Notice2021-20816
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, in Connection With the Proposed Establishment of BSTX as a Facility of the Exchange
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 27, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 184 (Monday, September 27, 2021)</title>
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[Federal Register Volume 86, Number 184 (Monday, September 27, 2021)]
[Notices]
[Pages 53365-53384]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-20816]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93094; File No. SR-BOX-2021-14]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Amendment No. 1 and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 1, in Connection With the Proposed Establishment of BSTX
as a Facility of the Exchange
September 21, 2021.
On June 7, 2021, BOX Exchange LLC (``Exchange'' or ``BOX'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to adopt rules
in connection with the establishment of the Boston Security Token
Exchange LLC (``BSTX'') as a facility of the Exchange. The proposed
rule change was published for comment in the Federal Register on June
24, 2021.\3\ On August 3, 2021, pursuant to Section 19(b)(2) of the
Act,\4\ the Commission designated a longer 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.\5\ On September 16, 2021, the Exchange filed
Amendment No. 1 to the proposed rule change, which replaced and
superseded the proposed rule change as originally filed.\6\ The
Commission has received no comments on the proposed rule change. The
Commission is publishing this notice and order to solicit comments on
the proposed rule change, as modified by Amendment No. 1, from
interested persons, and to institute proceedings pursuant to Section
19(b)(2)(B) of the Act \7\ to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 92206 (June 17,
2021), 86 FR 33402 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92556, 86 FR 43572
(August 9, 2021). The Commission designated September 22, 2021, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to approve or disapprove,
the proposed rule change.
\6\ In Amendment No. 1, the Exchange revised the proposal to:
(1) Adopt the BSTX LLC Third Amended and Restated Limited Liability
Company Agreement (``BSTX LLC Agreement'') prior to the commencement
of operations of BSTX as a facility of the Exchange, which, among
other things, (a) changes the legal name of the facility from
``Boston Security Token Exchange LLC'' to ``BSTX LLC,'' (b) modifies
certain defined terms, including ``BSTX Product'' and ``Competing
Business,'' (c) defines the term ``Governmental Authority'' and
modifies certain provisions to permit access to certain confidential
information by any such authority, and (d) adds a provision that
would, among other things, require an effective rule filing pursuant
to Section 19 of the Exchange Act prior to any Member, or Related
Person of such Member, becoming a BSTX Participant if such Member,
alone or together with any Related Persons of such Member, has the
right to appoint more than 20% of the BSTX Directors entitled to
vote; (2) provide additional information about ownership of non-
voting Class B Units; (3) clarify how limitations on voting of
interests in BOX Holdings are implemented by reallocating voting
rights to other BOX Holdings owners, and how a similar provision in
the BSTX LLC Agreement would operate; (4) discuss certain provisions
and associated definitions in the BSTX LLC Agreement that are the
same or different from those that currently apply to BOX Holdings
and BOX Options, particularly with respect to the board structure,
intellectual property, and automatic admission of Class B Units as
Members; (5) provide additional description of limitations on voting
and ownership of interests in the Exchange; (6) provide additional
description of the roles, obligations, and authorities of BOX
Digital, tZERO, and the Exchange with respect to BSTX; (7) describe
the funding of operations of BSTX; (8) clarify representation of
BSTX Participants on the Exchange's Board and committees, and how
those representatives would be appointed at the commencement of
operations; and (9) make other technical, clarifying and conforming
changes. Amendment No. 1 is available on the Commission's website
at: <a href="https://www.sec.gov/comments/sr-box-2021-14/srbox202114-9251558-250847.pdf">https://www.sec.gov/comments/sr-box-2021-14/srbox202114-9251558-250847.pdf</a>.
\7\ 15 U.S.C. 78s(b)(2)(B).
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[[Page 53366]]
I. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 1
The Exchange proposes to establish BSTX \8\ as a facility of the
Exchange. The text of the proposed rule change is available from the
principal office of the Exchange, at the Commission's Public Reference
Room and also on the Exchange's internet website at <a href="http://boxoptions.com">http://boxoptions.com</a>.
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\8\ The Company's current legal name is Boston Security Token
Exchange LLC and its legal name will be changed to BSTX LLC prior to
adoption of the LLC Agreement and commencement of operations.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is submitting this Proposed Rule Change to the
Commission in connection with the proposed establishment of BSTX as a
facility of the Exchange, as that term is defined in Section 3(a)(2) of
the Act.\9\ Pending trading rules filed as part of a separate rule
filing pursuant to the rule filing process under Section 19 of the Act
and approved by the Commission, BSTX will operate the BSTX Market.\10\
The Proposed Rule Change is to establish BSTX as a facility of the
Exchange and, without trading rules approved by the Commission, will
not permit BSTX to commence operations of the BSTX Market. However, the
approval of the Proposed Rule Change, and BSTX as a facility of the
Exchange, will trigger the regulatory oversight responsibilities of the
Exchange with respect to BSTX.
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\9\ 15 U.S.C. 78c(a)(2).
\10\ See Securities Exchange Act Release No. 92017 (May 25,
2021), 86 FR 29634 (June 2, 2021) (``BSTX Rulebook Proposal'').
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BSTX is controlled jointly by BOX Digital, a Delaware limited
liability company and a subsidiary of BOX Holdings Group LLC, and tZERO
Group, Inc., a Delaware corporation and an affiliate of <a href="http://Overstock.com">Overstock.com</a>,
Inc. BSTX is an affiliate of the Exchange and, when approved as a
facility of the Exchange, will be subject to regulatory oversight by
the Exchange. In addition, the Exchange will enter into a facility
agreement with BSTX (the ``Facility Agreement'') pursuant to which the
Exchange will regulate the Company as a facility of the Exchange. The
Exchange's powers and authority under the Facility Agreement ensure
that the Exchange has full regulatory control over BSTX, which is
designed to prevent any owner of BSTX from exercising undue influence
over the regulated activities of the Company. The Exchange will also
provide certain business services to the Company such as providing
human resources and office technology support pursuant to an
administrative services agreement between the Exchange and BSTX.
The LLC Agreement is the source of governance and operating
authority for the Company and, therefore, functions in a similar manner
as articles of incorporation and bylaws would function for a
corporation. The Exchange submitted a separate filing to establish
rules relating to trading on BSTX.\11\ The Exchange also submitted a
separate filing to introduce structural changes to the Exchange to
accommodate regulation of BSTX in addition to the Exchange's existing
facility,\12\ which was approved (the ``Multiple Facilities
Filing'').\13\ With the addition of BSTX as a facility of the Exchange,
BSTX Participants \14\ will have the same representation, rights and
responsibilities as Exchange Facility Participants \15\ on the
Exchange's other facility.
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\11\ See BSTX Rulebook Proposal.
\12\ Currently, there is only one facility of the Exchange, BOX
Options Market LLC.
\13\ See Securities Exchange Act Release No. 88934 May 22, 2020,
85 FR 32085 May 28, 2020.
\14\ A BSTX Participant is a firm or organization that is
registered with the Exchange pursuant to Exchange Rules for the
purposes of participating in Trading on the BSTX Market as an order
flow provider or market maker. ``Trading'' means the availability of
the BSTX System to authorized users for entering, modifying, and
canceling orders of BSTX Products. ``BSTX System'' means the
technology, know-how, software, equipment, communication lines or
services, services and other deliverables or materials of any kind
as may be necessary or desirable for the operation of the BSTX
Market. ``BSTX Product'' means a Security, as defined in the
Exchange Rules, trading on the BSTX System. ``Exchange Rules'' means
the rules of the Exchange that constitute the `rules of an exchange'
within the meaning of Section 3 of the Act, and that pertain to the
BSTX Market. ``BSTX Market'' means the market operated by BSTX. See
Section 1.1, LLC Agreement.
\15\ ``Exchange Facility Participant'' means a firm or
organization that is registered with the Exchange pursuant to the
Exchange Rules for purposes of participating in trading on any
Exchange Facility. See the Second Amended and Restated Limited
Liability Company Agreement of BOX Exchange LLC, dated as of May 29,
2020, as amended, (the ``Exchange LLC Agreement'') Section 1.1.
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The Exchange currently operates BOX Options Market LLC (``BOX
Options''), which is a facility of the Exchange, as that term is
defined in Section 3(a)(2) of the Act. The proposed LLC Agreement
provisions are generally the same as the provisions of the Amended and
Restated Limited Liability Company Agreement of BOX Options Market LLC,
dated as of August 15, 2018 (the ``BOX Options LLC Agreement'') or,
where indicated herein, are the same as provisions of the Second
Amended and Restated Limited Liability Company Agreement of BOX
Holdings, dated as of September 13, 2018, as amended (the ``BOX
Holdings LLC Agreement'').\16\ Currently, BOX Holdings has nine
separate, unaffiliated owners. BOX Holdings owns 100% of BOX Options so
BOX Holdings is essentially the alter ego of BOX Options. By contrast,
the Company has two separate, unaffiliated voting owners, BOX Digital
and tZERO, each of which owns 50% of the voting class of equity of the
Company. Ownership diverges for BOX Options directly above BOX Holdings
in its ownership structure and ownership diverges for the Company
directly above the Company in its ownership structure. Therefore, as
discussed below, when comparing various provisions in the LLC
Agreement, some provisions are more appropriately compared with the BOX
Holdings LLC Agreement, particularly with respect to ownership issues.
The Exchange believes that governance consistent with established
provisions that have already received Commission approval harmonizes
rules and practices across the Exchange's facilities, which may foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, consistent with Section
6(b)(5) of the Act.\17\
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\16\ The Exchange notes, as further described in the Proposed
Rule Change, that certain provisions of the BOX Holdings LLC
Agreement and BOX Options LLC Agreements are not included in the LLC
Agreement because they are not applicable. For example, certain
provisions in the BOX Holdings LLC Agreement that are related to
different voting classes of ownership are not present in the LLC
Agreement because BSTX has only one voting class of ownership. See,
e.g., Sections 4.1, 4.4, 4.13 and 7 of the BOX Holdings LLC
Agreement.
\17\ 15 U.S.C. 78f(b)(5).
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Structure of the Company
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to the structure of the
[[Page 53367]]
Company, highlighting areas that vary in comparison to the BOX Options
LLC Agreement and/or the BOX Holdings LLC Agreement and provides the
statutory basis for such variation.
Ownership interests of the Company are represented by Units.\18\
The Company has two classes of Units: Class A Units \19\ and Class B
Units.\20\ Except as otherwise provided in the LLC Agreement, all Units
are identical to each other and accord the holders thereof the same
obligations, rights, and privileges as accorded to each other holder
thereof.\21\ The duly admitted holders of Units are referred to as the
members of the Company (``Members''). The Units represent equity
interests in the Company and entitle the duly admitted holders thereof
to participate in the Company's allocations and distributions. Voting
Class A Units are held 50/50 by BOX Digital and tZERO with each having
an economic interest of over 45% in the Company. Non-voting Class B
Units are held by various officers, directors, agents, and employees of
the Company, each of whom holds less than 5% economic interest in the
Company.\22\ Accordingly, no single Member can unilaterally exert
control over the Company. Pursuant to Section 1.1 of the LLC Agreement,
a record of the Members is maintained by the Secretary of the Company
and updated from time to time as necessary and as provided in the LLC
Agreement (``Membership Record'').\23\ These provisions are
substantially the same as those in the BOX Holdings LLC Agreement.\24\
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\18\ ``Units'' mean Class A Units and Class B Units. For the
avoidance of doubt, the ownership or possession of Units shall not
in and of itself entitle the owner or holder thereof to vote or
consent to any action with respect to the Company (which rights
shall be vested only in duly admitted Members of the Company), or to
exercise any right of a Member of the Company under the LLC
Agreement, the LLC Act, or other applicable law. See Section 1.1,
LLC Agreement. References herein to ``Units'' refer to Class A and
Class B Units of the Company unless a separate class is specified.
\19\ ``Class A Units'' shall mean equal units of limited
liability company interest in the Company, including an interest in
the ownership and profits and losses of the Company and the right to
receive distributions from the Company as set forth in the LLC
Agreement. See Section 1.1, LLC Agreement.
\20\ ``Class B Units'' shall be identical to Class A Units
except that Class B Members shall not have the right to vote on any
matter related to the Company as a result of holding Class B Units.
See Section 1.1, LLC Agreement.
\21\ Pursuant to Section 2.5(b) of the LLC Agreement, upon the
consummation of any sale or transfer of a majority of the Class A
Units or a majority of the assets of the Company, directly or
indirectly, to any party or group of related parties, including
through a series of transactions, all then outstanding Class B Units
shall automatically convert into an equal number of Class A units
without the need of any action by any person. For the avoidance of
doubt, a Class B Member's Capital Account does not change as a
result of the conversion of the Class B Units.
\22\ Three current Directors hold non-voting Class B Units;
specifically, these Directors are Members and hold, directly or
indirectly, the following economic interest percentages in the
Company: Alan Konevsky 0.36%, Will Easley 0.36%, and Lisa Fall
4.98%. Ms. Fall is CEO of BSTX and BOX Digital.
\23\ The Membership Record shall include the name and address of
each Member and the number of Units of each class held by each
Member.
\24\ See BOX Holdings LLC Agreement Sections 1.1 and 2.5.
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BOX Digital is a subsidiary of BOX Holdings and an affiliate of the
Exchange and, therefore, the Company will be an affiliate of the
Exchange. BOX Holdings owns 98% of BOX Digital and 2% of BOX Digital is
held by Lisa Fall. BOX Holdings already owns one subsidiary that is an
existing facility of the Exchange. The existing facility--BOX Options--
operates a market for trading option contracts on U.S. equities. BOX
Holdings is the parent company for both BOX Digital and BOX Options.
BOX Holdings has nine separate, unaffiliated owners, including MX US 2,
Inc. (``MXUS2''), a wholly owned, indirect subsidiary of TMX Group
Limited (``TMX''), which holds 42.62% of the outstanding units of BOX
Holdings, IB Exchange Corp. (``IB''), which holds 22.69% of the
outstanding units of BOX Holdings, and Citadel Securities Principal
Investments LLC (``Citadel''), which holds 13.80%. The other six owners
of BOX Holdings, Citigroup Financial Products Inc., UBS Americas Inc.,
CSFB Next Fund Inc., LabMorgan Corp., Wolverine Holdings, L.P. and
Aragon Solutions Ltd, each hold less than 10% of the outstanding units
of BOX Holdings.
