 12, 2010), 75 FR
13151 (Mar. 18, 2010) (File Nos. 10-194 and 10-196) (order granting
exchange registration of DirectEdge exchanges) (``DirectEdge
Exchanges Order'').
\79\ See GEPBC Bylaws, Article V, Section 5.05(c)(ii).
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Any person that proposes to own Capital Stock in excess of the 40%
ownership limitation, or to vote or grant any proxies or consents with
respect to Capital Stock constituting more than 20% of the voting power
of then-issued and outstanding Capital Stock, will be required to
deliver written notice to the GEPBC Board of its intention.\80\ The
notice must be delivered to GEPBC not less than 45 days (or any shorter
period to which the Board expressly consents) before the proposed
ownership of such Capital Stock or the proposed vote.\81\
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\80\ See GEPBC Bylaws, Article V, Section 5.05(e).
\81\ See id.
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The GEPBC Bylaws also contain provisions that are designed to
further safeguard the ownership and voting limitations described above,
or are otherwise related to direct and indirect changes in control.
Specifically, any person that, either alone or together with its
related persons owns, directly or indirectly (whether by acquisition or
a change in the number of Capital Stock outstanding), of record or
beneficially 5% or more of the then outstanding Capital Stock will be
required to notify the GEPBC Board in writing of such ownership.\82\
Thereafter, such persons will be required to update GEPBC of any
increase or decrease of 1% or more in their previously reported
ownership percentage.\83\
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\82\ See GEPBC Bylaws, Article V, Section 5.06(a). The notice
will require the Person's full legal name; the Person's title or
status and the date on which such title or status was acquired; the
Person's and its Related Person's) approximate ownership interest in
GEPBC; and whether the person has power, directly or indirectly, to
direct the management or policies of GEPBC, whether through
ownership of securities, by contract or otherwise. See id.
\83\ See GEPBC Bylaws, Article V, Section 5.06(b)(i). Changes of
less than 1% must also be reported to GEPBC if they result in such
Person crossing a 20% or 40% ownership threshold. See id. In
addition, the Exchange's rules also impose limits on affiliation
between the Exchange and an Exchange Member. See GIX Rule 2.210 (No
Affiliation between Exchange and any Member).
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The Exchange's LLC Agreement does not include the same change of
control provisions that are present in the GEPBC Bylaws because the GIX
LLC Agreement instead explicitly identifies its owner (GEPBC) by name
as the Company Member of GIX.\84\ Thus, any changes in the ownership of
GIX would require the GIX LLC Agreement to be amended. Any amendment to
the GIX LLC Agreement, including to ownership of the Exchange, would
constitute a proposed rule change under Section 19(b) of the Act \85\
and Rule 19b-4 \86\ thereunder that will be required to be filed with,
or filed with and approved by, the Commission.\87\ Moreover, pursuant
to the GIX LLC Agreement itself, any transfer of limited liability
company interests of GIX will be subject to prior approval by the
Commission pursuant to the rule filing procedure under Section 19 of
the Act.\88\
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\84\ See GIX LLC Agreement, Schedule 1.
\85\ 15 U.S.C. 78s(b).
\86\ 17 CFR 240.19b-4.
\87\ See GIX LLC Agreement, Article XIX, Section 19.02.
\88\ See GIX LLC Agreement, Article XV, Section 15.01(a).
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Although GEPBC is not directly responsible for regulation, its
activities with respect to the operation of GIX must be consistent
with, and must not interfere with, the self-regulatory obligations of
GIX.\89\ As described above, the provisions applicable to direct and
indirect changes in control of GEPBC and GIX, as well as the voting
limitation imposed on owners of GEPBC who also are Exchange Members,
are
[[Page 16212]]
designed to help prevent any owner of GEPBC from exercising undue
influence or control over the operation of the Exchange and to help
ensure that the Exchange retains a sufficient degree of independence to
effectively carry out its regulatory obligations under the Act.
---------------------------------------------------------------------------
\89\ See, e.g., IEX Order, supra note 65.
---------------------------------------------------------------------------
In addition, these limitations are designed to address the
conflicts of interests that might result from a member of a national
securities exchange owning interests in the exchange. As the Commission
has stated in the past, 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.\90\ 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. As such, these requirements are designed to
minimize the potential that a person or entity can improperly interfere
with or restrict the ability of the Exchange to effectively carry out
its regulatory oversight responsibilities under the Act.
---------------------------------------------------------------------------
\90\ See, e.g., MEMX Order, LTSE Order, MIAX PEARL Order, MIAX
Order, and BATS Order, supra note 50; IEX Order, supra note 65; ISE
Mercury Order, supra note 67; and DirectEdge Exchanges Order, supra
note 77.
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The Commission has recognized that ``to be effective, an SRO must
be structured in such a way that regulatory staff is unencumbered by
inappropriate business pressure'' that could ``inhibit effective
regulation and discourage vigorous enforcement against members.'' \91\
To help ensure independent and empowered SRO regulatory operations, GIX
has, among other things, adopted a governance structure designed to
mitigate the inherent conflict. Specifically, GIX has an independent
Chief Regulatory Officer that oversees the Exchange's regulatory
operations and that reports to an independent Regulatory Oversight
Committee of the Exchange Board. In addition, GIX has an Exchange Board
composed of at least 50% Non-Industry Directors \92\ with required key
board committees that are either fully independent or majority
independent, such as the Regulatory Oversight Committee \93\ and the
Appeals Committee.\94\
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\91\ See, e.g., Securities Exchange Act Release No. 50700 (Nov.
18, 2004), 69 FR 71256 (Dec. 8, 2004) (Concept Release Concerning
Self-Regulation). Nevertheless, the federal securities laws require
member involvement in the overall governance and administration of
an exchange. See, e.g., 15 U.S.C. 78f(b)(3) (requiring an exchange,
among other things, to provide to its broker-dealer members ``a fair
representation of its members in the selection of its directors and
administration of its affairs'').
\92\ In addition, at least two of the Non-Industry Directors
shall be Independent Directors. See GIX LLC Agreement, Article VII,
Section 7.03(b)(iv).
\93\ Each member of the Regulatory Oversight Committee will be
an Independent Director. See GIX LLC Agreement, Article VIII,
Section 8.08(e).
\94\ The Appeals Committee will consist of two Independent
Directors and one Member Representative Director. See GIX LLC
Agreement, Article VIII, Section 8.06.
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Ownership and voting limits in the governing documents of an
exchange and/or its holding company further protects the status of SRO
independence. The provisions that GIX has proposed, which are
consistent with those in place across all exchanges today, are designed
to prevent any direct or indirect owner from exercising control over
the operation of the exchange as well as to ensure that the exchange
and the Commission are able to carry out their regulatory obligations
under the Act. These provisions impose limits on voting and ownership
of exchange holding companies, with more stringent ownership limits
imposed on member owners.\95\
---------------------------------------------------------------------------
\95\ See supra notes 68-87 and accompanying text.
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As a registered exchange, GIX will be subject to the same
regulatory standards applicable to any other exchange regardless of the
identity of the ultimate owners of that exchange. As discussed above
and further below, GIX has proposed to adopt industry-standard
protections in a governance structure for itself and its holding
company that is designed to preserve GIX's self-regulatory independence
by protecting GIX from inappropriate business pressures.
GIX's and GEPBC's proposed governance provisions are consistent
with the Act, including Section 6(b)(1), which requires, in part, an
exchange to be so organized and have the capacity to carry out the
purposes of the Act.\96\ In particular, these requirements are designed
to minimize the potential that a person could improperly interfere with
or restrict the ability of the Commission or the Exchange to
effectively carry out their regulatory oversight responsibilities under
the Act.
---------------------------------------------------------------------------
\96\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
2. Regulatory Independence and Oversight
Although GEPBC will not itself carry out regulatory functions, its
activities with respect to the operation of GIX must be consistent
with, and must not interfere with, GIX's self-regulatory obligations.
In this regard, GIX and GEPBC propose to adopt certain provisions in
their respective governing documents that are designed to help maintain
the independence of the regulatory functions of GIX. These proposed
provisions are substantially similar to those included in the governing
documents of other exchanges that recently have been granted
registration.\97\ Specifically:
---------------------------------------------------------------------------
\97\ See, e.g., 24X Order, MEMX Order, and LTSE Order, supra
note 50; IEX Order, supra note 65; and DirectEdge Exchanges Order,
supra note 77.
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<bullet> the directors, officers, employees, and agents of GEPBC
must give due regard to the preservation of the independence of the
self-regulatory function of GIX and to its obligations to investors and
the general public and must not take actions which would interfere with
the effectuation of decisions by the Exchange Board relating to its
regulatory functions (including disciplinary matters) or which would
interfere with GIX's ability to carry out its responsibilities under
the Act.\98\
---------------------------------------------------------------------------
\98\ See First Amended & Restated Bylaws of Green Exchange PBC
(``GEPBC Bylaws''), Article VI, Section 6.10. Similarly, Article
VII, Section 7.02(b) of the GIX LLC Agreement requires the Exchange
Board and each Director, when managing the business and affairs of
GIX, to consider the requirements of Section 6(b) of the Act and
requires each Director, officer, or employee of GIX to comply with
the federal securities laws and regulations thereunder and cooperate
with the Commission, and GIX pursuant to its regulatory authority.
Article VII, Section 7.02(c) of the GIX LLC Agreement also requires
the Exchange Board, when evaluating any proposal to take into
account all factors that the Exchange Board deems relevant,
including, without limitation, to the extent deemed relevant: the
potential impact on the integrity, continuity and stability of the
national securities exchange operated by GIX and the other
operations of GIX, on the ability to prevent fraudulent and
manipulative acts and practices, and on investors and the public,
and whether such proposal would 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 or assist in the removal of impediments to or perfection
of the mechanisms for a free and open market and a national market
system.
