Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Harmonize the Corporate Governance Framework of Nasdaq ISE, LLC With That of The NASDAQ Stock Market LLC, NASDAQ PHLX LLC, and NASDAQ BX, Inc.

I. Introduction

On April 11, 2017, Nasdaq ISE, LLC (“ISE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, proposed rule changes to its corporate governance documents and trading rules to align its corporate governance framework to the structure of other exchanges owned by its ultimate parent company, Nasdaq, Inc. The proposed rule change was published for comment in the Federal Register on May 2, 2017. The Commission received no comments on the proposal. On June 14, 2017, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change. On July 6, 2017, the Exchange filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comment on Amendment No. 1 from interested persons and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis.

II. Background

On June 21, 2016, the Commission approved a proposed rule change relating to a corporate transaction in which Nasdaq, Inc. would become the ultimate parent of ISE (the “Nasdaq Acquisition”), Nasdaq GEMX, LLC (“GEMX”), and Nasdaq MRX, LLC (“MRX,” and together with ISE and GEMX, the “ISE Exchanges”). On June 30, 2016, pursuant to this transaction, Nasdaq, Inc. acquired all of the capital stock of U.S. Exchange Holdings, Inc. (“Exchange Holdings”), and thereby became the indirect, ultimate parent of the ISE Exchanges. Nasdaq, Inc. is also the ultimate parent of NASDAQ BX, Inc. (“BX”), The NASDAQ Stock Market LLC (“Nasdaq”), and NASDAQ PHLX LLC (“Phlx” and, together with Nasdaq and BX, the “Nasdaq Exchanges”). The Commission notes that the corporate governance documents of ISE, specifically its Third Amended and Restated Limited Liability Company Agreement (“Current LLC Agreement”) and its Second Amended and Restated Constitution (“Current Constitution” and, together with the Current LLC Agreement, the “Current Governing Documents”) are rules of the Exchange, as are the governing documents of ISE's Upstream Owners, which include certain provisions that are designed to maintain the independence of ISE's self-regulatory functions (as well as the self-regulatory functions of the Upstream Owners' other self-regulatory subsidiaries, i.e., the Nasdaq Exchanges).

The Exchange intends to effect a merger with a newly-formed Delaware limited liability company (“Merger”) under Nasdaq, Inc. that would result in ISE as the surviving entity with new corporate governance documents. In connection with that Merger, the Exchange proposes various changes to its corporate governance documents and rules (“Rules”). Specifically, the Exchange proposes to: (1) Delete the Exchange's Current LLC Agreement in its entirety and replace it with the New LLC Agreement, which is based on the limited liability company agreement of Nasdaq; (2) delete the Exchange's Current Constitution in its entirety and replace it with the New By-Laws, which are based on the by-laws of Nasdaq; and (3) amend certain of its Rules to reflect the replacement of the Current Governing Documents with the New Governing Documents.

The Exchange represents that the proposed changes are designed to align the Exchange's corporate governance framework with the existing structure of the Nasdaq Exchanges, particularly as it relates to the board and committee structure, nomination and election processes, and related governance practices. The Exchange also represents that it is not proposing any amendments to its ownership structure. The Exchange does not propose any amendments to the governing documents of its Upstream Owners. Thus, the provisions in the governing documents of these entities, which were designed to maintain the independence of ISE's self-regulatory functions, would remain unchanged. The Exchange also represents that it is not proposing any amendments to its Rules at this time, other than to reflect the changes to its governing documents as described in more detail below. The Exchange states that it intends to implement its proposed rule change no later than by the end of the third quarter of 2017.

III. Discussion and Commission Findings

After careful review, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. Specifically, as discussed in more detail below, the Commission finds that the proposed rule change is consistent with Sections 6(b)(1) and 6(b)(3) of the Act, which require, among other things, that a national securities exchange 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 provisions of the Act, the rules and regulations thereunder, and the rules of the exchange, and assure the fair representation of its members and persons associated with its members in the selection of its directors and administration of its affairs, and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer. Further, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to foster cooperation and coordination with persons engaged in regulating, clearing, settling, and processing information with respect to, and facilitating transactions in securities; to remove impediments to and perfect the mechanism of a free and open market and a national market system; and, in general, to protect investors and the public interest.