Owners of BOX Holdings (``BOX Holdings Members'') hold Class A and
Class B Units (together, ``Holdings Units'').\25\ Holdings Units
represent equal units of economic rights in BOX Holdings. Voting rights
of BOX Holdings Members generally follow the ownership percentage (the
``Holdings Ownership Percentage'') based on the ratio of the number of
Holdings Units held by each BOX Holdings Member to the total number of
Holdings Units issued and outstanding.\26\ As discussed above, the
Holdings Ownership Percentage of each BOX Holdings Member greater than
10% is as follows: MXUS2: 42.62%; IB: 22.69% and Citadel: 13.80%.
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\25\ Class B Units of BOX Holdings are identical to Class A
Units except Class B Units include conversion rights, a liquidation
preference and class voting rights with respect to those matters.
See BOX Holdings LLC Agreement Sec. Sec. 1.1 and 2.5.
\26\ See BOX Holdings LLC Agreement Section 1.1.
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However, Exchange Facility Participants are limited to a maximum of
20% voting power for votes of BOX Holdings Members and votes of
directors appointed by an Exchange Facility Participant on the BOX
Holdings board of directors.\27\ IB holds a Holdings Ownership
Percentage greater than 20% and therefore, as an Exchange Facility
Participant, is limited to voting power with respect to BOX Holdings of
no greater than 20%. As a result, IB's voting power with respect to
votes of BOX Holdings Members that would otherwise be greater than 20%
is counted for quorum purposes and voted by the person presiding over
quorum and vote matters in the same proportion as the remainder of the
vote. This limitation effectively automatically reallocates IB's voting
power above 20% to the other BOX Holdings Members and, as a result,
each of the other BOX Holdings Members has greater voting power at BOX
Holdings than its Holdings Ownership Percentage. The respective voting
power of each BOX Holdings Member that is greater than 10% is as
follows: MXUS2: 44.10%; IB: 20.00% and Citadel: 14.28%.
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\27\ See BOX Holdings LLC Agreement Section 7.4(h).
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Further, one BOX Holdings Member, Wolverine Holdings, L.P.
(``Wolverine''), does not currently have a right to designate a
director to the BOX Holdings board of directors, where the voting power
of each director is tied to the voting power of the BOX Holdings Member
that appointed such director.\28\ As a result of IB's limited voting
power and Wolverine's lack of board representation, the voting power of
the respective BOX Holdings directors designated by each of the other
BOX Holdings Members is greater than the respective BOX Holdings
Member's voting power with respect to BOX Holdings Member matters. The
BOX Holdings board voting power of directors designated by each of the
BOX Holdings Members greater than 10% is as follows: MXUS2: 45.50%; IB:
20.00% and Citadel: 14.73%.
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\28\ See BOX Holdings LLC Agreement Section 4.3(b).
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Medici Ventures, L.P. (``Medici''), a Delaware limited partnership,
owns 44% of the outstanding shares of tZERO, <a href="http://Overstock.com">Overstock.com</a>, Inc.
(``Overstock''), a publicly held corporation organized under the laws
of the state of Delaware, owns 43% of the outstanding shares of tZERO,
Joseph Cammarata holds 7.53% of the outstanding shares of tZERO, and
each of the following owns less than 3% of the outstanding shares of
tZERO: Todd Tobacco, Newer Ventures LLC, Schalk Steyn, Raj Karkara,
Alec Wilkins, Dohi Ang, Brian Capuano, Trent Larson,
[[Page 53368]]
Eric Fish, Kristen Anne Bagley, Kirstie Dougherty, SpeedRoute
Technologies Inc., Tommy McSherry, Rob Collucci, John Gilchrist, John
Paul DeVito, Jimmy Ambrose, Jason Heckler, Max Melmed, Alex Vlastakis,
Olalekan Abebefe, Samson Arubuola, Ryan Mitchell, Zachary Wilezol,
Anthony Bove, Ralph Daiuto, Rob Christiansen, Amanda Gervase, Derek
Tobacco, Steve Bailey, and Dinosaur Financial. Pelion MV GP, L.L.C.
(``Medici GP''), a Delaware limited liability company, serves as the
general partner of Medici and has the sole right to manage its affairs.
Medici GP owns 1% of the partnership interests in Medici (along with a
profits interest in Medici), and Overstock owns 99% of the partnership
interests in Medici. Membership interests in Medici GP are held by the
following, each of which holds less than 25% of Medici GP: Carine
Clark, Susannah Duke, Steve Glover, Brad Hintze, Jeff Kearl, Trevor
Lund, Matt Mosman, Erika Nash, Zain Rizavi, Laura Summerhays, The Blake
G Modersitzki 2020 Irrevocable Trust (affiliated with Blake G.
Modersitzki), The Capitola Trust (affiliated with Chad Packard), The GP
Investment Trust (affiliated with Chris Cooper) and The Oaxaca Dynasty
Trust (affiliated with Ben Lambert). Therefore, both tZERO and the
Company are affiliates of Overstock, Medici and Medici GP.
Pursuant to Section 7.4(g)(ii) of the LLC Agreement, any
Controlling Person \29\ is required to become a party to the LLC
Agreement and abide by its provisions, to the same extent and as if
they were Members. This provision and the associated definitions of
Controlling Person and Controlling Interest are the same as currently
apply to BOX Holdings.\30\ Accordingly, prior to commencing operations
as a facility of the Exchange, BSTX will obtain, from each Controlling
Person, an instrument of accession substantially in the form attached
hereto as Exhibit 5B [sic]. Related Persons that are otherwise
Controlling Persons are not required to become parties to the LLC
Agreement if they are only under common control of an upstream owner
but are not in the upstream ownership chain above a Company owner
because they will not have the ability to exert any control over the
Company. BOX Holdings, Medici, Medici GP and Overstock are indirect
owners of the Company. Medici GP owns 1% of the partnership interests
and a profits interest in Medici and acts as Medici's general partner.
Overstock owns 43% of tZERO directly and 99% of Medici, which owns 44%
of tZERO. As a result, Overstock owns, directly or indirectly, more
than 80% of tZERO, which owns 50% of the voting class of equity of
BSTX. Overstock, Medici and Medici GP will be required to become
parties to the Company's LLC Agreement by executing an instrument of
accession and abide by its provisions, to the same extent and as if
they were Members, because they are Controlling Persons of the Company.
Similarly, BOX Digital, BOX Holdings, MXUS2, MX US 1, Inc., Bourse de
Montreal Inc., and TMX Group Limited will also each be required to
become parties to the LLC Agreement by executing an instrument of
accession and abide by its provisions to the same extent and as if they
were Members because they are Controlling Persons of the Company. TMX
Group Limited owns 100% of Bourse de Montreal Inc., which owns 100% of
MX US 1, Inc., which owns 100% of MXUS2, which owns more than 40% of
BOX Holdings. Each of these upstream owners of BOX Holdings is a
Controlling Person required to be, and is, a party to, and be subject
to, the BOX Holdings LLC Agreement. BOX Holdings owns 98% of BOX
Digital, which owns 50% of the voting class of equity of BSTX.
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\29\ A ``Controlling Person'' is defined as ``a Person who,
alone or together with any Related Persons of such Person, holds a
Controlling Interest in a Member.'' See Section 7.4(g)(v)(B), LLC
Agreement. A ``Controlling Interest'' is defined as ``the direct or
indirect ownership of 25% or more of the total voting power of all
equity securities of a Member (other than voting rights solely with
respect to matters affecting the rights, preferences, or privileges
of a particular class of equity securities), by any Person, alone or
together with any Related Persons of such Person.'' See Section
7.4(g)(v)(A), LLC Agreement. A ``Related Person'' is defined as
``with respect to any Person: (A) Any Affiliate of such Person; (B)
any other Person with which such first Person has any agreement,
arrangement or understanding (whether or not in writing) to act
together for the purpose of acquiring, voting, holding or disposing
of Units; (C) in the case of a Person that is a company, corporation
or similar entity, any executive officer (as defined under Rule 3b-7
under the [Act]) or director of such Person and, in the case of a
Person that is a partnership or limited liability company, any
general partner, managing member or manager of such Person, as
applicable; (D) in the case of any BSTX Participant who is at the
same time a broker-dealer, any Person that is associated with the
BSTX Participant (as determined using the definition of ``person
associated with a member'' as defined under Section 3(a)(21) of the
[Act]); (E) in the case of a Person that is a natural person and a
BSTX Participant, any broker or dealer that is also a BSTX
Participant with which such Person is associated; (F) in the case of
a Person that is a natural person, any relative or spouse of such
Person, or any relative of such spouse who has the same home as such
Person or who is a director or officer of the Exchange or any of its
parents or subsidiaries; (G) in the case of a Person that is an
executive officer (as defined under Rule 3b-7 under the [Act]) or a
director of a company, corporation or similar entity, such company,
corporation or entity, as applicable; and (H) in the case of a
Person that is a general partner, managing member or manager of a
partnership or limited liability company, such partnership or
limited liability company, as applicable.'' A ``Person'' is defined
as ``any individual, partnership, corporation, association, trust,
limited liability company, joint venture, unincorporated
organization and any government, governmental department or agency
or political subdivision thereof.'' See Section 1.1, LLC Agreement.
\30\ See Section 7.4(g), BOX Holdings LLC Agreement.
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Pursuant to Section 7.4(h) of the LLC Agreement,\31\ in the event
any Member, or any Related Person of such Member, is approved by the
Exchange as a BSTX Participant pursuant to the Exchange Rules, and such
Member owns more than 20% of the Units, alone or together with any
Related Person of such Member (Units owned in excess of 20% being
referred to as ``Excess Units''), the Member and its appointed Member
Directors shall have no voting rights whatsoever with respect to any
action relating to the Company nor shall the Member or its appointed
Member Directors, if any, be entitled to give any proxy in relation to
a vote of the Members, in each case solely with respect to the Excess
Units held by such Member; provided, however, that whether or not such
Member or its appointed Member Directors, if any, otherwise
participates in a meeting in person or by proxy, such Member's Excess
Units shall be counted for quorum purposes and shall be voted by the
person presiding over quorum and vote matters in the same proportion as
the Units held by the other Members are voted (including any
abstentions from voting). In addition, an effective rule filing
pursuant to Section 19 of the Act shall be required prior to any
Member, or any Related Person of such Member, becoming a BSTX
Participant if such Member, alone or together with any Related Persons
of such Member, has the right to appoint more than 20% of the Directors
entitled to vote and, unless a rule filing authorizing the foregoing is
first effective, such Member, or any Related Person of such Member,
shall not be registered as a BSTX Participant. These limitations are
designed to prevent a market participant from exerting undue influence
on a facility of the Exchange. Related Persons will be grouped together
when applying these limits. Accordingly, any Related Persons of tZERO
or another Member will not be a BSTX Participant without completing the
rule filing process. The Exchange believes the proposed voting cap
provision is 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
[[Page 53369]]
out the purposes of the Act.\32\ In particular, the voting cap is
designed to minimize the ability of a BSTX Participant to improperly
interfere with or restrict the ability of the Exchange to effectively
carry out its regulatory oversight responsibilities under the Act.
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\31\ LLC Agreement Section 7.4(h) is based on Section 7.4(h) of
the BOX Holdings LLC Agreement.
\32\ 15 U.S.C. 78f(b)(1).
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Any Member shall provide the Company with written notice fourteen
(14) days prior, and the Company shall provide the SEC and the Exchange
with written notice ten (10) days prior, to the closing date of any
acquisition that results in such Member's Percentage Interest,\33\
alone or together with any Related Person of such Member, meeting or
crossing the threshold level of 5% or the successive 5% Percentage
Interest levels of 10% and 15%.\34\ Further, rule filings are required
for any Transfer \35\ that results in the acquisition and holding by
any Person, alone or together with its Related Persons, of an aggregate
Percentage Interest level which meets or crosses the threshold level of
20% or any successive 5% Percentage Interest level (i.e., 25%, 30%,
etc.).\36\ These are the same provisions as are contained in the BOX
Holdings LLC Agreement. The Exchange believes the proposed notification
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.\37\ In particular, SEC
notification of ownership interests exceeding certain percentage
thresholds can help improve the Commission's ability to effectively
monitor and surveil for potential undue influence and control over the
operation of the Exchange.
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\33\ ``Percentage Interest'' means ``with respect to a Member,
the ratio of the number of Unit held by the Member to the total of
all of the issued Units, expressed as a percentage and determined
with respect to each class of Units whenever applicable.'' See
Section 1.1, LLC Agreement.
\34\ See LLC Agreement, Section 7.4(e). LLC Agreement Section
7.4(e) is based on Section 7.4(e) of the BOX Holdings LLC Agreement.
\35\ ``Transfer'' means the actions of a Person to ``directly or
indirectly, whether voluntarily, involuntarily, by operation of law
or otherwise, dispose of, sell, alienate, assign, exchange,
participate, subparticipate, encumber, or otherwise transfer in any
manner'' its Units but does not include ``transfers among Members,
transfers to any Person directly or indirectly owning, controlling
or holding with power to vote all of the outstanding voting
securities of and equity or beneficial interests in that Member, or
transfers to any Person that is a wholly owned Affiliate of a
transferring Member.'' See LLC Agreement, Section 7.1(a).
\36\ See LLC Agreement, Section 7.4(f). LLC Agreement Section
7.4(f) is based on Section 7.4(f) of the BOX Holdings LLC Agreement.
\37\ 15 U.S.C. 78f(b)(1).
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The Exchange is the entity that will have regulatory oversight of
BSTX. All owners of the Exchange are limited to 40% economic ownership
and 20% voting power on the Exchange.\38\ In addition, owners of the
Exchange that are also Exchange Facility Participants are further
limited to a maximum of 20% economic ownership of the Exchange and are
still subject to the general limitation of 20% voting power of the
Exchange.\39\ The Exchange notes these existing ownership limits
applicable to owners of the Exchange are not changing.\40\ The Exchange
believes these existing ownership limits will help to ensure the
independence of the Exchange's regulatory oversight of BSTX and
facilitate the ability of the Exchange to carry out its regulatory
responsibilities and operate in a manner consistent with the Act, and
are appropriate and consistent with the requirements of the Act,
particularly with Section 6(b)(1), which requires, in part, an exchange
be so organized and have the capacity to carry out the purposes of the
Act.\41\
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\38\ See Exchange LLC Agreement Section 7.3.
\39\ See Exchange LLC Agreement Section 7.3.
\40\ See Securities Exchange Act Release No. 34-66871 (April 27,
2012) 77 FR 26323 (May 3, 2012) (Order granting approval of BOX
Exchange).
\41\ 15 U.S.C. 78f(b)(1).