---------------------------------------------------------------------------
<bullet> GEPBC must comply with the federal securities laws and the
rules and regulations promulgated thereunder, and must cooperate with
the Commission, GIX, Financial Industry Regulatory Authority, Inc.
(``FINRA''), and any other SROs pursuant to and to the extent of their
respective regulatory authority.\99\ In addition, GEPBC's officers,
directors, employees, and agents must comply with the federal
securities laws and the rules and regulations promulgated thereunder
and
[[Page 16213]]
are deemed to agree to cooperate with: (1) the Commission and GIX in
respect of the Commission's oversight responsibilities regarding GIX
and the self-regulatory functions and responsibilities of GIX; and (2)
FINRA and any other SROs with respect to such other SRO's oversight
responsibilities.\100\ GEPBC must take reasonable steps necessary to
cause its officers, directors, employees and agents to so
cooperate.\101\
---------------------------------------------------------------------------
\99\ See GEPBC Bylaws, Article VI, Section 6.08.
\100\ See id.
\101\ See id.
---------------------------------------------------------------------------
<bullet> GEPBC, and its officers, directors, employees, and agents
must submit to the jurisdiction of the U.S. federal courts, the
Commission, and GIX, for purposes of any suit, action or proceeding
pursuant to the U.S. federal securities laws, and the rules and
regulations thereunder, arising out of, or relating to, GIX
activities.\102\
---------------------------------------------------------------------------
\102\ See GEPBC Bylaws, Article VI, Section 6.07(b).
---------------------------------------------------------------------------
<bullet> All books and records of GIX reflecting confidential
information pertaining to the self-regulatory function of GIX
(including but not limited to disciplinary matters, trading data,
trading practices, and audit information) must be retained in
confidence by GIX and its personnel, including directors, officers,
employees, and agents, and will not be used by GIX for any non-
regulatory purposes and shall not be made available to any person
(including, without limitation, any GIX member) other than to personnel
of the Commission, personnel of another SRO performing regulatory
services on behalf of GIX, a processor operating pursuant to an
effective national market system plan, and those personnel of GIX,
members of committees of the Exchange Board, members of the Exchange
Board, or hearing officers and other agents of GIX, to the extent
necessary or appropriate to properly discharge the self-regulatory
responsibilities of GIX.\103\ Similar provisions apply to GEPBC and its
directors, officers, employees, and agents.\104\
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\103\ See GIX LLC Agreement, Article XIII, Section 13.01(b).
\104\ The GEPBC Bylaws further provide that all books and
records of GIX reflecting confidential information pertaining to the
self-regulatory function of GIX that come into the possession of
GEPBC, and the information contained in those books and records of
GIX, will be retained in confidence by GEPBC and the officers,
directors, employees and agents of GEPBC. See GEPBC Bylaws, Article
VI, Section 6.11(c). The GIX and GEPBC governing documents
acknowledge that requirements to keep such information confidential
shall not limit or impede the rights of the Commission to access and
examine such confidential information pursuant to the U.S. federal
securities laws and the rules and regulations thereunder, or limit
the ability of officers, directors, employees, or agents of GIX or
GEPBC to disclose such information to the Commission or GIX. See GIX
LLC Agreement, Article XIII, Section 13.01(b) and GEPB Bylaws,
Article VI, Section 6.01(c).
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<bullet> The books and records of GIX and GEPBC must be maintained
in the United States \105\ and, to the extent they are related to the
operation or administration of GIX, GEPBC's books and records will be
subject at all times to inspection and copying by the Commission and
GIX.\106\
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\105\ See GIX LLC Agreement, Article XIII, Section 13.01(a); and
GEPBC Bylaws, Article VI, Section 6.11(a).
\106\ See GEPBC Bylaws, Article VI, Section 6.11(b).
---------------------------------------------------------------------------
<bullet> Furthermore, to the extent they are related to the
operation or administration of GIX, the books, records, premises,
officers, directors, employees, and agents of GEPBC will be deemed to
be the books, records, premises, officers, directors, employees, and
agents of GIX, for purposes of, and subject to oversight pursuant to,
the Act.\107\
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\107\ See id.
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<bullet> GEPBC will take reasonable steps necessary to cause its
officers, directors, employees, and agents, prior to accepting a
position as an officer, director, employee or agent (as applicable)
with GEPBC to consent in writing to the applicability of provisions
regarding non-interference, confidentiality, books and records,
compliance and cooperation, jurisdiction, and regulatory obligations,
with respect to their activities related to GIX.\108\
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\108\ See GEPBC Bylaws, Article VI, Section 6.12.
---------------------------------------------------------------------------
<bullet> The GEPBC Bylaws require that, so long as GEPBC controls
GIX, any changes to that document must be submitted to the Exchange
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.\109\
---------------------------------------------------------------------------
\109\ See GEPBC Bylaws, Article VI, Section 6.13(b).
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The provisions discussed in this section, which are designed to
help ensure the independence of GIX's regulatory function and
facilitate the ability of GIX to carry out its regulatory
responsibilities under, and operate in a manner consistent with, the
Act, are appropriate and consistent with the requirements of the Act,
particularly with Section 6(b)(1), which requires, in part, an exchange
to be so organized and have the capacity to carry out the purposes of
the Act.\110\
---------------------------------------------------------------------------
\110\ 15 U.S.C. 78f(b)(1).
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Further, Section 19(h)(1) of the Act \111\ provides the Commission
with the authority ``to suspend for a period not exceeding twelve
months or revoke the registration of [an SRO], or to censure or impose
limitations upon the activities, functions, and operations of [an SRO],
if [the Commission] finds, on the record after notice and opportunity
for hearing, that [the SRO] has violated or is unable to comply with
any provision of the Act, the rules or regulations thereunder, or its
own rules or without reasonable justification or excuse has failed to
enforce compliance . . . '' with any such provision by its members
(including associated persons thereof). If the Commission were to find,
or become aware of, through staff review and inspection or otherwise,
facts indicating any violations of the Act, including without
limitation Sections 6(b)(1) and 19(g)(1),\112\ these matters could
provide the basis for a disciplinary proceeding under Section 19(h)(1)
of the Act.
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\111\ See 15 U.S.C. 78s(h)(1).
\112\ 15 U.S.C. 78f(b)(1); 15 U.S.C. 78s(g)(1).
---------------------------------------------------------------------------
Even in the absence of the governance provisions described above,
under Section 20(a) of the Act,\113\ any person with a controlling
interest in GIX would be jointly and severally liable with and to the
same extent that GIX is liable under any provision of the Act, unless
the controlling person acted in good faith and did not directly or
indirectly induce the act or acts constituting the violation or cause
of action. In addition, Section 20(e) of the Act \114\ creates aiding
and abetting liability for any person who knowingly provides
substantial assistance to another person in violation of any provision
of the Act or rule thereunder. Further, Section 21C of the Act \115\
authorizes the Commission to enter a cease-and-desist order against any
person who has been ``a cause of'' a violation of any provision of the
Act through an act or omission that the person knew or should have
known would contribute to the violation. These provisions are
applicable to GEPBC.
---------------------------------------------------------------------------
\113\ 15 U.S.C. 78t(a).
\114\ 15 U.S.C. 78t(e).
\115\ 15 U.S.C. 78u-3.
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3. Regulatory Oversight Committee
The regulatory operations of GIX will be monitored by the
Regulatory Oversight Committee of the Exchange Board. As mentioned
above, the Regulatory Oversight Committee will consist only of
Independent Directors.\116\ The Regulatory Oversight Committee will be
responsible for overseeing the adequacy and effectiveness of GIX's
regulatory and SRO responsibilities, assessing GIX's
[[Page 16214]]
regulatory performance, and assisting the Exchange Board (and
committees of the Exchange Board) in reviewing GIX's regulatory plan
and the overall effectiveness of GIX's regulatory functions.\117\
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\116\ See GIX LLC Agreement, Article VIII, Section 8.08(e).
\117\ See GIX LLC Agreement, Article VIII, Section 8.08(a).
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Further, the Chief Regulatory Officer (``CRO'') of GIX will have
general supervision over GIX's regulatory operations, including
responsibility for overseeing GIX's surveillance, examination, and
enforcement functions and for administering any regulatory services
agreements with another SRO to which GIX is a party.\118\ The
Regulatory Oversight Committee, in consultation with the CEO of GIX,
will be responsible for establishing the goals, assessing the
performance, and fixing the compensation of the CRO and for
recommending personnel actions involving the CRO and senior regulatory
personnel.\119\
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\118\ See GIX LLC Agreement, Article IX, Section 9.03.
\119\ See GIX LLC Agreement, Article VIII, Section 8.08(c). To
the extent that the CEO of GIX has any indirect supervisory
responsibility for the role or function of the CRO, including but
not limited to, implementation of the budget for the regulatory
function or regulatory personnel matters, the Regulatory Oversight
Committee will take all steps reasonably necessary to ensure that
the CEO does not compromise the regulatory autonomy and independence
of the CRO or the regulatory function. See GIX LLC Agreement,
Article VIII, Section 8.08(d).
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4. Regulatory Funding and Services
As a prerequisite for the Commission's granting of an exchange's
application for registration, an exchange must be organized and have
the capacity to carry out the purposes of the Act.\120\ Specifically,
an exchange must be able 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.\121\ The discussion
below summarizes how GIX proposes to conduct and structure its
regulatory operations.
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\120\ See 15 U.S.C. 78f(b)(1).
\121\ See id. See also Section 19(g) of the Act, 15 U.S.C.
78s(g).
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a. Regulatory Funding
To help ensure that GIX has and will continue to have adequate
funding to be able to meet its responsibilities under the Act, GIX
states that, if the Commission approves GIX's application for
registration as a national securities exchange, GEPBC will allocate
sufficient assets to GIX to enable the Exchange's operation.\122\
Specifically, GIX represents that GEPBC will make a cash contribution
to GIX of $5,000,000, ``in addition to any previously-provided in-kind
contributions, such as legal, regulatory, and operational assistance.''