A. Ownership of the Exchange

ISE is currently structured as a Delaware limited liability company (“Delaware LLC”) and, as discussed above, is a wholly-owned subsidiary of ISE Holdings. ISE Holdings, in turn is a wholly-owned subsidiary of Exchange Holdings, which is wholly-owned by Nasdaq, Inc. Pursuant to the Current LLC Agreement, ISE Holdings is defined as the Sole LLC Member. As the Sole LLC Member, ISE Holdings may assign all (but not less than all) of its interest in the Exchange, subject to prior approval by the Commission pursuant to the rule filing procedures under Section 19 of the Act.

Pursuant to the proposed rule change, ISE will be merged with a newly formed Delaware LLC, whereby ISE will be the surviving entity, governed by the New Governing Documents. ISE Holdings will continue to be the direct owner of ISE and will be defined as the “Company Member” or “Sole LLC Member” in the New LLC Agreement and New By-Laws. Additionally, pursuant to the New LLC Agreement, ISE Holdings will not be permitted to assign, in whole or in part, its limited liability company interest in the Exchange, unless such transfer or assignment is filed with and approved by the Commission pursuant to the rule filing procedures under Section 19 of the Act.

The Commission believes that the proposed restrictions on ISE Holdings' assignment of its ownership interest in ISE, taken together with restrictions on voting and ownership limitations in the governing documents of ISE's Upstream Owners that were previously approved by the Commission, are designed to minimize the potential that a person could improperly interfere with, or restrict the ability of, the Commission or ISE to effectively carry out its regulatory oversight responsibilities under the Act. The Commission also notes that the restrictions on transfer of ownership interest in the Exchange will be similar to those currently in place. In this regard, the Commission believes the proposed rule change is consistent with Section 6(b)(1) of the Act in particular, which requires that an exchange be organized and have the capacity to be able to carry out the purposes of the Act and to comply, and to enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulations thereunder, and the rules of the exchange.

B. Governance of the Exchange

With the replacement of the Current Governing Documents with the New Governing Documents, the Exchange proposes to replace certain provisions pertaining to governance of the Exchange with related provisions that are based on provisions currently in the Nasdaq LLC Agreement and Nasdaq By-Laws. These changes include, among others, provisions governing: the composition of the Exchange's board of directors (“Board” or “Board of Directors,” and each member of the Board of Directors a “Director”); the process for nominating, electing, and removing Directors; the filling of vacancies on the Exchange's Board; its board committee structure; and regulatory independence of the Exchange. As noted above, the Exchange intends that the New Governing Documents would be implemented no later than by the end of the third quarter of 2017.

1. Board of Directors: Powers and Composition

Under the New Governing Documents and consistent with the Current LLC Agreement, the business and affairs of the Exchange will be managed under the discretion of its Board, which will be vested with the power to do any and all acts necessary or for the furtherance of the purposes described in the New LLC Agreement, including fulfilling the Exchange's self-regulatory responsibilities as set forth in the Act. The new Board will also have the power to bind the Exchange and delegate powers, as it does today.

ISE Holdings, as the Sole LLC Member, may determine at any time, in its sole and absolute discretion, the number of Directors to constitute the Board of Directors. At least 20% of the Directors shall be “Member Representative Directors.” Additionally, the Board of Directors must include a number of “Non-Industry Directors,” including at least one “Public Director” and at least one “issuer representative” (or if the Board consists of ten or more Directors, at least two issuer representatives), that equals or exceeds the sum of the number of Industry Directors and Member Representative Directors. Additionally, up to two Staff Directors may be elected to the Board. A Director may not be subject to a statutory disqualification. A Director will be removed upon a determination by the Board, by a majority vote of the remaining Directors, that the Director no longer satisfies the classification for which the Director was elected and that the Director's continued service on the Board would violate the board composition requirements.

As discussed in more detail below, the current Board was elected at the Exchange's 2017 annual election of its Board (the “2017 Annual Election,” and such Board the “2017 Board”), which was held on June 19, 2017, pursuant to the Current Governing Documents. When the New Governing Documents become operative, the 2017 Board will appoint a Nominating Committee and a Member Nominating Committee. The Member Nominating Committee will nominate candidates for each Member Representative Director position on the Board, as well as nominate candidates for appointment by the Board for each vacant or new position on a committee that is to be filled with a “Member Representative member” under the New By-Laws. If an Exchange Member submits a timely and duly executed written nomination to the Secretary of the Exchange, additional candidates may be added to the List of Candidates for the Member Representative Director positions. These candidates, together with candidates nominated by the Member Nominating Committee, will then be presented to Exchange Members for election. The Nominating Committee will nominate candidates for all other vacant or new Director positions on the Board.

