Notice2022-21677
Self-Regulatory Organizations; BOX Exchange LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Article 4 of the Exchange's Bylaws To Establish a Staggered Board
Primary source
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Published
October 6, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 193 (Thursday, October 6, 2022)</title>
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[Federal Register Volume 87, Number 193 (Thursday, October 6, 2022)]
[Notices]
[Pages 60717-60719]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-21677]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95961; File No. SR-BOX-2022-19]
Self-Regulatory Organizations; BOX Exchange LLC; Order Approving
a Proposed Rule Change, as Modified by Amendment No. 1, To Amend
Article 4 of the Exchange's Bylaws To Establish a Staggered Board
September 30, 2022.
I. Introduction
On June 17, 2022, BOX Exchange LLC (``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 to amend Article 4
of the Exchange's Bylaws (``Bylaws'') to establish a staggered board.
The proposed rule change was published for comment in the Federal
Register on July 6, 2022.\3\ On August 9, 2022, 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 28, 2022, the
Exchange filed Amendment No. 1 to the proposed rule change.\6\ The
Commission received no comments on the proposed rule change. This order
approves 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. 95174 (June 29,
2022), 87 FR 40321 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 95446 (August 9,
2022), 87 FR 50142 (August 15, 2022). The Commission designated
October 4, 2022, as the date by which the Commission shall approve
or disapprove, or institute proceedings to determine whether to
disapprove, the proposed rule change.
\6\ In Amendment No. 1, the Exchange clarified how the
transition to a staggered board would be implemented. Because
Amendment No. 1 does not materially alter the substance of the
proposed rule change, Amendment No. 1 is not subject to notice and
comment. Amendment No. 1 is available at: <a href="https://www.sec.gov/comments/sr-box-2022-19/srbox202219-20144374-309297.pdf">https://www.sec.gov/comments/sr-box-2022-19/srbox202219-20144374-309297.pdf</a> (``Amendment
No. 1'').
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II. Description of the Proposed Rule Change <SUP>7</SUP>
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\7\ For a more complete description of the changes proposed, see
Notice, supra note 3.
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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 Bylaws to provide that Exchange
Directors will be divided into three classes, designated Class I, Class
II and Class III, which will be as nearly equal in number and
classification as the total number of such Directors then serving on
the Board permits. As proposed, each class of Directors will serve
staggered three-year terms, with the term of office of one class
expiring each year.\8\
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\8\ Currently, Directors serve one-year terms, and all Directors
are nominated and begin serving each year at the annual meeting of
Members. See Notice, supra note 3, at 40322 n.4.
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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 will initially serve a one-year term; Class II Directors will
initially serve a two-year term; and Class III Directors will initially
serve a three-year term.\9\ Thereafter, all Directors shall serve
staggered three-year terms, with the term of office of one class
expiring each year.\10\
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\9\ According to the Exchange, the 2022 annual meeting of the
Members of the Exchange has not yet occurred. If the proposed rule
change is approved before the 2022 annual meeting of Members, Class
I Directors, Class II Directors and Class III Directors would each
be nominated and selected in 2022 and the initial term of Class I
Directors would end at the 2023 annual meeting of Members, and a new
slate of Class I Directors would be nominated and selected in 2023
in accordance with the Bylaws. See Amendment 1, supra note 6, at 2.
In this circumstance, the term of Class II and Class III directors
would end at the Members annual meeting in 2024 and 2025,
respectively. See id. at 2 n.5.
\10\ See Amendment 1, supra note 6 at 2.
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The Exchange further 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 will be added to a class, as
determined by the Board at the time of such Director's initial election
or appointment, and will
[[Page 60718]]
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 will 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. Therefore, the Exchange proposes this provision
specify that if a new Director is added to the Board, the term of that
Director will correspond to the class to which that Director is
assigned at the time of election or appointment.\11\ In addition, the
Exchange proposes to amend Section 4.02 of the Bylaws to specify that
no decrease in the number of Directors will have the effect of
shortening the term of any incumbent Director.\12\
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\11\ See Notice, supra note 3, at 40322.
\12\ For example, the Exchange notes that it could not 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. See
Notice, supra note 3, at 40322.
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The Exchange also proposes to make certain 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. For example, 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.\13\ The Exchange also
proposes to amend Section 4.06(d) (``Selection of Directors'') of the
Bylaws to provide that, prior to the first annual meeting of the
Members following adoption of the amended Section 4.06(d), each
Director position set forth in Section 4.02 shall be designated, as
determined by the Board, to one of the three classes for nomination by
the Nominating Committee to begin service at such annual meeting.
Thereafter, prior to each annual meeting of the Members, the Nominating
Committee will select nominees for each Director position ``for the
class with its term then expiring'' to begin service as Directors.\14\
Finally, the Exchange proposes to amend Section 4.10 (``Vacancies'') 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), will serve for the remainder of
the applicable class term. For example, according to the Exchange, 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.\15\
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\13\ 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 would begin serving as
Directors. See Notice, supra note 3, at 40322 n.7.
\14\ The Exchange proposes to amend Section 4.06(d)(i) to
include the same conforming edits to specify that the Nominating
Committee will meet for the purposes of selecting proposed Director
nominees ``for the class then expiring'' and that the Nominating
Committee will 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. See Notice, supra note 3, at 40322 n.8.
\15\ 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. See Notice, supra note 3, at 40322 n.9.
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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.\16\ Further, all nominations and elections of
Directors under the proposed staggered Board structure must be
consistent with the existing composition requirements in the Bylaws and
Directors may continue to serve consecutive terms.\17\
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\16\ See Notice, supra note 3, at 40323; Section 4.02 of the
Bylaws.
\17\ See Notice, supra note 3, at 40323; Section 4.03 of the
Bylaws.
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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 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 the proposed rule change, as amended, is consistent with Section
6(b)(3) of the Exchange Act,\20\ which, among other things, requires
that the rules of a national securities exchange ensure fair
representation of its members in the selection of its directors and
administration of its affairs.
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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).
\20\ 15 U.S.C. 78f(b)(3).
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As discussed above, the Exchange proposes to amend its Bylaws to
establish a staggered Board. The Commission believes that, by dividing
Directors into three classes with only one class selected by the
Nominating Committee each year to serve a three-year term, a staggered
Board may improve the function of the Board by ensuring continuity and
preserving institutional knowledge among its Directors. As the Exchange
notes, retaining a majority of the incumbent Directors year-to-year may
facilitate an orderly transition to new leadership. Moreover, according
to the Exchange, the existing composition requirements related to
Directors would remain the same under the proposed rule change and
categories of Directors shall be balanced among the classes. Further,
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). The
Commission also notes that the proposed staggered Board structure is
substantially similar to the staggered board structures of at least two
exchanges \21\ and therefore poses no novel regulatory issues. Finally,
the Commission believes that the proposed conforming changes to the
Bylaws are consistent with the Act because they serve to clarify the
responsibilities of the Board's Nominating Committee and to address
Director vacancies that may arise.
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\21\ See Amended and Restated By-Laws of Miami International
Securities Exchange LLC (``MIAX''), Section 2.3(b) 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.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-BOX-2022-
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19), as modified by Amendment No. 1, be, and hereby is, approved.
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\22\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-21677 Filed 10-5-22; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on October 6, 2022.
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