\123\ GIX also represents that such cash and in-kind contributions from
GEPBC will be adequate to operate GIX, including the regulation of the
Exchange,\124\ and that pursuant to the GIX LLC Agreement, GEPBC will
be obligated to provide such additional capital for GIX as GIX
determines is necessary to meet its ongoing operating expenses related
to its self-regulatory obligations.\125\
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\122\ See Form 1, Exhibit I.
\123\ See Form 1, Exhibit I.
\124\ See Form 1, Exhibit I.
\125\ See GIX LLC Agreement, Article V, Section 5.02(a). GIX
will be required to provide 30 days advanced notice of capital
calls, and GEPBC will be obligated to pay capital calls promptly
upon appropriate notice. The Exchange will receive all fees,
including regulatory fees and trading fees, as well as any funds
received from applicable market data fees and tape revenue. See id.
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Further, any ``Regulatory Funds'' received by GIX will not be used
for non-regulatory purposes or distributed, advanced or allocated to
GEPBC, but rather will be applied to fund the regulatory operations of
GIX (including surveillance and enforcement activities), or, as
applicable, used to pay restitution and disgorgement to customers.\126\
Any excess non-regulatory funds, as solely determined by GIX, will be
remitted to GEPBC in accordance with the GIX LLC Agreement.\127\
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\126\ See GIX LLC Agreement, Article XVII, Section 17.04(b).
Article I, Section 1.01 of the GIX LLC Agreement defines
``Regulatory Funds'' as ``fees, fines, or penalties derived from the
regulatory operations of [GIX],'' but such term does not include
``revenues derived from listing fees, market data revenues,
transaction revenues, or any other aspect of the commercial
operations of [GIX], even if a portion of such revenues are used to
pay costs associated with the regulatory operations of [GIX].'' This
definition is consistent with the rules of other SROs. See, e.g.,
MEMX LLC Agreement, Article XVII, Section 17.4(b); LTSE Bylaws,
Article I(bb); Amended and Restated By-Laws of MIAX Exchange,
Article 1(ll); By-Laws of NASDAQ PHLX LLC, Article I(ii); and By-
Laws of NASDAQ BX, Inc., Article I(ii).
\127\ See Form 1, Exhibit I.
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b. Regulatory Contract With FINRA
Although GIX will be an SRO with all of the attendant regulatory
obligations under the Act, it has represented to the Commission that it
intends to enter into a regulatory services agreement (``RSA'') with
FINRA, under which FINRA as a regulatory services provider will perform
certain regulatory functions on GIX's behalf.\128\ Specifically, GIX
expects that such services will include performance of investigation,
disciplinary, and hearing services.\129\ Notwithstanding the RSA, GIX
will retain legal responsibility for the regulation of its members and
its market and the performance of FINRA as its regulatory services
provider. Because GIX anticipates entering into an RSA with FINRA, it
has not made provisions to fulfill the regulatory services that will be
undertaken by FINRA. Accordingly, the Commission is conditioning the
operation of GIX on a final RSA that specifies the services that will
be provided to GIX.
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\128\ See Form 1, Exhibit L. See also GIX Rule 9.100.
\129\ See Form 1, Exhibit L.
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It is consistent with the Act for GIX to contract with FINRA to
perform certain examination, enforcement, and disciplinary
functions.\130\ These functions are fundamental elements of a
regulatory program and constitute core self-regulatory functions. FINRA
has the expertise and experience to perform these functions for
GIX.\131\ However, GIX, unless relieved by the Commission of its
responsibility, bears the self-regulatory responsibilities and primary
liability for self-regulatory failures, not the SRO retained to perform
regulatory functions on GIX's behalf.\132\ In performing these
regulatory functions, however, FINRA may nonetheless bear liability for
causing or aiding and abetting the failure of GIX to perform its
regulatory functions.\133\ Accordingly, although FINRA will not act on
its own behalf under its SRO responsibilities in carrying out these
regulatory services for GIX, FINRA may have secondary liability if, for
example, the Commission finds that the contracted functions are being
performed so inadequately as to cause a violation of the federal
securities laws or rules thereunder by GIX.\134\
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\130\ For example, 24X, MEMX, LTSE, IEX, MIAX Exchange, MIAX
PEARL, LLC, Nasdaq MRX, LLC, Cboe EDGA Exchange, Inc., Cboe EDGX
Exchange, Inc. (``Cboe EDGX''), and Cboe BZX Exchange, Inc. have
entered into RSAs with FINRA.
\131\ See, e.g., MEMX Order, LTSE Order, and Nasdaq Order, supra
note 49; IEX Order, supra note 65; and DirectEdge Exchanges Order,
supra note 77. The Commission is not approving the RSA or any of its
specific terms.
\132\ See 15 U.S.C. 78s(g)(1).
\133\ For example, if failings by FINRA have the effect of
leaving GIX in violation of any aspect of GIX's self-regulatory
obligations, GIX would bear direct liability for the violation,
while FINRA may bear liability for causing or aiding and abetting
the violation. See, e.g., MEMX Order, LTSE Order, Nasdaq Order and
BATS Order, supra note 50; IEX Order, supra note 65; and DirectEdge
Exchanges Order, supra note 77.
\134\ See, e.g., MEMX Order, LTSE Order, and Nasdaq Order, supra
note 49; and IEX Order, supra note 65.
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c. Rule 17d-2 Agreements
Section 19(g)(1) of the Act,\135\ among other things, requires
every SRO registered as either a national securities
[[Page 16215]]
exchange or national securities association to comply with the Act, the
rules and regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its members
and persons associated with its members.\136\ Rule 17d-2 of the Act
permits SROs to propose joint plans to allocate regulatory
responsibilities amongst themselves for their common rules with respect
to their common members.\137\ These agreements, which must be filed
with and declared effective by the Commission, generally cover areas
where each SRO's rules substantively overlap, including such regulatory
functions as personnel registration and sales practices. For example,
the Commission recently declared effective a plan to allocate
regulatory responsibilities between FINRA and MEMX pursuant to which
FINRA assumes examination and enforcement responsibility for broker-
dealers that are members of both FINRA and MEMX with respect to the
rules of MEMX that are substantially similar to the applicable rules of
FINRA, as well as certain specified provisions of the federal
securities laws.\138\
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\135\ 15 U.S.C. 78s(g)(1).
\136\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
\137\ See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section
17(d)(1) of the Act allows the Commission to relieve an SRO of
certain responsibilities with respect to members of the SRO who are
also members of another SRO (``common members''). Specifically,
Section 17(d)(1) allows the Commission to relieve an SRO of its
responsibilities to: (i) receive regulatory reports from such
members; (ii) examine such members for compliance with the Act and
the rules and regulations thereunder, and the rules of the SRO; or
(iii) carry out other specified regulatory responsibilities with
respect to such members.
\138\ See Securities Exchange Act Release No. 96101 (Oct. 18,
2022), 87 FR 64280 (Oct. 24, 2022) (File No. 4-762). See also, e.g.,
Securities Exchange Act Release Nos. 86587 (Aug. 7, 2019), 84 FR
39883 (Aug. 12, 2019) (File No. 4-747) (FINRA/LTSE); 83696 (July 24,
2018), 83 FR 35682 (July 27, 2018) (File No. 4-678) (FINRA/MIAX
Exchange/MIAX PEARL); 77321 (Mar. 8, 2016), 81 FR 13434 (Mar. 14,
2016) (File No. 4-697) (FINRA/ISE Mercury, LLC); 73641 (Nov. 19,
2014), 79 FR 70230 (Nov. 25, 2014) (File No. 4-678) (FINRA/MIAX
Exchange); 70053 (July 26, 2013), 78 FR 46656 (Aug. 1, 2013) (File
No. 4-663) (FINRA/Topaz Exchange n/k/a ISE Gemini, LLC); 59218 (Jan.
8, 2009), 74 FR 2143 (Jan. 14, 2009) (File No. 4-575) (FINRA/Boston
Stock Exchange, Inc. (``BSE'')); 58818 (Oct. 20, 2008), 73 FR 63752
(Oct. 27, 2008) (File No. 4-569) (FINRA/BATS Exchange, Inc.); 55755
(May 14, 2007), 72 FR 28087 (May 18, 2007) (File No. 4-536)
(National Association of Securities Dealers, Inc. (``NASD'') n/k/a
FINRA) and Chicago Board of Options Exchange, Inc. concerning the
CBOE Stock Exchange, LLC); 55367 (Feb. 27, 2007), 72 FR 9983 (Mar.
6, 2007) (File No. 4-529) (NASD/International Securities Exchange,
LLC); and 54136 (July 12, 2006), 71 FR 40759 (July 18, 2006) (File
No. 4-517) (NASD/Nasdaq).
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A Rule 17d-2 plan that is declared effective by the Commission
relieves the specified SRO of those regulatory responsibilities
allocated by the plan to another SRO.\139\ GIX has represented to the
Commission that it will join all applicable plans, including Rule 17d-2
plans for the allocation of regulatory responsibilities.\140\ Similar
to other exchanges, the Commission understands from GIX that it will
enter into a bilateral Rule 17d-2 agreement covering common members of
GIX and FINRA. This agreement will allocate to FINRA regulatory
responsibility, with respect to common members, for specified
regulatory and enforcement matters arising out of specified common
rules and specified provisions of the Act and the rules and regulations
thereunder. In addition, the Commission is conditioning operation of
GIX as an exchange on GIX first joining the applicable multilateral
Rule 17d-2 plans, including the multi-party Rule 17d-2 plan for the
allocation of regulatory responsibilities with respect to certain
Regulation NMS and Consolidated Audit Trail Rules and the multi-party
Rule 17d-2 plan for the surveillance, investigation, and enforcement of
common insider trading rules.\141\
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\139\ See Securities Exchange Act Release No. 12935 (Oct. 28,
1976), 41 FR 49091 (Nov. 8, 1977) (Rule 17d-2 Adopting Release).