The Commission believes that the proposed composition of the Exchange's Board satisfies the requirements in Section 6(b)(3) of the Act, which requires in part that one or more directors be representative of issuers and investors and not be associated with a member of the exchange, or with a broker or dealer. 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, and that they can help to ensure that no single group of market participants has the ability to systematically disadvantage others through the exchange governance process. As it has previously stated, the Commission believes that public directors can provide unbiased perspectives, which may enhance the ability of the Board to address issues in a non-discriminatory fashion and foster the integrity of the Exchange.

The Commission also believes that the proposed requirement that at least 20% of the Directors be Member Representative Directors, and the means by which they will be chosen by Exchange Members, is consistent with Section 6(b)(3) of the Act, because it provides for the fair representation of members in the selection of directors and the administration of ISE. Section 6(b)(3) of the Act requires that “the rules of the exchange assure a fair representation of its members in the selection of its directors and administration of its affairs and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer.” As the Commission previously has noted, this statutory requirement helps to ensure that members have a voice in the Exchange's use of its self-regulatory authority, and that the Exchange is administered in a way that is equitable to all those persons who trade on its markets or through its facilities. In addition, the Commission believes that the requirement that at least one director be a Public Director and one an issuer representative satisfies the requirements of Section 6(b)(3) of the Act.

2. Transition From Current Board Election Process to the New Election Process

In its filing, the Exchange states that, when it was acquired by Nasdaq, Inc., there were a number of harmonizing changes to its Board that resulted in a complete overlap of directors on the ISE Boards and the Nasdaq Exchanges (the “Post-Acquisition Board”). ISE also states its belief that the Post-Acquisition Board satisfied the composition requirements contained in both the Current Constitution and the New By-Laws. The Exchange states that the terms of the Directors on the Post-Acquisition Board ended at the 2017 Annual Election, and that all of the Directors on the 2017 Board are Directors that served on the Post-Acquisition Board. The Exchange believes that the 2017 Board satisfies both the board composition requirements in the Current Governing Documents, as well as in the New Governing Documents, and that once the New Governing Documents become operative, no additional actions with respect to the 2017 Board will be required under the Delaware Limited Liability Company Act. Pursuant to the proposal, the 2017 Board will serve until the Exchange's first annual election of Directors in accordance with the processes under the New Governing Documents in 2018 (“2018 Board”).

The Commission believes the Exchange's proposal to allow the 2017 Board to continue serving until the 2018 Board would be elected pursuant to the process in the New Governing Documents is consistent with the Act, and in particular Section 6(b)(3) of the Act. The Exchange states that, although the 2017 Board was not nominated or voted upon in accordance with the New Governing Documents, it believes that the composition of the 2017 Board is consistent with the Act, as it still provides for the fair representation of members and has one or more directors that are representative of issuers and investors and not associated with a member of the exchange, broker, or dealer. Specifically, the Exchange states that six Directors are officers, directors, or partners of Exchange members, as required by Section 3.2(b) of the Current Constitution, and were elected by a plurality of the holders of “Exchange Rights.” These Exchange Directors were subject to the full petition and voting process by membership in accordance with Articles II and III of the Current Constitution, which process the Commission previously found to satisfy the requirements of the Act. The Exchange believes that the Exchange Directors serve the same function as the Member Representative Directors under the proposed board structure, as both directorships give Exchange members a voice in the Exchange's use of its self-regulatory authority. The Exchange also notes that only its corporate governance structure would change under the proposed rule change, and that its membership has remained substantially the same both before and after the 2017 Annual Election. Additionally, the Commission notes that, under the Current Governing Documents, the 2017 Board will be required to include two Directors that are “Public Directors.”

