Notice2022-14289
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Proposed Rule Change To Amend Article 4 of the Exchange's Bylaws To Establish a Staggered Board
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Published
July 6, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 128 (Wednesday, July 6, 2022)</title>
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[Federal Register Volume 87, Number 128 (Wednesday, July 6, 2022)]
[Notices]
[Pages 40321-40324]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-14289]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95174; File No. SR-BOX-2022-19]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Proposed Rule Change To Amend Article 4 of the Exchange's Bylaws To
Establish a Staggered Board
June 29, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 17, 2022, BOX Exchange LLC (the ``Exchange'') filed with
the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the self-regulatory organization. The Commission
is publishing this notice to
[[Page 40322]]
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Article 4 of the Exchange's Bylaws
to establish a staggered board. 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>.
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 proposes to amend its Bylaws to establish a staggered
Board. Specifically, the Exchange proposes to amend Section 4.03 (Term
of Directors) of the Exchange Bylaws to provide that Exchange Directors
shall be divided into three classes, designated Class I, Class II and
Class III, which shall be as nearly equal in number and classification
as the total number of such Directors then serving on the Board
permits.\3\ Section 4.03 of the Bylaws would further provide that each
class of newly elected Directors shall serve staggered three-year
terms, with the term of office of one class expiring each year.\4\
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\3\ The current Exchange Board expects to initially designate:
in Class I, one Non-Industry Director and one Participant Director;
in Class II, two Non-Industry Directors, one of which is a Public
Director; and in Class III, one Non-Industry Director and one
Participant Director. These initial class designations are intended
to balance, to the extent possible, the various categories of
Directors among the three classes. Board actions are taken by
majority vote in accordance with Section 4.11(j) of the Exchange
Bylaws.
\4\ Currently under the Exchange's Bylaws, Directors serve one-
year terms and all Directors are nominated and begin serving each
year at the annual meeting of Members. This provision in Section
4.03 of the Exchange Bylaws is proposed to be changed to delete
``Directors shall serve terms of one year each beginning each year
at the annual meeting of the Members.''
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In order to commence such staggered three-year terms, the Exchange
proposes to amend Section 4.03 of the Bylaws to provide that Class I
Directors serving when amended Section 4.03 is adopted shall serve
until the first annual meeting of Members following the adoption of
amended Section 4.03; Class II Directors serving when amended Section
4.03 is adopted shall serve until the second annual meeting of Members
following the adoption of amended Section 4.03; and Class III Directors
serving when amended Section 4.03 is adopted shall serve until the
third annual meeting of Members following the adoption of amended
Section 4.03. The 2022 annual meeting of the Members of the Exchange
has not yet occurred. Accordingly, if this proposed rule change is
approved before the 2022 annual meeting of Members, the term of Class I
Directors would end at the 2022 annual meeting of Members, a new slate
of Class I Directors would be nominated and selected in 2022 in
accordance with the Bylaws.\5\
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\5\ In this circumstance, the term of Class II and Class III
directors would end at the Members annual meeting in 2023 and 2024,
respectively.
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The Exchange also proposes to amend Section 4.03 of the Bylaws to
provide that, in the case of any new Director as contemplated by
Article IV, Section 4.02, such Director shall be added to a class, as
determined by the Board at the time of such Director's initial election
or appointment, and shall have an initial term expiring at the same
time as the term of the class to which such Director has been added. In
making such determinations, the Board shall balance the categories of
Directors (e.g. Non-Industry, Public, Participant and Facility
Directors) among the classes to the extent possible. Pursuant to
Section 4.02 of the Bylaws, the total number of Directors is determined
by the Board and must be between five and eleven directors.
Accordingly, the Exchange is adding this provision to specify that if a
new Director is added to the Board, the term of that Director shall
correspond to the class to which that Director is assigned at the time
of election or appointment.
In addition, the Exchange proposes to amend Section 4.02 to specify
that no decrease in the number of Directors shall have the effect of
shortening the term of any incumbent Director.\6\ The purpose of this
provision is to provide that, in the event that the Board determines to
reduce the number of overall Directors, the term of any incumbent
Director will not be cut short because of such determination. The
Exchange could not, for example, determine to reduce the size of the
Board by eliminating the Director seat for a Director who had two years
of his or her term remaining.
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\6\ This provision is substantially similar to a comparable
provision in the bylaws of another national securities exchange that
provides for a staggered board. See Amended and Restated By-Laws of
Miami International Securities Exchange LLC, Section 2.2(a).