\140\ See Form 1, Exhibit E.
\141\ See Securities Exchange Act Release Nos. 100636 (Aug. 1,
2024), 89 FR 64517 (Aug. 7, 2024) (File No. 4-618) (multiparty plan
concerning covered Regulation NMS and Consolidated Audit Trail
rules); and 89972 (Sept. 23, 2020), 85 FR 61062 (Sept. 29, 2020)
(File No, 4-566) (multiparty plan for insider trading rules).
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Because GIX anticipates entering into these Rule 17d-2 agreements,
it has not made provision to fulfill the regulatory obligations that
will be undertaken by FINRA and other SROs under these agreements with
respect to common members.\142\ Accordingly, the Commission is
conditioning the operation of GIX on approval by the Commission of a
Rule 17d-2 agreement that allocates the above specified matters to
FINRA, and the approval of an amendment to the existing multi-party
Rule 17d-2 plans specified above to add GIX as a party.
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\142\ For common members, the regulatory obligations will be
covered by the Rule 17d-2 agreements, and for GIX members that are
not also members of FINRA, the regulatory obligations will be
covered by the RSA.
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C. GIX Trading System
GIX will operate a fully automated electronic order book and will
not maintain or operate a physical trading floor. Only Members \143\ of
GIX and entities that enter into market access arrangements with
members (collectively, ``Users'' \144\) will have access to the GIX
system.\145\ Users will be able to electronically submit orders to buy
or sell securities traded on the Exchange through a variety of
systems.\146\ GIX will allow firms to register as market makers with
affirmative and negative market making obligations.\147\
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\143\ ``Member'' means any registered broker or dealer that has
been admitted to membership in the Exchange. A Member will have the
status of a Member of the Exchange as that term is defined in
Section 3(a)(3) of the Act. See GIX Rule 1.160(aa).
\144\ See GIX Rule 1.160(bb).
\145\ To obtain authorized access to the GIX system, each User
must enter into a User Agreement with GIX. See GIX Rule 11.130(a).
\146\ For a discussion of the means of access to GIX, see Form
1, Exhibit E-1.
\147\ See GIX Rules 11.150 through 11.152. GIX's rules relating
to market makers are similar to the rules of other national
securities exchanges. See, e.g., MEMX Rules 11.17 through 11.20 and
Cboe EDGX Rules 11.17 through 11.20.
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Users may submit orders to the Exchange as Limit Orders, Market
Orders, or Pegged Orders.\148\ Orders must be submitted with one of the
following time-in-force instructions, as applicable: Immediate-or-
Cancel; Day; Fill-or-Kill; Good `til Time, and Regular Hours Only.\149\
Users may submit orders with the display instructions of Displayed or
Non-Displayed.\150\ A Limit Order with a Displayed instruction also may
include a Reserve Quantity.\151\ Displayed orders will be displayed on
an anonymous basis at a specified price.\152\ Orders may be entered as
a Round Lot, Odd Lot, or Mixed Lot.\153\ In addition, a User may attach
a Minimum Execution Quantity instruction to a Limit Order.\154\ Users
also may choose to designate orders as GIX Only or Post Only.\155\
GIX's proposed order types and instructions are similar to order types
and instructions approved by the Commission and currently available on
other national securities exchanges.\156\
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\148\ See GIX Rule 11.190. Limit Orders may be designated as
Intermarket Sweep Orders. See GIX Rule 11.190(c)(6). Pegged Orders
may be designated as either a Primary Peg or a Midpoint Peg. See GIX
Rule 11.190(c)(7)(i) and (ii).
\149\ See GIX Rule 11.190(d).
\150\ See GIX Rule 11.190(c)(1). Market Orders and Pegged Orders
are not eligible for display. See GIX Rules 11.190(b)(2)(C) and
11.190(c)(7)(E).
\151\ See GIX Rule 11.190(b)(1)(F).
\152\ See GIX Rule 11.230(c).
\153\ See Form 1, Exhibit E-2, and GIX Rule 11.180(a)-(c).
\154\ See GIX Rule 11.190(b)(1)(b).
\155\ See GIX Rules 11.190(c)(3) and (4) and (c)(7)(G).
\156\ See, e.g., MEMX Rules 11.6 and 11.8 and Cboe EDGX Rules
11.6 and 11.8.
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GIX will offer a Random Replenishment instruction in connection
with a Limit Order submitted with a Reserve Quantity instruction.\157\
In addition to
[[Page 16216]]
randomizing the size of the refreshed displayed portion, this
instruction will allow the User to elect to have the GIX system
randomly replenish the displayed replenishment quantity at different
time intervals ranging up to one millisecond following each execution
that triggers replenishment.\158\
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\157\ See Form 1, Exhibit E-2, and GIX Rule 11.190(c)(2)(ii).
\158\ See GIX Rule 11.190(c)(2)(ii).
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The GIX system will continuously and automatically match orders
pursuant to price/time priority. For equally-priced trading interest in
time priority, generally GIX will give first priority to the portion of
a Limit Order with a displayed instruction over Limit Orders with a
non-displayed instruction, Primary Pegged Orders, Midpoint Pegged
Orders, and Reserve Quantity of Limit Orders.\159\ With respect to the
price of executions that would occur on GIX, the GIX system is designed
to comply with the order protection requirements of Rule 611 of
Regulation NMS \160\ by requiring that, for any execution to occur on
GIX during regular trading hours, the price must be equal to, or better
than, the Protected NBBO unless an exception to Rule 611 applies.\161\
Orders may be executed on the Exchange during the Regular Market
Session or during Pre- and Post-Market Sessions; \162\ however, some
order types and functionality are available only during the Regular
Market Session.\163\
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\159\ See GIX Rule 11.220. See also Form 1, Exhibit E-2. The
highest-priced order to buy (lowest-priced order to sell) will have
priority over all other orders to buy (sell) in all cases.
\160\ 17 CFR 242.611.
\161\ See GIX Rules 1.160(al) (defining ``Protected NBBO'') and
11.230(a)(2).
\162\ GIX's Regular Market Session will run from 9:30 am ET to
4:00 pm ET, its Pre-Market Session will run from 7:00 am ET to 9:30
am ET, and its Post-Market Session will run from 4:00 pm ET to 5:00
pm ET. See GIX Rules 1.160(aq), (ai) and (aj).
\163\ See GIX Rules 11.190(a)-(c).
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In addition, GIX's rules are designed to address locked and crossed
markets, as required by Rule 610(d) of Regulation NMS,\164\ in that
they are designed not to disseminate interest that would lock or cross
a protected quote, to require Users to reasonably avoid displaying
interest that locks or crosses any protected quotation, and are
reasonably designed to assure the reconciliation of locked or crossed
interest.\165\
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\164\ 17 CFR 242.610(d).
\165\ See GIX Rule 11.230(f). See also GIX Rule 11.190(g)
(providing that price sliding orders that at the time of entry would
create a violation of Rule 610(d) of Regulation NMS, 17 CFR
242.610(d) by locking or crossing a Protected Quotation will be
ranked and displayed at one minimum price variant (``MPV'') below
the current national best offer (for bids) or one MPV above the
current national best bid (for offers)).
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In addition, GIX will offer outbound routing functionality through
non-affiliated routing broker-dealers.\166\ A Member's use of the order
routing functionality provided by the Exchange through a non-affiliated
routing broker-dealer is entirely optional and Members may use other
broker-dealers to route out to other trading centers.\167\
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\166\ See GIX Rule 2.220.
\167\ See GIX Rule 2.220(a)(3).
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The Commission finds that GIX's trading rules are consistent with
the Act and, in particular, the Section 6(b)(5) requirement that an
exchange's rules be designed to promote just and equitable principles
of trade, remove impediments to and perfect the mechanisms of a free
and open market and a national market system, and protect investors and
the public interest.\168\
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\168\ See 15 U.S.C. 78f(b)(5). GIX's trading rules, including
its rules relating to market makers, order types and instructions,
priority, execution, and opening processes, are similar to existing
exchanges' trading rules. See, e.g., Chapter XI of the MEMX rulebook
and Chapter XI of the Cboe EDGX rulebook.
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GIX's proposed outbound routing rule is comparable to rules the
Commission has approved for other exchanges that utilize non-affiliated
routing brokers.\169\ The outbound routing functionality of GIX is
consistent with the Act and, in particular, the Section 6(b)(5)
requirement that an exchange's rules be designed to promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and a national market system,
protect investors and the public interest, and not permit unfair
discrimination between customer, issuers, brokers or dealers.\170\
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\169\ See, e.g., MIAX Options Exchange Rule 529 and MIAX Pearl
Options Exchange Rule 529.
\170\ See 15 U.S.C. 78f(b)(5).
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As a national securities exchange, GIX will be a trading center
whose quotations can be ``automated quotations'' under Rule
600(b)(6).\171\ GIX has designed itself to qualify by being an
``automated trading center'' under Rule 600(b)(7) whose best-priced,
displayed quotation will be a ``protected quotation'' under Rules
600(b)(81) and 600(b)(82), and for purposes of Rule 611.\172\
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\171\ See GIX Rule 11.230(c).
\172\ See 17 CFR 242.600(b)(81)-(82) and 17 CFR 242.611.
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To meet their regulatory responsibilities under Rule 611(a) of
Regulation NMS, other trading centers will be required to have
sufficient notice of new protected quotations, as well as all necessary
information and technical specifications.\173\ It would be a reasonable
policy and procedure under Rule 611(a) to require that industry
participants begin treating GIX's best bid and best offer as a
protected quotation as soon as possible but no later than 90 days after
the date of this order, or such later date as GIX begins operation as a
national securities exchange. The Commission has taken the same
position with other new equities exchanges.\174\
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\173\ See Securities Exchange Act Release No. 53829 (May 18,
2006), 71 FR 30038, 30041 (May 24, 2006) (File No. S7-10-04)
(extending the compliance dates for Rule 610 and Rule 611 of
Regulation NMS under the Act).