3. Committees of the Board

Pursuant to the New By-Laws, the Exchange may establish committees composed solely of Directors. Specifically, the Exchange may establish an Executive Committee and a Finance Committee, and shall establish a Regulatory Oversight Committee (“ROC”). The Exchange shall also establish certain committees not composed solely of Directors. Specifically, the Exchange shall establish a Nominating Committee and a Member Nominating Committee, which would be elected on an annual basis by ISE Holdings, as the Sole LLC Member, and a Quality of Markets Committee (“QMC”). The New LLC Agreement will provide that, to the extent provided in the resolution of the Board, any committee that consists solely of one or more Directors shall have and may exercise all the powers and the authority of the Board in the management of the business and affairs of the Exchange. The powers of any such committee would, however, be limited with respect to approving any matters pertaining to the self-regulatory function of the Exchange or relating to the structure of the market the Exchange regulates.

The Exchange proposes that the Executive Committee be an optional committee, to be appointed only if deemed necessary by the Board. Because the Executive Committee will have the powers and authority of the Board in the management of the business and affairs of the Exchange between meetings of the Board, its composition must reflect that of the Board. Accordingly, if established, the number of Non-Industry Directors on the Executive Committee must equal or exceed the number of Industry Directors and the percentages of Public Directors and Member Representative Directors must be at least as great as the corresponding percentages on the Board as a whole.

The Board would retain oversight of the financial operations of the Exchange instead of delegating these functions to a standing committee, but would have the option to appoint a Finance Committee at the Board's discretion. The Finance Committee would advise the Board with respect to the oversight of the financial operations and conditions of the Exchange, including recommendations for the Exchange's annual operating and capital budgets and proposed changes to the rates and fees charged by the Exchange.

The Exchange proposes to eliminate its current Finance and Audit Committee and to have the committee's functions performed by Nasdaq, Inc.'s Audit Committee (“Nasdaq Audit Committee”), which is composed of at least three directors of Nasdaq, Inc., all of whom must satisfy the standards for independence set forth in Section 10A(m) of the Act and Nasdaq's rules. The Exchange notes that the Nasdaq Audit Committee has broad authority to review the financial information that will be provided to shareholders of Nasdaq, Inc. and others; systems of internal controls; and audit, financial reporting, and legal and compliance processes. The Exchange states that, to the extent the current Finance and Audit Committee oversees the Exchange's financial reporting process, its activities are duplicative of the activities of the Nasdaq Audit Committee, which is also charged with providing oversight over financial reporting and independent auditor selection for Nasdaq, Inc. and all of its subsidiaries. The Exchange also notes that the unconsolidated financial statements of the Exchange will still be prepared for each fiscal year.

The Exchange will also have a Regulatory Oversight Committee (“ROC”) under the New Governing Documents, which will have broad authority to oversee the adequacy and effectiveness of the Exchange's regulatory and self-regulatory responsibilities. The ROC will consist of three members, each of whom must be a Public Director and an “independent director,” as defined in Nasdaq Rule 5605.

Pursuant to the New By-Laws, the Exchange will also have a Chief Regulatory Officer (“CRO”), as it does currently. The new CRO will have general responsibility for the supervision of the regulatory operations of the Exchange and will meet with the ROC in executive session at regularly scheduled meetings of the ROC, and at any time upon request of the CRO or any member of the ROC.

The ROC will assess the Exchange's regulatory performance, assist the Board in reviewing the regulatory plan and the overall effectiveness of the Exchange's regulatory functions, review the Exchange's regulatory budget and inquire into the adequacy of resources available in the budget for regulatory activities, and be informed about the compensation and promotion or termination of the CRO.

The Exchange also proposes that the Internal Audit Department of Nasdaq, Inc. (“Nasdaq Internal Audit Department”) would report to the Board on all Exchange-related internal audit matters and direct such reports to the new ROC. In addition, to ensure that the Board retains authority to direct the Nasdaq Internal Audit Department's activities with respect to the Exchange, the Nasdaq Internal Audit Department's written procedures will stipulate that the ROC may, at any time, direct the Nasdaq Internal Audit Department to conduct an audit of a matter of concern and report the results of the audit both to the ROC and the Nasdaq Audit Committee.

The Exchange also proposes to eliminate its current Compensation Committee and its Corporate Governance Committee. The Compensation Committee is primarily charged with reviewing and approving compensation policies and plans for the Chief Executive Officer and other senior executive officers of the Exchange. Under the new governance structure, the functions of the Compensation Committee will be performed by Nasdaq, Inc.'s management compensation committee or, to the extent that policies, programs, and practices must be established for any Exchange officers or employees who are not also officers or employees of Nasdaq, Inc., the full Board. The Corporate Governance Committee is primarily charged with: (i) Nominating candidates for all vacant or new non-industry representative positions on the Board, (ii) overseeing the Exchange's regulatory activities and program, and (iii) overseeing and evaluating the governance of the Exchange. Under the new governance structure, the functions of the Corporate Governance Committee will be performed by the new Nominating Committee, the new ROC, or, if required, the full Board.