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The Company does not have the same ownership as BOX Options or BOX
Holdings; therefore, the Members of the Company differ from those of
BOX Options and BOX Holdings. The Exchange believes that the structure
of the Company will promote just and equitable principles of trade,
and, in general, protect investors and the public interest, consistent
with Section 6(b)(5) of the Act.\42\
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\42\ 15 U.S.C. 78f(b)(5).
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Term and Termination
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to the term and termination of the Company,
highlighting areas that vary in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC Agreement and provides the statutory
basis for such variation.
Pursuant to Section 2.3 of the LLC Agreement, the Company will have
a perpetual legal existence unless it is sooner dissolved as a result
of an event specified in the Delaware Limited Liability Company Act, as
amended and in effect from time to time, and any successor statute (the
``LLC Act'') or by agreement of the Members. The term is the same as
the provision in the BOX Options LLC Agreement,\43\ but also provides
that the Company can be dissolved by agreement of the Members. In
addition, Section 10.1 of the LLC Agreement provides that the Company
shall be dissolved upon (i) the election to dissolve the Company made
by the Board pursuant to Section 4.4(b)(v) of the LLC Agreement; (ii)
the entry of a decree of judicial dissolution under Sec. 18-802 of the
LLC Act; (iii) the resignation, expulsion, bankruptcy or dissolution of
the last remaining Member, or the occurrence of any other event which
terminates the continued membership of the last remaining Member in the
Company, unless the business of the Company is continued without
dissolution in accordance with the LLC Act; or (iv) the occurrence of
any other event that causes the dissolution of a limited liability
company under the LLC Act unless the Company is continued without
dissolution in accordance with the LLC Act. The dissolution events are
generally the same as those in the BOX Options LLC Agreement; \44\
however, the Company may also be dissolved by the affirmative vote of
Members holding a majority of all of the then outstanding Percentage
Interests (excluding any Percentage Interests held directly or
indirectly by tZERO and its Affiliates \45\ from the numerator and the
denominator for such calculation) taken within 180 calendar days after
the occurrence of any ``Trigger Event'' as such term is defined in the
IP License and Services Agreement entered into by and between tZERO and
the Company (the ``LSA'') and described in more detail below.\46\ The
Exchange believes
[[Page 53370]]
that the addition of such dissolution events will promote just and
equitable principles of trade, and, in general, protect investors and
the public interest, consistent with Section 6(b)(5) of the Act.\47\
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\43\ See BOX Options LLC Agreement Section 2.3.
\44\ See BOX Options LLC Agreement Section 8.1.
\45\ An ``Affiliate'' is defined as ``with respect to any
Person, any other Person controlling, controlled by or under common
control with, such Person. As used in this definition, the term
``control'' means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise with respect to such Person. A
Person is presumed to control any other Person, if that Person: (i)
Is a director, general partner, or officer exercising executive
responsibility (or having similar status or performing similar
functions); (ii) directly or indirectly has the right to vote 25
percent or more of a class of voting security or has the power to
sell or direct the sale of 25 percent or more of a class of voting
securities of the Person; or (iii) in the case of a partnership, has
contributed, or has the right to receive upon dissolution, 25
percent or more of the capital of the partnership.'' See Section
1.1, LLC Agreement.
\46\ The LSA defines a ``Trigger Event'' as meaning ``any of the
following events: (a) A material breach by tZERO of any of its
obligations under this LSA (being either a single event which is a
material breach or a series of breaches which taken together are a
material breach) which material breach or failure is not cured by
tZERO within 90 days after Company gives written notice of such
breach or failure to tZERO hereunder, except for system availability
issues in which case the cure period shall be 10 days; (b) any
bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency Law or any non-
frivolous dissolution or liquidation proceedings commenced by or
against tZERO; and if such case or proceeding is not commenced by
tZERO, it is acquiesced by tZERO in or remains undismissed for 30
days; (c) tZERO ceasing active operation of its business without a
successor or discontinuing any of the Base Services; (d) tZERO
becomes judicially declared insolvent or admits in writing its
inability to pay its debts as they become due; or (e) tZERO applies
for or consents to the appointment of a trustee, receiver or other
custodian for tZERO, or makes a general assignment for the benefit
of its creditors.''
\47\ 15 U.S.C. 78f(b)(5).
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Upon the occurrence of any of the events set forth in Section
10.1(a) of the LLC Agreement, the Company will be dissolved and
terminated in accordance with the provisions of Article 10 of the LLC
Agreement.
Governance of the Company
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to the governance of the Company, highlighting
areas that vary in comparison to the BOX Options LLC Agreement and/or
BOX Holdings LLC Agreement and provides the statutory basis for such
variation.
Section 4.1 of the LLC Agreement establishes a board of directors
of the Company (the ``Board of Directors'' or the ``Board'') to manage
the development, operations, business and affairs of the Company
without the need for any approval of the Members or any other person.
Section 4.10 of the LLC Agreement provides that, except and only to the
extent expressly provided for in the LLC Agreement and the Related
Agreements and as delegated by the Board of Directors to committees of
the Board of Directors or to duly appointed Officers or agents of the
Company, neither a Member nor any other Person other than the Board of
Directors shall be an agent of the Company or have any right, power or
authority to transact any business in the name of the Company or to act
for or on behalf of or to bind the Company. Section 4.12(a) of the LLC
Agreement provides that each of the Members and the Directors,
Officers, employees and agents of the Company (a) shall give due regard
to the preservation of the independence of the self-regulatory function
of the Exchange and to its obligations to investors and the general
public and shall not take any actions which would interfere with the
effectuation of decisions by the board of directors of the Exchange
relating to its regulatory functions (including disciplinary matters)
or which would interfere with the Exchange's ability to carry out its
responsibilities under the Act; (b) comply with the federal securities
laws and the rules and regulations promulgated thereunder; and (c)
cooperate with the Exchange pursuant to its regulatory authority and
with the SEC. Section 3.2 of the LLC Agreement provides that the
Exchange will (a) act as the SEC-approved SRO for the BSTX Market, (b)
have regulatory responsibility for the activities of the BSTX Market
and provide regulatory services to the Company pursuant to the Facility
Agreement. These are the same provisions that are contained in the BOX
Options LLC Agreement.\48\ These provisions ensure that the Exchange
has full regulatory control over BSTX, which is designed to prevent any
owner of BSTX from exercising undue influence over the regulated
activities of the Company.
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\48\ See BOX Options LLC Agreement Sections 4.1, 4.10, 4.12, and
3.2.
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Section 4.1 of the LLC Agreement provides that the Board will
consist of six (6) directors (each a ``Director''), comprised of two
(2) Directors appointed by BOX Digital, two (2) Directors appointed by
tZERO (together with the BOX Digital Directors, each a ``Member
Director''), one (1) Director (the ``Independent Director'') appointed
by the unanimous vote of all of the then serving Member Directors, and
one (1) non-voting Director (the ``Regulatory Director'') appointed by
the Exchange. As long as the Company is a facility of the Exchange
pursuant to Section 3(a)(2) of the Act, the Exchange will have the
right to appoint a Regulatory Director to serve as a Director. The
Regulatory Director must be a member of the senior management of the
regulation staff of the Exchange. By comparison, the board of directors
of BOX Options is the same as BOX Holdings because it is a wholly-owned
subsidiary of BOX Holdings. The remaining structure of the Board of
Directors for the Company differs from that of BOX Holdings because the
ownership of the Company differs from that of BOX Holdings, which has
more than two owners of its voting class of equity, as discussed above.
By comparison, the BOX Holdings board of directors uses a tiered system
in which board voting is based on ownership percentage of the BOX
Holdings owner that appointed each director. Specifically, in the BOX
Holdings system, each owner of BOX Holdings is entitled to appoint a
number of directors based on the percentage of total outstanding units
of BOX Holdings held by such owner \49\ and all of the BOX Holdings
directors appointed by a single owner of BOX Holdings, together,
possess voting power on the BOX Holdings board of directors
commensurate with the percentage of outstanding units of BOX Holdings
held by the owner appointing such directors.\50\ The Exchange believes
the organization of the BSTX Board is simple and effective in limiting
any one Member to be able to control a maximum of 40% of voting power
of the full Board. Further, the Exchange believes the organization of
the BSTX Board is consistent with Section 6(b)(1) of the Act by helping
to ensure the Exchange, including in the operation of any facilities,
continues to be so organized and has the capacity to carry out the
purposes of the Act. The Company has an Independent Director to avoid
either Member from controlling or creating deadlock on the Board.
However, the presence of a Regulatory Director selected by the Exchange
on the Board is identical to the longstanding practice at the
Exchange's other facility, BOX Options. The Exchange believes that the
proposed board structure, and in particular, the inclusion of the
proposed Independent Director and Regulatory Director, will 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, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest, consistent with Section
6(b)(5) of the Act.\51\ Further, the Exchange believes that inclusion
of the Regulatory Director on the BSTX Board would also be consistent
with Section 6(b)(1) of the Act. This is because the Regulatory
Director is required to be someone who is a member of the senior
management of the regulation staff of the Exchange and is therefore a
person who is knowledgeable of the rules of the Exchange and the
regulations applicable to it and, in turn, is someone who would be well
positioned to help ensure the Exchange, including in the operation of
any facilities, continues to be so organized and has the capacity to
carry out the purposes of the Act,
[[Page 53371]]
including to prevent inequitable and unfair practices.
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\49\ See Section 4.1(a), BOX Holdings LLC Agreement.
\50\ See Section 4.3(b), BOX Holdings LLC Agreement.
\51\ 15 U.S.C. 78f(b)(5).
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Section 4.3 of the LLC Agreement provides that the Board will meet
as often as it deems necessary, but at least four (4) times per
year.\52\ Meetings of the Board or any committee thereof may be
conducted in person or by telephone or in any other manner agreed to by
the Board or, respectively, by the members of a committee. Any of the
Directors or the Exchange may call a meeting of the Board upon fourteen
(14) calendar days prior written notice. In any case where the
convening of a meeting of Directors is a matter of urgency, notice of
the meeting may be given not less than forty-eight (48) hours before
the meeting is to be held. No notice of a meeting shall be necessary
when all Directors are present. The attendance of at least a majority
of all the Directors shall constitute a quorum for purposes of any
meeting of the Board. Except as may otherwise be provided by the LLC
Agreement, each of the Directors will be entitled to one vote on any
action to be taken by the Board, except that the Regulatory Director
shall not vote on any action to be taken by the Board or any committee,
the CEO (if a Director) shall not be entitled to vote on matters
relating to the CEO's powers, compensation or performance, and a
Director shall not be entitled to vote on any matter pertaining to that
Director's removal from office. A Director may vote the votes allocated
to another Director (or group of Directors) pursuant to a written
proxy. Except as otherwise provided by the LLC Agreement, any action to
be taken by the Board shall be considered effective only if approved by
at least a majority of the votes entitled to be voted on that action.
Meetings of the Board may be attended by other representatives of the
Members, the Exchange and other persons related to the Company as the
Board may approve.\53\ Any action required or permitted to be taken at
a meeting of the Board or any committee thereof may be taken without a
meeting if written consents, setting forth the action so taken, are
executed by the members of the Board or committee, as the case may be,
representing the minimum number of votes that would be necessary to
authorize or to take that action at a meeting at which all members of
the Board or committee, as the case may be, permitted to vote were
present and voted. The Board will determine procedures relating to the
recording of minutes of its meetings. The Exchange believes that the
proposed board structure will 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, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest, consistent with Section 6(b)(5) of the Act.\54\
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\52\ LLC Agreement Section 4.3 is based on Section 4.3 of the
BOX Options LLC Agreement.
\53\ Section 4.3 of the BOX Options LLC Agreement varies from
Section 4.3 of the LLC Agreement in that the corresponding sentence
in Section 4.3 of the BOX Options LLC Agreement references BOX
Holdings Members rather than Members of the existing facility, BOX
Options, while Section 4.3 of the LLC Agreement references Members
of the proposed facility, BSTX. This difference is because BOX
Options is wholly-owned by BOX Holdings and, therefore, BOX Options
has only one owner. Accordingly, ownership of the existing facility,
BOX Options, diverges with the Members of BOX Holdings while
ownership of the proposed facility, BSTX, diverges with the Members
of BSTX.
\54\ 15 U.S.C. 78f(b)(5).
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Pursuant to Section 4.4 of the LLC Agreement, no action with
respect to any major action (each a ``Major Action''), will be
effective unless approved by the Board, including the affirmative vote
of all then serving Member Directors, in each case acting at a meeting.
A vacancy on the Board will not prevent approval of a Major Action. No
other Member votes are required for a Major Action. For purposes of the
LLC Agreement, ``Major Action'' means any of the following: (i) A
merger or consolidation of the Company with any other entity or the
sale by the Company of any material portion of its assets; (ii) entry
by the Company into any line of business other than the business
outlined in Article 3 of the LLC Agreement; (iii) conversion of the
Company from a Delaware limited liability company into any other type
of entity; (iv) except as expressly contemplated by the LLC Agreement
and then existing Related Agreements, entering into any agreement,
commitment, or transaction with any Member or any of its Affiliates
other than transactions or agreements upon commercially reasonable
terms that are no less favorable to the Company than the Company would
obtain in a comparable arms-length transaction or agreement with a
third party; (v) to the fullest extent permitted by law, taking any
action (except pursuant to a vote of the Members pursuant to Section
10.1(a)(iii)) of the LLC Agreement to effect the voluntary, or which
would precipitate an involuntary, dissolution or winding up of the
Company; (vi) operating the BSTX Market utilizing any other software
system, other than the BSTX System, except as otherwise provided in the
LSA or to the extent otherwise required by the Exchange to fulfill its
regulatory functions or responsibilities or to oversee the BSTX Market
as determined by the board of the Exchange; (vii) operating the BSTX
Market utilizing any other regulatory services provider other than the
Exchange, except as otherwise provided in the Facility Agreement or to
the extent otherwise required by the Exchange to fulfill its regulatory
functions or responsibilities or to oversee the BSTX Market as
determined by the board of the Exchange; (viii) entering into any
partnership, joint venture or other similar joint business undertaking;
(ix) making any fundamental change in the market structure of the
Company from that contemplated by the Members as of the date of the LLC
Agreement, except to the extent otherwise required by the Exchange to
fulfill its regulatory functions or responsibilities or to oversee the
BSTX Market as determined by the board of the Exchange; (x) issuing any
new Units pursuant to Section 7.6 of the LLC Agreement or admitting
additional or substitute Members pursuant to Section 7.1(b); (xi)
altering the provisions for Board membership applicable to any Member,
except to the extent otherwise required by the Exchange to fulfill its
regulatory functions or responsibilities or to oversee the BSTX Market
as determined by the board of the Exchange; and (xii) altering the
definition of or requirements for approving a Major Action, except to
the extent otherwise required by the Exchange to fulfill its regulatory
functions or responsibilities or to oversee the BSTX Market as
determined by the board of the Exchange. The Major Action events are
generally the same as those in the BOX Options LLC Agreement and BOX
Holdings LLC Agreement \55\ with the exception of deletions to
references to BOX Options affiliates and owners and to include cross
references to other provisions of the LLC Agreement; however, the
Company's LLC Agreement also provides that a Major Action also includes
provisions (viii), (x), and (xi) as described above. The Exchange
believes that such events should be deemed Major Actions for commercial
fairness. The Exchange believes that deeming the above referenced
events as Major Actions will promote just and equitable principles of
trade, foster cooperation and
[[Page 53372]]
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest, consistent with Section
6(b)(5) of the Act.\56\ In addition, such requirements enhance the
ability of the Exchange and its proposed facility, BSTX, to effectively
carry out its regulatory responsibilities under the Act, particularly
with Section 6(b)(1) thereof, which requires, in part, an exchange be
so organized and have the capacity to carry out the purposes of the
Act.
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\55\ See Section 4.4 of the BOX Options LLC Agreement and
Section 4.4 of the BOX Holdings LLC Agreement.
\56\ 15 U.S.C. 78f(b)(5).
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Pursuant to Section 4.1(b) of the LLC Agreement, a Member Director
may be removed by the Member entitled to appoint that Member Director,
with or without cause. The Independent Director may be removed by a
majority vote of the then serving Member Directors, with or without
cause. Any Member Director or Independent Director may be removed by
the Board if the Board determines, in good faith, that the Director has
violated any provision of the LLC Agreement or any federal or state
securities law or that such action is necessary or appropriate in the
public interest or for the protection of investors. A Director shall
not participate in any vote regarding that Director's removal. The
Company shall promptly notify the Exchange in writing of the
commencement or cessation of service of a Member Director or
Independent Director. Like BOX Options, Directors may be removed by the
Board for reasons related to protection of investors and the owners
with rights to appoint a Member Director have power to remove and
replace their respective designees. The removal provisions for the
Company's Independent Director differ from those of BOX Options and BOX
Holdings because those entities do not have an Independent Director.
The Exchange believes that the proposed removal provisions will 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, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest, consistent with Section
6(b)(5) of the Act. Further, the Exchange believes that the ability for
Member Directors and Independent Directors to be removed from the Board
in the circumstances described above would be consistent with Section
6(b)(1) of the Act.\57\ This is because removal of such Directors who
have violated the LLC Agreement or federal or state laws would help
ensure that the Exchange, including in its operation of facilities, is
so organized and has the capacity to be able to carry out the purposes
of the Act, including the prevention of inequitable and unfair
practices.
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\57\ 15 U.S.C. 78f(b)(1).
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Section 4.1(c) of the LLC Agreement provides that, if a vacancy is
created on the Board as a result of the death, disability, retirement,
resignation or removal (with or without cause) of a Member Director or
otherwise there shall exist or occur any vacancy on the Board, the
Member whose designee created the vacancy will fill that vacancy by
written notice to the Company. Each Member shall promptly fill
vacancies on the Board, and the Board shall consider the advisability
of taking further action until the vacancies are filled. The vacancy
provisions are not in the BOX Options LLC Agreement; however, the
Exchange believes that providing for contingencies in the event of a
vacancy are important to avoid business disruption and, therefore, this
proposal will foster cooperation and coordination with persons engaged
in regulating, clearing, settling, processing information with respect
to, and facilitating transactions in securities, consistent with
Section 6(b)(5) of the Act.\58\ Further, the Exchange believes that
filling Director vacancies, as described above, would provide a
predetermined and transparent manner for filling Director vacancies and
therefore help avoid business disruptions at BSTX. The Exchange
believes that this, in turn, would be consistent with Section 6(b)(1)
of the Act \59\ because it would help ensure that the Exchange,
including in the operation of facilities, is so organized and has the
capacity to be able carry out the purposes of the Act, including to
remove impediments to and perfect the mechanisms of a national market
system for securities.
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\58\ 15 U.S.C. 78f(b)(5).
\59\ 15 U.S.C. 78f(b)(1).
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Section 4.1(d) of the LLC Agreement provides that the Regulatory
Director may be removed (a) by the Exchange, with or without cause, (b)
by the Board if the Board determines, in good faith, that the
Regulatory Director has violated any provision of the LLC Agreement or
any federal or state securities law, or (c) by the Board if the Board
determines, in good faith, that the Regulatory Director does not meet
the requirements of a Regulatory Director as set forth in the LLC
Agreement. If the Regulatory Director ceases to serve for any reason,
the Exchange shall appoint a new Regulatory Director in accordance with
the requirements in the LLC Agreement. The removal provisions in the
Company's LLC Agreement are substantially the same as those in the BOX
Options LLC Agreement.\60\
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\60\ See Section 4.1(d) of the BOX Options LLC Agreement.
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Section 4.12(b) of the LLC Agreement provides that the Company and
its Members shall comply with the federal securities laws and the rules
and regulations promulgated thereunder and shall cooperate with the SEC
and the Exchange pursuant to and to the extent of their respective
regulatory authority. The Directors, Officers, employees and agents of
the Company, by virtue of their acceptance of such position, shall
comply with the federal securities laws and the rules and regulations
promulgated thereunder and shall be deemed to agree to cooperate with
the SEC and the Exchange in respect of the SEC's oversight
responsibilities regarding the Exchange, and the Company shall take
reasonable steps necessary to cause its Directors, Officers, employees
and agents to so cooperate. These provisions in the LLC Agreement are
the same as those in the BOX Options LLC Agreement and BOX Holdings LLC
Agreement.\61\
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\61\ See Section 4.12(b) of the BOX Options LLC Agreement and
Section 4.12(b) of the BOX Holdings LLC Agreement.
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Section 3.2(a)(ii) of the LLC Agreement provides that the Exchange
shall receive notice of planned or proposed changes to the Company (but
not including changes relating solely to one or more of the following:
marketing, administrative matters, personnel matters, social or team
building events, meetings of the Members, communication with the
Members, finance, location and timing of Board meetings, market
research, real property, equipment, furnishings, personal property,
intellectual property, insurance, contracts unrelated to the operation
of the BSTX Market and de minimis items (``Non-Market Matters'')) or
the BSTX Market (including, but not limited to the BSTX System) which
will require an affirmative approval by the Exchange prior to
implementation, not inconsistent with the LLC Agreement. Planned
changes include, without limitation: (a) Planned or proposed changes to
the BSTX System means the
[[Page 53373]]
technology, know-how, software, equipment, communication lines or
services, services and other deliverables or materials of any kind as
may be necessary or desirable for the operation of the BSTX Market.;
(b) the sale by the Company of any material portion of its assets; (c)
taking any action to effect a voluntary, or which would precipitate an
involuntary, dissolution or winding up of the Company; or (d) obtaining
regulatory services from a regulatory services provider other than the
Exchange. Procedures for requesting and approving changes shall be
established by the mutual agreement of the Company and the
Exchange.\62\ These provisions in the LLC Agreement are the same as
those in the BOX Options LLC Agreement.\63\
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\62\ The language providing that procedures for requesting and
approving changes shall be established by the mutual agreement of
the Company and the Exchange does not diminish the power and
authority of the Exchange to regulate such changes because, if the
Company and the Exchange cannot agree on procedure, the Exchange
simply will not approve any such change. By the terms of Section
3.2(a)(ii) of the LLC Agreement, planned or proposed changes to the
Company will require an affirmative approval by the Exchange prior
to implementation and such affirmative approval will not be given.
\63\ See Section 3.2(a)(ii) of the BOX Options LLC Agreement.
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Section 3.2(a)(iii) of the LLC Agreement provides that in the event
that the Exchange, in its sole discretion, determines that the proposed
or planned changes to the Company or the BSTX Market (including, but
not limited to, the BSTX System) set forth in Section 3.2(a)(ii) of the
LLC Agreement could cause a Regulatory Deficiency \64\ if implemented,
the Exchange may direct the Company, subject to approval of the
Exchange board of directors, to modify the proposal as necessary to
ensure that it does not cause a Regulatory Deficiency. The Company will
not implement the proposed change until it, and any required
modifications, are approved by the Exchange board of directors. The
costs of modifications undertaken shall be paid by the Company. These
provisions in the LLC Agreement are the same as those in the BOX
Options LLC Agreement.\65\ These provisions ensure the Exchange
maintains full regulatory control and authority over BSTX while it
operates as a facility of the Exchange. The Exchange believes this
provision helps guarantee the Exchange's ability to fulfill its
regulatory responsibilities and operate in a manner consistent with the
Act, in particular 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.\66\
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\64\ ``Regulatory Deficiency'' is defined as ``the operation of
the Company (in connection with matters that are not Non-Market
Matters) or the BSTX Market (including, but not limited to, the BSTX
System) in a manner that is not consistent with the Exchange Rules
and/or the SEC Rules governing the BSTX Market or BSTX Participants,
or that otherwise impedes the Exchange's ability to regulate the
BSTX Market or BSTX Participants or to fulfill its obligations under
the Act as an SRO.
\65\ See Section 3.2(a)(iii) of the BOX Options LLC Agreement.
See Section 1.1, LLC Agreement.
\66\ 15 U.S.C. 78f(b)(1).
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Section 3.2(a)(iv) of the LLC Agreement provides that in the event
that the Exchange, in its sole discretion, determines that a Regulatory
Deficiency exists or is planned, the Exchange may direct the Company,
subject to approval of the Exchange board of directors, to undertake
such modifications to the Company (but not to include Non-Market
Matters) or the BSTX Market (including, but not limited to, the BSTX
System), as are necessary or appropriate to eliminate or prevent the
Regulatory Deficiency and allow the Exchange to perform and fulfill its
regulatory responsibilities under the Act.\67\ The costs and
modifications undertaken shall be paid by the Company. These provisions
in the LLC Agreement are substantially the same as those in the BOX
Options LLC Agreement, with the exception of a reference to an
agreement that is not applicable to the Company.\68\
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\67\ As discussed above, the Exchange will appoint a Regulatory
Director who may, among other things, serve as a Director of any
regulatory committee(s). Such individual will also have insight and
access to important information related to the Company; for example,
while the Regulatory Director may not serve as a Director on Board
committees other than authorized regulatory committees, the
Regulatory Director nevertheless shall (A) have the right to attend
all meetings of the Board and committees thereof; (B) receive
equivalent notice of meetings as other Directors; and (C) receive a
copy of the meeting materials provided to other Directors, including
agendas, action items and minutes for all meetings. (See LLC
Agreement Sec. 4.2(c).)
\68\ See Section 3.2(a)(iv) of the BOX Options LLC Agreement.
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Section 3.2(c) of the LLC Agreement states that BOX Digital will
provide executive leadership and exclusive rights to the regulatory
services of the Exchange with respect to BSTX Products. With the
consent of the Exchange, BOX Digital holds exclusive rights to the
regulatory services of the Exchange with respect to BSTX Products. BOX
Digital directors, officers and employees, including its CEO, Lisa
Fall, are experienced executive managers of SROs and exchange
facilities. In becoming a Member of BSTX and becoming a party to the
LLC Agreement, BOX Digital agreed to contribute these assets to the
Company.
Regulatory Funds
The Exchange represents that the Facility Agreement will require
the Company to provide adequate funding for the Exchange's operations
with respect to the Company, including the regulation of the Exchange.
The Facility Agreement will provide that the Exchange receives all
fees, including regulatory fees and trading fees, payable by BSTX
Participants, as well as any funds received from any applicable market
data fees, tape and other revenue. The Exchange represents that fees
received from all Exchange facilities, including fees from BSTX
Participants, will be adequate to operate the Exchange and to regulate
the Company. The Facility Agreement will further provide that the
Company will reimburse the Exchange for its costs and expenses to the
extent the Exchange's assets are insufficient. The Exchange will
require the Company to allocate sufficient available funds to
adequately operate the facility until it begins receiving revenues from
operations. Prior to commencing operations as a facility of the
Exchange, the Company will have all such necessary funds and assets,
including furnishings, equipment and servers. To the extent the Company
needs any additional funding to meet this requirement, such funds will
be provided to the Company by one or more of its Members.
Pursuant to Section 9 of the Facility Agreement, the Company will
agree that the Exchange has the right to receive all fees, fines and
disgorgements imposed upon BSTX Participants with respect to the
Company's trading system (``Regulatory Funds'') and all market data
fees, tape and other revenues (``Non-regulatory Funds''). All
Regulatory Funds and Non-regulatory Funds collected by the Exchange
with respect to the Company may be used by the Exchange for regulatory
purposes, which will be determined in the sole discretion of the
Exchange. In determining the excess funds to remit to the Company, the
Exchange will exercise prudent financial management (including cash
flow management) and may retain funds for anticipated and unanticipated
expenses. To the extent the Company incurs costs and expenses for
regulatory purposes, the Exchange may reimburse the Company using
Regulatory Funds. In the event the Exchange, at any time, determines
that it does not hold sufficient funds to meet all regulatory purposes,
the Company will reimburse the Exchange for any such additional costs
and expenses. All Regulatory Funds collected by the Exchange will be
retained by the Exchange and not transferred to the Company. Non-
regulatory funds collected by the Exchange may be
[[Page 53374]]
transferred to the Company after the Exchange makes adequate provision
for all regulatory purposes. These provisions ensure that the Exchange
has full control over BSTX with respect to its regulated functions and
is designed to prevent any owner of BSTX from exercising undue
influence over the regulated activities of the Company.
Capital Contributions and Distributions
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to capital contributions and distributions by the
Company, highlighting areas that vary in comparison to the BOX Options
LLC Agreement and/or BOX Holdings LLC Agreement and provides the
statutory basis for such variation.
Pursuant to Section 6.1 of the LLC Agreement, all capital
contributions contributed to the Company by holders of Units shall be
reflected on the books and records of the Company. No interest will be
paid on any capital contribution to the Company. No Member will have
any personal liability for the repayment of the capital contribution of
any Member, and no Member will have any obligation to fund any deficit
in its Capital Account. Each Member waived any right to partition the
property of the Company or to commence an action seeking dissolution of
the Company under the LLC Act. These provisions are substantially the
same as those in the BOX Holdings LLC Agreement.\69\
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\69\ See Section 6.1 of the BOX Holdings LLC Agreement.
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Under Section 6.2 of the LLC Agreement, the Board, in its sole
discretion, will determine the capital needs of the Company. If at any
time the Board determines that additional capital is required in the
interests of the Company, additional working capital shall be raised in
such manner as determined by a vote of the Board, including the
affirmative vote of at least one Member Director appointed by each
Member, but the Board will not have the power to require the Members to
make any additional capital contributions. These provisions in the LLC
Agreement are substantially the same as those in the BOX Options LLC
Agreement, with the exception of the requirement for at least one
Member Director appointed by each Member to affirmatively vote on the
manner to raise additional working capital.\70\ The Exchange believes
that this added provision exists for purposes of commercial fairness
and is necessary due to the ownership structure of the Company and that
it will foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, consistent with Section
6(b)(5) of the Act.\71\
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\70\ See Section 6.2 of the BOX Options LLC Agreement.
\71\ 15 U.S.C. 78f(b)(5).
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Pursuant to Section 8.1 of the LLC Agreement, if at any time and
from time to time the Board determines that the Company has cash that
is not required for the operations of the Company, the payment of
liabilities or expenses of the Company, or the setting aside of
reserves to meet the anticipated cash needs of the Company
(``Distributable Cash''), then the Company shall make cash
distributions to its Members in the following manner and priority:
First, the Company shall make tax distributions (``Tax Distributions'')
to the Members to cover each Member's estimated income tax for that
period (or in the event that Distributable Cash is less than the total
of all such Tax Amounts, the Company shall distribute the Distributable
Cash in proportion to such Tax Amounts). All tax distributions to a
Member will be treated as advances against any subsequent distributions
to be made to that Member. Subsequent distributions made to the Member
shall be adjusted so that when aggregated with all prior distributions
to the Member pursuant to those provisions, and with all prior Tax
Distributions to the Member, the amount distributed will be equal, as
nearly as possible, to the aggregate amount that would have been
distributable to that Member pursuant to the LLC Agreement if the LLC
Agreement contained no provision for Tax Distributions; second, when,
as and if declared by the Board, the Company shall make cash
distributions to each of the Members pro rata in accordance with that
Member's respective Percentage Interest. Since the Company does not
have the same ownership as BOX Options, the distribution provisions in
the LLC Agreement differ from the BOX Options LLC Agreement and BOX
Holdings LLC Agreement. These provisions relate to tax and accounting
rules to which the Company is subject, due to its ownership structure.
As such, these provisions are standard or not novel for a similarly
situated commercial business registered as a limited liability company
under the laws of the state of Delaware.
Section 8.2 of the LLC Agreement provides that the Company, and the
Board on behalf of the Company, shall not make a distribution to any
Member on account of its ownership interest in the Company if, and to
the extent, such distribution would violate the LLC Act or other
applicable law. This provision in the LLC Agreement is the same as the
provision in the BOX Options LLC Agreement and BOX Holdings LLC
Agreement.\72\
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\72\ See Section 7.1 of the BOX Options LLC Agreement and
Section 8.2 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Section 9.1 of the LLC Agreement provides that all profits, losses
and credits of the Company (for both accounting and tax purposes) for
each fiscal year shall be allocated to the Members from time to time
(but no less often than once annually and before making any
distribution to the Members) pro rata among the Members based on that
Member's respective Percentage Interest, subject to limitations,
offsets, chargebacks, deductions and revaluations. Since the Company
does not have the same ownership as BOX Options, the allocation of
profits and losses provisions in the LLC Agreement differ from the BOX
Options LLC Agreement. These provisions relate to tax and accounting
rules to which the Company is subject, due to its ownership structure.
As such, these provisions are standard or not novel for a similarly
situated commercial business registered as a limited liability company
under the laws of the state of Delaware.
Under Section 9.9 of the LLC Agreement, any profits or losses
resulting from a liquidation, merger or consolidation of the Company,
the sale of substantially all the assets of the Company in one or a
series of related transactions, or any similar event (and, if
necessary, specific items of gross income, gain, loss or deduction
incurred by the Company in the fiscal year of the transaction(s)) shall
be allocated among the Members so that after those allocations and the
allocations required pursuant to capital account adjustments, and
immediately before the making of any liquidating distributions to the
Members, the Members' Capital Accounts equal, as nearly as possible,
the amounts of the respective distributions to which they are entitled
in a winding up. Since the Company does not have the same ownership as
BOX Options, the termination and special allocation provisions in the
LLC Agreement differ from the BOX Options LLC Agreement. These
provisions relate to tax and accounting rules to which the Company is
subject, due to its ownership structure. As such, these provisions are
standard or not novel for a similarly situated commercial business
registered as a limited liability company under the laws of the state
of Delaware.
[[Page 53375]]
Pursuant to Section 10.2 of the LLC Agreement, the assets of the
Company in winding up shall be applied or distributed as follows:
First, to creditors of the Company, including Members who are
creditors, to the extent otherwise permitted by law, whether by payment
or the making of reasonable provisions for the payment thereof, and
including any contingent, conditional and unmatured liabilities of the
Company, taking into account the relative priorities thereof; second,
to the Members and former Members in satisfaction of liabilities under
the LLC Act for distributions to those Members and former Members; and
third, to the Members in proportion to their respective Percentage
Interests. A reasonable reserve for contingent, conditional and
unmatured liabilities in connection with the winding up of the business
of the Company shall be retained by the Company until the winding up is
completed or the reserve is otherwise deemed no longer necessary by the
liquidator. These provisions are substantially the same as those in the
BOX Holdings LLC Agreement, with the exception of certain provisions
that were not included in the LLC Agreement because they are
inapplicable to the Company's structure.\73\
---------------------------------------------------------------------------
\73\ See Section 10.2 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Intellectual Property
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to intellectual property of the Company,
highlighting areas that vary in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC Agreement and provides the statutory
basis for such variation.
Pursuant to Section 3.2(b) of the LLC Agreement, tZERO will provide
to the Company the intellectual property license and services necessary
to operate the BSTX trading system as set forth in the LSA and will
make the necessary arrangements with any applicable third parties which
will permit the Company to be an authorized sublicensee of any required
third-party software necessary for Trading on the BSTX System. The
intellectual property provisions in the LLC Agreement are materially
similar to those in the BOX Options LLC Agreement, although these
documents contain certain differences reflecting the fact that, under
the LLC Agreement, BSTX has a license with, and receives services from,
tZERO pursuant to the LSA and, under the BOX Options LLC Agreement, the
software and technology were provided to BOX Options by MX pursuant to
a TOSA. The rights of the Members of each of BOX Options and BSTX with
respect to their respective intellectual property are substantially
similar.\74\
---------------------------------------------------------------------------
\74\ See Article 17 of the LLC Agreement and Article 13 of the
BOX Options LLC Agreement.
---------------------------------------------------------------------------
Under the LSA, tZERO will provide the Company and the Exchange with
a perpetual, fully paid up, royalty-free license to use its
intellectual property comprising the BSTX trading system. In addition,
the LSA provides that tZERO will provide services to the Company,
including services related to implementing, administering, maintaining,
supporting, hosting, developing, testing and securing the trading
system. These services to be provided by tZERO relate to the
specialized trading system operated by BSTX and are separate from any
administrative or office technology services provided to BSTX by the
Exchange discussed above.
Pursuant to the LSA, tZERO retains its ownership of the BSTX
trading system and tZERO's trademarks and service marks; provided,
however, that the Company will own deliverables, enhancements and other
technology that are developed or created by tZERO for the Company,
including any related documentation and intellectual property.
Employees of tZERO will provide to the Company the services
discussed above under the LSA. This relationship will be similar to the
employees of any other technology service provider providing services
to the Exchange or a facility of the Exchange. Pursuant to the LSA and
Article 15 of the LLC Agreement, tZERO directors, officers and
employees will only receive confidential information of the Company or
the Exchange, including regulatory information, on a need-to-know basis
as it relates to the technology services being provided or specific
roles with respect to the Company and the Exchange. Directors, officers
and employees of tZERO will be subject to confidentiality obligations
with respect to any confidential information they receive in the course
of performing their services, including regulatory information. tZERO
employees providing technology services to the Company or the Exchange
will have offices physically separate from employees of the Company and
the Exchange. As discussed below, the Exchange will continue to have
all authority to direct its facilities and service providers, including
tZERO. tZERO and its employees will not have operational control of the
Company or its systems and will not have authority to make changes to
the BSTX System except under the direction of, and after receiving the
consent of, the facility under the direction of the Exchange or the
Exchange itself. All operational control of BSTX and the BSTX System
will be retained by BSTX, under the regulatory authority of the
Exchange, except for regulatory and surveillance systems which will be
controlled directly by the Exchange. tZERO will provide technology
support services to the Exchange and the proposed facility, BSTX.
Non-Competition
Section 16.1 of the LLC Agreement provides that, for so long as it
holds, directly or indirectly, a combined Percentage Interest in the
Company of five percent (5%) or more, a Member will not hold or invest
in more than five percent (5%) of, or participate in the creation and/
or operation of, any U.S.-based market for the secondary trading of
securities with a blockchain component or in any person engaged in the
creation and/or operation of any U.S.-based market for the secondary
trading of securities with a blockchain component. The non-competition
provision is substantially the same as the non-competition provision in
the BOX Holdings LLC Agreement.\75\
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\75\ See Section 16.1 of the BOX Holdings LLC Agreement.
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Changes in Ownership of the Company
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to changes in ownership of the Company,
highlighting areas that vary in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC Agreement and provides the statutory
basis for such variation.
Section 7.1(a) of the LLC Agreement provides that no person will
directly or indirectly, whether voluntarily, involuntarily, by
operation of law or otherwise, dispose of, sell, alienate, assign,
exchange, participate, subparticipate, encumber, or otherwise transfer
in any manner (each, a ``Transfer'') its Units unless prior to that
Transfer the transferee is approved by a vote of the Board. To be
eligible for Board approval, a proposed transferee must be of high
professional and financial standing, be able to carry out its duties as
a Member hereunder, if admitted as a Member, and be under no regulatory
or governmental bar or disqualification. Notwithstanding the
[[Page 53376]]
foregoing, registration as a broker-dealer or self-regulatory
organization is not required to be eligible for Board approval.
However, the following will not be included in the definition of
``Transfer'': Transfers among Members, transfers to any Person directly
or indirectly owning, controlling or holding with power to vote all of
the outstanding voting securities of and equity or beneficial interests
in that Member, or transfers to any Person that is a wholly owned
Affiliate of a transferring Member. A holder of Units will provide
prior written notice to the Exchange of any proposed Transfer. Any
Transfer which violates the Transfer restrictions in the LLC Agreement
will be void and ineffectual and will not bind or be recognized by the
Company.
Section 7.1(b) of the LLC Agreement establishes that a person will
be admitted to the Company as an additional or substitute Member of the
Company only upon that person's execution of a counterpart of the LLC
Agreement to evidence its written acceptance of the terms and
provisions of the LLC Agreement, and acceptance thereof by resolution
of the Board, which acceptance may be given or withheld in the sole
discretion of the Board; if that person is a transferee, its agreement
in writing to its assumption of the obligations under the LLC Agreement
of its assignor, and acceptance thereof by resolution of the Board; if
that person is a transferee, a determination by the Board that the
Transfer was permitted by the LLC Agreement; and approval of the Board.
Whether or not a transferee who acquired any Units has accepted in
writing the terms and provisions of the LLC Agreement and assumed in
writing the obligations hereunder of its predecessor in interest, that
transferee will be deemed, by the acquisition of those Units, to have
agreed to be subject to and bound by all the obligations of the LLC
Agreement with the same effect and to the same extent as any
predecessor in interest of that transferee. Notwithstanding the
foregoing, any Person to which the Company issues new Class B Units
shall be automatically admitted as a Member upon such Person's
execution of a counterpart of the LLC Agreement.\76\ Pursuant to
Section 7.1(c) of the LLC Agreement, all costs incurred by the Company
in connection with the admission of a substituted Member will be paid
by the transferor Member. The transfer provisions in Section 7.1 of the
LLC Agreement are not contained in the BOX Options LLC Agreement;
however, the Exchange notes that the provisions of Section 7.1 are
substantially based on provisions in the BOX Holdings LLC
Agreement.\77\
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\76\ Automatic admission of Class B Units as Members upon such
Person's execution of a counterpart of the LLC Agreement is not
included in the BOX Holdings LLC Agreement because BOX Holdings does
not have a non-voting class of units similar to the non-voting Class
B Units issued by the Company to service providers to the Company
under the authority of the Board.
\77\ See Section 7.1 of the BOX Holdings LLC Agreement.
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Pursuant to Section 7.2 of the LLC Agreement, the Company will have
a right of first refusal if a Member desires to Transfer its Units, and
obtains a bona fide offer therefor from a third-party transferee.
Further, Section 7.3 of the LLC Agreement provides that, if the Company
does not elect to exercise its right of first refusal, the non-
transferring Member(s) next have a right of first refusal. The
provisions in Sections 7.2 and 7.3 of the LLC Agreement are
substantially based on provisions found in the BOX Holdings LLC
Agreement, with certain variations to account for differences in
corporate and ownership structure.\78\ The Exchange believes that such
variations are necessary to ensure proper application of the LLC
Agreement's provisions to the Company, which serve to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, consistent with Section 6(b)(5) of the
Act.\79\ Further, the Exchange believes that the variations in Sections
7.2 and 7.3 of the LLC Agreement that tailor those provisions to the
corporate and ownership structure of BSTX would help ensure that
persons subject to the Exchange's jurisdiction are able to navigate and
more readily understand the LLC Agreement. The Exchange believes that
this, in turn, would be consistent with Section 6(b)(1) of the Act \80\
because it would help ensure that the Exchange, including in its
operation of facilities, is so organized and has the capacity to be
able to carry out the purposes of the Act.
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\78\ See Sections 7.2 and 7.3 of the BOX Holdings LLC Agreement.
\79\ 15 U.S.C. 78f(b)(5).
\80\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
Pursuant to Section 7.4 of the LLC Agreement, no Transfer may occur
if the Transfer could cause a termination of the Company, could cause a
termination of the Company's status as a partnership or cause the
Company to be treated as a publicly traded partnership for federal
income tax purposes, is prohibited by any securities laws, is
prohibited by the LLC Agreement, or is to a minor or incompetent
person.
Section 7.4(e) of the LLC Agreement requires that a Member will
provide the Company with written notice fourteen (14) days prior, and
the Company will provide the Commission and the Exchange with written
notice ten (10) days prior, to the closing date of any acquisition that
results in that Member's Percentage Interest, alone or together with
any related person of that Member, meeting or crossing the threshold
level of 5% or the successive 5% Percentage Interest levels of 10% and
15%. Any person that, either alone or together with its related
persons, owns, directly or indirectly, of record or beneficially, five
percent (5%) or more of the then outstanding Units will, immediately
upon acquiring knowledge of its ownership of five percent (5%) or more
of the then outstanding Units, give the Company written notice of that
ownership. In addition, Section 7.4(f) of the LLC Agreement provides
that any Transfer that results in the acquisition and holding by any
person, alone or together with its related persons, of an aggregate
Percentage Interest level which meets or crosses the threshold level of
20% or any successive 5% Percentage Interest level (i.e., 25%, 30%,
etc.) is also subject to the rule filing process pursuant to Section 19
of the Act.
Under Section 7.4(g) of the LLC Agreement, unless it does not
directly or indirectly hold any interest in a Member, a Controlling
Person (as defined below) of a Member will be required to execute an
amendment to the LLC Agreement upon establishing a Controlling Interest
(as defined below) in any Member that, alone or together with any
related persons of that Member, holds a Percentage Interest in the
Company equal to or greater than 20%. This amendment will be
substantially in the form of the instrument of accession attached as
Exhibit 5B hereto [sic] and provide that the Controlling Person will
agree to become a party to the LLC Agreement and to abide by all of its
provisions, to the same extent and as if they were Members. These
amendments to the LLC Agreement will be subject to the rule filing
process pursuant to Section 19 of the Act. The rights and privileges,
including all voting rights, of the Member in whom a Controlling
Interest is held, directly or indirectly, under the LLC Agreement and
the LLC Act will be suspended until the amendment has become effective
pursuant to Section 19 of the Act or the Controlling Person no longer
holds, directly or indirectly, a Controlling Interest in the
Member.\81\ As
[[Page 53377]]
a result, any new Member or other direct or indirect owner of an equity
interest in BSTX, whether by transfer of such equity interest from an
existing owner or otherwise, will be subject to the same requirements
as all other Members, namely that it will be required to execute an
instrument of accession to the LLC Agreement and be subject to the rule
filing process if the new Member holds, directly or indirectly, a
Controlling Interest in BSTX.
---------------------------------------------------------------------------
\81\ See supra note 21.
---------------------------------------------------------------------------
In accordance with Section 7.4(h) of the LLC Agreement and as
discussed above, in the event any Member, or any Related Person of such
Member, is approved by the Exchange as a BSTX Participant pursuant to
the Exchange Rules, and such Member owns more than 20% of the Units,
alone or together with any Related Person of such Member (Units owned
in excess of 20% being referred to as ``Excess Units''), the Member and
its appointed Member Directors shall have no voting rights whatsoever
with respect to any action relating to the Company nor shall the Member
or its appointed Member Directors, if any, be entitled to give any
proxy in relation to a vote of the Members, in each case solely with
respect to the Excess Units held by such Member; provided, however,
that whether or not such Member or its appointed Member Directors, if
any, otherwise participates in a meeting in person or by proxy, such
Member's Excess Units shall be counted for quorum purposes and shall be
voted by the person presiding over quorum and vote matters in the same
proportion as the Units held by the other Members are voted (including
any abstentions from voting). In addition, an effective rule filing
pursuant to Section 19 of the Act shall be required prior to any
Member, or any Related Person of such Member, becoming a BSTX
Participant if such Member, alone or together with any Related Persons
of such Member, has the right to appoint more than 20% of the Directors
entitled to vote and, unless a rule filing authorizing the foregoing is
first effective, such Member, or any Related Person of such Member,
shall not be registered as a BSTX Participant. The Exchange notes that
Section 7.4 of the Company's LLC Agreement is identical in substance to
provisions of the BOX Holdings LLC Agreement.\82\
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\82\ See Section 7.4 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
In addition to the provisions discussed above, Section 5 of the LLC
Agreement includes provisions that relate to changes in ownership of
the Company. Because BOX Options is wholly-owned by BOX Holdings, the
LLC Agreement differs from the BOX Options LLC Agreement. Under Section
5.5 of the LLC Agreement, a Member will cease to be a Member of the
Company upon the Bankruptcy or the involuntary dissolution of that
Member. Further, Section 5.8 of the LLC Agreement allows the Board, by
unanimous vote and after appropriate notice and opportunity for
hearing, to suspend or terminate a Member's voting privileges or
membership in the Company for three potential reasons: (i) In the event
the Board determines in good faith that such Member is subject to a
``statutory disqualification,'' as defined in Section 3(a)(39) of the
Act; (ii) in the event the Board determines in good faith that such
Member has violated a material provision of this Agreement, or any
federal or state securities law; or (iii) in the event the Board
determines in good faith that such action is necessary or appropriate
in the public interest or for the protection of investors. The Exchange
believes that limiting the ability to participate in the Company for
Members who may act in contravention of legal or ethical standards may
promote just and equitable principles of trade, and, in general,
protects investors and the public interest, consistent with Section
6(b)(5) of the Act.\83\ Further, the Exchange believes that the ability
to suspend or terminate a Member's voting privileges or membership in
the Company as described above would be consistent with Section 6(b)(1)
of the Act.\84\ This is because such measures in respect of Members who
act in contravention of legal or ethical standards would help ensure
that the Exchange, including in its operation of facilities, is so
organized and has the capacity to be able to carry out the purposes of
the Act, including the prevention of inequitable and unfair practices.
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\83\ 15 U.S.C. 78f(b)(5).
\84\ 15 U.S.C. 78f(b)(1).
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Finally, the Exchange notes that Section 18.1 of the Company's LLC
Agreement provides that amendments to the LLC Agreement must be
approved by the Board, including one Member Director appointed by each
of BOX Digital and tZERO, and any amendment of a provision specific to
any Class, Member, or the Exchange requires the consent of holders of a
majority of the outstanding Units of such Class, or such Member or the
Exchange (as applicable). In addition, the Company shall provide prompt
notice to the Exchange of any amendment, modification, waiver or
supplement to the Agreement formally presented to the Board for
approval and the Exchange shall review each such amendment,
modification, waiver or supplement and, if such amendment is required,
under Section 19 of the Act and the rules promulgated thereunder, to be
filed with, or filed with and approved by, the SEC before such
amendment may be effective, then such amendment shall not be effective
until filed with, or filed with and approved by, the SEC, as the case
may be.\85\ These provisions are similar to provisions in the BOX
Holdings LLC Agreement but differ in details related to the different
ownership structure of the Company.\86\
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\85\ A proposed rule change can also become effective by
operation of law. See 15 U.S.C. 78s(b)(2).
\86\ See Section 18.1 of the BOX Holdings LLC Agreement.
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Regulation of the Company
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to regulation of the Company, highlighting areas
that vary in comparison to the BOX Options LLC Agreement and/or BOX
Holdings LLC Agreement and provides the statutory basis for such
variation.
Generally, Section 3.2 of the LLC Agreement, which is identical in
substance to a provision in the BOX Options LLC Agreement, provides
that the Exchange has authority to act as the SRO for the Company, will
provide the regulatory framework for the BSTX Market and will have
regulatory responsibility for the activities of the BSTX Market.\87\ In
addition, the Exchange will provide regulatory services to the Company
pursuant to the Facility Agreement. Nothing in the LLC Agreement shall
be construed to prevent the Exchange from allowing the Company to
perform activities that support the regulatory framework for the BSTX
Market, subject to oversight by the Exchange. This provision ensures
that the Exchange has full regulatory control over BSTX, which is
designed to prevent any owner of BSTX from exercising undue influence
over the regulated activities of the Company.
---------------------------------------------------------------------------
\87\ See Section 3.2 of the BOX Options LLC Agreement.
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Section 15 of the LLC Agreement deals with how the Company will
govern the handling of confidential information, as it relates to the
securities regulations and otherwise. All of the provisions in Section
15 of the LLC Agreement are substantively similar to provisions in the
BOX Options LLC Agreement, except where
[[Page 53378]]
noted below.\88\ Under Sections 15.1 and 15.2(a) of the LLC Agreement,
subject to certain exceptions set forth below, no Member will make any
public disclosures concerning the LLC Agreement without the prior
approval of the Company. Each Member and the Exchange may only use
confidential information of the Company in connection with the
activities contemplated by the LLC Agreement and other written
agreements and pursuant to the Act and the rules and regulations
thereunder. Furthermore, Section 15.4 of the LLC Agreement provides
that representatives of the parties will meet to institute
confidentiality procedures and discuss confidentiality and disclosure
issues.
---------------------------------------------------------------------------
\88\ See Article 12 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------
Pursuant to Section 15.2(b) of the LLC Agreement, each of the
Members and the Exchange may disclose confidential information of the
Company only to its respective directors, officers, employees and
agents who have a reasonable need to know the information. Also, such
individuals may disclose confidential information of the Company to the
extent required by applicable securities or other laws, a court or
securities regulators, including the Commission and the Exchange.
Section 15.3 of the LLC Agreement requires that each Member and the
Exchange will hold all non-public information concerning the other
Members or the Exchange in strict confidence, unless disclosure to an
applicable regulatory authority is necessary or appropriate or unless
compelled to disclose by judicial or administrative process or required
by law. If a Member or the Exchange is compelled to disclose any Member
Information in connection with any necessary regulatory approval or by
judicial or administrative process, it will promptly notify the
disclosing party to allow the disclosing party to seek a protective
order.
Pursuant to Section 15.5 of the LLC Agreement, nothing in the LLC
Agreement will be interpreted as to limit or impede the rights of any
Governmental Authority,\89\ including the SEC, pursuant to the federal
securities laws and rules and regulations thereunder, and the Exchange
to access and examine applicable confidential information pursuant to
the federal securities laws and the rules and regulations thereunder,
or to limit or impede the ability of any directors, officers,
employees, advisors or agents of the Company and any directors,
officers, employees, advisors or agents of the Members to disclose that
confidential information to any Governmental Authority, including the
SEC, or the Exchange. Under Section 15.6 of the LLC Agreement,
confidential information of the Company or the Exchange pertaining to
regulatory matters (including but not limited to disciplinary matters,
trading data, trading practices and audit information) will not be made
available to any persons other than to the Company's Directors,
officers, employees, advisors and agents that have a reasonable need to
know the contents thereof; will be retained in confidence by the
Company and the Directors, officers, employees, advisors and agents of
the Company; and will not be used for any non-regulatory purpose.
Nothing in the LLC Agreement will be interpreted as to limit or impede
the rights of any Governmental Authority, including the SEC, and the
Exchange to access and examine that confidential information pursuant
to the federal securities laws and the rules and regulations
thereunder, or to limit or impede the ability of any Directors,
officers, employees, advisors and agents of the Company to disclose
that confidential information to any Governmental Authority, including
the SEC, or the Exchange. These are substantially the same provisions
that are contained in the BOX Options LLC Agreement, except that these
provisions also clarify that advisors are included with Directors,
Officers, employees and agents of the Company and provides that any
Governmental Authority, including the SEC, can access and examine
confidential information, pursuant to the federal securities laws and
rules and regulations thereunder.\90\
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\89\ ``Governmental Authority'' means any Unites States federal,
state or local government or political subdivision thereof, or any
agency or instrumentality of such government or political
subdivision, or any self-regulated organization or other non-
governmental regulatory authority or quasi-governmental authority
(to the extent that the rules, regulations or orders of such
organization or authority have the force of law), or any arbitrator,
court or tribunal of competent jurisdiction. See Section 1.1, LLC
Agreement.
\90\ See Sections 12.5 and 12.6 of the BOX Options LLC
Agreement.
---------------------------------------------------------------------------
Finally, Section 18.8 of the LLC Agreement establishes that the
Company will not operate as a facility of the Exchange until this rule
filing is effective. Upon effectiveness, the Commission and the
Exchange will then have regulatory oversight responsibilities with
respect to the Company and references in the LLC Agreement to the
Exchange, the Commission, any regulation or oversight of the Company by
the Commission or the Exchange, and any participation in the affairs of
the Company by the Commission or the Exchange, will take effect. The
execution of the LLC Agreement by the Exchange will not be required
until the approval is obtained, at which time the Exchange will become
a party to the LLC Agreement. This provision is not included in the BOX
Options LLC Agreement because it would not be applicable. By not
operating the Company until this rule filing is effective, the Exchange
believes it is fostering cooperation and coordination with persons
engaged in regulating (e.g., the Commission), clearing, settling,
processing information with respect to, and facilitating transactions
in securities, consistent with Section 6(b)(5) of the Act.\91\
---------------------------------------------------------------------------
\91\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Regulatory Jurisdiction Over Members
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to regulatory jurisdiction over Members by the
Company, highlighting areas that vary in comparison to the BOX Options
LLC Agreement and/or BOX Holdings LLC Agreement and provides the
statutory basis for such variation.
Pursuant to Section 11.1 of the LLC Agreement, which is similar in
substance to a provision in the BOX Holdings LLC Agreement, the Board
will cause to be entered in appropriate books, kept at the Company's
principal place of business, all transactions of or relating to the
Company.\92\ Each Member will have the right to inspect and copy those
books and records, excluding regulatory and disciplinary information.
The Board will not have the right to keep confidential from the Members
any information that the Board would otherwise be permitted to keep
confidential pursuant to Sec. 18-305(c) of the LLC Act, except for
information required by law or by agreement with any third party to be
kept confidential. The Company's independent auditor will be an
independent public accounting firm selected by the Board. To the extent
related to the operation or administration of the Exchange or the BSTX
Market, all books and records of the Company and its Members will be
maintained at a location within the United States, the books, records,
premises, directors, officers, employees and agents of the Company and
its Members will be deemed to be the books, records, premises,
directors,
[[Page 53379]]
officers, employees and agents of the Exchange for the purposes of, and
subject to oversight pursuant to, the Act, and the books and records of
the Company and its Members will be subject at all times to inspection
and copying by the Commission and the Exchange.
---------------------------------------------------------------------------
\92\ See Section 11.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Under Section 18.6(a) of the LLC Agreement, to the extent they are
related to Company activities, the books, records, premises, officers,
directors, agents, and employees of the Member will be deemed to be the
books, records, premises, officers, directors, agents, and employees of
the Exchange for the purpose of and subject to oversight pursuant to
the Act. Further, pursuant to Section 18.6(b) of the LLC Agreement, the
Company, the Members and the officers, directors, employees and agents
of each, by virtue of their acceptance of those positions, will be
deemed to irrevocably submit to the jurisdiction of the U.S. federal
courts, the Commission and the Exchange for purposes of any suit,
action or proceeding pursuant to U.S. federal securities laws, the
rules or regulations thereunder, arising out of, or relating to,
activities of the Exchange and the Company, and Delaware state courts
for any matter relating to the organization or internal affairs of the
Company, and will be deemed to waive, and agree not to assert by way of
motion, as a defense or otherwise in any suit, action or proceeding,
any claims that they are not personally subject to the jurisdiction of
the U.S. federal courts, the Commission, the Exchange or Delaware state
courts, as applicable, that the suit, action or proceeding is an
inconvenient forum or that the venue of the suit, action or proceeding
is improper, or that the subject matter hereof may not be enforced in
or by those courts or agencies. The Company, the Members and the
officers, directors, employees and agents of each, by virtue of their
acceptance of those positions, also agree that they will maintain an
agent in the United States for the service of process of a claim
arising out of, or relating to, the activities of the Exchange and the
Company. These provisions are substantially similar to provisions of
the BOX Options LLC Agreement.\93\
---------------------------------------------------------------------------
\93\ See Section 14.6 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------
Pursuant to Section 18.6(c) of the LLC Agreement, with respect to
obligations under the LLC Agreement related to confidentiality
regulation, jurisdiction and books and records, the Company, the
Exchange, and each Member will ensure that directors, officers and
employees of the Company, the Exchange, and each Member consent in
writing to the applicability of the applicable provisions to the extent
related to the operation or administration of the Exchange or the BSTX
Market. This provision is substantially the same as the provision
contained in the BOX Options LLC Agreement, with the exception of the
deletion of a reference to privacy rules in Canada, which are not
applicable to the current Members of the Company.\94\ The Exchange
believes that allowing only applicable laws to be referenced in the LLC
Agreement helps to ensure that proper legal standards apply to the
Company, which may foster cooperation and coordination with persons
engaged in regulating transactions in securities, consistent with
Section 6(b)(5) of the Act.\95\ Further, the Exchange believes that
basing the provisions described above on the BOX Options LLC Agreement
but omitting terms that are not applicable would help ensure that
persons subject to the Exchange's jurisdiction are able to navigate and
more readily understand the LLC Agreement. The Exchange believes that
this, in turn, would be consistent with Section 6(b)(1) of the Act \96\
because it would help ensure that the Exchange, including in its
operation of facilities, is so organized and has the capacity to be
able to carry out the purposes of the Act.
---------------------------------------------------------------------------
\94\ See Section 14.6(c) of the BOX Options LLC Agreement.
\95\ 15 U.S.C. 78f(b)(5).
\96\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
Amendments to LLC Agreement
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to amendments to the LLC Agreement, highlighting
areas that vary in comparison to the BOX Options LLC Agreement and/or
BOX Holdings LLC Agreement and provides the statutory basis for such
variation.
Section 18.1 of the LLC Agreement, which is substantially similar
to a provision in the BOX Holdings LLC Agreement,\97\ provides that the
LLC Agreement may only be amended by an agreement in writing approved
by the Board, including at least one Member Director appointed by each
Member, without the consent of any Member or other person. In addition,
any terms specific to any Class, or Member or to the Exchange may not
be altered or adversely affect that Member or the Exchange without the
prior written consent of holders of a majority of the outstanding Units
of such Class, or such Member or the Exchange as applicable. The
Company will provide prompt notice to the Exchange of any amendment,
modification, waiver or supplement to the LLC Agreement formally
presented to the Board for approval and the Exchange will review each
amendment, modification, waiver or supplement and, if that amendment is
required, under Section 19 of the Act and the rules promulgated
thereunder, to be filed with, or filed with and approved by, the
Commission before that amendment may be effective, then that amendment
will not be effective until filed with, or filed with and approved by,
the Commission, as the case may be. If the Exchange ceases to be the
SRO authority of the Company, the Exchange will no longer be a party to
the LLC Agreement and thereafter the provisions of the LLC Agreement
will not apply to the Exchange except for the provisions referenced in
Section 18.12, which will survive.
---------------------------------------------------------------------------
\97\ See Section 18.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Additional Provisions
As previously mentioned, BSTX is a Delaware limited liability
company. As such, the LLC Agreement contains numerous provisions that
are standard or not novel for a similarly situated commercial business
registered as a limited liability company under the laws of the state
of Delaware.\98\ The Exchange believes that these provisions are
consistent with Section 6(b)(1) of the Act \99\ because they are
consistent with corporate governance practices, generally, and they
would help ensure that the Exchange, including in its operation of
facilities, is so organized and has the capacity to be able to carry
out the purposes of the Act.
---------------------------------------------------------------------------
\98\ See LLC Agreement Sections 2.1, 2.2, 2.4, 2.5, 2.6, 2.7,
3.1, 4.2, 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 5.1, 5.2, 5.3, 5.4, 5.6,
5.7, 6.3, 6.4, 6.5, 7.5, 7.6, 7.7, 8.3, 9.2, 9.3, 9.4, 9.5, 9.6,
9.7, 9.8, 10.3, 10.4, 11.2, 11.3, 11.4, 11.5, 11.6, 12, 13.1, 14,
16.2, 17, 18.2, 18.3, 18.4, 18.5, 18.7, 18.9, 18.10, 18.11, and
18.12.
\99\ 15 U.S.C. 78f(b)(1).
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Exchange Organization
As more fully described in the Multiple Facilities Filing,\100\ the
bylaws of the Exchange (the ``Exchange Bylaws'') require that, upon the
Company becoming a facility of the Exchange, at least one member of the
Board would be selected from among the officers, directors and
employees of BSTX Participants (a ``Participant Director'').\101\ The
Executive Committee of the Exchange, if any, is required to include at
least one Participant Director from BSTX and a quorum for the
transaction of business must include at least one Participant Director
from one
[[Page 53380]]
of the Exchange's facilities.\102\ A Participant Director could serve
on other Board committees but would be prohibited from serving on the
Compensation and Regulatory Oversight Committees.\103\ The Exchange's
Hearing Committee is not comprised of directors of the Exchange but
does include Exchange Facility Participants, which could include one or
more BSTX Participants.\104\ The Exchange Bylaws also provide that each
facility of the Exchange be entitled to designate a ``Facility
Director'' to serve on the Board. The Facility Director could serve on
Board committees, including any Executive Committee of the Board,\105\
but would be prohibited from serving on the Compensation and Regulatory
Oversight Committees.\106\
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\100\ See Securities Exchange Act Release No. 888934 May 22,
2020, 85 FR 32085 May 28, 2020.
\101\ See Exchange Bylaws Section 4.02.
\102\ See Exchange Bylaws Section 6.04.
\103\ See Exchange Bylaws Sections 6.06 and 6.07.
\104\ See Exchange Bylaws Section 6.08(a).
\105\ See Exchange Bylaws Section 6.04.
\106\ See Exchange Bylaws Sections 6.06 and 6.07.
---------------------------------------------------------------------------
Also as more fully described in the Multiple Facilities Filing, the
Exchange Bylaws require that, upon the Company becoming a facility of
the Exchange, at least one member of the Exchange Nominating Committee
would be selected from among the officers, directors and employees of
BSTX Participants (a ``Participant Representative'').\107\ The Exchange
Bylaws also provide that each facility of the Exchange be entitled to
designate a ``Facility Representative'' to serve on the Exchange
Nominating Committee.\108\
---------------------------------------------------------------------------
\107\ See Exchange Bylaws Section 4.06(a).
\108\ See Exchange Bylaws Section 4.06(a).
---------------------------------------------------------------------------
As soon as practicable after the commencement of operations of BSTX
as a new facility of the Exchange, a Participant Director, Participant
Representative, Facility Director and Facility Representative will be
appointed by the Exchange Board from among the eligible individuals
with respect to the new facility and such individuals shall serve in
such respective capacities until the first annual meeting of the
Exchange Members following such appointment, when the regular selection
processes shall govern.\109\
---------------------------------------------------------------------------
\109\ See Section 4.02, Exchange Bylaws.
---------------------------------------------------------------------------
2. Statutory Basis
In addition to the sections above that discuss provisions of the
LLC Agreement, amendments to the LLC Agreement and variations from the
BOX Options LLC Agreement and/or BOX Holdings LLC Agreement and their
associated statutory bases, the Exchange believes that the proposal is
consistent with the requirements of Section 6(b) of the Act,\110\ in
general, and furthers the objectives of Section 6(b)(1),\111\ in
particular, in that it enables the Exchange to be so organized so as to
have the capacity to be able to carry out the purposes of the Act and
to comply, and to enforce compliance by its Exchange Facility
Participants and persons associated with its Exchange Facility
Participants, with the provisions of the Act, the rules and regulations
thereunder, and the rules of the Exchange. The Exchange also believes
that this filing furthers the objectives of Section 6(b)(5) of the Act
\112\ in that it is designed to facilitate transactions in securities,
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,
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.
---------------------------------------------------------------------------
\110\ 15 U.S.C. 78f(b).
\111\ 15 U.S.C. 78f(b)(5).
\112\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the provisions in the Exchange Bylaws
that BSTX Participants will be represented by a Participant Director on
the BOX Exchange Board and a Participant Representative on the Exchange
Nominating Committee and that they will be chosen by BSTX Participants
provides for the fair representation of BSTX Participants in the
selection of directors and the administration of BOX Exchange and is
consistent with the requirement in Section 6(b)(3) of the Act.\113\
This requirement helps to ensure that BSTX Participants have a voice in
the use of self-regulatory authority and that an exchange is
administered in a way that is equitable to all those who trade on its
market or through its facilities.\114\ In addition, the Exchange
believes the provision in the Exchange Bylaws that a Facility Director
representing the Company would serve on the BOX Exchange Board and a
Facility Representative would serve on the BOX Exchange Nominating
Committee provides additional protection for both the Company and BSTX
Participants and helps to ensure these entities have a voice in the use
of self-regulatory authority and that an exchange is administered in a
way that is equitable to all those who trade on its market or through
its facilities.
---------------------------------------------------------------------------
\113\ 15 U.S.C. 78f(b)(3).
\114\ See, e.g., Securities Exchange Act Release No. 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006) (granting the
exchange registration of Nasdaq Stock Market, Inc.) (``Nasdaq
Order''), and 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008)
(``BATS Order''), supra note 27. See also Securities Exchange Act
Release No. 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006)
(``NYSE/Archipelago Merger Approval Order'').
---------------------------------------------------------------------------
No Members of BSTX and no Affiliates of such Members are currently
Exchange Facility Participants. No Members of BSTX are expected to be
BSTX Participants when BSTX begins operations as a facility of the
Exchange. Nevertheless, the Exchange believes the provisions discussed
above, limiting BSTX Participants to a maximum of 20% voting power at
the proposed facility, BSTX, and limiting Exchange Facility
Participants to a maximum of 20% economic ownership in the Exchange and
20% voting power at the Exchange, are consistent with the requirements
of the Act and Section 6(b)(1) thereof, which requires, in part, an
exchange be so organized and have the capacity to carry out the
purposes of the Act.\115\ These limitations are designed to help
prevent a BSTX Participant from exercising undue control over the
operation of the facility and help prevent an Exchange Facility
Participant from exercising undue control over the operation of the
Exchange. These limitations are also designed to help ensure the
Exchange is able to effectively carry out its regulatory obligations
under the Act and its facility, BSTX, is able to effectively carry out
its regulatory obligations as a facility of the Exchange under the Act.
In addition, these limitations are designed to address conflicts of
interests that could arise from a BSTX Participant owning interests in
BSTX, a proposed facility of the Exchange, or in the Exchange itself.
Without such limitations, a BSTX Participant's interest in the Exchange
or its facility, BSTX, could become so large as to cast doubts on
whether the Exchange and its facility, BSTX, may fairly and objectively
exercise self-regulatory responsibilities with respect to such BSTX
Participant.\116\ If a BSTX Participant became a controlling owner of
the Exchange, BSTX could seek to exercise the controlling influence by
directing the Exchange or its facility, BSTX, to refrain from, or the
Exchange or BSTX could hesitate to, diligently monitor and conduct
surveillance of the BSTX Participant's conduct or diligently enforce
the Exchange's rules and the federal securities laws with respect to
[[Page 53381]]
conduct by a BSTX Participant that violates such provisions. As such,
these requirements are expected to minimize the potential that a BSTX
Participant or any other Exchange Facility Participant could use its
ownership to improperly interfere with or restrict the ability of the
Exchange or its facility, BSTX, to effectively carry out its regulatory
responsibilities under the Act, particularly with Section 6(b)(1)
thereof, which requires, in part, an exchange be so organized and have
the capacity to carry out the purposes of the Act.\117\
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\115\ 15 U.S.C. 78f(b)(1).
\116\ See, e.g., Securities Exchange Act Release No. 61698
(March 12, 2010), 75 FR 13151 (March 18, 2010) (``DirectEdge
Exchanges Order'') and BATS Order, supra note 27.
\117\ 15 U.S.C. 78f(b)(1).
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As discussed above, the Exchange at all times has, and will
continue to have, regulatory authority over its facilities, including
the proposed facility, BSTX. The Exchange's powers and authority under
the Facility Agreement ensure that the Exchange has full regulatory
control over BSTX, which is designed to prevent any owner of BSTX from
exercising undue influence over the regulated activities of the
Company. The Exchange shall receive notice of all planned or proposed
changes to BSTX (other than Non-Market Matters). This authority ensures
that while BSTX operates as a facility of the Exchange, it will be
required to submit to any such changes to the Exchange for approval and
the Exchange will have the right to direct BSTX to make any
modifications deemed necessary or appropriate by the Exchange to
resolve any Regulatory Deficiency. This regulatory authority overrides
any authority of BSTX management, its Members or its Board regardless
of any Member's level of ownership or control of the Board at the
facility level.
The Exchange is the entity that will have and exercise regulatory
oversight of the proposed facility, BSTX. As discussed above, the
Exchange notes the existing ownership limits of 20% voting power and
40% economic ownership currently applicable to all owners of the
Exchange, are not changing. Accordingly, the Exchange believes these
existing ownership limits will help to ensure the independence of the
Exchange's regulatory oversight of BSTX and facilitate the ability of
the Exchange to carry out its regulatory responsibilities and operate
in a manner consistent with the Act. The Exchange further believes
these ownership limits, which apply to its current facility, continue
to be appropriate in connection with the proposed new facility and are
consistent with the requirements of the Act and Section 6(b)(1)
thereof, which requires, in part, an exchange be so organized and have
the capacity to carry out the purposes of the Act.\118\
---------------------------------------------------------------------------
\118\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
As discussed above, the SEC will be required to be notified if a
Member of the facility exceeds 5%, 10% or 15% ownership in the Company
and rule filings are required when a Member, together with its Related
Persons, crosses above 20% or any subsequent 5% increment. These are
the same provisions as are contained in the BOX Holdings LLC Agreement.
The Exchange believes these proposed notification provisions are
consistent with existing provisions in the BOX Holdings LLC Agreement
for the Exchange's current facility and are also 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.\119\ In particular, SEC notification of ownership interests
exceeding certain percentage thresholds can help improve the
Commission's ability to effectively monitor and surveil for potential
undue influence and control over the operation of the Exchange.
---------------------------------------------------------------------------
\119\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
Subject to the regulatory oversight by the Exchange, the proposed
facility's Board has full authority to manage the development,
operations, business and affairs of the Company without the need for
any approval of the Members. A Member does not have authority to decide
matters related to the operations of the Company, except by exercising
its right, if any, to appoint Directors. As discussed above, the Board
of the proposed facility will consist of six (6) Directors, including
five (5) voting Directors and one non-voting Regulatory Director
appointed by the Exchange. Regardless of its ownership level, each of
tZERO and BOX Digital will have the right to appoint only two
Directors, comprising a maximum of 40% of all voting Directors on the
facility's Board. The remaining voting Director on the Board will be an
Independent Director. Accordingly, the Exchange believes the proposed
facility, BSTX, will be so organized as to avoid undue influence by a
Member and to ensure the Exchange has the capacity to carry out the
purposes of the Act.
As discussed above, as long as the Company is a facility of the
Exchange pursuant to Section 3(a)(2) of the Act, the Exchange will have
the right to appoint a Regulatory Director to serve as a Director. The
Regulatory Director must be a member of the senior management of the
regulation staff of the Exchange. The Company has an Independent
Director to avoid either Member from controlling or creating deadlock
on the Board. The presence of a Regulatory Director selected by the
Exchange on the Board is identical to the longstanding practice at the
Exchange's other facility, BOX Options. The Exchange believes that the
proposed board structure, and in particular, the inclusion of the
proposed Independent Director and Regulatory Director, will 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, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest, consistent with Section
6(b)(5) of the Act.\120\ Further, the Exchange believes that inclusion
of the Regulatory Director on the BSTX Board would also be consistent
with Section 6(b)(1) of the Act. This is because the Regulatory
Director is required to be someone who is a member of the senior
management of the regulation staff of the Exchange and is therefore a
person who is knowledgeable of the rules of the Exchange and the
regulations applicable to it and, in turn, is someone who would be well
positioned to help ensure the Exchange, including in the operation of
any facilities, continues to be so organized and has the capacity to
carry out the purposes of the Act, including to prevent inequitable and
unfair practices.
---------------------------------------------------------------------------
\120\ 15 U.S.C. 78f(b)(5).
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As discussed above, the Company is not permitted to take any action
with respect to a Major Action unless approved by the Board, including
the affirmative vote of all then serving Member Directors acting at a
meeting. The Exchange believes that, in addition to the regulatory
oversight of the Exchange and the other safeguards described above, the
requirement that all Member Directors of the facility, not just the
Member Directors of a single Member, must approve Major Actions will
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, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest, consistent with Section
6(b)(5) of the Act. In addition, such requirements enhance the ability
of the Exchange and
[[Page 53382]]
its proposed facility, BSTX, to effectively carry out its regulatory
responsibilities under the Act, particularly with Section 6(b)(1)
thereof, which requires, in part, an exchange be so organized and have
the capacity to carry out the purposes of the Act.
Although the Company is not independently responsible for
regulation, its activities with respect to the operation of the Company
must be consistent with, and not interfere with, the self-regulatory
obligations of the Exchange. The Exchange believes the requirements in
the BSTX LLC Agreement applicable to direct and indirect changes in
control of the Company described above, the provisions of the Facility
Agreement establishing the Exchange's regulatory control over the
Company, as well as the voting limitation imposed on owners of the
Company who also are BSTX Participants described above, are appropriate
to help ensure that the Exchange is able to effectively carry out its
self-regulatory responsibilities, including over the Company, and are
consistent with the requirements of the Act.
In addition, each Member of BSTX and each Controlling Person
thereof must give due regard to the preservation of the independence of
the self-regulatory function of the Exchange and must not take any
action that would interfere with the effectuation of decisions by the
Exchange Board or interfere with the Exchange's ability to carry out
its responsibilities under the Act.\121\ Each Member of BSTX and each
Controlling Person thereof \122\ also is required to take such action
as is necessary to ensure that its directors, officers and employees
consent to giving due regard to the preservation of the independence of
the self-regulatory function of the Exchange and to not taking any
action that would interfere with the effectuation of decisions by the
Exchange Board or interfere with the Exchange's ability to carry out
its responsibilities under the Act to the extent related to the
operation or administration of the Exchange or the Company.
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\121\ See Article 4.6(a) of the Exchange LLC Agreement and
Article 4.12(a) of the BSTX LLC Agreement.
\122\ See the LLC Agreement Section 7.4(g)(ii).
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The Exchange believes the provisions which are designed to help
maintain the independence of BOX Exchange's regulatory function, 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.\123\
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\123\ 15 U.S.C. 78f(b)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the Proposed Rule Change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Proceedings To Determine Whether To Approve or Disapprove SR-BOX-
2021-14, as Modified by Amendment No. 1, and Grounds for Disapproval
Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \124\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy issues raised by the proposed rule
change. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change to inform the Commission's analysis of whether to
approve or disapprove the proposed rule change, as modified by
Amendment No. 1.
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\124\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\125\ the Commission is
providing notice of the grounds for disapproval under consideration. As
described above, the Exchange proposes to operate BSTX as a facility of
the Exchange and adopt the proposed LLC Agreement and Form of
Instrument of Accession as rules of the Exchange. Among other things,
the Exchange proposes to establish BSTX as a facility of the Exchange
that would operate a market for the trading of securities pursuant to
rules established by a separate rule filing.\126\ BSTX would be
controlled jointly by BOX Digital, a subsidiary of BOX Holdings, which
is the parent company of BOX Options, the Exchange's facility for the
trading of listed options, and tZERO, an indirect subsidiary of
Overstock, a publicly traded company.\127\ On September 16, 2021, the
Exchange filed Amendment No. 1 to the proposed rule change. As stated
above, the Commission has received no comment letters on the proposal.
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\125\ Id.
\126\ See Amendment No. 1, supra note 6, at 4.
\127\ See id. at 4, 8-11.
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The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the consistency
of the proposed rule change, as modified by Amendment No. 1, with the
Act, including, but not limited to, Section 6(b)(1) of the Act, which
requires that a national securities exchange be so organized and have
the capacity to be able to carry out the purposes of the Act and to
comply, and to enforce compliance by its members and persons associated
with its members, with the provisions of the Exchange Act, the rules
and regulations thereunder, and the rules of the exchange; \128\
Section 6(b)(3) of the Exchange Act, which requires that the rules of a
national securities 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; \129\ and 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, 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 to protect investors and the public interest, and
not be designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.\130\
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\128\ 15 U.S.C. 78f(b)(1).
\129\ 15 U.S.C. 78f(b)(3).
\130\ 15 U.S.C. 78f(b)(5).
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The Exchange states that BSTX will be jointly controlled by BOX
Digital and tZERO, which would each own 50% of the voting class of
equity of BSTX.\131\ According to the Exchange, it will enter into a
Facility Agreement with BSTX pursuant to which the Exchange will
regulate BSTX, and the Exchange's powers and authority under the
Facility Agreement ensure that the Exchange has
[[Page 53383]]
full regulatory control over BSTX, which is designed to prevent any
owner of BSTX from exercising undue influence over the regulated
activities of BSTX.\132\ The Exchange references, among other things,
provisions limiting BSTX Participants to a maximum of 20% voting power
at BSTX, provisions limiting Exchange Facility Participants to a
maximum of 20% voting power at the Exchange, and ownership limits of
20% voting power and 40% economic ownership applicable to all owners of
the Exchange, in stating its belief that the proposal is consistent
with the Act.\133\
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\131\ See Amendment No. 1, supra note 6, at 4, 6.
\132\ See id. at 5. The Exchange also states that certain
provisions in the BSTX LLC Agreement are the same as provisions in
the BOX Options LLC Agreement and that such provisions ensure that
the Exchange has full regulatory control over BSTX, which is
designed to prevent any owner of BSTX from exercising undue
influence over the regulated activities of the Company. See id. at
18-20.
\133\ See id. at 60-62.
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In addition, the Exchange states that the Board of Directors of
BSTX, which will be comprised of two directors appointed by each of BOX
Digital and tZERO and one ``Independent Director'' that will be
appointed by unanimous vote of the directors appointed by each of BOX
Digital and tZERO,\134\ will manage the development, operations,
business and affairs of the Company without the need for any approval
of the Members or any other person.\135\ The Exchange believes that
this proposed structure for the BSTX Board effectively limits any one
Member to a maximum of 40% voting power of the Board.\136\ The Exchange
also states that the BSTX Board will include a Regulatory Director,
appointed by the Exchange and who must be a member of the senior
management of the regulation staff of the Exchange,\137\ but this
Regulatory Director will not have the power to vote on any action to be
taken by the Board or any committee.\138\ However, the proposed
ownership structure, voting provisions, and board structure raise
questions as to whether the proposal would protect against the undue
influence of any owner of BSTX over the affairs of BSTX and ensure that
BSTX's operation of the BSTX Market is consistent with and does not
interfere with the Exchange's regulatory responsibilities.\139\
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\134\ See id. at 20.
\135\ See id. at 18-19. The Exchange states that the purpose of
the Independent Director is to avoid either BOX Digital or tZERO
from controlling or creating deadlock on the Board. See id. at 21.
\136\ See id.
\137\ See id. at 20.
\138\ See id. at 22. The Exchange states that the proposed
structure for the BSTX Board of Directors differs from that of BOX
Holdings because the ownership of BSTX differs from that of BOX
Holdings, which has more than two owners of its voting class of
equity and uses a tiered system in which board voting is based on
ownership in BOX Holdings, but that the inclusion of a Regulatory
Director selected by the Exchange on the Board is identical to the
longstanding practice at the Exchange's other facility, BOX Options.
See id. at 20-21.
\139\ There are also questions about whether the Exchange will
have the ability to obtain the information necessary to ascertain
whether potential direct or indirect owners of BSTX are required to
provide notice to BSTX or to take other actions, such as executing
an amendment to the LLC Agreement upon establishing a Controlling
Interest, and whether the Exchange and the Commission will have the
capacity to monitor compliance with the proposed provisions related
to changes in ownership and control.
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The Exchange states that the provisions in the proposed BSTX LLC
Agreement are generally the same as the provisions of the BOX Options
LLC Agreement or the BOX Holdings LLC Agreement,\140\ that replicating
those provisions may foster cooperation and coordination with persons
engaged in regulating, clearing, settling, processing information with
respect to, and facilitating transactions in securities,\141\ and that
the structure of the BSTX will promote just and equitable principles of
trade, and, in general, protect investors and the public interest,
consistent with Section 6(b)(5) of the Act.\142\ But the Exchange also
states that BSTX does not have the same ownership as BOX Options or BOX
Holdings,\143\ and it is unclear how, given the differences between the
proposed ownership and proposed governance structure of BSTX compared
to those of BOX Options and BOX Holdings, the proposed provisions would
ensure that the Exchange and the Commission are able to carry out their
regulatory obligations with respect to BSTX.
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\140\ See id. at 6.
\141\ See id. at 7.
\142\ See id. at 16.
\143\ See id.
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The Commission believes there are questions as to whether the
Exchange's proposed governance structure is consistent with Section
6(b)(1) of the Act, and, in particular, the requirements that the
Exchange be so organized and has the capacity to carry out the purposes
of the Act; and Section 6(b)(5) of the Act, and in particular the
requirement that the rules of an exchange be designed to promote just
and equitable principles of trade; and, in general, to protect
investors and the public interest. The Commission also believes there
are questions as to whether the Exchange's proposal is consistent with
Section 6(b)(3) of the Act, and in particular the requirement that the
rules of a national securities exchange assure a fair representation of
its members in the selection of its directors and administration of its
affairs.\144\
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\144\ See id. at 57-59 (discussing, among other things, the
Exchange's rules that would govern the inclusion of a Participant
Director, selected from among the officers, directors and employees
of BSTX Participants, on the Exchange's Board of Directors).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
[SRO] that proposed the rule change.'' \145\ The description of a
proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding,\146\ and any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Act and the applicable rules and regulations.\147\
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\145\ 17 CFR 201.700(b)(3).
\146\ See id.
\147\ See id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Act to
determine whether the proposal should be approved or disapproved.
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal, as
modified by Amendment No. 1, is consistent with Sections 6(b)(1),\148\
6(b)(3),\149\ and 6(b)(5) of the Act \150\ or any other provision of
the Act, or the rules and regulations thereunder. Although there do not
appear to be any issues relevant to approval or disapproval that would
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4 under the
Act,\151\ any request for an opportunity to make an oral
presentation.\152\
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\148\ 15 U.S.C. 78f(b)(1).
\149\ 15 U.S.C. 78f(b)(3).
\150\ 15 U.S.C. 78f(b)(5).
\151\ 17 CFR 240.19b-4.
\152\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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[[Page 53384]]
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal, as modified by Amendment No.
1, should be approved or disapproved by October 18, 2021. Any person
who wishes to file a rebuttal to any other person's submission must
file that rebuttal by November 1, 2021.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in Amendment No. 1,\153\ in addition to any other comments they may
wish to submit about the proposed rule change.
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\153\ See Amendment No. 1, supra note 6.
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Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#fb898e979ed6989496969e958f88bb889e98d59c948d"><span class="__cf_email__" data-cfemail="2f5d5a434a024c4042424a415b5c6f5c4a4c01484059">[email protected]</span></a>. Please include
File Number SR-BOX-2021-14 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2021-14. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-BOX-2021-14 and should be submitted by
October 18, 2021. Rebuttal comments should be submitted by November 1,
2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\154\
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\154\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20816 Filed 9-24-21; 8:45 am]
BILLING CODE 8011-01-P
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