\174\ See, e.g., MEMX Order, supra note 50, at 27461; BATS
Order, supra note 50, at 49505; and DirectEdge Exchanges Order,
supra note 77, at 13163.
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D. Technology Agreement With MEMX Technology
1. Delivery, Licenses and Services Agreement (``DLSA'')
The Exchange will utilize trading technology and systems
(collectively, the ``System'') \175\ developed by MEMX Technologies,
LLC (``MEMX Technologies''),\176\ a subsidiary of MEMX Holdings LLC,
and provided to the Exchange pursuant to a DLSA between MEMX
Technologies and the Exchange.\177\ Specifically, pursuant to the DLSA,
MEMX Technologies will ``supply all necessary hardware and connectivity
to operate the System, install market-relevant software on the hardware
platform, maintain the hardware and software, including updates to
necessary software and systems.'' \178\ MEMX Technologies will support
intra-day compliance monitoring by GIX and provide timely reporting to
GIX of any potential Regulation SCI events or other operational issues
with the System.\179\
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\175\ See Form 1, Exhibit E (defining ``System'' for purposes of
the DLSA).
\176\ GIX does not own the System but states that it has
obtained all necessary licenses and authorizations from MEMX
Technologies in order for GIX and its Members and Users to fully
utilize the System. See Form 1, Exhibit E.
\177\ See Form 1, Exhibit E. Among other things, the DLSA sets
forth a multi-year term with automatic renewal provisions that
requires MEMX Technologies to deliver the System and run industry
connectivity testing and other functional-based testing. See id. The
DLSA also provides for transition services to the extent either
party decides to terminate the arrangement. See id.
\178\ See Form 1, Exhibit C.
\179\ See id.
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Although MEMX Technologies would provide the technology support
services, GIX will be responsible for the daily operations of its
market.\180\ To ensure logical and physical separation from MEMX
Technologies and its affiliates,
[[Page 16217]]
the System will operate a separate instance of MEMX Technologies' core
matching engine technology and software, utilizing separate servers
from the MEMX Exchange system and separate connections for GIX Members
to connect to GIX.\181\ Under the terms of the DLSA, GIX may request
MEMX Technologies to develop and implement (for a fee to be determined
by the parties) technology changes that change the operation of the GIX
System. GIX is not obligated to agree to, accept, or adopt changes to
the System that are not essential to the operation of its instance of
the System.\182\ Additionally, GIX stated that the ``trading platforms
operated by MEMX Technologies (including GIX LLC, MEMX Exchange, and
any other exchanges or trading platforms operated by MEMX Technologies)
currently are and will be segregated to ensure that GIX is not deemed
to be a facility of MEMX Exchange.'' \183\ MEMX Technologies will not
use or disclose information or data (i) about or originating with GIX
in its dealings with MEMX Exchange or any other platform or (ii) about
or originating with MEMX Exchange or any other platform in its dealing
with GIX.\184\
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\180\ See Form 1, Exhibit E.
\181\ See id.
\182\ See id.
\183\ See Form 1, Exhibit C.
\184\ See id.
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GIX, not MEMX Technologies, has regulatory responsibility over the
GIX System, and therefore GIX as an SRO is fully responsible for
discharging its obligations as a registered national securities
exchange. Further, GIX will interact with the MEMX Exchange, including
MEMX Exchange's routing broker-dealer, on the same arms-length
commercial terms as GIX interacts with other registered national
securities exchanges and their routing broker-dealers.\185\ Membership
in the MEMX Exchange will not confer any advantages when trading on GIX
(or vice versa), such as faster connections, lower fees, or
preferential treatment of orders on the GIX System.\186\ Membership in
the MEMX Exchange will also not be a requirement for membership in or
connection to GIX (or vice versa).\187\
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\185\ See Form 1, Exhibit E.
\186\ See id.
\187\ See id.
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After considering the disclosures GIX made in the Form 1 as
amended, the Commission finds that GIX's proposal to utilize technology
provided and maintained by MEMX Technologies is consistent with the
Act, in particular with Section 6(b)(1) of the Act,\188\ which requires
an exchange to be so organized and have the capacity to carry out the
purposes of the Act and to comply and enforce compliance by its members
and persons associated with its members with the Act and the rules
thereunder. The arrangement between GIX and MEMX Technologies, as
described in the amended Form 1, will enable the Exchange to utilize
trading platform technology that is already in use with an experienced
operator.\189\ However, the terms of the DLSA between GIX and MEMX
Technologies, as described in the amended Form 1, are reasonably
designed not to confer upon either MEMX Exchange or GIX Members any
advantages when trading on GIX, or vice versa, such as faster
connections, lower fees, or preferential treatment of orders on the GIX
System.\190\ GIX will retain responsibility for overseeing the daily
market operations of its trading system; MEMX Technologies will be
responsible for performing all necessary maintenance and remediation of
problems relating to the logical and physical infrastructure, in
accordance with the DLSA.\191\ Therefore, GIX will be capable of
exercising sufficient control over the operation of its System, and
will be sufficiently independent from MEMX Technologies, to enable GIX
to comply with the requirements under the Act and the rules thereunder.
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\188\ 15 U.S.C. 78f(b)(1).
\189\ See, e.g., Securities Exchange Act Release No. 100783
(Aug. 20, 2024), 89 FR 68481 (Aug. 26, 2024) (SR-LTSE-2024-03)
(approval of proposed rule change by Long-Term Stock Exchange to
transition from its current trading platform to a new trading
platform that uses technology provided by MEMX Technologies); and
24X Order, supra note 50.
\190\ See Form 1, Exhibit E.
\191\ See Form 1, Exhibit E.
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The provisions of the DLSA described above demonstrate that the
support services provided by MEMX Technology are adequate to enable GIX
to meet its self-regulatory obligations. In order for GIX to perform
its regulatory obligations, the DLSA provides GIX with enumerated audit
rights to review books and records of MEMX Technologies related to the
provision of services under the DLSA, and the ability either to produce
itself, or direct MEMX Technologies to produce, MEMX Technologies
documents and information related to the operation of the System to the
Commission or other regulators or parties upon request, subject to
appropriate due process.\192\
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\192\ See id.
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Finally, GIX will have regulatory responsibility for its trading
System and will be responsible to fully discharge its obligations as a
national securities exchange. GIX will also be responsible for its
market and cross-market surveillance through the RSA, described
above,\193\ and maintain its independent regulatory function to oversee
the RSA and will not rely on or utilize MEMX Exchange or its personnel
to fulfill any aspect of those obligations on GIX's behalf.
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\193\ See supra section III.B.4.b. (discussing GIX's RSA with
FINRA).
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2. Regulation SCI
As a registered national securities exchange, GIX will be an ``SCI
entity'' responsible for compliance with the requirements of Regulation
Systems Compliance and Integrity (``Regulation SCI'').\194\ Regulation
SCI requires SCI entities to establish written policies and procedures
reasonably designed to ensure that their applicable systems have levels
of capacity, integrity, resiliency, availability, and security adequate
to maintain their operational capability and promote the maintenance of
fair and orderly markets, and that they operate in a manner that
complies with the Act.\195\ In addition, Regulation SCI requires SCI
entities to take corrective action with respect to SCI events (defined
to include systems disruptions, systems compliance issues, and systems
intrusions), notify the Commission of such events, and disseminate
information about certain SCI events to affected members or
participants (and, for certain major SCI events, to all members or
participants of the SCI entity).\196\ Moreover, Regulation SCI requires
SCI entities to conduct a review of their systems by objective
personnel at least annually, submit quarterly reports regarding
completed, ongoing, and planned material changes to their SCI systems
to the Commission,\197\ and maintain certain books and records.\198\ It
also requires SCI entities to mandate participation by designated
members or participants in scheduled testing of the operation of their
business continuity and disaster recovery plans, including backup
systems, and to coordinate such testing on an industry- or sector-wide
basis with other SCI entities.\199\
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\194\ See Securities Exchange Act Release No.73639 (Nov. 19,
2014), 79 FR 72252 (Dec. 5, 2014) (``Regulation SCI 2014 Adopting
Release'').
\195\ See 17 CFR 242.1001.
\196\ See 17 CFR 242.1002. See also 17 CFR 242.1000 and 17 CFR
242.1006.
\197\ See 17 CFR 242.1003. See also 17 CFR 242.1000.
\198\ See 17 CFR 242.1005. See also 17 CFR 242.1007.
\199\ See 17 CFR 242.1004.
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Regulation SCI applies to an SCI entity's ``SCI systems,'' which
are systems that directly support any one of six key securities market
functions--
[[Page 16218]]
trading, clearance and settlement, order routing, market data, market
regulation, and market surveillance (``SCI systems''). Regulation SCI
also applies to ``indirect SCI systems,'' which are any systems that,
if breached, are likely to pose a security threat to SCI systems.
Further, certain SCI systems that are ``critical SCI systems'' are held
to certain heightened requirements under Regulation SCI.\200\
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\200\ See 17 CFR 242.1000 (definitions of ``SCI systems,''
``indirect SCI systems,'' and ``critical SCI systems'').
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The Exchange has obtained commitments from MEMX Technologies in
connection with the Exchange's engagement of MEMX Technologies to
develop, license, and operate the System on behalf of the Exchange to,
among other things, address how this arrangement is consistent with the
requirements of Regulation SCI.\201\ The Exchange acknowledges that as
the SCI entity contracting with MEMX Technologies to provide software
and hardware to operate both SCI systems and indirect SCI systems, GIX
will have full responsibility for ensuring that it is in compliance
with all aspects of Regulation SCI, including the requirements for its
backup and recovery capabilities.\202\ In addition, the DLSA includes
commitments from MEMX Technologies as developer, licensor, and operator
of the System to cooperate with the Exchange and provide the Exchange
with the information and access that the Exchange reasonably believes
will allow the Exchange to satisfy its obligations under Regulation
SCI.\203\
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\201\ See Form 1, Exhibit E.
