Notice2021-27427
Self-Regulatory Organizations; BOX Exchange LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, Related to BOX Exchange LLC and BOX Holdings Group LLC Ownership Transfer Transactions
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
December 20, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 241 (Monday, December 20, 2021)</title>
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[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 72021-72024]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-27427]
[[Page 72021]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93778; File No. SR-BOX-2021-19]
Self-Regulatory Organizations; BOX Exchange LLC; Order Approving
a Proposed Rule Change, as Modified by Amendment No. 1, Related to BOX
Exchange LLC and BOX Holdings Group LLC Ownership Transfer Transactions
December 14, 2021.
I. Introduction
On August 27, 2021, BOX Exchange LLC (``BOX Exchange'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change related to the Exchange and BOX Holdings Group LLC
(``BOX Holdings'') ownership transfer transactions. The proposed rule
change was published for comment in the Federal Register on September
15, 2021.\3\ The Commission received one comment on the proposed rule
change.\4\ On September 28, 2021, pursuant to Section 19(b)(2) of the
Act,\5\ 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.\6\ On December 13, 2021, the Exchange filed
Amendment No. 1 to the proposed rule change, which amended and
superseded the Notice in its entirety.\7\ The Commission is approving
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. 92926 (September 9,
2021), 86 FR 51410 (``Notice'').
\4\ See letter from Seymour Johnson, dated September 10, 2021,
available at <a href="https://www.sec.gov/comments/sr-box-2021-19/srbox202119-9221992-250319.htm">https://www.sec.gov/comments/sr-box-2021-19/srbox202119-9221992-250319.htm</a>. The commenter is critical of the
voting and economic interests of Citadel Securities Principal
Investments LLC (``Citadel'') in BOX Holdings Group and believes
that such interests should be reduced.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 93156, 86 FR 54780
(October 4, 2021). The Commission designated December 14, 2021, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\7\ In Amendment No. 1, the Exchange revised the proposal to:
(1) Provide updated and additional ownership and voting percentage
interests information; (2) correct a reference from BOX Holdings to
BOX Options Market LLC; (3) specify that all foreign upstream owners
have signed onto the BOX Exchange LLC Agreement and the BOX Holdings
LLC Agreement. Because Amendment No. 1 is a technical amendment that
does not materially alter the substance of the proposed rule change
or raise unique or novel regulatory issues, it is not subject to
notice and comment. Amendment No. 1 to the proposed rule change is
available at <a href="https://www.sec.gov/rules/sro/box.htm">https://www.sec.gov/rules/sro/box.htm</a>.
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II. Description of the Proposed Rule Change <SUP>8</SUP>
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\8\ For a more complete description of all the changes as
proposed, see Amendment No. 1, supra note 7.
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The Exchange is a limited liability company, organized under the
laws of the State of Delaware on August 26, 2010. The Exchange's
charter is a Second Amended and Restated Limited Liability Company
Agreement, dated as of May 29, 2020, as amended November 30, 2020
(``BOX Exchange LLC Agreement''). Citigroup Financial Products Inc.
(``Citi''), CSFB Next Fund Inc. (``CSFB''), and MX US 2, Inc.,
(``MXUS2'') each became a Member \9\ of the Exchange on May 10, 2012.
Wolverine Holdings, L.P. (``Wolverine'') is not currently a Member of
the Exchange.
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\9\ A ``Member'' of the Exchange means the current owners of
Economic Units and Voting Units of the Exchange and includes any
person subsequently admitted to the Exchange as an additional or
substitute Member of the Exchange. See Article 1. 1 of the BOX
Exchange LLC Agreement. ``Economic Units'' refer to equal units of
limited liability company interest in the Exchange collectively
comprising all interests in the profits and losses of the Exchange
and all rights to receive distributions from the Exchange as set
forth in the BOX Exchange LLC Agreement. See Article 2.5(a) of the
BOX Exchange LLC Agreement. ``Voting Units'' refer to equal units of
limited liability company interest in the Exchange collectively
comprising all voting interests of Members with respect to Exchange
matters. See Article 2.5(b) of the BOX Exchange LLC Agreement.
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BOX Holdings is a limited liability company, organized under the
laws of the State of Delaware on August 26, 2010. BOX Holdings is the
sole owner of BOX Options Market LLC, a facility of the Exchange (``BOX
Options''). The BOX Holdings charter is a Second Amended and Restated
Limited Liability Company Agreement, dated as of September 13, 2018
(``BOX Holdings LLC Agreement''). Citi and CSFB each became a Member
\10\ of BOX Holdings on May 10, 2012.
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\10\ A ``Member'' of BOX Holdings means the current owners of
BOX Holdings Units and includes any Person subsequently admitted to
BOX Holdings as an additional or substitute Member of BOX Holdings.
See BOX Holdings LLC Agreement Sec. 1.1. BOX Holdings ``Units''
means Class A Membership Units, Class B Membership Units, and Class
C Membership Units of BOX Holdings. See Article 1.1 of the BOX
Holdings LLC Agreement. The current Members of BOX Holdings are:
MXUS2, IB Exchange Corp. (``IB''), Citadel, Citi, UBS Americas Inc.
(``UBS''), CSFB, JPMC Strategic Investments I Corporation
(``JPMC''), Wolverine, and Aragon Solutions Ltd (``Aragon'').
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The Exchange proposes several transactions related to the ownership
of the Exchange and BOX Holdings. First, the Exchange would repurchase
the ownership interests in the Exchange held by Citi and CSFB.\11\
Second, BOX Holdings would repurchase the ownership interests in BOX
Holdings held by Citi and CSFB.\12\ Finally, Wolverine would purchase
an ownership interest in the Exchange from MXUS2.\13\ The charts below
summarize the ownership and voting percentage changes in the Exchange
and BOX Holdings that would result from the proposed transactions:
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\11\ See Notice, supra note 3, 86 FR at 51411 and Amendment No.
1, supra note 7.
\12\ See id.
\13\ See Notice, supra note 3, 86 FR at 51411-12 and Amendment
No. 1, supra note 7.
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BOX Exchange
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\14\ ``Economic Percentage Interest'' with respect to a Member
of the Exchange means the ratio of the number of Economic Units held
by the Member, directly or indirectly, of record or beneficially, to
the total of all of the issued and outstanding Economic Units held
by Members, expressed as a percentage. See Article 1.1 of the BOX
Exchange LLC Agreement.
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Current Proposed
economic economic
Exchange unit holder percentage percentage
interest \14\ interest
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MXUS2................................... 40.00 40.00
IB...................................... 20.00 20.00
Citadel................................. 7.68 12.28
Citi.................................... 7.68 ..............
UBS..................................... 7.45 11.92
CSFB.................................... 7.30 ..............
LabMorgan Corp./JPMC.................... 7.30 11.67
Aragon.................................. 2.58 4.13
[[Page 72022]]
Wolverine............................... .............. <0.01
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\15\ ``Voting Percentage Interest'' with respect to a Member of
the Exchange means the ratio of the number of Voting Units held by
the Member, directly or indirectly, of record or beneficially, to
the total of all of the issued and outstanding Voting Units held by
Members, expressed as a percentage. Voting Units held by a Member of
the Exchange that are ineligible to vote shall not be counted in the
numerator or the denominator when determining such ratio. See id.
\16\ ``Percentage Interest'' with respect to a Member of BOX
Holdings means the ratio of the number of Units 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 id.
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Proposed
Current voting voting
Exchange unit holder percentage percentage
interest \15\ interest
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MXUS2................................... 20.00 20.00
IB...................................... 20.00 20.00
Citadel................................. 18.73 20.00
Citi.................................... 10.00 ..............
UBS..................................... 4.99 4.99
CSFB.................................... 10.00 ..............
LabMorgan Corp./JPMC.................... 9.99 9.99
Aragon.................................. 6.30 20.00
Wolverine............................... .............. 5.03
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BOX Holdings
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Current Proposed
BOX holdings unit holder percentage percentage
interest \16\ interest
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MXUS2................................... 42.62 47.89
IB...................................... 22.69 25.50
Citadel................................. 13.80 15.50
Citi.................................... 7.85 ..............
UBS..................................... 3.23 3.63
CSFB.................................... 3.16 ..............
LabMorgan Corp./JPMC.................... 3.16 3.55
Aragon.................................. 1.12 1.26
Wolverine............................... 2.38 2.67
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Proposed
BOX holdings unit holder Current voting power voting power
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MXUS2.......................... 44.10% (Member votes).. 51.43
45.50% (total Board
voting power).
IB............................. 20.00%................. 20.00
Citadel........................ 14.28% (Member votes).. 16.65
14.73% (total Board
voting power).
Citi........................... 8.13% (Member votes)... ..............
8.38% (total Board
voting power).
UBS............................ 3.34% (Member votes)... 3.90
3.45% (total Board
voting power).
CSFB........................... 3.27% (Member votes)... ..............
3.37% (total Board
voting power).
LabMorgan Corp./JPMC........... 3.27% (Member votes)... 3.82
3.37% (total Board
voting power).
Aragon......................... 1.16% (Member votes)... 1.35
1.19% (total Board
voting power).
Wolverine...................... 2.46% (Member votes)... 2.87
0.00% (total Board
voting power because
Wolverine does not
have a Board seat).
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In addition to the transactions, the Exchange proposes to update
the name of one of its Members in the BOX Exchange LLC Agreement.
LabMorgan Corp., a Member of the Exchange, has changed its legal name
to ``JPMC Strategic Investments I Corporation.'' \17\
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\17\ See Notice, supra note 3, 86 FR at 51413, and Amendment No.
1, supra note 7.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\18\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\19\
which requires, among other things, that the rules of a national
securities exchange be designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in 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. The Commission also finds that these proposed rule
changes, as modified by Amendment No. 1, are consistent with Section
6(b)(1) of the Act, which requires, among other things, that a national
securities exchange be so organized and have the capacity to carry out
the purposes of the Act, and to comply and enforce compliance by its
members and persons associated with its members, with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
exchange.
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\18\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\19\ 15 U.S.C. 78f(b)(5).
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Both the BOX Exchange LLC Agreement and the BOX Holdings LLC
Agreement contain provisions relating to limitations on ownership and
voting power. In particular, the BOX Exchange LLC Agreement provides
that no Person,\20\ either alone or together with any Related Persons
\21\ may own, directly or indirectly, of record or beneficially, an
aggregate Economic Percentage Interest greater than 40%.\22\ Exchange
Facility Participants,\23\ alone or together with any Related Persons
may not own, directly or indirectly, of record or beneficially, an
Economic Percentage Interest greater than 20%.\24\ In addition, no
Person, either alone or together with any Related Persons, may own,
directly or indirectly, of record or beneficially, an aggregate Voting
Percentage Interest greater than 20%.\25\ Moreover, any Member \26\ of
the Exchange involved in a transaction that would result in a Member
having a Voting Percentage Interest or Economic Percentage Interest,
alone or together with any Related Person, of record or beneficially,
of 5% or more will be required to provide written notice to BOX
Exchange 14 days before the transaction that would exceed the 5%
limit.\27\ BOX Exchange will then be required to provide written notice
to the Commission 10 days before the transaction.\28\
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\20\ ``Person'' means 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 Article
1.1 of the BOX Exchange LLC Agreement.
\21\ The term ``Related Person'' is defined in Article 1.1 of
the BOX Exchange LLC Agreement.
\22\ See Article 7.3(f) of the BOX Exchange LLC Agreement.
\23\ ``Exchange Facility Participant'' means a firm or
organization that is registered with the Exchange pursuant to the
Exchange Rules for purposes of participant in trading on any
Exchange Facility. See Article 1.1 of the BOX Exchange LLC
Agreement. ``Exchange Facility'' means any facility of the Exchange
as the term ``facility'' is defined in Section 3 of the Act. See id.
\24\ Id.
\25\ See Article 7.3(g)(i) of the BOX Exchange LLC Agreement.
\26\ See supra note 9.
\27\ See Article 7.3(e) of the BOX Exchange LLC Agreement.
\28\ Id.
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In addition, the BOX Holdings LLC Agreement provides that if a
Member \29\ of BOX Holdings or any of its Related Persons \30\ is
approved by the Exchange as a BOX Options Participant,\31\ and if such
Member, alone or together with the Related Persons, own more than 20%
of BOX Holdings Units,\32\ then such Member and any director of BOX
Holdings designated by such Member will not have any voting rights with
respect to any Units owned in excess of 20%.\33\ The BOX Holdings LLC
Agreement further provides that any Member of BOX Holdings involved in
a transaction in which the Member's Percentage Interest \34\ in BOX
Holdings, either alone or together with any Related Person, will meet
or cross the threshold level of 5% or the successive 5% percentage
levels of 10% and 15% will be required to provide written notice to BOX
Holdings 14 days before the transaction.\35\ BOX Holdings will then be
required to provide written notice to BOX Exchange and the Commission
10 days before the transaction.\36\ In addition to these notices, any
transaction of Units that results in the acquisition and holding by any
Person,\37\ alone or with its Related Persons, of a Percentage Interest
that meets or crosses the threshold level of 20% or any successive 5%
percentage interest will be subject to the rule filing process of
Section 19 of the Act.\38\ Further, any transaction that is in
contravention of the notification and filing provisions shall be
void.\39\
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\29\ See supra note 10.
\30\ The term ``Related Person'' is defined in Article 1.1 of
the BOX Holdings LLC Agreement.
\31\ ``Options Participant'' means a firm, or organization that
is registered with the Exchange pursuant to the Rule 2000 Series for
purposes of participating in trading on a facility of the Exchange.
See BOX Rule 100(a)(41).
\32\ See supra note 10.
\33\ See Article 7.4(h) of the BOX Holdings LLC Agreement.
\34\ See supra note 16.
\35\ See Article 7.4(e) of the BOX Holdings LLC Agreement.
\36\ Id.
\37\ ``Person'' means 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 Article
1.1 of the BOX Holdings LLC Agreement.
\38\ See Article 7.4(f) of the BOX Holdings LLC Agreement.
\39\ See Article 7.4(d) of the BOX Holdings LLC Agreement.
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The ownership and voting limitations are designed to help ensure
that BOX Exchange is able to effectively carry out its regulatory
obligations under the Act. In addition, the limitations are designed to
address the conflicts of interests that might result from a member of a
national securities exchange owning interests in the exchange. The
Commission believes that the Exchange has followed the required notice
procedures set forth in the BOX Exchange LLC Agreement and BOX Holdings
LLC Agreement and that the proposed transactions are in compliance with
the ownership and voting limitations in the governance documents.\40\
The Commission also notes that the BOX Exchange LLC Agreement \41\ and
BOX Holdings LLC
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Agreement \42\ contain certain provisions designed to help maintain the
independence of the regulatory functions of BOX Exchange. The
Commission believes that the potential for conflicts of interest or
unfair competition is mitigated by these provisions.
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\40\ Although a commenter objects to Citadel's ownership and
voting percentages in BOX Holdings increasing because of the
contemplated transaction, the increase is consistent with the
ownership and voting limitations set forth in BOX Holdings governing
documents as previously approved by the Commission. See Securities
Exchange Act Release No. 66871 (April 27, 2012), 77 FR 26323 (May 3,
2012).
\41\ See, e.g., Article 4.6(b) of the BOX Exchange LLC Agreement
(requiring the Exchange and its Members to cooperate with BOX
Exchange and the Commission and to comply with federal securities
laws); and Article 18.6(b) of the BOX Holdings LLC Agreement
(deeming the Exchange, its Members and officers, directors,
employees and agents of each to submit to the jurisdiction of the US
federal courts and the Commission).
\42\ See, e.g., Article 4.12(b) of the BOX Holdings LLC
Agreement (requiring BOX Holdings and its Members to cooperate with
BOX Exchange and the Commission and to comply with federal
securities laws); Article 11.1 of the BOX Holdings LLC Agreement
(requiring the books and records of BOX Holdings and its Members to
be subject to inspection and copying by the Exchange and the
Commission at all times); and Article 18.6(b) of the BOX Holdings
LLC Agreement (deeming BOX Holdings, its Members and officers,
directors, employees and agents of each to submit to the
jurisdiction of the US federal courts, the Commission, and BOX
Exchange).
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With respect to the ownership of BOX Exchange, the Commission notes
that no BOX Exchange Member will own in excess of 40% of the Exchange's
Economic Units (20% if an Exchange Facility Participant) and 20% of the
Exchange's Voting Units. The board composition of the Exchange will not
change. And although BOX Holdings is not independently responsible for
regulation of BOX Options, its activities with respect to the operation
of BOX Options must be consistent with, and not interfere with, the
self-regulatory obligations of BOX Exchange. Pursuant to the
transaction, with respect to the ownership of BOX Holdings, the voting
power of IB, a BOX Options Participant, would remain at 20.00%.
Further, while MXUS2's voting power in BOX Holdings would increase,
MXUS2's power to appoint directors would remain unchanged.\43\ The
Commission accordingly believes that the proposed transfers are in
compliance with requirements in the BOX Exchange LLC Agreement and the
BOX Holdings LLC Agreement and provisions designed to help maintain BOX
Exchange's regulatory function.
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\43\ MXUS2 (through MXUS1) is a wholly-owned subsidiary of the
Bourse de Montreal (``Bourse'') and the Bourse is a wholly-owned
subsidiary of TMX Group Limited. Each of MXUS1, Bourse, and TMX
Group Limited is a party to the BOX Exchange LLC Agreement and BOX
Holdings LLC Agreement and has all the rights and responsibilities
of the Members of BOX Exchange and BOX Holdings. See Amendment No 1,
supra note 7.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\44\ that the proposed rule change (SR-BOX-2021-19), as modified by
Amendment No. 1, be, and hereby is, approved.
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\44\ Id.
\45\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27427 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P
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