As discussed above, the Nominating Committee and Member Nominating Committee will have responsibility for, among other things, nominating candidates for election to the Board. On an annual basis, the members of these committees will nominate candidates for the succeeding year's respective committees to be elected by ISE Holdings.

Finally, the Quality of Markets Committee (“QMC”) will have the following functions: (i) To provide advice and guidance to the Board on issues relating to the fairness, integrity, efficiency, and competitiveness of the information, order handling, and execution mechanisms of the Exchange from the perspective of investors, both individual and institutional, retail firms, market making firms, and other market participants; and (ii) to advise the Board with respect to national market system plans and linkages between the facilities of the Exchange and other markets. At least 20% of the QMC must be composed of Member Representative members, and the Non-Industry members on the QMC must equal or exceed the sum of Industry members and Member Representative members.

The Commission believes that the Exchange's proposed committees, which are similar to the committees maintained by other exchanges, 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. The Commission further believes that the Exchange's proposed committees, including their composition and the means by which committee members will be chosen, are consistent with Section 6(b)(3) of the Act because relevant committees provide for the fair representation of members in the administration of the Exchange's affairs.

4. Regulatory Independence

Certain provisions in ISE's Current Governing Documents, and those of its Upstream Owners, are designed to help maintain the independence of the regulatory functions of the Exchange. The New Governing Documents similarly include provisions designed to help maintain the independence of the regulatory functions of ISE, which provisions are substantially similar to those included in the governing documents of other exchanges. Specifically:

• The Exchange Board will be required, when evaluating any proposal, to take into account all factors that the Board deems relevant, including, without limitation, (1) the potential impact on: The integrity, continuity, and stability of the national securities exchange operated by the Exchange and the other operations of the Exchange; the ability to prevent fraudulent and manipulative acts and practices; and investors and the public, and (2) 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 the perfection of the mechanisms for a free and open market and a national market system.

• All books and records of ISE reflecting confidential information pertaining to the self-regulatory function of the Exchange (including but not limited to disciplinary matters, trading data, trading practices, and audit information) shall be retained in confidence by ISE and its officers, directors, employees and agents; shall not be made available to persons other than to those officers, directors, employees, and agents of ISE that have a reasonable need to know; and will not be used for any non-regulatory purpose.

• The Exchange proposes that, as is currently the case, the books and records of ISE must be maintained in the United States and are subject at all times to examination by the Commission pursuant to the federal securities laws and the rules and regulations thereunder.

• Under the New LLC Agreement and New By-Laws, any amendments to those documents will not become effective until filed with, or filed with and approved by, the Commission, as required under Section 19 of the Act and the rules promulgated thereunder.

• Additionally, as is currently the case pursuant to the Current LLC Agreement, Section 15 of the New LLC Agreement would prohibit the Exchange from using Regulatory Funds to pay dividends.

The Commission believes that the provisions discussed in this section, which are designed to help ensure the independence of the Exchange's regulatory function and facilitate the ability of the Exchange to carry out its responsibility 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.

The Commission finds that proposed process regarding amendments to the New Governing Documents is consistent with Section 6(b)(1) of the Act, because it reflects the obligation of the Board to ensure compliance with the rule filing requirements under the Act. Additionally, the Commission finds these changes to be consistent with Section 19(b)(1) of the Act and Rule 19b-4 thereunder, which require that a self-regulatory organization file with the Commission all proposed rules, as well as all proposed changes in, additions to, and deletions of its existing rules. These provisions clarify that amendments to the New Governing Documents constitute proposed rule changes within the meaning of Section 19(b)(2) of the Act and Rule 19b-4 thereunder, and are subject to the filing requirements of Section 19 of the Act and the rules and regulations thereunder.

The Commission also finds that the prohibition on the use of regulatory fines, fees, or penalties to fund dividends is consistent with Section 6(b)(1) of the Act, because it will further the Exchange's ability to effectively comply with its statutory obligations and is designed to ensure that the regulatory authority of the Exchange is not improperly used. This restriction on the use of regulatory funds is intended to preclude the Exchange from using its authority to raise Regulatory Funds for the purpose of benefiting its shareholders.