\202\ See id.
\203\ See id.
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E. Discipline and Oversight of Members
As stated above, one prerequisite for the Commission's grant of an
exchange's application for registration is that a proposed exchange
must be so organized and have the capacity to be able to carry out the
purposes of the Act.\204\ Specifically, an exchange must be able 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.\205\ As also stated above, pursuant to an RSA
with FINRA, FINRA will perform many of the initial disciplinary
processes on behalf of GIX.\206\ For example, FINRA will investigate
potential securities laws violations, issue complaints, and conduct
hearings pursuant to GIX rules. Appeals from disciplinary decisions
will be heard by the GIX Appeals Committee,\207\ and the GIX Appeals
Committee's decision shall be final unless the Exchange Board on its
own initiative orders review of a disciplinary decision.\208\
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\204\ See 15 U.S.C. 78f(b)(1).
\205\ See id.
\206\ See supra notes 127-128 and accompanying text. See also
GIX Rule 9.001 (stating that GIX and FINRA are parties to a
regulatory contract, pursuant to which FINRA will perform certain
functions described in the Rule 9.000 Series on behalf of GIX).
\207\ See GIX Rule 1.160(w) (defining GIX Appeals Committee).
\208\ See GIX Rule 9.349(c).
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GIX's rules provide that the Exchange has disciplinary jurisdiction
over its Members so that it can enforce its Members' compliance with
its rules and the federal securities laws and rules.\209\ The
Exchange's rules also permit GIX to sanction Members for violations of
its rules and violations of the federal securities laws and rules by,
among other things, expelling or suspending Members, limiting Members'
activities, functions, or operations, fining or censuring Members, or
suspending or barring a person from being associated with a Member, or
any other fitting sanction.\210\ GIX's rules also provide for the
imposition of fines for certain minor rule violations in lieu of
commencing disciplinary proceedings.\211\ Accordingly, as a condition
to the operation of GIX, a Minor Rule Violation Plan (``MRVP'') filed
by GIX under Act Rule 19d-1(c)(2) must be declared effective by the
Commission.\212\
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\209\ See generally GIX Rule Series 9.200.
\210\ See GIX Rule 8.310.
\211\ See GIX Rule 9.218.
\212\ 17 CFR 240.19d-1(c)(2).
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The Commission finds that GIX's rules concerning its disciplinary
and oversight programs are consistent with the requirements of Sections
6(b)(6) and 6(b)(7) of the Act \213\ in that they provide fair
procedures for the disciplining of members and persons associated with
members. The Commission further finds that the rules of GIX provide it
with the ability to comply, and with the ability 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 GIX.\214\
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\213\ 15 U.S.C. 78f(b)(6) and (b)(7).
\214\ See 15 U.S.C. 78f(b)(1).
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F. Listing and Trading Securities on GIX
1. Dual Listing on GIX
GIX will not be a primary listing market for securities. However,
under GIX's rules, an issuer whose securities are, or at the time of
listing on GIX will be, listed on another national securities exchange
registered with the Commission pursuant to Section 6(a) of the Act (its
``primary listing exchange'') may apply to also list those securities
on the Exchange.\215\ An issuer whose securities are listed on GIX and
another national securities exchange must at all times continue to be
in good standing with its primary listing exchange.\216\ Such issuers
are required to notify: (1) GIX promptly if it receives oral or written
notification from its primary listing exchange that such class of
listed securities has fallen below the continued listing requirements
of such market, and conversely (2) the primary listing exchange if it
receives oral or written notification that such class of listed
securities has fallen below GIX's continued listing requirements.\217\
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\215\ See GIX Rule 14.105(a) and GIX Rule 14.301(c).
\216\ See GIX Rule 14.105(b).
\217\ See GIX Rule 14.105(c).
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GIX's original Form 1 would have required issuers that dually list
their securities on GIX and another national securities exchange to
satisfy proposed Green Governance Standards in addition to the initial
and continued listing standards described below.\218\ Commenters on the
Form 1 commented only on the Green Governance Standards, weighing both
in support and in opposition to them.\219\ In Amendment No. 1, GIX
replaced its proposed Green Governance Standards with Sustainability
Governance Standards.\220\ Subsequently, in Amendment No. 2, GIX
removed those Sustainability Governance Standards from the Form 1.\221\
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\218\ GIX stated that the proposed Green Governance Standards
were designed to provide investors with access to accountable and
enforceable information about the quality of a listed company's
commitment to sustainable ways of doing business. See OIP, 89 FR at
85265, text accompanying n.11.
\219\ A form letter opposing the Green Governance Standards was
received from multiple commenters; all other comments support the
Green Governance Standards. See supra note 2.
\220\ See supra note 8.
\221\ See supra note 9.
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The Commission finds that GIX's dual listing provisions as amended
are consistent with the Act. They are substantively identical to those
of LTSE, which the Commission previously approved.\222\
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\222\ See LTSE Order, supra note 50.
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2. Initial and Continued Listing Standards
The Commission finds that GIX's proposed initial and continuing
listing standards are consistent with the requirements of the Act. With
respect to the standards relating to the listing and delisting of
companies, including procedures and prerequisites for initial
[[Page 16219]]
and continued listing on GIX, the obligations of issuers with
securities listed on GIX, as well as rules describing the application
and qualification process, GIX's proposed listing rules for securities
are substantially similar to the analogous rules of LTSE and/or Nasdaq
Capital Market (``NCM'').\223\ With respect to GIX Rule 14.201, which
is virtually identical to the analogous rule of LTSE, GIX requires a
company seeking the initial listing of one or more classes of
securities on GIX to participate in a free confidential pre-application
eligibility review to determine whether the company meets GIX's listing
criteria and, if, upon completion of this review, GIX determines that a
company is eligible for listing, GIX will notify that company in
writing that it has been cleared to submit an original listing
application. If, upon completion of this review, the Exchange
determines that a company is ineligible for listing, the company may
request a review of GIX's determination pursuant to the process set
forth in GIX Rule 9.555.
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\223\ The Commission has previously determined that the
analogous initial and continuing listing standards of LTSE and NCM
are consistent with the Act. See LTSE Rules, Chapter 14; Nasdaq
Rules Chapter 5000. To be eligible for listing on GIX (unlike LTSE
and NCM), a company must be able to demonstrate that it is listed
and in good standing on another national securities exchange at the
time the Company files its application for listing on GIX and at the
time that it lists on GIX. See GIX Rule 14.301(c).
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3. Corporate Governance Standards
GIX has proposed corporate governance standards in connection with
securities to be listed and traded on GIX that are substantially
similar to the analogous corporate governance listing standards of
other exchanges.\224\ Included in these standards are rules requiring a
majority of directors on a listed issuer's board to be independent;
rules and independence requirements relating to audit and compensation
committees and the oversight of nominations; rules requiring listed
issuers to adopt codes of conduct applicable to all their directors,
officers and employees; and rules regarding the recovery of erroneously
awarded compensation to executive officers.\225\ The Commission finds
that GIX's proposed corporate governance standards for listed issuers
contained in its rules are consistent with the Act.\226\ The Commission
further finds that GIX's rules satisfy the requirements of Section
10A(m) of the Act and Rule 10A-3 thereunder and Section 10C of the Act
and Rule 10C-1 thereunder, relating to audit and compensation
committees, respectively.\227\ GIX's corporate governance standards for
listed issuers that require a fully independent audit committee are
designed to promote independent and objective review and oversight of
the accounting and auditing practices of listed issuers and to enhance
audit committee independence, authority, and responsibility by
implementing the standards set forth in Rule 10A-3.\228\ In addition,
GIX's proposed requirements relating to independent compensation
committees for listed issuers would benefit investors by implementing
the standards set forth in Rule 10C-1, which requires that the
independent directors of a listed issuer oversee executive compensation
matters, consider independence criteria before retaining compensation
advisers and have responsibility for the appointment, compensation and
oversight of these advisers.\229\ The corporate governance standards
embodied in the listing rules of national securities exchanges, in
particular, play an important role in assuring that companies listed
for trading on the exchanges' markets observe good governance
practices, including a reasoned, fair, and impartial approach for
determining the compensation of corporate executives.\230\ The
Exchange's rules will foster greater transparency, accountability, and
objectivity in the oversight of compensation practices of listed
issuers and in the decision-making processes of their compensation
committees.\231\
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\224\ See LTSE Rule Series 14.440, Nasdaq Rule Series 5600, and
IEX Rule Series 14.400.
\225\ See GIX Rules 14.405; 14.406; and 14.409.
\226\ The Commission has previously determined that the
analogous corporate governance standards of other exchanges, with
which GIX's rules are commensurate, are consistent with the Act.
See, e.g., Securities Exchange Act Release No. 48745 (Nov. 4, 2003),
68 FR 64154 (Nov. 12, 2003); IEX Order, supra note 65; and LTSE
Order, supra note 50.
\227\ See 15 U.S.C. 78f(b)(5); 15 U.S.C. 78j-1(m); 15 U.S.C.
78j-3; 17 CFR 240.10A-3; 17 CFR 240.10C-1.
\228\ See Securities Exchange Act Release No. 47654 (Apr. 9,
2003), 68 FR 18788 (Apr. 16, 2003).
\229\ See Securities Exchange Act Release No. 67220 (June 20,
2012), 77 FR 38422, 38425 (June 27, 2012).
\230\ See, e.g., Securities Exchange Act Release No. 68640 (Jan.
11, 2013), 78 FR 4554, 4563 (Jan. 22, 2013) (approving SR-NASDAQ-
2012-109 relating to rules for compensation committees for listed
companies, upon which GIX's proposed rules for compensation
committees are based).