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The Exchange also proposes to make certain other conforming edits
to other provisions of the Bylaws to clarify the responsibilities of
the Board's Nominating Committee and to address Director vacancies that
may arise. Specifically, the Exchange proposes to amend Section 4.06
(Nominating Committee) of the Bylaws to specify that the Board's
Nominating Committee will nominate individuals in advance of each
annual meeting of the Members to begin service as Directors ``for the
applicable class term then expiring (i.e., Class I, Class II or Class
III)'' at such annual meeting of the Members.\7\ The Exchange also
proposes to amend Section 4.06(d) (Selection of Directors) of the
Bylaws to provide that, prior to each annual meeting of the Members,
the Nominating Committee shall select nominees for each Director
position ``for the class with its term then expiring'' to begin service
as Directors.\8\ Finally, the Exchange proposes to amend Section 4.10
(Vacancies) by deleting the language ``until the next annual meeting or
until his or her successor is elected and qualified'' and inserting the
language ``for the remainder of the applicable class term'' to provide
that a Director who is elected by the Board to fill a vacancy (e.g., as
a result of the death, resignation, removal or increase in the
authorized number of Directors), shall serve for the remainder of the
applicable class term. For example, if a Director in Class II resigns,
the Director elected to fill the vacancy would serve for the remainder
of the term of Class II Directors.\9\
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\7\ Similarly, the Exchange also proposes to amend the final
sentence of Section 4.06 to specify that at each annual meeting of
the Members, the individuals selected ``for the applicable class
term'' pursuant to Section 4.06 of the Bylaws shall begin serving as
Directors.
\8\ The Exchange proposes to amend Section 4.06(d)(i) to include
the same conforming edits to specify that the Nominating Committee
shall meet for the purposes of selecting proposed Director nominees
``for the class then expiring'' and that the Nominating Committee
shall provide the names of all proposed Director nominees ``for the
class then expiring'' to the Exchange's Secretary not later than
sixty days prior to the date of the annual meeting of the Members.
\9\ With respect to a vacancy arising from an increase in the
number of authorized Directors, pursuant to proposed Section 4.03 of
the Bylaws, the Director filling such vacancy would be assigned to a
class by the Board and would have an initial term expiring at the
same time as the term of the class to which such Director has been
added.
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[[Page 40323]]
The Exchange notes that it is not proposing any change to the
composition of the Board, such as the requirement that 20% of Directors
must be a Participant Directors or that a majority of Directors must be
Non-Industry Directors.\10\ All nominations and elections of Directors
under the proposed staggered Board structure must be consistent with
the existing composition requirements in the Bylaws. In addition,
consistent with the existing Bylaws, Directors may serve consecutive
terms.\11\
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\10\ See Section 4.02 of the Bylaws.
\11\ See Section 4.03 of the Bylaws.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of the Exchange Act,\12\ in general, and furthers
the objective of Section 6(b)(5) of the Exchange Act,\13\ in
particular, because it is designed 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; and it is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers, or to regulate by virtue of any authority conferred by this
Exchange Act matters not related to the purposes of the Exchange Act or
the administration of the Exchange.
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\12\ 15 U.S.C. 78a et seq.
\13\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that the governance and
administration of the Exchange would benefit from a Board structure in
which Directors each serve staggered three-year terms in at least two
ways. First, the Exchange believes that shifting from one-year terms
for Exchange Directors to staggered three-year terms will help preserve
institutional knowledge among Exchange Directors. Under the Exchange's
current Bylaws, an entirely new set of Directors can be selected each
year, which can potentially disrupt ongoing initiatives by the Exchange
or result in a complete loss of institutional knowledge if all of the
new Directors have no prior experience serving on the Exchange's Board.
The Exchange believes that it benefits from the previous experience of
those who have previously served as Exchange Directors and that
ensuring some continuity among Directors promotes fair and orderly
transitions to new Board leadership. By increasing the term length of
each Director from one to three years, the Exchange can eliminate the
possibility that an entirely new slate of Directors with no prior
experience as a Director occurs. And, by staggering the election of
Directors by dividing Directors into three classes with only one class
elected each year, the Exchange can preserve institutional knowledge
among a majority of the Directors over time. This change will ensue
that at the time of every annual meeting of the Members, there will
remain veteran leadership on the Board. In turn, the Exchange believes
that these changes will help to improve the administration of the
Exchange by fostering cooperation and coordination with persons, such
as Directors, engaged in regulating and facilitating transactions in
securities and removes impediments to and perfects the mechanism of a
free and open market and a national market system, consistent with
Section 6(b)(5) of the Exchange Act.\14\ The Exchange also believes,
consistent with Section 6(b)(5) of the Exchange Act, that these changes
will also further the protection of investors and the public interest,
which benefit from a governance structure that is designed to preserve
institutional knowledge gained by incumbent Directors and through
orderly transitions to new leadership among Directors.\15\
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\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
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Second, the Exchange believes that the proposed staggered Board
structure would help prevent any one Member or group of Members acting
in coordination from exercising an undue influence over the Board
through the election of Board Directors. As noted, currently the entire
Board of Directors can be replaced each year. As a result, although no
one Member has more than a 20% voting interest in the election of
Directors, two or more Members acting in coordination could potentially
exercise an outsized influence in the selection of Directors.
Establishing a staggered Board would make it more difficult for such
Members to take control of the Board, and therefore control of the
Exchange, through a single election of the Board. By reducing the risk
of coordinated Members taking control of the Board, the Board will be
better positioned to address difficult, longer-term considerations
related to management of the Exchange, rather than focusing on shorter-
term considerations of certain Members. For example, a coordinated
group of Members might seek to elect a slate of Directors that are more
heavily focused on increasing Exchange profits without appropriate
consideration of the longer-term growth of the Exchange. A staggered
Board structure would make it more challenging for such Members to
effect such a directional change by preventing the replacement of the
entire Board of Directors in a given year. In turn, the Exchange
believes that this would, consistent with Section 6(b)(5) of the
Exchange Act, further the protection of investors and the public
interest who are likely to benefit from an Exchange that is able to
focus on longer-term goals rather than shorter-term interests of
certain Members.\16\
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\16\ Id.
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In addition, the Exchange notes that, consistent with Section
6(b)(5), the proposed rule change is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.\17\ The
existing composition requirements related to Directors would remain the
same under the proposed rule change, so there would not be, for
example, any reduction in the representation of Exchange Participants
on the Board. Moreover, all Directors would be subject to the same
requirements under the proposed rule change (i.e., all Directors,
regardless of type, would be divided into one of three classes, each
serving three-year terms).
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\17\ Id.
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The Exchange notes that, in order to commence the operation of the
staggered Board, Directors assigned by the Board to Class I would serve
for only one year following the adoption of this proposed rule change
while Class II and Class III Directors would serve for two and three
years respectively. While this could potentially be viewed as unfairly
discriminatory against Class I and Class II Directors whose tenure
would have a shorter duration than a Class III Director, these
differing tenures are unavoidable to establish a staggered Board.
Directors may also be re-elected and serve consecutive terms. As a
result, although a Director assigned to Class I may have an initially
shorter tenure, if re-elected at the time of the first annual meeting
of Members following the adoption of this proposed rule change, such
Director would then serve a three-year term.
Finally, the Exchange notes that the proposed staggered Board
structure is substantially similar to the staggered board structure of
at least two
[[Page 40324]]
exchanges.\18\ Other exchanges have historically also operated with a
substantially similar staggered board structure, including the BATS
Exchange Inc. and EDGX Exchange Inc. and EDGA Exchange Inc. prior to
their business combination with CBOE Holdings Inc.,\19\ as well as
International Securities Exchange, LLC prior to 2013.\20\ Accordingly,
the Exchange's proposed staggered Board structure does not present any
novel considerations that the Commission has not previously considered.
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\18\ See Amended and Restated By-Laws of Miami International
Securities Exchange LLC (``MIAX''), Section 2.02(a) and First
Amended and Restated Bylaws of Long-Term Stock Exchange, Inc.
(``LTSE''), Section 3.3(b). The bylaws of The Options Clearing
Corporation (``OCC''), another self-regulatory organization, also
provide for a similar staggered board consisting of three classes.
See OCC By-Laws, Article III, Section 3.
\19\ See Exchange Act Release No. 57322 (File No. 10-182),
Exhibit A.3 of the BATS Exchange Inc. Form 1 Application, as
modified by Amendment No. 1, (Amended and Restated By-Laws of BATS
Exchange Inc. at Section 3(b)) (February 13, 2008), available at
<a href="https://www.sec.gov/rules/other/2008/34-57322_application.htm#exhibit-a">https://www.sec.gov/rules/other/2008/34-57322_application.htm#exhibit-a</a>, and Exchange Act Release No. 60651
(File No. 10-193), Exhibit A.3 of the EDGX Exchange Inc. Form 1
Application, as modified by Amendment No. 1 (Amended and Restated
Bylaws of EDGX Exchange Inc. at Section 3(b)) (September 11, 2009),
available at <a href="https://www.sec.gov/rules/other/2009/edgx-f1-application.htm#exhibit-a">https://www.sec.gov/rules/other/2009/edgx-f1-application.htm#exhibit-a</a>.
\20\ See Exchange Act Release No. 69164, 78 FR 17727 (March 22,
2013) (SR-ISE-2013-07).
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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
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Exchange Act.\21\ The
proposed rule change is concerned only with the governance structure
and internal administration of the Exchange Board and would establish a
staggered Board structure that is substantially similar to the existing
board structure of other exchanges and self-regulatory organizations.
As a result, the Exchange does not believe that the proposed rule
change would result in any burden on competition or other competition-
related considerations between or among Exchange Participants or
between different exchanges.
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\21\ 15 U.S.C. 78f(b)(8).
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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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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#f280879e97df919d9f9f979c8681b2819791dc959d84"><span class="__cf_email__" data-cfemail="5022253c357d333f3d3d353e2423102335337e373f26">[email protected]</span></a>. Please include
File Number SR-BOX-2022-19 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-2022-19. 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-2022-19, and should be submitted on
or before July 27, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-14289 Filed 7-5-22; 8:45 am]
BILLING CODE 8011-01-P
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