C. Related Rule Amendments

While voting rights with respect to Directors will be governed by the New Governing Documents, as is the case today under the Current Governing Documents, the Current Governing Documents also afford certain additional rights to the holders of PMM Rights and CMM Rights (PMM Rights and CMM Rights, each as defined below, and together, “Market Maker Rights”), namely: (i) the right to vote on any change in, amendment to, or modification of the Core Rights or the definition of “Core Rights”; and (ii) the right to transfer or lease Market Maker Rights upon approval of the Exchange. The Exchange represents that these rights reflect ISE's original membership structure, where the original Market Maker Rights provided the holders thereof with an equity ownership interest in ISE, as well as trading rights on the Exchange. The Exchange states, however, that today the Market Maker Rights do not confer any equity ownership in the Exchange and are, for all practical purposes, rights to trade on the Exchange. As such, the Exchange believes that the provisions governing the trading privileges of PMMs, CMMs, and EAMs are more appropriately located in its Rules rather than its governance documents. Accordingly, the Exchange proposes to import into its Rules certain provisions relating to Market Maker Rights, as well as Exchange Rights, currently found in the Current Governing Documents. The Exchange states that it is amending its Rules to: (i) Clarify any Rules that cross-reference the Current Governing Documents in the rule text, since those documents are being replaced by the New Governing Documents; or (ii) relocate or memorialize in the Rules certain rights and protections afforded to the Market Marker Rights holders, which today are primarily found in the Current Governing Documents. The Exchange represents that the holders of Exchange Rights will continue to have the same trading privileges they currently hold as PMMs, CMMs, and EAMs under its Rules, and the new Board structure of the Exchange will not change any trading privileges.

Specifically, the Exchange proposed changes to its Rules to, among other things:

• Relocate the concept of CMM Rights from the Current LLC Agreement to New Rule 100(a)(11), which will state that the term “CMM Rights” means the transferable rights held by a Competitive Market Maker or a “non-member owner” (as that term is defined in Rule 300(a)), and provide in New Rule 100(a)(11) that there are 160 authorized CMM Rights, as is currently set forth in Section 6.1(a) of the Current LLC Agreement.

• Relocate to New Rule 100(a)(12) the definition of “Competitive Market Maker,” which is currently only defined in Section 13.1(g) of the Current Constitution.

• Relocate the concept of EAM Rights to New Rule 100(a)(15), which will state that the term “EAM Rights” means the non-transferable rights held by an Electronic Access Member.

• Relocate to New Rule 100(a)(16) the definition of “Electronic Access Member,” which is currently only defined in Section 13.1(l) of the Current Constitution.

• Relocate the definitions for “Exchange Transaction,” “good standing,” and “System” from the Current Constitution to the Rules, and delete Rule 100(a)(22), defining “LLC Agreement,” as that term would no longer be used in the Rules, as amended by the proposed rule change.

• Relocate the concept of PMM Rights from Article VI of the Current LLC Agreement to New Rule 100(a)(39), which will state that the term “PMM Rights” means the transferable rights held by a Primary Market Maker or a “non-member owner” (as that term is defined in Rule 300(a)), and will state that there are 10 authorized PMM Rights, as is currently set forth in Section 6.1(a) of the Current LLC Agreement.
• Relocate to New Rule 100(a)(40) the definition for “Primary Market Maker” from Section 13.1(bb) of the Current Constitution.

The Exchange also proposed to add as new paragraphs (d) and (e) in New Rule 300 certain protections in the Current Governing Documents that relate to the Market Maker Rights. First, new paragraph (d) preserves the concept of Core Rights from the Current Governing Documents, and states that any increase in the number of authorized PMM or CMM Rights must be approved by the affirmative vote of the holders of at least a majority of the then outstanding PMM Rights, voting as a class, and the affirmative vote of the holders of at least a majority of the then outstanding CMM Rights, voting as a class, respectively. Second, new paragraph (e) states that any amendments to the New Governing Documents that would alter or change the powers, preferences, or special rights of one or more series of PMM Rights or CMM Rights must also be approved by the holders of a majority of such PMM or CMM Rights, as applicable. As such, to the extent they relate to the Market Maker Rights holders, paragraph (e) preserves the existing amendment rights from the Current Governing Documents.