\231\ See id. (finding Nasdaq compensation committee rules
consistent with the Act). See also Securities Exchange Act Release
No. 68639 (Jan. 11, 2013), 78 FR 4570 (Jan. 22, 2013) (order
approving NYSE's compensation committee rules, which was cited by
Nasdaq as precedent for a subsequent amendment to its own rules that
was filed on an immediately effective basis; see Securities Act
Release No. 71037 (Dec. 11, 2013), 78 FR 76179 (Dec. 16, 2013) (SR-
NASDAQ-2013-147).
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4. Trading on GIX
GIX proposes to trade securities pursuant to unlisted trading
privileges (``UTP''). GIX Rule 11.120(e) establishes the Exchange's
authority to trade securities on a UTP basis. GIX Rule 11.120(e)(1)
provides that GIX may extend UTP to any security that is an NMS stock
that is listed on another national securities exchange or with respect
to which UTP may otherwise be extended in accordance with Section 12(f)
of the Act.\232\ That rule further provides that any such security
would be subject to all GIX rules applicable to trading on GIX, unless
otherwise noted.
---------------------------------------------------------------------------
\232\ 15 U.S.C. 78l(f).
---------------------------------------------------------------------------
GIX Rule 11.120(e)(2)(B) establishes additional rules for trading
of UTP Exchange Traded Products, which are defined in 11.120(e)(2)(A).
GIX Rule 11.120(e)(2)(B)(i) provides that GIX will distribute an
information circular prior to the commencement of trading in a UTP
Exchange Traded Product that generally would include the same
information as the information circular provided by the listing
exchange, including (a) the special risks of trading the Exchange
Traded Product, (b) the Exchange's rules that would apply to the
Exchange Traded Product and (c) information about the dissemination of
value of the underlying assets or indices. GIX Rule 11.120(e)(2)(B)(ii)
establishes certain requirements for members that have customers that
trade UTP Exchange Traded Products.\233\ GIX Rule 11.120(e)(2)(D) also
establishes certain requirements for any member registered as a market
maker in a UTP Exchange Traded Product that derives its value from one
or more currencies, commodities, or derivatives based on one or more
currencies or commodities, or is based on a basket or index composed of
currencies or commodities. GIX Rule 11.120(e)(2)(E) provides that the
Exchange will enter into comprehensive surveillance sharing agreements
with markets that trade components of the index or portfolio on which
the UTP Exchange Traded Product is based to the same extent as the
listing exchange's rules require the listing exchange to enter into
comprehensive surveillance sharing agreements with such markets.
---------------------------------------------------------------------------
\233\ GIX Rule 11.120(e)(2)(B)(ii)(a.) (establishing prospectus
delivery requirements).
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The Commission finds that the Exchange's proposed approach to the
trading of securities on a UTP basis, as set forth in GIX Rule 11.120,
is consistent with Section 12(f) of the Act and Rule 12f-5
thereunder.\234\ Rule 12f-
[[Page 16220]]
5 under the Act requires an exchange that extends unlisted trading
privileges to securities to have in effect a rule or rules providing
for transactions in the class or type of security to which the exchange
extends unlisted trading privileges.\235\ GIX Rule 11.120(e)(1)
includes a provision that any security traded UTP on the Exchange
``shall be subject to all Exchange rules applicable to trading on the
Exchange, unless otherwise noted.'' The provisions in GIX Rule 11.120
are substantively the same as the existing rules of other national
securities exchanges.\236\ Accordingly, pursuant to Section 12(f) of
the Act and Rule 12f-5 thereunder, GIX will be permitted to extend
unlisted trading privileges to securities of the same class, subject to
the trading rules of the Exchange.
---------------------------------------------------------------------------
\234\ 15 U.S.C. 78l(f); 17 CFR 240.12f-5.
\235\ See 17 CFR 240.12f-5. See also Securities Exchange Act
Release No. 35737 (Apr. 21, 1995), 60 FR 20891 (Apr. 28, 1995) (File
No. S7-4-95) (adopting Rule 12f-5 under the Act).
\236\ See, e.g., LTSE Rule 14.350 and MEMX Rule 14.1.
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G. Section 11(a) of the Act
Section 11(a)(1) of the Act \237\ prohibits a member of a national
securities exchange from effecting transactions on that exchange for
its own account, the account of an associated person, or an account
over which it or its associated person exercises investment discretion
(collectively, ``covered accounts''), unless an exception applies. Rule
11a2-2(T) under the Act,\238\ known as the ``effect versus execute''
rule, provides exchange members with an exemption from the Section
11(a)(1) prohibition. Rule 11a2-2(T) permits an exchange member,
subject to certain conditions, to effect transactions for covered
accounts by arranging for an unaffiliated member to execute
transactions on the exchange. To comply with Rule 11a2-2(T)'s
conditions, a member: (i) must transmit the order from off the exchange
floor; (ii) may not participate in the execution of the transaction
once it has been transmitted to the member performing the execution;
\239\ (iii) may not be affiliated with the executing member; and (iv)
with respect to an account over which the member or an associated
person has investment discretion, neither the member nor its associated
person may retain any compensation in connection with effecting the
transaction except as provided in the rule.
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\237\ 15 U.S.C. 78k(a)(1).
\238\ 17 CFR 240.11a2-2(T).
\239\ This prohibition also applies to associated persons. See
15 U.S.C. 78f(b)(8). The member may, however, participate in
clearing and settling the transaction. See Securities Exchange Act
Release No. 14563 (Mar. 14, 1978), 43 FR 11542 (Mar. 17, 1978)
(regarding the NYSE's Designated Order Turnaround System) (``1978
Release'')).
---------------------------------------------------------------------------
In a letter to the Commission, GIX requested that the Commission
concur with GIX's conclusion that GIX Members that enter orders into
the GIX trading system satisfy the conditions of Rule 11a2-2(T).\240\
For the reasons set forth below, GIX Members entering orders into the
GIX trading system could satisfy the conditions of Rule 11a2-2(T).
---------------------------------------------------------------------------
\240\ See letter from James G. Buckley, Chief Regulatory
Officer, GIX, dated Apr. 2, 2025 (``GIX 11(a) Letter'').
---------------------------------------------------------------------------
First, Rule 11a2-2(T) requires that orders for covered accounts be
transmitted from off the exchange floor. In the context of automated
trading systems, the Commission has found that the off-floor
transmission condition is met if a covered account order is transmitted
from a remote location directly to an exchange's floor by electronic
means.\241\ GIX has represented that GIX does not have a physical
trading floor, and the GIX trading system will receive orders from
Members electronically through remote terminals or computer-to-computer
interfaces.\242\ The GIX trading system satisfies this off-floor
transmission condition.
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\241\ See, e.g., Nasdaq Order, supra note 50; Securities
Exchange Act Release Nos. 61419 (Jan. 26, 2010), 75 FR 5157 (Feb. 1,
2010) (SR-BATS-2009-031) (approving BATS options trading); 59154
(Dec. 23, 2008), 73 FR 80468 (Dec. 31, 2008) (SR-BSE-2008-48)
(approving equity securities listing and trading on BSE); 57478
(Mar. 12, 2008), 73 FR 14521 (Mar. 18, 2008) (SR-NASDAQ-2007-004 and
SR-NASDAQ-2007-080) (approving Nasdaq Options Market options
trading); 29237 (May 24, 1991), 56 FR 24853 (May 31, 1991) (SR-NYSE-
90-52 and SR-NYSE-90-53) (approving NYSE's Off-Hours Trading
Facility); and 15533 (Jan. 29, 1979), 44 FR 6084 (Jan. 31, 1979)
(``1979 Release'').
\242\ See GIX 11(a) Letter, supra note 236, at 2.
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Second, Rule 11a2-2(T) requires that the member and any associated
person not participate in the execution of its order after the order
has been transmitted. GIX represented that at no time following the
submission of an order is a Member or an associated person of the
Member able to acquire control or influence over the result or timing
of the order's execution.\243\ According to GIX, the execution of a
Member's order is determined solely by what quotes and orders are
present in the system at the time the Member submits the order, and the
order priority based on the GIX rules.\244\ Accordingly, a GIX Member
and its associated persons do not participate in the execution of an
order submitted to the GIX trading system.\245\
---------------------------------------------------------------------------
\243\ See id. at 3. GIX states that a Member may cancel or
modify the order, or modify the instructions for executing the
order, after the order has been transmitted, provided that such
cancellations or modifications are transmitted from off an exchange
floor. See id. The Commission has stated that the non-participation
condition is satisfied under such circumstances so long as such
modifications or cancellations are also transmitted from off the
floor. See 1978 Release, supra note 235 (stating that the ``non-
participation requirement does not prevent initiating members from
canceling or modifying orders (or the instructions pursuant to which
the initiating member wishes orders to be executed) after the orders
have been transmitted to the executing member, provided that any
such instructions are also transmitted from off the floor'').
\244\ See GIX 11(a) Letter, supra note 236, at 3.
\245\ See, e.g., BATS Order, supra note 50, at 49505; and
DirectEdge Exchanges Order, supra note 77, at 13164.
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Third, Rule 11a2-2(T) requires that the order be executed by an
exchange member who is unaffiliated with the member initiating the
order. The Commission has stated that this condition is satisfied when
automated exchange facilities, such as the GIX trading system, are
used, as long as the design of these systems ensures that members do
not possess any special or unique trading advantages in handling their
orders after transmitting them to the exchange.\246\ GIX has
represented that the design of the GIX trading system ensures that no
Member has any special or unique trading advantage in the handling of
its orders after transmitting its orders to GIX.\247\ Based on GIX's
representation, the GIX trading system satisfies this condition.
---------------------------------------------------------------------------
\246\ See, e.g., BATS Order at 49505, supra note 50, at 49505;
and DirectEdge Exchanges Order, supra note 77, at 13164. In
considering the operation of automated execution systems operated by
an exchange, the Commission stated that, while there is not an
independent executing exchange member, the execution of an order is
automatic once it has been transmitted into the system. Because the
design of these systems ensures that members do not possess any
special or unique trading advantages in handling their orders after
transmitting them to the exchange, the Commission has stated that
executions obtained through these systems satisfy the independent
execution condition of Rule 11a2-2(T). See 1979 Release, supra note
237.
\247\ See GIX 11(a) Letter, supra note 236, at 3.
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Fourth, in the case of a transaction effected for an account with
respect to which the initiating member or an associated person thereof
exercises investment discretion, neither the initiating member nor any
associated person thereof may retain any compensation in connection
with effecting the transaction, unless the person authorized to
transact business for the account has expressly provided otherwise by
written contract referring to Section 11(a) of the Act and Rule 11a2-
2(T) thereunder.\248\ GIX Members
[[Page 16221]]
trading for covered accounts over which they exercise investment
discretion must comply with this condition in order to rely on the
rule's exemption.\249\
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\248\ See, e.g., BATS Order, supra note 50, at 49505; and
DirectEdge Exchanges Order, supra note 77, at 13164. In addition,
Rule 11a2-2(T)(d) requires a member or associated person authorized
by written contract to retain compensation, in connection with
effecting transactions for covered accounts over which such member
or associated persons thereof exercises investment discretion, to
furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member or any associated person
thereof in connection with effecting transactions for the account
during the period covered by the statement. See 17 CFR 240.11a2-
2(T)(d). See also 1978 Release, supra note 235 (stating ``[t]he
contractual and disclosure requirements are designed to assure that
accounts electing to permit transaction-related compensation do so
only after deciding that such arrangements are suitable to their
interests'').
\249\ GIX represented that it will advise its membership through
the issuance of an Information Circular that those members trading
for covered accounts over which they exercise investment discretion
must comply with this condition in order to rely on the rule's
exemption. See GIX 11(a) Letter, supra note 236, at 3-4.
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IV. Exemption from Section 19(b) of the Act With Regard to FINRA Rules
Incorporated by Reference
GIX proposes to incorporate by reference certain FINRA rules as GIX
rules.\250\ Thus, for those GIX rules, Exchange Members will comply
with the GIX rule by complying with the FINRA rule referenced therein.
In connection with its proposal to incorporate FINRA rules by
reference, GIX requested, pursuant to Rule 0-12,\251\ an exemption
under Section 36 of the Act from the rule filing requirements of
Section 19(b) of the Act for changes to those GIX rules that are
effected solely by virtue of a change to a cross-referenced FINRA
rule.\252\ GIX represents in its letter that, as a condition to the
exemption, it will provide written notice to its Members whenever a
proposed rule change to a FINRA rule that is incorporated by reference
is proposed and whenever any such proposed change is approved by the
Commission or otherwise becomes effective.\253\
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\250\ See letter from James G. Buckley, Chief Regulatory
Officer, GIX, dated March 14, 2025 (``Exemption Request Letter'').
GIX proposes to incorporate by reference the following FINRA rules:
(1) FINRA Rule 1240 (Continuing Education Requirements), via GIX
Rule 2.154 (Continuing Education) (references to FINRA Rules 1210
(Registration Requirements) and 1220 (Registration Categories)
within GIX Rule 2.154 shall refer to applicable provisions in GIX
Rule 2.160 (Registration Requirements and Restrictions on
Membership)); (2) FINRA Rule 2090 (Know Your Customer), via GIX Rule
3.150; (3) FINRA Rules 2111 (Suitability) and 4512 (Customer Account
Information), via GIX Rule 3.170 (Suitability); (4) FINRA Rule 2210
(Communications with the Public), via GIX Rule 3.280 (Communications
with Customers and the Public); (5) FINRA Rule 2241 (Research
Analysts and Research Reports), via GIX Rule 3.230 (Payments
Involving Publications that Influence the Market Price of Security);
(6) FINRA Rule 2268 (Requirements when Using Predispute Arbitration
Agreements for Customer Accounts), via GIX Rule 12.110(c) (Pre-
dispute Arbitration Agreements); (7) FINRA Rule 3130 (Annual
Certification of Compliance and Supervisory Processes), via GIX Rule
5.130 (Annual Certification of Compliance and Supervisory
Processes); (8) FINRA Rule 3210 (Accounts at Other Broker Dealers
and Financial Institutions), via GIX Rule 5.170 (Transactions for or
by Associated Persons); (9) FINRA Rule 3230 (Telemarketing), via GIX
Rule 3.292 (Telemarketing); (10) FINRA Rule 4110 (Capital
Compliance), via GIX Rule 4.110 (Capital Compliance); (11) FINRA
Rule 4120 (Regulatory Notification and Business Curtailment), via
GIX Rule 4.120 (Regulatory Notification and Business Curtailment);
(12) FINRA Rule 4140 (Audit), via GIX Rule 4.140 (Audit); (13) FINRA
Rule 4360 (Fidelity Bonds), via GIX Rule 2.240 (Fidelity Bonds);
(14) FINRA Rule 4511 (General Requirements), via GIX Rule 4.511;
(15) FINRA Rule 4512 (Customer Account Information), via GIX Rule
4.512; (16) FINRA Rule 4512(c) (defining ``Allocation Report''), via
GIX Rule 11.601 (Consolidated Audit Trail--Definitions); (17) FINRA
Rule 4513 (Record of Written Customer Complaints), via GIX Rule
4.513 (Record of Customer Complaints); (18) FINRA Rule 4560 (Short
Interest Reporting), via GIX Rule 3.293 (Short Interest Reporting);
(19) FINRA Rule 5270 (Front Running of Block Transactions), via GIX
Rule 10.260 (Front Running of Block Transactions); (20) FINRA Rule
5310 (Best Execution and Interpositioning), via GIX Rule 10.220
(Best Execution and Interpositioning); (21) FINRA Rule 5320.03
(Riskless Principal Exception), via GIX Rule 1.160(at) (definition
of ``Retail Order''); (22) FINRA Rule 12000 Series (Code of
Arbitration Procedure for Customer Disputes), via GIX Rule 12.110
(Arbitration); and (23) FINRA Rule 13000 Series (Code of Arbitration
Procedure for Industry Disputes), via GIX Rule 12.110 (Arbitration).
\251\ See 17 CFR 240.0-12.
\252\ See Exemption Request Letter, supra note 246.
\253\ See Exemption Request Letter, supra note 246, at 3. GIX
will provide such notice through a posting on the same website
location where GIX will post its own rule filings pursuant to Rule
19b-4 under the Act, within the required time frame. The website
posting will include a link to the location on the FINRA website
where FINRA's proposed rule change is posted. See id.
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Using its authority under Section 36 of the Act,\254\ the
Commission is hereby granting GIX's request for an exemption, pursuant
to Section 36 of the Act, from the rule filing requirements of Section
19(b) of the Act with respect to the rules that GIX proposes to
incorporate by reference.\255\ This exemption is conditioned upon GIX
providing written notice to its Members whenever FINRA proposes to
change a rule that GIX has incorporated by reference. This exemption is
appropriate in the public interest and consistent with the protection
of investors because it will promote more efficient use of Commission
and SRO resources by avoiding duplicative rule filings based on
simultaneous changes to identical rules of more than one SRO.
---------------------------------------------------------------------------
\254\ 15 U.S.C. 78mm.
\255\ The Commission previously exempted other exchanges from
the requirement to file proposed rule changes under Section 19(b) of
the Act. See, e.g., 24X Order, MEMX Order, MIAX Order, MIAX Pearl
Order, and BATS Order, supra note 50; IEX Order, supra note 65; ISE
Mercury Order, supra note 67; and DirectEdge Exchanges Order, supra
note 77.
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V. Conclusion
It is ordered that the application of GIX for registration as a
national securities exchange be, and it hereby is, granted.
It is furthered ordered that operation of GIX is conditioned on the
satisfaction of the requirements below:
A. Participation in National Market System Plans
GIX must join the CT Plan, the Consolidated Tape Association Plan,
the Consolidated Quotation Plan, and the Nasdaq UTP Plan (or any
successors thereto); the National Market System Plan Establishing
Procedures Under Rule 605 of Regulation NMS; the Regulation NMS Plan to
Address Extraordinary Market Volatility; the Plan for the Selection and
Reservation of Securities Symbols; and the National Market System Plan
Governing the Consolidated Audit Trail.
B. Intermarket Surveillance Group
GIX must join the Intermarket Surveillance Group.
C. Minor Rule Violation Plan
A MRVP filed by GIX under Rule 19d-1(c)(2) must be declared
effective by the Commission.\256\
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\256\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------
D. Rule 17d-2 Agreement.
An agreement pursuant to Rule 17d-2 \257\ that allocates regulatory
responsibility for those matters specified above \258\ must be declared
effective by the Commission, or GIX must demonstrate that it
independently has the ability to fulfill all of its regulatory
obligations.
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\257\ 17 CFR 240.17d-2.
\258\ See supra notes 135-141 and accompanying text.
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E. Participation in Multi-Party Rule 17d-2 Plans
GIX must become a party to the multi-party Rule 17d-2 agreement
concerning the surveillance, investigation, and enforcement of common
insider trading rules and the agreement concerning certain Regulation
NMS and Consolidated Audit Trail rules.
F. RSA
GIX must finalize the provisions of the RSA with its regulatory
services provider, as described above, that will specify the GIX and
Commission rules for which the regulatory services provider will
provide certain regulatory functions, or GIX must demonstrate that
[[Page 16222]]
it independently has the ability to fulfill all of its regulatory
obligations.
It is further ordered, pursuant to Section 36 of the Act,\259\ that
GIX shall be exempted from the rule filing requirements of Section
19(b) of the Act with respect to the FINRA rules that GIX proposes to
incorporate by reference into GIX's rules, subject to the conditions
specified in this Order.
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\259\ 15 U.S.C. 78mm.
By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-06563 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on April 17, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.