The Exchange also proposes to explicitly set forth in its Rules the ownership and voting limitations for the holders of Market Maker Rights. Today, a holder or lessee of Exchange Rights, together with any affiliate, is restricted from owning (or exercising any of the non-trading rights associated with) more than 20% of the PMM Rights or CMM Rights. Consistent with the current limitation, the Exchange proposes to replace the current Supplementary Material .02 to Rule 303 with New Supplementary Material .02, to state that, “[i]n addition to the trading concentration limits contained in [Rule 303], no holder or lessee of Market Maker Rights, together with any affiliate, may gain ownership or voting rights in excess of 20% of the outstanding PMM Rights or CMM Rights, as applicable.” The Exchange also states that the New Governing Documents will not have any provisions related to the Market Maker Rights.

The Commission notes that, because the only remaining voting rights associated with PMM Rights and CMM Rights will be the Core Rights and the right to vote on certain amendments to the New Governing Documents, as described above, the voting limitation in Supplementary Material .02 to New Rule 303 will only apply to voting on those matters. Voting on the election of Member Representative members will be governed by Article II of the New By-Laws, as described above.

In the context of a lease of Market Maker Rights, the Exchange proposes to add a requirement in New Rule 308 that the holder of Market Maker Rights must, as is currently required by Section 12.4(b) of the Current Constitution, retain the Core Rights associated with such Market Maker Rights and not transfer such voting rights to the lessee. Section 12.4(b) of the Current Constitution also provides that, under a lease agreement, the lessor may retain the voting rights with respect to the PMM Rights and CMM Rights or may transfer such voting rights, other than the Core Rights, to the lessee. Currently, the voting rights associated with the PMM Rights and CMM Rights that may be retained or transferred are the right to vote in the election of Exchange Directors and the right to vote on amendments to the Current Governing Documents that may adversely affect Market Maker Rights. Pursuant to the New Governing Documents, a holder of Market Maker Rights will continue to have the option of retaining or transferring the right to vote on certain amendments to the New Governing Documents. With respect to the right to vote in the case of a Contested Election, the Exchange provides that those voting rights will be transferable under a lease agreement for the holders of Market Maker Rights who are also members of the Exchange. Non-member owners, who are required to lease out their Market Maker Rights pursuant to Rule 300(b) will no longer have voting rights with respect to Directors that represent Exchange Members. The Commission notes that the 20% concentration limitation on voting described above will continue to apply in the case of any transfer of the right to vote in Contested Elections.

The Exchange also proposes to amend New Rule 308 to memorialize the manner in which Market Maker Rights may be subleased. Specifically, the Exchange proposes that a lessee of a Market Maker membership in good standing may sublease such membership to a Member with the permission of the owner. The Exchange states that this is consistent with the Exchange's current practice and will not change the manner in which Market Maker Rights are subleased, but will clarify that such rights may be subleased to an Exchange Member only. Additionally, the Exchange proposes to relocate to the New Rules the requirement from the Current Constitution that a lessor of Market Maker Rights must retain the Core Rights.

The Exchange also proposes to clarify that, for the holders of Market Maker Rights who are also members of the Exchange, the right to vote on Directors representing Exchange Members will continue to be transferable under a lease agreement. Non-member owners, who are required to lease out their Market Maker Rights pursuant to Rule 300(b), will not have voting rights with respect to electing Member Representative Directors. The Exchange states that all voting rights other than Core Rights will remain transferable under a lease agreement, and that New Rule 308(b)(4) requires a lease agreement of Market Maker Rights to include provisions for which party will exercise the voting rights associated with the Market Maker Rights being leased. Accordingly, apart from being relocated from the Current Constitution to the Rules, the Exchange represents that the proposed amendment to New Rule 308 will not change the current transfer rights associated with Market Maker Rights, other than as described above with respect to non-member owners.

The Exchange also proposes to amend New Rule 802(b) to provide that, if a Primary Market Maker fulfills its obligations as a Primary Market Maker under the Rules, the Exchange will not reallocate the options classes to which such Primary Market Maker is appointed, unless otherwise requested by the Primary Market Maker; and would provide that the foregoing will not limit or affect the Exchange's responsibility under Rule 802(d) to reallocate any options classes in the interests of a fair and orderly market. The Exchange states that this proposal is consistent with the manner in which products are allocated to PMMs on the Exchange today. According to the Exchange, today, when ISE lists new options classes, it allocates them to one of its PMMs under Rule 802, and that pursuant to delegated authority by the Board, an Allocation Committee, which consists of employees of the Exchange (“Allocation Committee”), makes allocation decisions according to the guidelines contained in Rule 802. The Exchange also states that the Allocation Committee has not reallocated the products appointed to a PMM since the Exchange's inception for reasons other than as provided in the proposed rule, and as such, the proposed changes are simply to memorialize a longstanding practice on the Exchange.

The Commission believes that the proposed changes to ISE's Rules are consistent with the Act and, in particular Section 6(b)(1) of the Act, which requires among other things that a national securities exchange be so organized and have the capacity to carry out the purposes of the Act. The Commission notes that many of the proposed changes to ISE's Rules are technical in nature, such as renumbering of Rules or conforming terminology to reflect the replacement of the Current Governing Documents with the New Governing Documents. The Commission also notes that, as described above, the Exchange proposes to relocate definitions and provisions related to Market Maker Rights from the Current Governing Documents into the Rules. The Commission believes that the proposed changes to ISE's Rules that would prohibit a holder or lessee of Market Maker Rights, together with any affiliate, from gaining ownership or voting rights in excess of 20% of the outstanding PMM Rights or CMM Rights, as applicable, are consistent with the Act. The Commission has previously stated that a regulatory concern can arise if a member's interest in an exchange becomes so large as to cast doubt on whether the exchange can fairly and objectively exercise its self-regulatory responsibilities with respect to that member. The Commission has stated, for example, that a member that directly or indirectly controls an exchange might be tempted to exercise that controlling influence by directing the exchange to refrain from diligently monitoring and surveilling the member's conduct or diligently enforcing its rules and the federal securities laws with respect to conduct by the member that violates such provisions. The Commission believes that the proposal would not give rise to concerns about the Exchange's ability to effectively carry out its regulatory responsibilities under the Act because the proposed rules change preserves existing ownership and voting limitations.

IV. Accelerated Approval

The Commission finds good cause, pursuant to Section 19(b)(2) of the Act, to approve the proposal, as modified by Amendment No. 1, prior to the 30th day after publication of Amendment No. 1 in the Federal Register. In Amendment No. 1, ISE revises the original proposal to make certain changes discussed in greater detail above. Notably, in Amendment No. 1, ISE revises its proposal to (1) make changes to the Exchange's New LLC Agreement and New By-Laws to better align these proposed documents with certain provisions in ISE's existing governing documents and the governing documents of other exchanges, including those concerning limitations on board committee powers, the confidentiality of books and records, the nomination of certain board directors by petition, and the confidentiality of board meetings; (2) revise the proposed amendments to ISE's rules regarding ownership, voting, and transfer restrictions relating to certain market maker rights on the Exchange; (3) revise the related discussion of the purpose of the proposed changes; (4) add clarification to the description of the proposal regarding the operation of certain provisions; and (5) make certain technical corrections. The Commission believes that Amendment No. 1 does not raise any novel regulatory issues and instead better aligns ISE's proposed New Governing Documents with certain provisions in its Current Governing Documents and the governing documents of other exchanges that were previously approved by the Commission. As discussed more fully above, certain provisions of ISE's New Governing Documents, as modified by Amendment No. 1, are designed to facilitate the ability of ISE to maintain the independence of its self-regulatory function, enable it to operate in a manner that complies with the federal securities laws, and facilitate the ability of ISE and the Commission to fulfill their regulatory and oversight obligations under the Act. The Commission further believes that Amendment No. 1 provides additional clarity in the rule text and the description of the proposal, which is consistent with ISE's original proposal and supports ISE's analysis of how its proposal is consistent with the Act, thus facilitating the Commission's ability to make the findings set forth above to approve the proposal. Accordingly, the Commission finds that good cause exists to approve the proposal, as modified by Amendment No. 1, on an accelerated basis.

V. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 1, including whether Amendment No. 1 is consistent with the Act. Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's Internet comment form ( http://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include File Number SR-ISE-2017-32 on the subject line.

Paper Comments

• Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2017-32. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( http://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-ISE-2017-32 and should be submitted on or before August 25, 2017.

VI. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that theproposed rule change (SR-ISE-2017-32), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis.