29634 Federal Register / Vol. 86, No. 104 / Wednesday, June 2, 2021 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(1). 

4The Exchange’s Rules can be found on the 

Exchange’s public website: https://boxoptions.com/ 

regulatory/rulebook-filings/. 

5As discussed further below, BSTX proposes to 

use the term ‘‘Security’’ to refer to BSTX-listed 

securities to distinguish them from other securities 

issued by an issuer that the issuer does not list on 

BSTX. 

6 17 CFR 242.600(b)(48). 

7The proposed changes to BOX Rules and the 

proposed BSTX Rules have been submitted with 

this proposal as Exhibits 5B and 5A, respectively. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92017; File No. SR–BOX– 

2021–06] 

Self-Regulatory Organizations; BOX 

Exchange LLC; Notice of Filing of 

Proposed Rule Change To Adopt Rules 

Governing the Trading of Equity 

Securities on the Exchange Through a 

Facility of the Exchange Known as 

Boston Security Token Exchange LLC 

May 25, 2021. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on May 12, 

2021, BOX Exchange LLC (the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘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 

solicit comments on the proposed rule 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Pursuant to the provisions of Section 

19(b)(1) of the Securities Exchange Act 

of 1934 as amended (‘‘Exchange Act’’),3

BOX Exchange LLC (‘‘BOX’’ or the 

‘‘Exchange’’) is filing with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) a proposed rule change 

to adopt rules to govern the trading of 

equity securities on the Exchange 

through a facility of the Exchange 

known as Boston Security Token 

Exchange LLC (‘‘BSTX’’). As described 

more fully below, BSTX would operate 

a fully automated, price/time priority 

execution system for the trading of 

‘‘Securities,’’ which would be equity 

securities that meet BSTX listing 

standards and for which certain 

information regarding orders and 

executions on BSTX would be recorded 

and disseminated on a proprietary 

market data feed that BSTX operates 

using a proprietary blockchain system 

(‘‘BSTX Market Data Blockchain’’). The 

proposed additions to the Exchange’s 

Rules setting forth new Rule Series 

17000–29000 have been submitted with 

the proposal as Exhibit 5A. All text set 

forth in Exhibit 5A would be added to 

the Exchange’s rules and therefore 

underlining of the text is omitted to 

improve readability. Forms proposed to 

be used in connection with the 

proposed rule change, such as the 

application to become a BSTX 

Participant, have been submitted with 

the proposal as Exhibits 3A through 3L. 

In addition, the Exchange proposes to 

make certain amendments to several 

existing BOX Rules to facilitate trading 

on BSTX. The proposed changes to the 

existing BOX Rules would not change 

the core purpose of the subject Rules or 

the functionality of other BOX trading 

systems and facilities. Specifically, the 

Exchange is seeking to amend BOX 

Rules 100, 2020, 2060, 3180, 7130, 7150, 

7230, 7245, IM–8050–3, 11010, 11030 

and 12140. These proposed changes are 

set forth in Exhibit 5B. Material 

proposed to be added to the Rule as 

currently in effect is underlined and 

material proposed to be deleted is 

bracketed. 

All capitalized terms not defined 

herein have the same meaning as set 

forth in the Exchange’s Rules.4

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 http://

boxoptions.com. 

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 proposing to adopt a 

series of rules to govern the trading of 

certain equity securities through a 

facility of the Exchange known as BSTX 

and make certain amendments to the 

existing BOX rules to facilitate trading 

on BSTX. As described more fully 

below, BSTX would operate a fully 

automated, price/time priority 

execution system (‘‘BSTX System’’) for 

the trading of certain equity securities 

that would be considered ‘‘Securities’’ 

under the proposed rules. The 

‘‘Securities’’ 5 under the proposed rules 

would be equity securities that meet 

BSTX listing standards and that trade on 

the BSTX System. The Exchange would 

operate the BSTX Market Data 

Blockchain, which would record certain 

information regarding orders and 

transactions occurring on BSTX with 

respect to Securities. All BOX 

Participants would be eligible to 

participate in BSTX provided that they 

become a BSTX Participant pursuant to 

the proposed rules. Under the proposed 

rules, BSTX would serve as the listing 

market for eligible companies and 

issuers of exchange traded products 

(‘‘ETPs’’) that wish to issue their 

registered securities as Securities. 

Securities would trade as NMS stock.6

The Exchange is not proposing rules 

that would support its extension of 

unlisted trading privileges (‘‘UTP’’) to 

other NMS stock, and accordingly the 

Exchange does not intend to extend any 

such UTP in connection with this 

proposal. The Exchange would therefore 

only trade Securities listed on BSTX 

unless and until it proposes and 

receives Commission approval for rules 

that would support trading in other 

types of securities, including through 

any extension of UTP to other NMS 

stock. A guide to the structure of the 

proposed rule change is described 

immediately below. 

Guide to the Scope of the Proposed Rule 

Change 

The proposal for trading of Securities 

through BSTX generally involves 

changes to existing BOX Rules and new 

BOX Rules pertaining specifically to 

BSTX (‘‘BSTX Rules’’). In addition, the 

Exchange plans to submit a separate 

proposed rule change pertaining to 

BSTX’s corporate governance 

documents. To support the trading of 

Securities through BSTX, certain 

conforming changes are proposed to 

existing BOX Rules and entirely new 

BSTX Rules are also proposed as Rule 

Series 17000 through 29000.7 Each of 

those new Rule Series and the 

provisions thereunder are described in 

greater detail below. Where the BSTX 

Rules are based on existing rules of 

another national securities exchange, 

the source rule from the relevant 

exchange is noted along with a 


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8See tZERO and BOX Digital Markets Sign Deal 

to Create Joint Venture, Business Wire (June 19, 

2018), https://www.businesswire.com/news/home/ 

20180619005897/en/tZERO-and-BOX-DigitalMarkets-Sign-Deal-to-Create-Joint-Venture. 

9 15 U.S.C. 78c(a)(2). Section 3(a)(2) of the 

Exchange Act, provides that ‘‘the term ‘facility’ 

when used with respect to an exchange includes its 

premises, tangible or intangible property whether 

on the premises or not, any right to the use of such 

premises or property or any service thereof for the 

purpose of effecting or reporting a transaction on an 

exchange (including, among other things, any 

system of communication to or from the exchange, 

by ticker or otherwise, maintained by or with the 

consent of the exchange), and any right of the 

exchange to the use of any property or service.’’ 

Because BSTX will share certain systems of the 

Exchange, BSTX would be a facility of the 

Exchange. 

10 15 U.S.C. 78f; 15 U.S.C. 78s. 

11The Exchange proposes to define the term 

‘‘Security’’ to mean a NMS stock, as defined in Rule 

600(b)(47) of the Exchange Act, trading on the 

BSTX System. See proposed Rule 17000(a)(31). 

12 Id. 

13 17 CFR 242.600 through .613. 

14 17 CFR 242.600(b)(47). 

15 17 CFR 242.601(a)(1). The Rule states in 

relevant part that ‘‘every national securities 

exchange shall file [with the SEC] a transaction 

reporting plan regarding transactions in listed 

equity and Nasdaq securities executed through its 

facilities . . . .’’ 

16 17 CFR 242.600(b)(47). 

17 15 U.S.C. 78l. 

18 15 U.S.C. 77f. 

19 15 U.S.C. 78c(a)(23)(A). Section 3(a)(23)(A) of 

the Exchange Act defines the term ‘‘clearing 

agency’’ to include ‘‘any person, such as a securities 

depository, who (i) acts as a custodian of securities 

in connection with a system for the handling of 

securities whereby all securities of a particular class 

or series of any issuer deposited within the system 

are treated as fungible and may be transferred, 

loaned, or pledged by bookkeeping entry without 

Continued 

discussion of notable differences 

between the source rule and the 

proposed BSTX Rule. The proposed 

BSTX Rules are addressed in Part III 

below and they generally cover the 

following areas: 

• Section 17000—General Provisions 

of BSTX; 

• Section 18000—Participation on 

BSTX; 

• Section 19000—Business Conduct 

for BSTX Participants; 

• Section 20000—Financial and 

Operational Rules for BSTX 

Participants; 

• Section 21000—Supervision; 

• Section 22000—Miscellaneous 

Provisions; 

• Section 23000—Trading Practice 

Rules; 

• Section 24000—Discipline and 

Summary Suspension; 

• Section 25000—Trading Rules; 

• Section 25200—Market Making on 

BSTX; 

• Section 26000—BSTX Listing Rules 

Other Than for Exchange Traded 

Products; 

• Section 27000—Suspension and 

Delisting; 

• Section 27100—Guide to Filing 

Requirements; 

• Section 27200—Procedures for 

Review of Exchange Listing 

Determinations; and 

• Section 28000—Trading and Listing 

of Exchange Traded Products; 

• Section 29000—Dues, Fees, 

Assessments and Other Charges. 

Overview of BSTX and Considerations 

Related to the Listing, Trading and 

Clearance and Settlement of Securities 

The Joint Venture and Ownership of 

BSTX 

On June 19, 2018, t0.com Inc. 

(‘‘tZERO’’) and BOX Digital Markets 

LLC (‘‘BOX Digital’’) announced a joint 

venture to facilitate the trading of 

Securities on the Exchange.8 As part of 

the joint venture, BOX Digital, which is 

a subsidiary of BOX Holdings Group 

LLC, and tZERO each own 50% of the 

voting class of equity and over 45% 

economic interest of BSTX LLC. 

Pursuant to the BSTX LLC Agreement, 

BOX Digital and tZERO will perform 

certain specified functions with respect 

to the operation of BSTX. As noted, 

these details, as well as the proposed 

governance structure of the joint venture 

will be the subject of a separate 

proposed rule change that the Exchange 

will submit to the Commission. 

BSTX Would Be a Facility of BOX That 

Would Support Trading in the New 

Asset Class of Securities for BOX 

BSTX would operate as a facility 9 of 

BOX, which is a national securities 

exchange registered with the SEC. As a 

facility of BOX, BSTX’s operations 

would be subject to applicable 

requirements in Sections 6 and 19 of the 

Exchange Act, among other applicable 

rules and regulations.10 Currently, BOX 

functions as an exchange only for 

standardized options. At the time that 

BSTX commences operations it would 

support trading in Securities that are 

equity securities (including certain 

ETPs), as descried in more detail below. 

Accordingly, the proposal represents a 

new asset class for BOX, and the 

discussion below sets forth the changes 

and additions to the Exchange’s Rules to 

support the trading of equity securities 

as Securities on BSTX. 

The Exchange proposes to use the 

term ‘‘Security’’ 11 to describe a NMS 

stock trading on the BSTX system. The 

legal significance, therefore, of a 

‘‘Security’’ is that it would be an equity 

security that is approved for listing on 

BSTX and that trades on the BSTX 

System. A security that is offered by an 

issuer with the intent of it becoming 

listed on BSTX would therefore not 

become a ‘‘Security’’ under the 

proposed BSTX Rules unless and until 

it actually does become listed on BSTX 

and trades on the BSTX System.12

Securities Would Be NMS Stocks 

The Securities would qualify as NMS 

stocks pursuant to Regulation NMS,13

which defines the term ‘‘NMS security’’ 

in relevant part to mean ‘‘any security 

or class of securities for which 

transaction reports are collected, 

processed and made available pursuant 

to an effective transaction reporting plan 

. . . .’’ 14 The Exchange plans to join 

existing transaction reporting plans, as 

discussed in Part VIII below, for the 

purposes of Security quotation and 

transaction reporting.15 The term ‘‘NMS 

stock’’ means ‘‘any NMS security other 

than an option’’ 16 and therefore 

Securities traded on BSTX would be 

classified as NMS stock. 

Securities would meet the definition 

of NMS stock and would trade, clear, 

and settle in the same manner as all 

other NMS stocks traded today. As 

described in further detail below, the 

operation of the BSTX Market Data 

Blockchain would in no way modify or 

alter market participants’ obligations 

under Regulation NMS. 

BSTX Would Support Trading of 

Registered Securities 

All Securities traded on BSTX would 

generally be required to be registered 

with the Commission under both 

Section 12 of the Exchange Act 17 and 

Section 6 of the Securities Act of 1933 

(‘‘Securities Act’’).18 BSTX would not 

support trading of Securities offered 

under an exemption from registration 

for public offerings, with the exception 

of certain offerings under Regulation A 

that meet the proposed BSTX listing 

standards. 

Issuance and Clearance and Settlement 

of Securities 

BSTX would maintain certain rules, 

as described below, to address custody, 

clearance and settlement in connection 

with Securities. All transactions in 

Securities would clear and settle in 

accordance with the rules, policies and 

procedures of registered clearing 

agencies. Specifically, BSTX anticipates 

that at the time it commences 

operations, Securities that are listed and 

traded on BSTX would be securities that 

have been made eligible for services by 

The Depository Trust Company (‘‘DTC’’) 

and that DTC would serve as the 

securities depository 19 for such 


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physical delivery of securities certificates, or (ii) 

otherwise permits or facilitates the settlement of 

securities transactions or the hypothecation or 

lending of securities without physical delivery of 

securities certificates.’’ 

20The Exchange notes that distinct classes of 

securities issued by an issuer that are Securities 

would not be fungible with another class of 

securities of the same issuer because no class of an 

issuer’s securities is fungible with a separate class 

of its securities—otherwise they would be the same 

class of security. To the extent that two classes of 

an issuer’s shares had identical voting and 

economic rights but were registered with the 

Commission as separate classes (e.g., Class A shares 

and Class B shares), the two classes of shares could 

be economically fungible with one another insofar 

as they convey the same economic and beneficial 

rights and interests to investors, but this would not 

mean that ownership of a Class A share is the same 

as ownership of a Class B share notwithstanding 

that each class provides the same economic 

benefits. In any case, nothing herein proposes any 

change to the existing framework for different 

classes of securities. 

21The term ‘‘street name’’ refers to a securities 

holding structure in which DTC, through its 

nominee Cede & Co., would be the registered holder 

of the securities and, in turn, DTC would grant 

security entitlements in such securities to relevant 

accounts of its participants. Proposed BSTX Rule 

26136 would also provide, with certain exceptions, 

that securities listed on BSTX must be eligible for 

a direct registration program operated by a clearing 

agency registered under Section 17A of the 

Exchange Act. DTC operates the only such program 

today, known as the Direct Registration System, 

which permits an investor to hold a security as the 

registered owner in electronic form on the books of 

the issuer. 

22Proposed BSTX Rule 26137 is based on current 

NYSE Rule 777. 

23See Exchange Act Release No. 78963 

(September 28, 2016), 81 FR 70744, 70748 (October 

13, 2016) (footnote 46 and the accompanying text 

acknowledge that DTC is the only registered 

clearing agency that provides securities depository 

services for the U.S. securities markets). 

24FINRA is currently the only national securities 

association registered with the SEC. 

25See e.g., FINRA Rule 11310. Book-Entry 

Settlement and NYSE Rule 776. Book-Entry 

Settlement of Transactions. 

Securities. It is also expected that 

confirmed trades in Securities on BSTX 

would be transmitted to National 

Securities Clearing Corporation 

(‘‘NSCC’’) for clearing such that NSCC 

would clear the trades through its 

systems to produce settlement 

obligations that would be due for 

settlement between participants at DTC. 

BSTX believes that this custody, 

clearance and settlement structure is the 

same general structure that exists today 

for other exchange-traded equity 

securities. Importantly, for purposes of 

NSCC’s clearing activities and DTC’s 

settlement activities in respect of the 

Securities, the relevant Securities would 

be cleared and settled by NSCC and 

DTC in exactly the same manner as 

those activities are performed by NSCC 

and DTC currently regarding a class of 

NMS Stock. 

The operation of the BSTX Market 

Data Blockchain will have no impact or 

effect on the manner in which a 

Security clears and settles. The BSTX 

Market Data Blockchain would be 

implemented through the operation of 

the proposed BSTX Rules and would 

occur separate and apart from the 

clearance and settlement process. The 

Security would be an ordinary equity 

security for NSCC’s and DTC’s 

purposes. The BSTX Market Data 

Blockchain would be a separate set of 

market data that uses distributed ledger 

technology to record certain order and 

transaction information regarding orders 

and transactions in Securities on BSTX. 

Issuance of Equity Securities Eligible To 

Become a Security 

With the exception of certain offerings 

under Regulation A that meet the 

proposed BSTX listing standards, all 

Securities traded on BSTX will have 

been offered and sold in registered 

offerings under the Securities Act, 

which means that purchasers of the 

Securities will benefit from all of the 

protections of registration. The Division 

of Corporation Finance will need to 

make a public interest finding in order 

to accelerate the effectiveness of the 

registration statements for these 

offerings. Because BSTX would be a 

facility of a national securities 

exchange, all Securities would be 

registered under Section 12(b) of the 

Exchange Act, thereby subjecting all of 

these issuers to the reporting regime in 

Section 13(a) of the Exchange Act. 

All offerings of securities that are 

intended to be listed as Securities on 

BSTX would be conducted in the same 

general manner in which offerings of 

exchange-listed equity securities are 

conducted today under the federal 

securities laws. An issuer will enter into 

a firm commitment or best efforts 

underwriting agreement with a sole 

underwriter or underwriting syndicate; 

the underwriter(s) will market the 

securities and distribute them to 

purchasers; and secondary trading in 

the securities (that are intended to trade 

on BSTX as Securities) will thereafter 

commence on BSTX. 

Issuers on BSTX could include both 

(1) new issuers who do not currently 

have any class of securities registered on 

a national securities exchange, and (2) 

issuers who currently have securities 

registered on a national securities 

exchange and who are seeking 

registration of a separate class of equity 

securities for listing on BSTX as 

Securities. BSTX does not intend for 

Securities listed, or intended to be 

listed, on BSTX to be fungible with any 

other class of securities from the same 

issuer.20 If an issuer sought to list 

securities on BSTX that are not a 

separate class of an issuer’s securities, 

BSTX does not intend to approve such 

a class of security for listing on BSTX 

as a Security, pursuant to BSTX’s 

authority under BSTX Rule 26101. At 

the commencement of BSTX’s 

operations, certain equities (including 

ETPs) would be eligible for listing as 

Securities. This would be addressed by 

BSTX Rules 26102 (Equity Issues), 

26103 (Preferred Securities), 26105 

(Warrant Securities) and the Rule 28000 

Series (Trading and Listing of Exchange 

Traded Products), which would be part 

of BSTX’s listing rules and would 

contemplate that only those specified 

types of equity securities would be 

eligible for listing. 

Securities Depository Eligibility 

BSTX would maintain rules that 

would promote a structure in which 

Securities would be held in ‘‘street 

name’’ with DTC.21 BSTX Rule 26137 

would require that for an issuer’s 

security to be eligible to be a Security, 

BSTX must have received a 

representation from the issuer that a 

CUSIP number that identifies the 

security is included in a file of eligible 

issues maintained by a securities 

depository that is registered with the 

SEC as a clearing agency. This is based 

on rules that are currently maintained 

by other equities exchanges.22 In 

practice, BSTX Rule 26137 requires the 

Security to have a CUSIP number that 

is included in a file of eligible securities 

that is maintained by DTC because the 

Exchange believes that DTC currently is 

the only clearing agency registered with 

the SEC that provides securities 

depository services.23

Book-Entry Settlement at a Securities 

Depository 

BSTX would also maintain Proposed 

BSTX Rule 26135 regarding uniform 

book-entry settlement. The rule would 

require each BSTX Participant to use the 

facilities of a securities depository for 

the book-entry settlement of all 

transactions in depository eligible 

securities with another BSTX 

Participant or a member of a national 

securities exchange that is not BSTX or 

a member of a national securities 

association.24 Proposed BSTX Rule 

26135 is based on the depository 

eligibility rules of other equities 

exchanges and Financial Industry 

Regulatory Authority (‘‘FINRA’’).25

Those rules were first adopted as part of 

a coordinated industry effort in 1995 to 

promote book-entry settlement for the 

vast majority of initial public offerings 


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26These coordinated depository eligibility rules 

resulted from proposed listing rules amendments 

developed by the Legal and Regulatory Subgroup of 

the U.S. Working Committee, Group of Thirty 

Clearance and Settlement Project. See Securities 

Exchange Act Release Nos 35774 (May 26, 1995) 

(SR–NASD–95–24), 60 FR 28813 (June 2, 1995); 

35773 (May 26, 1995), 60 FR 28817 (June 2, 1995) 

(SR–NYSE–95–19). 

27See IEX Rule 11.250 (Clearance and Settlement; 

Anonymity), which was approved by the 

Commission in 2016 as part of its approval of IEX’s 

application for registration as a national securities 

exchange. Exchange Act Release No. 78101 (June 

17, 2016); 81 FR 41142 (June 23, 2016); see also 

Cboe BZX Rule 11.14 (Clearance and Settlement; 

Anonymity). 

28 17 CFR 240.15c6–1. Under SEC Rule 15c6–1, 

with certain exceptions, a broker-dealer is not 

permitted to enter a contract for the purchase or 

sale of security that provides for payment of funds 

and delivery of securities later than the second 

business day after the date of the contract unless 

otherwise expressly agreed to by the parties at the 

time of the transaction. 

29OTC in this context refers to trading occurring 

otherwise than on a national securities exchange. 

30See e.g., NYSE, Daily TAQ Fact Sheet, https:// 

www.nyse.com/publicdocs/nyse/data/Daily_TAQ_

Fact_Sheet.pdf. 

31A ‘‘protocol’’ in this context generally means a 

set of rules governing the format of messages that 

are exchanged between the participants. 

and ‘‘thereby reduce settlement risk’’ in 

the U.S. national market system.26

Participation in a Registered Clearing 

Agency That Uses a Continuous Net 

Settlement System 

Under proposed BSTX Rule 25140, 

each BSTX Participant would be 

required to either (i) be a member of a 

registered clearing agency that uses a 

continuous net settlement (‘‘CNS’’) 

system, or (ii) clear transactions 

executed on BSTX through a member of 

such a registered clearing agency. The 

Exchange believes that today NSCC is 

the only registered clearing agency that 

uses a CNS system to clear equity 

securities, and proposed BSTX Rule 

25140 further specifies that BSTX will 

maintain connectivity and access to the 

Universal Trade Capture system of 

NSCC to transmit confirmed trade 

details to NSCC regarding trades 

executed on BSTX. The proposed rule 

would also address the following: (i) A 

requirement that each Security 

transaction executed through BSTX 

must be executed on a locked-in basis 

for automatic clearance and settlement 

processing; (ii) the circumstances under 

which the identity of contra parties to 

a Security transaction that is executed 

through BSTX would be required to 

remain anonymous or may be revealed; 

and (iii) certain circumstances under 

which a Security transaction may be 

cleared through arrangements with a 

member of a foreign clearing agency. 

Proposed BSTX Rule 25140 is based on 

a substantially identical rule of the 

Investor’s Exchange, LLC (‘‘IEX’’), 

which, in turn, is consistent with the 

rules of other equities exchanges.27

BSTX believes that the operation of its 

depository eligibility rule and its bookentry services rule would promote a 

framework in which Securities that 

would be eligible to be listed and traded 

on BSTX would be equity securities that 

have been made eligible for services by 

a registered clearing agency that 

operates as a securities depository and 

that are settled through the facilities of 

the securities depository by book-entry. 

The Exchange believes that because 

DTC currently is the only clearing 

agency registered with the SEC that 

provides securities depository services, 

at the commencement of BSTX’s 

operations, Securities would be 

securities that have been made eligible 

for services by DTC, including bookentry settlement services. 

Settlement Cycle 

Proposed BSTX Rule 25100(d) would 

address settlement cycle considerations 

regarding trades in Securities. Security 

trades that result from orders matched 

against the electronic order book of 

BSTX would be required to clear and 

settle pursuant to the rules, policies and 

procedures of a registered clearing 

agency. As noted above in connection 

with the description of proposed BSTX 

Rule 25140, the Exchange expects that 

at the commencement of operations by 

BSTX it would transmit confirmed trade 

details to NSCC regarding Security 

trades that occur on BSTX and that 

NSCC would be the registered clearing 

agency that clears Security trades. 

As described in greater detail below 

in Part II.I, the Exchange is also 

proposing that BSTX Participants would 

be able to include parameters in orders 

submitted to BSTX to indicate a 

preference to use faster settlement 

cycles that are currently available 

through NSCC and DTC under certain 

circumstances. BSTX believes that 

allowing BSTX Participants to use these 

faster settlement cycles where 

consistent with the rules, policies and 

procedures of a registered clearing 

agency would mitigate settlement risk 

for transactions in such Securities due 

to faster settlement. BSTX believes that 

NSCC already has authority under its 

rules, policies and procedures to clear 

certain trades on a T+1 or T+0 basis, 

which are shorter settlement cycles than 

the longest settlement cycle of T+2 that 

is generally permitted under SEC Rule 

15c6–1 for a security trade that involves 

a broker-dealer.28 Furthermore, BSTX 

understands that NSCC does already 

clear trades in accordance with this 

authority. 

The BSTX Market Data Blockchain 

BSTX will make available to BSTX 

Participants certain market data related 

to trading activity occurring on BSTX 

through the use of a private, 

permissioned blockchain maintained by 

the Exchange. As described further 

below, a BSTX Participant would have 

the ability to see detailed information 

about its trading activity on BSTX but 

only anonymized information with 

respect to the trading activity of other 

BSTX Participants. BSTX Participants 

would have no obligations with respect 

to providing information to, accessing, 

maintaining, or using the BSTX Market 

Data Blockchain. The Exchange believes 

that the information made available on 

the BSTX Market Data Blockchain 

would be generally similar to Daily 

Trade and Quote (‘‘TAQ’’) data made 

available by New York Stock Exchange 

LLC except that the Exchange would use 

distributed ledger or ‘‘blockchain’’ 

technology to record such information, 

a BSTX Participant would be able to see 

non-anonymized information about its 

own trading activity on BSTX, and the 

market data would pertain only to 

trading activity on BSTX and not the 

broader market (e.g., an over-the-counter 

(‘‘OTC’’) 29 transaction in a Security 

reported to the consolidated tape).30

Background on Blockchain Technology 

In general, a blockchain is essentially 

a ledger that can maintain digital 

records of assets, transactions, or other 

information. A blockchain’s central 

function is to encode transitions or 

changes to the ledger. Whenever one 

change to the blockchain ledger occurs 

to record a state transition, the entire 

blockchain is immutably changed to 

reflect the state transition. 

There are broadly two types of 

blockchains: (i) Public blockchains that 

are decentralized, open to anyone 

running the same protocol; 31 and (ii) a 

private, permission-based blockchains 

where only those granted access may 

view or take other actions with respect 

to the blockchain. 

BSTX Market Data Blockchain as a 

Private Permissioned Network 

The BSTX Market Data Blockchain 

would operate as a private, permissionbased blockchain accessible only to 

BSTX Participants. The Exchange would 

control all aspects of the BSTX Market 

Data Blockchain. Pursuant to proposed 

Rule 17020(b), each BSTX Participant 

would be assigned a BSTX Market Data 

Blockchain address that corresponds to 

the BSTX Participant’s trading activity 


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32The ‘‘BSTX System’’ refers to the automated 

trading system used by BSTX for the trading of 

Securities. See proposed Rule 17000(a)(15). 

33The BSTX Market Data Blockchain may include 

certain non-material information, such as a unique 

order identification number specific to the 

blockchain that would not be available through 

proprietary market data products. 

34For example, in looking at General Market Data, 

BSTX Participant X would not be able to determine 

by name, address, or otherwise that a particular 

order, modification to an existing order, or executed 

transaction involved BSTX Participant Y or any 

other BSTX Participant. 

on BSTX. The Exchange will also issue 

login credentials to each BSTX 

Participant through which the BSTX 

Participant may access the BSTX Market 

Data Blockchain to see its order and 

transaction information on BSTX as 

well as certain anonymized market data 

from other BSTX Participants, as 

discussed further below. 

The BSTX Market Data Blockchain 

would generally operate by collecting 

information from two sources, which 

the Exchange would then translate into 

information capable of being recorded to 

the BSTX Market Data Blockchain. 

Specifically, the data inputs for the 

BSTX Market Data Blockchain would 

come from (i) the BSTX System 32 to 

capture information such as executed 

transactions and (ii) each BSTX 

Participant’s order/message information 

passing through the financial 

information exchange (‘‘FIX’’) gateway 

through which all orders and messages 

pass in order to connect to the BSTX 

System. For example, if a BSTX 

Participant sends an order to buy 100 

shares of Security XYZ, when that order 

is sent to the Exchange, the Exchange 

would capture this information as it 

passes through the FIX gateway in an 

automated process that results in the 

BSTX Participant being able to see that 

order on the BSTX Market Data 

Blockchain through its login credentials. 

The BSTX Market Data Blockchain 

does not require any affirmative action 

on the part of a BSTX Participant in 

order for its information to be recorded 

to the BSTX Market Data Blockchain. 

Rather, the BSTX Market Data 

Blockchain captures trading activity that 

occurs on BSTX in the normal course 

and is made available to BSTX 

Participants as an additional resource 

that they may choose to use in their 

discretion in the same general manner 

that a market participant might use TAQ 

data. 

Information Available on the BSTX 

Market Data Blockchain 

As set forth in proposed Rule 

17020(c), there are two types of 

information that would be available on 

the BSTX Market Data Blockchain: (i) A 

BSTX Participant’s own order and 

transaction information related to its 

trading activity on BSTX (‘‘Participant 

Proprietary Data’’); and (ii) anonymized, 

general market data available to all 

BSTX Participants (‘‘General Market 

Data’’). With respect to Participant 

Proprietary Data, a BSTX Participant 

would be able to see the following 

information with respect to all orders 

and messages and executions submitted 

to and occurring on BSTX: 

(1) Symbol, side (buy/sell), limit 

price, quantity, time-in-force 

(2) Order type (e.g., limit order, ISO) 

(3) Order capacity (principal/agent) 

(4) Short/long sale order marking 

(5) Message type (e.g., order, 

modification, cancellation) 

(6) A unique identification number 

attributable to each order, execution, or 

other message (e.g., cancelation or 

modification) 

(7) Such other information regarding 

a BSTX Participant’s trading activity on 

BSTX as the Exchange may determine 

and set forth via Regulatory Circular. 

Participant Proprietary Data would 

effectively contain a record of all of a 

BSTX’s Participant’s trading activity on 

BSTX. Participant Proprietary Data 

would only be available to the BSTX 

Participant from which such data 

derived. That is, a BSTX Participant 

would not have access to the Participant 

Proprietary Data of another BSTX 

Participant. As a result, no BSTX 

Participant would be provided with 

access to trading information of another 

BSTX Participant in a manner that 

would allow for reverse engineering of 

trading strategies or otherwise 

compromise the confidential nature of 

each BSTX Participant’s trading 

information. The Exchange proposes to 

allow for flexibility to provide 

additional Participant Proprietary Data 

to each BSTX Participant via Regulatory 

Circular in order to provide the 

Exchange with the ability to enhance 

the content of Participant Proprietary 

Data based on feedback from BSTX 

Participants. 

General Market Data is the second 

type of information that would be 

available on the BSTX Market Data 

Blockchain, which would consist of: 

(1) All orders, modifications, 

cancellations, and executions occurring 

on BSTX in an anonymized format. 

(2) Administrative data and other 

information from the Exchange (e.g., 

trading halts, or technical messages). 

(3) Such other anonymized trading 

activity or general information as the 

Exchange may determine and set forth 

via Regulatory Circular. 

General Market Data is intended to 

allow BSTX Participants to be able to 

observe the BSTX Order Book, changes 

thereto, and executions occurring on 

BSTX in generally the same manner that 

a market participant can today see order 

and transaction information on an 

exchange by subscribing to an 

exchange’s proprietary market data feed. 

The Exchange notes that the General 

Market Data that would be available on 

the BSTX Market Data Blockchain 

would be the same substantive 

information that would be available 

through the Exchange’s proprietary 

market data feeds, so access to the BSTX 

Market Data Blockchain would not 

provide additional information that 

could not otherwise be obtained through 

the Exchange’s proprietary market data 

feed.33 The Exchange proposes to allow 

for flexibility to provide additional, 

anonymized trading activity or general 

information to BSTX Participants via 

Regulatory Circular in order to provide 

the Exchange with the ability to 

enhance the content of General Market 

Data based on feedback from BSTX 

Participants or in the event that new 

data elements become relevant in the 

future. 

General Market Data would be 

anonymized, meaning that a BSTX 

Participant would not be able to 

determine the identity of another BSTX 

Participant’s orders, quotes, 

cancellations, or other messages. For the 

avoidance of doubt, the alphanumeric 

address assigned to each BSTX 

Participant to facilitate the BSTX Market 

Data Blockchain would not be visible as 

part of General Market Data.34 As a 

result, there should not be cause for 

concern regarding potential trading 

information leakage or the ability to 

reverse engineer another BSTX 

Participant’s trading strategies given the 

anonymous nature of General Market 

Data. BSTX Participants would 

generally have available to them via the 

BSTX Market Data Blockchain the same 

information they would have today with 

respect to other BSTX Participants 

trading activity in subscribing to an 

exchange’s proprietary data feed. 

The Exchange proposes to append 

timestamps to the information made 

available. Timestamps related to all 

information on the BSTX Market Data 

Blockchain would indicate the time to 

the microsecond at which an order 

posted to the BSTX Book or that the 

BSTX System took other action with 

respect to an order (e.g., effects a 

cancellation, execution, modification). 

Information would be posted to the 

BSTX Market Data Blockchain on a 

delayed basis of at least 5 minutes. As 

a result, the BSTX Market Data 

Blockchain would not function as a 


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Federal Register / Vol. 86, No. 104 / Wednesday, June 2, 2021 / Notices 29639 

35See e.g., 17 CFR 240.17a–3. 

36Securities and Exchange Commission, The 

Impact of Recent Technological Advances on the 

Securities Markets (Sep. 1997), https://

www.sec.gov/news/studies/techrp97.htm. 

37 Id. 

38 Id. 

39Report of the Senate Committee on Banking, 

Housing & Urban Affairs, S. Rep. No. 94–75, at 8 

(1975) (expressing Congress’ finding that new data 

processing and communications systems create the 

opportunity for more efficient and effective 

markets). While the Exchange believes that its 

proposal represents an introductory step in pairing 

the benefits of blockchain technology with the 

current equity market infrastructure, other market 

participants and FINRA have recognized additional 

potential benefits to blockchain technology in 

various applications related to the securities 

markets. FINRA has stated ‘‘[o]ne of the proposed 

benefits of [blockchain technology] is the ability to 

offer a timestamped, sequential, audit trail of 

transaction records. This may provide regulators 

and other interested parties (e.g., internal audit, 

public auditors) with the opportunity to leverage 

the technology to view the complete history of a 

transaction where it may not be available today and 

enhance existing records related to securities 

transactions.’’ Financial Industry Regulatory 

Authority, Distributed Ledger Technology: 

Implications of Blockchain for the Securities 

Industry (January 2017), available at: https://

www.finra.org/sites/default/files/FINRA_

Blockchain_Report.pdf. Further, Paxos Trust 

Company echoed similar themes in connection with 

its receipt of no-action relief from the Commission 

staff, and explained in its request letter certain 

benefits of blockchain technology including 

‘‘greater data accuracy and transparency, advanced 

security, and increased levels of availability and 

operational efficiency . . . .’’ See Letter from 

Jeffrey S. Mooney, Division of Trading and Markets, 

Securities and Exchange Commission to Charles 

Cascarilla and Daniel Burstein, Paxos Trust 

Company, LLC re: Clearing Agency Registration 

Under Section 17A(b)(1) of the Securities Exchange 

Act of 1934 (October 28, 2019), https://

www.sec.gov/divisions/marketreg/mr-noaction/ 

2019/paxos-trust-company-102819-17a.pdf. The 

Exchange believes such benefits may be generally 

relevant to future potential applications of 

blockchain technology. 

40 15 U.S.C. 78f(b)(5). 

41 Id. 

substitute for real-time market data. A 

BSTX Participant would have the ability 

to download market data from the BSTX 

Market Data Blockchain, which it could 

use to, for example, back test trading 

strategies or evaluate executions 

received on BSTX. 

Finally, in order to promote clarity 

with respect to how a BSTX Participant 

may use the BSTX Market Data 

Blockchain, the Exchange proposes to 

provide in Rule 17020(c)(3) that the 

information available on the BSTX 

Market Data Blockchain does not act as 

a substitute for any recordkeeping 

obligations of a BSTX Participant. The 

Exchange notes that broker-dealers 

recordkeeping obligations generally 

require a much broader set of records 

covering the entirety of a broker-dealers 

trading activity across all trading 

centers.35 As a result, the Exchange 

would not expect that a BSTX 

Participant would ever rely on the BSTX 

Market Data Blockchain, which would 

contain only its trading activity on 

BSTX, as a substitute for its 

independent recordkeeping obligations. 

Periodic Audit of the BSTX Market Data 

Blockchain by the Exchange 

To help ensure the proper functioning 

of the BSTX Market Data Blockchain 

and accuracy of information thereon, 

the Exchange proposes in Rule 

17020(c)(3) to periodically audit the 

BSTX Market Data Blockchain. 

Specifically, the Exchange proposes to 

perform the audit at least bi-annually to 

ensure that the BSTX Market Data 

Blockchain accurately captures order 

and transaction data on BSTX. The 

Exchange expects that it will initially 

audit the BSTX Market Data Blockchain 

more frequently (e.g., monthly) during 

the first year of operation to make sure 

the BSTX Market Data Blockchain 

operates as intended during the period 

of time when the Exchange expects 

BSTX Participants to be familiarizing 

themselves with the BSTX Market Data 

Blockchain. 

Benefits of the BSTX Market Data 

Blockchain 

The Exchange believes that there are 

two primary benefits related to the 

BSTX Market Data Blockchain. First, the 

Exchange believes that a BSTX 

Participant may find the information 

useful to them for a variety of purposes 

such as to review the BSTX Participant’s 

trading activity on BSTX, determine 

what the market was at a particular 

point in time on BSTX for a given 

Security, evaluate execution quality on 

BSTX, or download the data to back-test 

trading strategies. As proposed, the 

BSTX Market Data Blockchain requires 

no affirmative obligation on the part of 

the BSTX Participant. As a result, if a 

BSTX Participant does not find the 

BSTX Market Data Blockchain to be of 

use to it, it could simply ignore it 

without cost or penalty. 

Second, the Exchange believes that 

the BSTX Market Data Blockchain will 

help familiarize BSTX Participants with 

the use and capabilities of blockchain 

technology in a manner that does not 

impose any burden on them or other 

market participants. The Commission 

has stated that it is ‘‘mindful of the 

benefits of increasing use of new 

technologies for investors and the 

markets, and has encouraged 

experimentation and innovation . . .’’ 36

stating further that ‘‘[i]nformation and 

communications technologies are 

critical to healthy and efficient primary 

and secondary markets.’’ 37 Regarding 

the judgment of whether the benefits of 

certain technologies are meritorious, the 

Commission has explained its view that 

‘‘[t]he market will ultimately prove the 

worth of technology—whether the 

benefits to the industry and its investors 

of developing and using new services 

are greater than the associated costs.’’ 38

Consistent with these statements, the 

Exchange believes that promoting use of 

blockchain technology through the 

BSTX Market Data Blockchain will 

allow BSTX Participants to observe and 

increase their familiarity with the 

capabilities and potential benefits of 

blockchain technology in a context that 

operates within the current equity 

market infrastructure and that the 

proposal will thereby advance and 

protect the public’s interest in the use 

and development of new data 

processing techniques that may create 

opportunities for more efficient, 

effective and safe securities markets.39

Moreover, the Exchange believes that 

new technology, such as blockchain 

technology, may be able to help perfect 

the mechanism of a free and open 

market and a national market system, 

consistent with Section 6(b)(5) of the 

Exchange Act.40

In the event of any disruption to the 

BSTX Market Data Blockchain or a 

BSTX Participant’s access to the BSTX 

Market Data Blockchain, there would be 

no impact on the ability of market 

participants to trade Securities, which 

the Exchange believes furthers the 

protection of investors and the public 

interest, consistent with Section 6(b)(5) 

of the Exchange Act.41 There would also 

be no disruption in the distribution of 

market data related to Securities 

because the BSTX Market Data 

Blockchain operates as a separate and 

distinct service of the Exchange. 

Trading Securities on Other National 

Securities Exchanges 

Securities would be eligible for 

trading on other national securities 

exchanges that extend UTP to them, 

other than with respect to Thinly 

Traded Securities as discussed below in 

Part II.H. As described above in Part 

II.E, Securities would be held in ‘‘street 

name’’ at DTC, have a CUSIP number, 

and would clear and settle through the 

facilities of a clearing agency registered 

with the SEC (i.e., NSCC and DTC 

respectively). As a result, Securities 

would be able to trade on other 

exchanges and OTC in the same manner 

as other NMS stock. Accordingly, other 

exchanges would generally be able to 

extend UTP to Securities in accordance 

with Commission rules. The BSTX 

Market Data Blockchain would not 


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42See U.S. Department of the Treasury, ‘‘A 

Financial System That Creates Economic 

Opportunities: Capital Markets’’ (October 2017), 

https://www.treasury.gov/press-center/pressreleases/Documents/A-Financial-System-CapitalMarketsFINAL-FINAL.pdf (‘‘Treasury Report’’). 

43Commission Statement on Market Structure 

Innovation for Thinly Traded Securities (Oct. 17, 

2019), 84 FR 56956 (Oct. 24, 2019) (‘‘Commission 

Statement on Thinly Traded Securities’’). 

44See Division of Trading and Markets, 

Commission, ‘‘Background Paper on the Market 

Structure for Thinly Traded Securities,’’ at 9 (Oct. 

17, 2019), https://www.sec.gov/rules/policy/2019/ 

thinly-traded-securities-tm-background-paper.pdf 

(‘‘TM Background Paper’’) (summarizing the views 

of certain participants in the Commission staff’s 

Roundtable on the Market Structure for Thinly 

Traded Securities in April 2018). 

45Commission Statement on Thinly Traded 

Securities at 56956. 

46 ‘‘Illiquidity hampers [thinly-traded issuers] in 

many areas, including in their ability to raise 

additional capital, obtain research coverage, engage 

in mergers and acquisitions, and hire and retain 

personnel.’’ Chairman Jay Clayton, Commission, 

Equity Market Structure 2019: Looking Back & 

Moving Forward, Remarks at Gabelli School of 

Business, Fordham University, New York, New 

York (March 8, 2019) (‘‘2019 Market Structure 

Remarks’’), https://www.sec.gov/news/speech/ 

clayton-redfearn-equity-market-structure-2019. 

47 ‘‘I believe there are serious questions, however, 

about whether the current market structure that 

works relatively well for very active stocks is 

optimal for thinly traded securities.’’ Brett 

Redfearn, Director of the Division of Trading and 

Markets, Commission, Modernizing U.S. Equity 

Market Structure (June 22, 2020) (‘‘2020 Market 

Structure Remarks’’), https://www.sec.gov/news/ 

speech/clayton-redfearn-modernizing-us-equitymarket-structure-2020-06-22. 

48Advisory Committee on Small and Emerging 

Companies, Commission, Recommendation 

Regarding Separate U.S. Equity Market for 

Securities of Small and Emerging Companies 

(February 1, 2013) (generally finding that the U.S. 

equity markets frequently fail to offer a satisfactory 

trading venue for small and emerging companies, 

which (i) has discouraged initial public offerings of 

the securities of such companies, (ii) undermines 

entrepreneurship, and (iii) weakens the broader 

U.S. economy), https://www.sec.gov/info/smallbus/ 

acsec/acsecrecommendation-032113-emerg-coltr.pdf. 

49 Division of Trading and Markets, Commission, 

‘‘Empirical Analysis of Liquidity Demographics and 

Market Quality,’’ (April 10, 2018) (‘‘OAR Report’’), 

https://www.sec.gov/files/thinly_traded_eqs_data_

summary.pdf (finding, among other things, that 

thinly traded securities (i) had, on average, fewer 

exchanges quoting at the national best bid or 

national best offer than more actively traded 

securities; (ii) had quoted depths at the inside (i.e., 

the volume of shares available at the highest bid 

and lowest offer) were smaller and quoted spreads 

(i.e., the difference between bid and offer prices) 

and relative quoted spreads were greater for these 

thinly traded securities relative to more actively 

traded securities; and (iii) likely face a trading 

environment with less market making activity at the 

inside (i.e., the highest bid and lowest offer) or in 

larger order size, which may make finding a 

counterparty to execute a particular trade more 

difficult). See also TM Background Paper at 2–3 

(summarizing the findings from the OAR Report). 

50See e.g., TM Background Paper at 6–7 (noting 

that ‘‘the economic literature in this area [of 

liquidity and trading volume] has consistently 

documented that stocks with lower trading volume 

tend to have higher transaction costs’’ and 

‘‘[n]umerous studies have found evidence linking 

lower liquidity to lower stock prices, which 

suggests that diminished liquidity may also impact 

stock prices. These analyses show that investors 

must be paid a premium in order to hold less liquid 

stocks. Consequently, thinly traded securities may 

have lower stock prices due to diminished 

liquidity.’’) (internal citations omitted). 

51See e.g., Treasury Report at 60 (‘‘Treasury 

recommends that issuers of less-liquid stocks, in 

consultation with their underwriter and listing 

exchange, be permitted to partially or fully suspend 

UTP for their securities and select the exchanges 

and venues upon which their securities will 

trade.’’); 2019 Market Structure Remarks, at n.13 

(noting that several panelists on the Roundtable on 

Market Structure for Thinly-Traded Securities, 

supported the approach of limiting unlisted trading 

privileges, with some suggesting going even farther 

and considering whether Regulation NMS rules 

should be eliminated in this segment of the market). 

52 2020 Market Structure Remarks. See also 

Commission Statement on Thinly Traded Securities 

at 56957 (‘‘[t]herefore, for thinly traded securities, 

the Commission is interested in considering 

proposals for market structure innovations in 

conjunction with the potential suspension or 

termination of UTP and/or the possibility of 

exemptive relief from Regulation NMS and other 

rules under the Exchange Act.’’). 

53The Exchange proposes to define a ‘‘Security’’ 

to mean a NMS stock, as defined in Rule 600(b)(47) 

of the Exchange Act, trading on the BSTX System. 

See proposed Rule 17000(a)(31). 

impact the ability of Securities to trade 

on other exchanges or OTC. 

Qualifying Thinly Traded Securities 

Trading Only on BSTX 

The Exchange proposes to suspend 

UTP in Securities that meet the 

proposed definition of a ‘‘Thinly Traded 

Security’’ in order to concentrate 

displayed liquidity for such Securities, 

make market making in such securities 

more attractive, and thereby improve 

the market quality for such Securities. 

As proposed, Thinly Traded Securities 

would still be able to trade OTC, but 

would not be eligible for trading on 

another national securities exchange for 

as long as the Security meets the 

definition of a Thinly Traded Security, 

described below. 

The Commission, Commission staff, 

the U.S. Department of Treasury,42

academics, and a broad spectrum of 

market participants have recognized 

that ‘‘the current ‘one-size-fits-all’ 

equity market structure, as largely 

governed under Regulation NMS, may 

not be optimal for thinly traded 

securities’’ 43 and that ‘‘more needs to be 

done to promote liquidity and to 

improve the listing and trading 

environment for thinly traded 

stocks.’’ 44 The Commission noted that 

the ‘‘secondary market for thinly traded 

securities faces liquidity challenges that 

can have a negative effect on both 

investors and issuers traded securities 

faces liquidity challenges that can have 

a negative effect on both investors and 

issuer’’ including ‘‘wider spreads and 

less displayed size relative to securities 

that trade in greater volume, often 

resulting in higher transaction costs for 

investors.’’ 45 These concerns have been 

echoed in statements by former 

Commission Chairman Jay Clayton,46

former Director of the Division of 

Trading and Market Brett Redfearn,47

the Commission’s Small Business 

Advisory Committee 48 and 

demonstrated through empirical 

analyses by the Division of Trading and 

Market’s Office of Analytics and 

Research (‘‘OAR’’) 49 and academics.50

A frequently discussed potential 

solution to these liquidity and poor 

market quality issues facing thinly 

traded securities has been the 

suspension of UTP for such securities, 

allowing for displayed liquidity to be 

concentrated on a single exchange.51

Indeed, as former Chairman Jay Clayton 

noted, the Commission’s Statement on 

Market Structure Innovation for Thinly 

Traded Securities specifically invites 

‘‘market participants to submit 

innovative proposals designed to 

improve the secondary market for thinly 

traded securities, including, in 

connection with such proposals, 

requests to suspend or terminate 

unlisted trading privileges, known as 

UTP.’’ 52 In response to the 

Commission’s call and to improve the 

market quality for thinly traded 

securities, the Exchange proposes a 

suspension of UTP for qualifying 

‘‘Thinly Traded Securities,’’ as detailed 

further below. 

Thinly Traded Securities Defined 

The Exchange proposes in Rule 

25150(a) to define ‘‘Thinly Traded 

Securities’’ as a Security 53 of an 

operating company that meets certain 

market capitalization and average daily 

volume of trading (‘‘ADV’’) 

requirements. The Exchange proposes 

two separate, but similar, types of 

eligibility criteria depending on if a 

Security has been publicly traded for at 

least six months or if the Security is just 

beginning to trade publicly (i.e., 

publicly traded for less than six 

months). Specifically, the Exchange 

proposes that a Security that has been 

publicly traded for at least six months 

shall be considered a Thinly Traded 

Security if the Security has (i) market 

capitalization of less than $1 billion, 

and (ii) an average daily volume of 

trading of 100,000 shares or less during 

at least four (4) of the preceding six (6) 

calendar months (‘‘Ongoing Eligibility 

Criteria’’). For a Security that has not 

been publicly traded for at least six 

months, the Exchange proposes that a 

Security shall be considered a Thinly 

Traded Security if during the first three 


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54See OAR Report and TM Background Paper at 

2. 

55Treasury Report at 60. 

56The Exchange notes that OAR’s criteria used an 

ADV of less than 100,000 shares while the 

Exchange proposes to use a criteria of 100,000 

shares or less. The Exchange believes that this de 

minimis difference is immaterial. 

57OAR Report at 4. 58 Id. 59See e.g., 17 CFR 242.301(b)(5) (regarding the 

triggering of fair access requirements under 

Regulation ATS) and 17 CFR 242.1000 (defining a 

SCI ATS with reference to the volume of its trading. 

60Background Paper at 19. Other Roundtable 

participants similarly noted that ‘‘. . . as a practical 

matter, ETPs have ‘unlimited liquidity’ and an ETP 

can be both thinly traded and very liquid at the 

same time.’’ Id. 

(3) months of public trading in the 

Security, the Security has a (i) market 

capitalization of less than $1 billion, 

and (ii) an average daily volume of 

trading of 100,000 shares or less (‘‘Initial 

Eligibility Criteria’’). 

Thinly Traded Security Criteria 

Thresholds 

The Exchange believes that the 

criteria of a market capitalization of less 

than $1 billion and an ADV of 100,000 

shares or less are appropriate thresholds 

to determine whether a security is 

thinly traded. The ADV requirement is 

the primary indicator of whether a 

security is thinly traded as it helps 

indicate how much liquidity there is in 

a stock and the relative ease through 

which an investor may get into and out 

of positions in that stock. The 

Commission staff’s OAR Report found 

that NMS stocks with ADV of less than 

100,000 ‘‘face a trading environment 

with less market making activity at the 

inside (i.e., the highest bid and lowest 

offer) or in larger order size, which may 

make finding a counterparty to execute 

a particular trade more difficult.’’ The 

OAR Report also found, among other 

things, that NMS stocks with an ADV of 

less than 100,000: (i) Have on average, 

fewer exchanges quoting at the national 

best bid or offer (‘‘NBBO’’); (ii) more 

volume executing away from exchange 

venues indicating that exchange venues 

are a relatively less attractive venue for 

executions in such securities; and (iii) 

have a smaller number of block trades 

than more actively traded securities.54

The Treasury Report also recommended 

the use of ADV as a simple approach ‘‘to 

differentiate between liquid and illiquid 

stocks.’’ 55 Accordingly, the Exchange 

believes that a threshold of an ADV of 

trading at or below 100,000 is 

appropriate because it would limit the 

Securities for which UTP is suspended 

only to those Securities that are in fact 

thinly traded and for which the 

Commission’s OAR found concerns 

with respect to market quality relative to 

more widely-traded securities.56

The Exchange believes that it is also 

appropriate to set a maximum market 

capitalization threshold for Thinly 

Traded Securities to ensure that the 

suspension of UTP (discussed below) is 

limited to small, thinly traded 

companies. The Exchange believes that 

companies with a market capitalization 

greater than $1 billion may be more 

likely to have or soon have an ADV 

above 100,000 shares. The OAR Report 

indicates that the median market 

capitalization for common stocks with 

an ADV between 50,000 to 100,000 

shares is $313 million.57 This same 

figure for common stocks with an ADV 

above 100,000 shares is $1.313 billion.58

Accordingly, the Exchange believes that 

most, if not all, stocks that have an ADV 

of 100,000 shares or less will also have 

a market capitalization of less than $1 

billion. The primary purpose of the 

market capitalization threshold is 

therefore to limit the availability of 

Thinly Traded Security status to smaller 

issuers and remove companies whose 

securities may soon reach an ADV of 

more than 100,000. 

The Exchange proposes to set forth 

how it will calculate market 

capitalization in proposed Rule 

25150(a)(4). For Ongoing Eligibility 

Criteria, market capitalization would be 

determined as the product of (a) the 

number outstanding shares of the 

Security as reported in the most recent 

quarterly or annual report of the 

company; and (b) the average closing 

price of the Security over the preceding 

six (6) full calendar months. For Initial 

Eligibility Criteria, market capitalization 

would be determined as the product of 

(a) the number of outstanding shares of 

the Security as reported in the most 

recent quarterly or annual report of the 

company; and (b) the average closing 

price of the Security over the first three 

months during which the Security has 

been publicly traded. The Exchange 

believes that this is a standard method 

for calculating the market capitalization 

of a security. 

Average daily volume would be 

measured in accordance with the terms 

of the proposed Rules—e.g., for Ongoing 

Eligibility Criteria, the analysis would 

be the average daily share volume of 

trading in the Security over the 

preceding six months of trading to 

determine whether the ADV is 100,000 

shares or less for four out of those six 

months. The Exchange believes the use 

of a look back of four out of the previous 

six months is a reasonable approach to 

determine whether a stock is thinly 

traded and is similar to other 

mechanisms used in Commission rules 

to evaluate differing regulatory 

treatment.59 Under this formulation, a 

Security could have an ADV that 

exceeded 100,000 shares in up to two of 

the previous six months, but would be 

required to continuously meet the 

requirement of an ADV at or below 

100,000 shares for four of the preceding 

six months on a rolling basis. 

Thinly Traded Exchange Traded 

Products 

Importantly, the Exchange proposes to 

limit the availability of Thinly Traded 

Security status to operating companies. 

This means that an ETP that is a 

Security would not be eligible to be 

considered a Thinly Traded Security 

even if it otherwise meets the criteria. 

The Exchange proposes to exclude ETPs 

from eligibility because ETPs, even 

those with an ADV of 100,000 shares or 

less, do not necessarily have the same 

problems of a lack of liquidity as thinly 

traded shares of an operating company. 

For example, participants in the 

Commission’s Roundtable on Market 

Structure for Thinly-Traded Securities 

(the ‘‘Roundtable’’) noted that ‘‘as 

opposed to a corporate stock, an ETP 

that is thinly traded may still be highly 

liquid, and that therefore the level of 

secondary market trading does not 

correlate as closely with liquidity as it 

does for corporate stocks.’’ 60 Given that 

the purpose of the Exchange’s proposal 

with respect to Thinly Traded Securities 

is to improve liquidity and market 

quality for small issuers, the Exchange 

believes that it is appropriate to exclude 

ETPs that, while perhaps thinly traded, 

do not appear to suffer from the same 

liquidity issues as those faced by the 

securities of thinly traded operating 

companies. 

Initial and Ongoing Criteria 

As described above, the Exchange 

proposes different sets of criteria to 

become a Thinly Traded Security 

depending on how long a Security has 

been publicly traded. As proposed, the 

earliest in time that a Security could 

become eligible for status as a Thinly 

Traded Security (and therefore eligible 

for suspension of UTP, as discussed 

below) would be three months after the 

initial public offering of the Security. 

The Exchange believes that every 

Security that undergoes an initial public 

offering should initially be available for 

UTP because there is no way to 

determine a priori whether or not a 

Security will be thinly traded. Only 

after there is some empirical evidence 

based on the first three months of public 

trading that a Security appears to be 


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61After a seven business day review period 

during which the Commission may reject a rule 

filing submitted by the Exchange under certain 

circumstances (15 U.S.C. 78s(b)(10)), the 

Commission must publish a proposed rule change 

by the Exchange within 15 days after the initial 

submission by the Exchange to the Commission (15 

U.S.C. 78s(b)(2)(E)). As a result, a rule filing seeking 

suspension of UTP for a qualifying Thinly Traded 

Security would likely only be published in the 

Federal Register at the earliest after the Security 

had been trading for 3.5 months and the suspension 

of UTP would only commence thirty days thereafter 

(i.e., after the Security had traded for 4.5 months). 

Suspension of UTP would then last for a minimum 

of 1.5 months, at which time, the Security would 

need to meet the Ongoing Eligibility requirements 

to continue to have UTP continue to be suspended. 

62 15 U.S.C. 78f(b)(5). 

63 15 U.S.C. 78s(b)(3)(A). 

64See proposed Rule 25150(b)(1). 

65See proposed Rule 25150(b)(2). 

66 15 U.S.C. 78s(b)(3)(A). 17 CFR 240.19b–4(f)(1). 

67 15 U.S.C. 78l(k). 

68For example, in November 2000, the 

Commission adopted amendment to Rule 12f–2 

lifting a limitation that previously prevented an 

exchange from extending UTP until the day after 

trading commenced on the primary listing 

exchange. See Exchange Act Release No. 43217, 65 

FR 53560 (Sept. 5, 2000). 

thinly traded would the Security 

become eligible. 

The Exchange proposes in Rule 

25150(a)(3) that a Security that becomes 

a Thinly Traded Security under the 

Initial Eligibility Criteria would be 

considered a Thinly Traded Security 

until it has been publicly traded for at 

least six months, at which time the 

Security would have to meet the 

Ongoing Eligibility Criteria. In effect, 

the Exchange proposes that a Security 

that meets the Initial Eligibility Criteria 

would be deemed to meet such criteria 

until it has been publicly traded for long 

enough to determine whether it meets 

the Ongoing Eligibility Criteria. The 

Exchange notes that any suspension of 

UTP, as discussed further below, would 

not be effective for at least thirty days 

after publication of a rule filing with the 

Commission in the Federal Register. As 

a result, a Security that meets the Initial 

Eligibility Criteria for the first three 

months that it trades publicly could 

only have UTP suspended at the earliest 

at the commencement of month four 

and more likely at the four and one half 

month mark.61 Thus, a Security that 

meets the Initial Eligibility 

Requirements and for which UTP was 

suspended would be deemed to be a 

Thinly Traded Security for 1.5 to two 

months before it would have to meet the 

Ongoing Eligibility Criteria. 

The Exchange believes that this 

approach of initially allowing a Security 

to be eligible for UTP promotes 

consistency with Section 6(b)(5) of the 

Exchange Act 62 by helping to perfect 

the mechanism of a free and open 

market and by promoting just and 

equitable principles of trade. 

Specifically, the Exchange believes that 

companies engaged in an initial public 

offering should not have UTP 

suspended until it can be determined 

whether those shares have an ADV of 

100,000 shares or less and market 

capitalization of less than $1 billion, 

thereby ensuring that IPOs resulting in 

a high ADV or market capitalization are 

freely and openly available on all 

venues and equitably available on other 

exchange venues. The Exchange 

believes that three months is a sufficient 

amount of time to determine whether a 

Security that recently underwent its IPO 

is thinly traded given that interest in a 

Security is likely to be highest around 

the time of its IPO in connection with 

underwriter’s selling efforts and the 

media attention that often accompanies 

an IPO. Thus, if a Security has an ADV 

of 100,000 shares or less during its first 

three months of trading despite this 

time period being among the most likely 

to have the highest market interest in 

the Security, the Security is likely to 

benefit from a suspension of UTP. The 

Exchange therefore proposes the Initial 

Eligibility Criteria as an early on-ramp 

to the suspension of UTP for a Security 

that has not yet traded for a full four to 

six months to be able to determine 

whether it meets the Ongoing Eligibility 

Criteria. 

Suspension of Unlisted Trading 

Privileges 

As noted above, the Exchange 

proposes that a Security that qualifies as 

a Thinly Traded Security would be 

eligible for a suspension of UTP. The 

Exchange proposes that an issuer of a 

qualifying Thinly Traded Security 

would have to affirmatively request in 

writing that UTP be suspended. The 

Exchange believes that issuers should be 

empowered to make the decision as to 

whether UTP should be suspended with 

respect to the issuer’s Thinly Traded 

Security. 

Thereafter, in order to effectuate a 

suspension of UTP and to provide 

notice to market participants of the 

suspension of UTP, the Exchange would 

submit an immediately effective rule 

filing pursuant to Section 19(b)(3)(A) of 

the Exchange Act,63 with the 

effectiveness of such suspension of UTP 

occurring at least 30 calendar days after 

publication of the rule filing in the 

Federal Register.64 Conversely, when a 

Security no longer meets the definition 

of a Thinly Traded Security under the 

Exchange’s Rules, the Exchange would 

similarly submit a rule filing pursuant 

to Section 19b(b)(3)(A) within 14 

calendar days of the Thinly Traded 

Security no longer qualifying as a 

Thinly Traded Security (and therefore 

no longer eligible to have UTP 

suspended).65 The resumption of UTP 

with respect to the former Thinly 

Traded Security would be effective 

upon publication of the rule filing in the 

Federal Register. 

The Exchange believes that these rule 

filings to effectuate the suspension of 

UTP would be appropriately filed 

pursuant to Section 19(b)(3)(A) and Rule 

19b–4(f) thereunder as a stated policy, 

practice, or interpretation with respect 

to the meaning, administration, or 

enforcement of an existing rule.66

Specifically, the proposed rule change 

would provide notice of the Exchange’s 

upcoming enforcement of proposed 

Rule 25150 to suspend UTP (or remove 

a suspension of UTP) with respect to a 

qualifying Thinly Traded Security. 

The Exchange believes that exchanges 

are readily capable of suspending 

trading in a security that is currently 

traded on their exchange. Exchanges 

need and provide for the ability to 

suspend trading in securities on their 

exchange for regulatory halts, triggering 

of market wide or single stock circuit 

breakers, and to comply with the 

Commission’s authority to order a 

trading halt pursuant to Section 12(k) of 

the Exchange Act.67 Accordingly, the 

Exchange believes that voluntarily 

delaying the implementation of the 

suspension of UTP by 30 calendar days 

will provide other exchanges and 

market participants with adequate 

notice and sufficient time to prepare for 

a suspension of UTP in the relevant 

Thinly Traded Security. The Exchange 

also believes that exchanges are also 

readily capable of extending UTP to a 

Security that is not currently traded on 

the exchange.68 Accordingly, the 

Exchange believes that other exchanges 

would be able to extend UTP to a 

Security for which the suspension of 

UTP is lifted shortly after the 

effectiveness of the rule filing providing 

notice of a resumption in UTP with 

respect to the Security. 

The Exchange recognizes that 

suspending UTP and making BSTX the 

only national securities exchange on 

which a Thinly Traded Security trades 

would increase both the relative 

importance of BSTX as a trading venue 

for such Thinly Traded Security and the 

disruption that might arise if access to 

BSTX were somehow disrupted. 

Accordingly, the Exchange proposes to 

run a live, parallel system in addition to 

the Exchange’s primary system 

supporting trading in any Thinly Traded 


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69The Exchange notes that certain exchanges 

have challenged the Commission’s May 6, 2020, 

order directing the self-regulatory organizations to 

develop a new NMS plan for consolidated market 

data. Exchange Act Release No. 88827 (May 5, 

2020), 85 FR 28702 (May 13, 2020). The Exchange 

would seek to amend the new NMS plan or the 

existing NMS plans as appropriate. 

70See e.g., Exchange Act Release No. 90096 (Oct. 

6, 2020), 85 FR 64565, Exhibit D (Oct. 13, 2020) 

https://www.sec.gov/rules/sro/nms/2020/34- 

90096.pdf. 

71 15 U.S.C. 78f(b)(5). 

72Treasury Report at 60. 

73 Id. 

74 15 U.S.C. 78f(b)(8). 

75 15 U.S.C. 78f(b)(5). 

Securities for which UTP has been 

suspended in order to guard against a 

potential disruption in trading access. 

The Exchange would maintain the 

ability to automatically fail over to the 

other live or ‘‘hot’’ parallel system in the 

event of any disruption to the primary 

system. 

In addition, because Thinly Traded 

Securities would no longer trade on 

other exchanges via UTP at the election 

of an issuer and a determination by the 

Exchange that the Security qualifies as 

a Thinly Traded Security, the Exchange 

plans to remove quotation and trading 

activity in Thinly Traded Securities 

from the revenue allocation formulas of 

the appropriate NMS plan for 

consolidated market data through an 

amendment to such plan(s).69 The 

Exchange believes that it would be 

appropriate to exclude such Thinly 

Traded Securities from the revenue 

allocation formula so that the Exchange 

does not receive undue compensation 

from the NMS plan for consolidated 

market data arising from the Thinly 

Traded Securities. The existing and 

proposed revenue allocation formulas 

apportion revenues from the NMS plan 

in part based on the amount of trading 

and quoting occurring on each exchange 

in ‘‘Eligible Securities’’ as defined under 

the NMS plan.70 As a result, BSTX 

might receive additional profits under 

the revenue allocation formula if Thinly 

Traded Securities were not excluded 

from ‘‘Eligible Securities’’ given that 

BSTX would be the only venue able to 

quote and trade Thinly Traded 

Securities. 

Finally, the Exchange proposes to 

make available each month anonymized 

trade and quotation data relating to 

Thinly Traded Securities to regulators, 

academics, and others requesting such 

market data from the Exchange for the 

purpose of studying the effects of the 

suspension of UTP. The Exchange 

intends to additionally perform its own 

analysis on the impact of the suspension 

of UTP for Thinly Traded Securities to 

evaluate its efficacy. The Exchange will 

evaluate market quality for Thinly 

Traded Securities across a variety of 

metrics including an analysis of: (i) 

Relative trading volumes on BSTX 

versus OTC; (ii) improvements in ADV; 

(iii) changes in quotation size; (iv) 

changes in the depth of liquidity; (v) 

changes in spreads (quoted spread and 

realized spread); and (vi) changes in 

trade size. The Exchange will perform 

this analysis at least annually (provided 

there is sufficient sample data from the 

preceding year) and make public its 

findings with respect to how the market 

for Thinly Traded Securities has 

changed as a result of the suspension of 

UTP. 

Request for Exemptive Relief 

The Exchange believes that it is in the 

public interest and consistent with 

protection of investors, pursuant to 

Section 6(b)(5) of the Exchange Act,71 as 

well as in furtherance of the perfection 

of a free and open market and national 

market system to suspend UTP under 

this proposal with respect to Thinly 

Traded Securities to improve liquidity 

and overall market quality for such 

Securities. Consistent with the 

Department of the Treasury’s 

recommendations, the Exchange 

believes that ‘‘[c]onsolidating trading to 

fewer venues would simplify the 

process of making markets in those 

stocks and thereby encourage more 

market makers to provide more liquidity 

in those issues.’’ 72 Also consistent with 

the Department of the Treasury’s 

recommendations, the Exchange 

proposes that there be no limitation on 

trading OTC in order ‘‘maintain a basic 

level of competition for execution’’ and 

that an issuer would be provided a 

choice as to whether its qualifying 

Thinly Traded Security have UTP 

suspended.73

In addition, the Exchange believes 

that, consistent with the OAR Report 

which found that NMS stocks with an 

ADV of less than 100,000 shares 

experience more trading on offexchange venues than on-exchange and 

have less quoted depth at the inside of 

the market, much of the poor market 

quality is attributable to deficiencies in 

displayed quotations of Thinly Traded 

Securities. As a result the Exchange 

believes that it is appropriate to suspend 

trading on other exchanges—i.e., other 

venues displaying liquidity—in order to 

concentrate displayed liquidity on a 

single exchange, while still allowing 

trading to occur in the OTC market. 

The Exchange does not believe that 

the suspension of UTP for Thinly 

Traded Securities will impose a burden 

on competition not necessary or 

appropriate in furtherance of the 

Exchange Act 74 because other 

exchanges could similarly be granted a 

suspension of UTP for qualifying thinly 

traded securities listed on their markets. 

Exchanges can compete with each other 

in attracting issuers of thinly traded 

securities to be singly-listed and traded 

on their respective exchanges. 

Exchanges would still be able to 

compete with one another for listings 

and the market for all thinly traded 

securities could be improved. Moreover, 

if the suspension of UTP has the desired 

effect of improving the overall liquidity 

of a Thinly Traded Security, such 

Security should hopefully exceed the 

100,000 share ADV or $1 billion market 

capitalization thresholds and become 

available for UTP, thus removing any 

barrier to competition once the purpose 

for which the suspension of UTP was 

initiated has been fulfilled. 

Similarly, consistent with Section 

6(b)(5) of the Exchange Act,75 the 

Exchange believes that the proposed 

suspension of UTP for Thinly Traded 

Securities would not permit unfair 

discrimination between customers, 

issuers, brokers or dealers, because the 

suspension is for the purpose of 

furthering the regulatory objective of 

improving market quality for securities 

that are thinly traded. Although nonThinly Traded Securities would not be 

able to have UTP suspended, this 

discriminatory treatment is not ‘‘unfair’’ 

given the substantial public interest, as 

demonstrated through the Commission’s 

statements and by market participants at 

the Roundtable, in improving market 

conditions for thinly traded securities. 

The Exchange believes that the 

proposed suspension of UTP would 

help protect investors and the public 

interest, consistent with Section 6(b)(5), 

by concentrating displayed liquidity on 

a single venue, thereby providing 

greater incentives for market makers in 

Thinly Traded Securities and in turn 

making it easier for investors to buy and 

sell shares of Thinly Traded Securities. 

The Exchange believes that there is a 

general consensus among members of 

Commission staff, former 

Commissioners (including former 

Chairman Jay Clayton), the Department 

of the Treasury, and market 

participants, as well as empirical 

evidence, making clear that operating 

company stocks with an ADV of less 

than 100,000 shares suffer significant 

liquidity and market quality challenges 

not faced by stocks with greater trading 

volume. It is for this reason, the 

Exchange believes, that the Commission 

specifically solicited requests from 


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76Commission Statement on Thinly Traded 

Securities at 56956. 

77 17 CFR 240.12f–3. 

78 15 U.S.C. 78c(f). 

79See supra note 28. 

80See proposed Rule 25060(h). 

81See proposed Rule 25100(d). 

82For example, assume Order A is marked as an 

Order with a T+0 Preference and it is sent to BSTX 

and is marketable against both resting Order B 

(standard T+2 settlement, with time priority over 

Order C) and resting Order C (marked as an Order 

with a T+0 Preference but with priority second to 

that of Order B). Order A will interact first with 

Order B, notwithstanding that Order C is also 

marketable against Order A and is also marked as 

an Order with a T+0 Preference. 

83 15 U.S.C. 78(f)(b)(5). 

exchanges for innovative approaches to 

improve the market for thinly traded 

securities, including requests for 

suspension of UTP.76

Accordingly, the Exchange plans to 

submit an application for the 

suspension of UTP for Thinly Traded 

Securities, as described above, to the 

Commission pursuant to Rule 12f–3 of 

the Exchange Act, which rule allows 

issuers, broker-dealers who make 

markets in a security admitted to UTP, 

‘‘or any other person having a bona fide 

interest in the question of termination or 

suspension of such unlisted trading 

privileges’’ to submit an application for 

the suspension of UTP consistent with 

certain specified requirements.77 The 

Exchange believes that there is good 

cause for the suspension of UTP to 

promote efficiency, competition, and 

capital formation 78 by facilitating the 

trading of Thinly Traded Securities in a 

manner that addresses structural market 

quality challenges in today’s markets for 

such securities. 

Ability for BSTX Participants To 

Include a Parameter for a Preference for 

Settlement of Transactions in Securities 

Faster Than T+2 

As described above in Section II.E.5., 

BSTX believes that NSCC already has 

authority under its rules, policies and 

procedures to clear certain trades on a 

T+1 or T+0 basis, which are shorter 

settlement cycles than the longest 

settlement cycle of T+2 that is generally 

permitted under SEC Rule 15c6–1 for a 

security trade that involves a brokerdealer.79 Furthermore, BSTX 

understands that NSCC does already 

clear trades in accordance with this 

authority. 

The Exchange proposes that BSTX 

Participants would be able to include in 

their orders in Securities that are 

submitted to BSTX certain parameters to 

indicate a preference for settlement on 

a same day (T+0) or next trading day 

(T+1) basis when certain conditions are 

met.80 Any such orders would at the 

time of order entry represent orders that 

would be regular-way and would be 

presumed to settle on a T+2 basis just 

like any other order submitted by a 

BSTX Participant that does not include 

a parameter indicating a preference for 

faster settlement. As described in greater 

detail below, however, orders in a 

Security that include a parameter 

indicating a preference for settlement on 

a T+0 basis (‘‘Order with a T+0 

Preference’’) or on a T+1 basis (‘‘Order 

with a T+1 Preference’’) would only 

result in executions that would actually 

settle more quickly than on a T+2 basis 

if, and only if, all of the conditions in 

Rule 25060(h) are met and the execution 

that is transmitted to NSCC is eligible 

for T+0 or T+1 settlement under the 

rules, policies and procedures of a 

registered clearing agency.81 Any such 

preference included by a BSTX 

Participant would only become 

operative if the order happens to 

execute against another order from a 

BSTX Participant that also includes a 

parameter indicating a preference for 

settlement on a T+0 or T+1 basis, as 

described in more detail below. This 

means that at the time of order entry all 

orders in Securities would be regular 

way orders that would be presumed to 

settle on a T+2 basis. Faster settlement 

consistent with the rules, policies and 

procedures of a registered clearing 

agency would occur if and only if two 

orders execute against each other in a 

manner that meets the conditions in 

Rule 25060(h). 

As proposed, an Order with a T+0 

Preference will execute against any 

order against which it is marketable 

with settlement occurring on a standard 

settlement cycle (T+2) except where: (i) 

The Order with a T+0 Preference 

executes against another Order with a 

T+0 Preference, in which case 

settlement shall occur on the trade date, 

or (ii) the Order with a T+0 Preference 

executes against an Order with a T+1 

Preference, in which case settlement 

shall occur the next trading day after the 

trade date (i.e., T+1). Similarly, as 

proposed, an Order with a T+1 

Preference will execute against any 

order against which it is marketable 

with settlement occurring on a standard 

settlement cycle (T+2) except where: (i) 

The Order with a T+1 Preference 

executes against another Order with a 

T+1 Preference or an Order with a T+0 

Preference, in which case settlement 

occurs on the next trading day after the 

trade date (i.e., T+1). In all cases, an 

order not marked with a preference for 

either T+0 or T+1 settlement would be 

assured under the settlement timing 

logic in proposed Rule 25060(h) of 

settlement on T+2. The possibility of a 

shortened settlement time would have 

no impact on the Exchange’s proposed 

price time priority structure for order 

matching.82

As a result of this structure, all orders 

in Securities would be eligible to match 

and execute against any order against 

which they are marketable with 

settlement to occur at the later 

settlement date of any two matching 

orders. Only where an Order with a T+1 

Preference or an Order with a T+0 

Preference match with another Order 

with a T+1 Preference or Order with a 

T+0 Preference will those orders (or 

matching portions thereof) be eligible to 

settle more quickly than the standard 

settlement cycle of T+2. As previously 

noted in Part II.E, the Exchange believes 

that the clearance and settlement 

processes at NSCC and DTC are already 

capable of facilitating such shortened 

settlement times. 

The Exchange believes that 

facilitating shorter settlement cycles as 

permitted under the rules, policies, and 

procedures of a registered clearing 

agency is consistent with Section 6(b)(5) 

of the Exchange Act 83 because it is in 

the public interest and furthers the 

protection of investors as well as helps 

perfect the mechanism of a free and 

open market and the national market 

system. Specifically, the Exchange 

believes that BSTX Participants have an 

interest in being able to access riskreducing market functionality that is 

presently available and compatible with 

market structure, such as shorter 

settlement cycles, and that this can 

reduce costs for market participants 

settling trading obligations in that 

Security and reduce settlement risk. For 

example, market participants settling 

trades in a Security on a T+2 basis must 

post margin collateral to NSCC for two 

trading days. The margin collateral 

cannot otherwise be used until 

settlement on T+2. In addition, by 

shortening the timing of settlement from 

T+2 to T+1 or T+0, the risk horizon for 

a potential default in settling the trade 

is correspondingly shortened as well. 

This means that market participants 

engaged in a transaction settling 

transactions on shorter settlement cycles 

than T+2 receive the benefits of not 

having to encumber collateral assets for 

as long and facing a shorter period of 

settlement risk. The Exchange believes 

that these benefits in turn free up assets 

to be used elsewhere in financial 

markets, thereby helping to promote the 

efficient allocation of capital and 

perfecting the mechanism of a free and 


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84 Id. 

85 17 CFR 242.611. 

86 17 CFR 242.611(b)(2). 

87See 17 CFR 240.17Ad–22(a)(2) (defining the 

term ‘‘central counterparty’’ to mean ‘‘a clearing 

agency that interposes itself between the 

counterparties to securities transactions, acting 

functionally as the buyer to every seller and the 

seller to every buyer’’). 

88Exchange Act Release No. 80295 (March 22, 

2017), 82 FR 15564, 15570–71 (March 29, 2017). 

89 Id. at 15571. 

90 Id. at 15582. 

91As described in this Part II.I, an order for a 

Security marked for T+0 or T+1 could still interact 

with any other order, including an order with the 

default T+2 settlement, with settlement to occur at 

the later of any two matched orders (e.g., if a T+1 

order matches with a T+2 order, the orders would 

settle T+2). Only where an order marked for a 

shorter settlement time matches with another order 

similarly marked would a shorter settlement time 

occur. Consequently, the proposed use of shorter 

settlement times would not adversely impact any 

market participant seeking T+2 settlement in a 

transaction for a Security. 

92Proposed Rule 17000(a)(17) defines the term 

‘‘customer’’ to not include a broker or dealer, which 

parallels the same definition in other exchange 

rulebooks. See e.g., IEX Rule 1.160(j). Similarly, the 

Exchange proposes to define the term ‘‘Regular 

Trading Hours’’ as the time between 9:30 a.m. and 

4:00 p.m. Eastern Time. See proposed Rule 

17000(a)(29) cf. IEX Rule 1.160(gg) (defining 

‘‘Regular Market Hours’’ in the same manner). 

93For example, the Exchange proposes to define 

the term ‘‘BSTX’’ to mean the facility of the 

Exchange for executing transaction in Securities, 

the term ‘‘BSTX Participant’’ to mean a Participant 

or Options Participant (as those terms are defined 

in the Exchange’s Rule 100 Series) that is 

authorized to trade Securities, and the term ‘‘BSTX 

System’’ to mean the automated trading system 

used by BSTX for the trading of Securities. See 

proposed Rule 17000(a)(8), (11), and (15). 

94Proposed Rule 17000(a)(31) provides that the 

term ‘‘Security’’ means a NMS stock, as defined in 

Rule 600(b)(47) of the Exchange Act, trading on the 

BSTX System. The proposed definition further 

specifies that references to a ‘‘security’’ or 

‘‘securities’’ in the Rules may include Securities. 

95Proposed Rule 17000(a)(32) provides that the 

term ‘‘Thinly Traded Security’’ is defined in Rule 

25150. See Part II.H for further discussion of Thinly 

Traded Securities and the definition set forth in 

proposed Rule 25150. 

open market.84 All else being equal, the 

Exchange believes that a BSTX 

participant may find that between two 

otherwise identical stocks, one for 

which it may be able to settle the 

transaction more quickly is more 

attractive than one that settles over a 

longer duration and potentially requires 

collateral to be held for a longer period. 

The Exchange notes that the proposed 

potential for shortened settlement 

timing for an Order with a T+0 

Preference or an Order with a T+1 

Preference will in no way impact or 

prevent any market participant that 

desires to effect a trade in a Security on 

BSTX from doing so. This is because 

under proposed Rule 25060(h), any 

Order with a T+1 Preference or Order 

with a T+0 Preference will continue to 

interact with any other order in the 

Security against which it is marketable 

(including any order in the Security that 

does not include a parameter indicating 

a preference for settlement faster than 

T+2) and a resulting execution will 

always settle using the latest settlement 

timing associated with two matching 

orders. Accordingly, non-BSTX 

Participants seeing a quote in a Security 

on BSTX will remain able to execute 

against that quote posted on BSTX even 

if that quote includes a latent parameter 

for a preference for T+0 or T+1 

settlement where consistent with the 

rules, policies and procedures of a 

registered clearing agency. In this way, 

the Exchange believes that the proposal 

is fully compatible with the current 

market structure and would help perfect 

the mechanism of a free and open 

market by allowing for shorter 

settlement times than T+2 where 

consistent with the rules, policies and 

procedures of a registered clearing 

agency and where both parties to a 

transaction in a Security indicate a 

preference for faster settlement than 

T+2. 

Finally, because all orders in 

Securities submitted to BSTX would at 

the time of the order entry be presumed 

to settle on a regular way T+2 basis and 

would interact with any other order 

against which the order is marketable, 

the Exchange believes that Orders with 

a T+0 Preference and Orders with a T+1 

Preference would be considered 

‘‘protected’’ within the meaning of Rule 

611 of the Exchange Act.85 Orders with 

a T+0 Preference and Orders with a T+1 

Preference would not fall within the 

exception for protected quotation status 

set forth in Rule 611(b)(2) of the 

Exchange Act because they will only 

settle more quickly than T+2 where all 

of the conditions in Rule 25060(h) are 

met, as described above, where 

settlement faster than T+2 is consistent 

with the rules, policies and procedures 

of a registered clearing agency.86

In adopting amendments to SEC Rule 

15c6–1 in 2017 to shorten the standard 

settlement cycle for most broker-dealer 

transactions in securities from T+3 to 

T+2, the Commission stated its belief 

that the shorter settlement cycle would 

have positive effects regarding the 

liquidity risks and costs faced by 

members in a clearing agency, like 

NSCC, that performs central 

counterparty 87 (‘‘CCP’’) services, and 

that it would also have positive effects 

for other market participants. 

Specifically, the Commission stated its 

belief that the resulting ‘‘reduction in 

the amount of unsettled trades and the 

period of time during which the CCP is 

exposed to risk would reduce the 

amount of financial resources that the 

CCP members may have to provide to 

support the CCP’s risk management 

process . . .’’ and that ‘‘[t]his reduction 

in the potential need for financial 

resources should, in turn, reduce the 

liquidity costs and capital demands 

clearing broker-dealers face . . . and 

allow for improved capital 

utilization.’’ 88 The Commission went 

on to state its belief that shortening the 

settlement cycle ‘‘would also lead to 

benefits to other market participants, 

including introducing broker-dealers, 

institutional investors, and retail 

investors’’ such as ‘‘quicker access to 

funds and securities following trade 

execution’’ and ‘‘reduced margin 

charges and other fees that clearing 

broker-dealers may pass down to other 

market participants[.]’’ 89 The 

Commission also ‘‘noted that a move to 

a T+1 standard settlement cycle could 

have similar qualitative benefits of 

market, credit, and liquidity risk 

reduction for market participants[.]’’ 90

BSTX agrees with these statements by 

the Commission and has therefore 

proposed BSTX Rules 25060(h) and 

25100(d) in a form that would promote 

the benefits of available, shorter 

settlement cycles.91

Proposed BSTX Rules 

The discussion in this Part III 

addresses the proposed BSTX Rules that 

would be adopted as Rule Series 17000 

through 29000. 

General Provisions of BSTX and 

Definitions (Rule 17000 Series) 

The Exchange proposes to adopt as its 

Rule 17000 Series (General Provisions of 

BSTX) a set of general provisions 

relating to the trading of Securities and 

other rules governing participation on 

BSTX. Proposed Rule 17000 sets forth 

the defined terms used throughout the 

BSTX Rules. The majority of the 

proposed definitions are substantially 

similar to defined terms used in other 

equities exchange rulebooks, such as 

with respect to the term ‘‘customer.’’ 92

The Exchange proposes to set forth new 

definitions for certain terms to 

specifically identify systems, 

agreements, or persons as they relate to 

BSTX and as distinct from other 

Exchange systems, agreements, or 

persons that may be used in connection 

with the trading of other options on the 

Exchange.93 The Exchange also 

proposes to define certain unique terms 

relating to the trading of Securities, 

including the term ‘‘Security’’ itself 94

and ‘‘Thinly Traded Securities,’’ 95 as 

well as for other features of BSTX such 


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96Proposed Rule 17000(a)(9) provides that the 

term ‘‘BSTX Market Data Blockchain’’ means the 

private, permissioned blockchain network through 

which a BSTX Participant may access certain order 

and transaction data related to trading activity on 

BSTX. See Part II.F for further discussion of the 

BSTX Market Data Blockchain. 

97Proposed Rule 17010 further specifies that to 

the extent the provisions of the Rules relating to the 

trading of Securities contained in Rule 17000 Series 

to Rule 29000 Series are inconsistent with any other 

provisions of the Exchange Rules, the Rules relating 

to Security trading shall control. 

98 15 U.S.C. 78f(b)(5). 

99The BSTX Participant Application, 

Participation Agreement, and User Agreement have 

been submitted as Exhibits 3A, 3B, and 3C to the 

proposal respectively. 

100Proposed Rule 18000 also sets forth the 

Exchange’s review process regarding BSTX 

Participation Agreements and certain limitations on 

the ability to transfer BSTX Participant status (e.g., 

in the case of a change of control). In addition 

proposed Rule 18000(b)(2) provides that a BSTX 

Participant shall continue to abide by all applicable 

requirements of the Rule 2000 Series, which would 

include, for example, IM–2040–5, which specifies 

continuing education requirements of Exchange 

Participants and their associated persons. 

101Proposed Rule 18010(b) is similar to the rules 

of existing exchanges. See e.g., IEX Rule 2.160(c). 

Proposed Rule 18010(a) is also similar to the rules 

of existing exchanges. See e.g., IEX Rule 1.160(s) 

and Cboe BZX Rule 17.2(a). 

102 15 U.S.C. 78f(b)(5). 

103The Exchange notes that the approach of 

requiring members of a facility of an exchange to 

first become members of the exchange is consistent 

with the approach used by another national 

securities exchange. See Cboe BZX Rule 17.1(b)(3) 

(requiring that a Cboe BZX options member be an 

existing member or become a member of the Cboe 

BZX equities exchange pursuant to the Cboe BZX 

Chapter II Series). 

104See Cboe BZX Chapter 5 rules. See also IEX 

Rule 5.150 with respect to proposed Rule 21040 

(Prevention of the Misuse of Material, Non-Public 

Information). 

105Proposed Rule 19000 (Just and Equitable 

Principles of Trade) provides that no BSTX 

Participant, including its associated persons, shall 

engage in acts or practices inconsistent with just 

and equitable principles of trade. 

106Proposed Rule 19010 (Adherence to Law) 

generally requires BSTX Participants to adhere to 

applicable laws and regulatory requirements. 

107Proposed Rule 19020 (Use of Fraudulent 

Devices) generally prohibits BSTX Participants from 

effecting a transaction in any security by means of 

a manipulative, deceptive or other fraudulent 

device or contrivance. 

108Proposed Rule 19030 (False Statements) 

generally prohibits BSTX Participants and their 

associated persons from making false statements or 

misrepresentations in communications with the 

Exchange. 

109Proposed Rule 19040 (Know Your Customer) 

requires BSTX Participants to comply with FINRA 

Rule 2090 as if such rule were part of the Exchange 

Rules. 

110Proposed Rule 19050 (Fair Dealing with 

Customers) generally requires BSTX Participants to 

deal fairly with customers and specifies certain 

activities that would violate the duty of fair dealing 

(e.g., churning or overtrading in relation to the 

objectives and financial situation of a customer). 

111Proposed Rule 19060 (Suitability) provides 

that BSTX Participants and their associated persons 

shall comply with FINRA Rule 2111 as if such rule 

were part of the Exchange Rules. 

112Proposed Rule 19070 (Prompt Receipt and 

Delivery of Securities) would generally prohibit a 

BSTX Participant from accepting a customer’s 

purchase order for a security until it can determine 

that the customer agrees to receive the securities 

against payment. 

113Proposed Rule 19080 (Charges for Services 

Performed) generally requires that charges imposed 

on customers by broker-dealers shall be reasonable 

and not unfairly discriminatory. 

114Proposed Rule 19090 (Use of Information 

Obtained in a Fiduciary Capacity) generally restricts 

the use of information as to the ownership of 

securities when acting in certain capacities (e.g., as 

a trustee). 

115Proposed Rule 19100 (Publication of 

Transactions and Quotations) generally prohibits a 

BSTX Participant from disseminating a transaction 

as the ‘‘BSTX Market Data 

Blockchain.’’ 96

In addition to setting forth proposed 

definitions used throughout the 

proposed Rules, the Exchange proposes 

to specify in proposed Rule 17010 

(Applicability) that the Rules set forth in 

the Rule 17000 Series to Rule 29000 

Series apply to the trading, listing, and 

related matters pertaining to the trading 

of Securities. Proposed Rule 17010(b) 

provides that, unless specific Rules 

relating to Securities govern or unless 

the context otherwise requires, the 

provisions of any Exchange Rule (i.e., 

including Exchange Rules in the Rule 

100 through 16000 Series) shall be 

applicable to BSTX Participants.97 This 

is intended to make clear that BSTX 

Participants are subject to all of the 

Exchange’s Rules that may be applicable 

to them, notwithstanding that their 

trading activity may be limited solely to 

trading Securities. The Exchange 

believes that the proposed definitions 

set forth in Rule 17000 are consistent 

with Section 6(b)(5) of the Exchange 

Act 98 because they protect investors 

and the public interest by setting forth 

clear definitions that help BSTX 

Participants understand and apply 

Exchange Rules. Without clearly 

defining terms used in the Exchanges 

Rules and providing clarity as to the 

Exchange Rules that may apply, market 

participants could be confused as to the 

application of certain rules, which 

could cause harm to investors. 

Participation on BSTX (Rule 18000 

Series) 

The Exchange proposes to adopt as its 

Rule 18000 Series (Participation on 

BSTX), three rules setting forth certain 

requirements relating to participation on 

BSTX. Proposed Rule 18000 (BSTX 

Participation) establishes ‘‘BSTX 

Participants’’ as a new category of 

Exchange participation for effecting 

transactions on the BSTX System, 

provided they: (i) Complete the BSTX 

Participant Application, Participation 

Agreement, and User Agreement; 99 (ii) 

be an existing Options Participant or 

become a Participant of the Exchange 

pursuant to the Rule 2000 Series; and 

(iii) provide such other information as 

required by the Exchange.100 Proposed 

Rule 18010 (Requirements for BSTX 

Participants) sets forth certain 

requirements for BSTX Participants 

including requirements that each BSTX 

Participant comply with Rule 15c3–1 

under the Exchange Act, comply with 

applicable books and records 

requirements, and be a member of a 

registered clearing agency or clear 

Security transactions through another 

BSTX Participant that is a member/ 

participant of a registered clearing 

agency.101 Finally, proposed Rule 18020 

(Associated Persons) provides that 

associated persons of a BSTX 

Participant are bound by the Rules of 

the Exchange to the same extent as each 

BSTX Participant. 

The Exchange believes that the 

proposed Rule 18000 Series 

(Participation on BSTX) is consistent 

with Section 6(b)(5) of the Exchange 

Act 102 because these proposed rules are 

designed to promote just and equitable 

principles of trade, and protect investors 

and the public interest by setting forth 

the requirements to become a BSTX 

Participant and specifying that 

associated persons of a BSTX 

Participant are bound by Exchange 

Rules. Under proposed Rule 18000, a 

BSTX Participant must first become an 

Exchange Participant pursuant to the 

Exchange Rule 2000 Series which the 

Exchange believes would help assure 

that BSTX Participants meet the 

appropriate standards for trading on 

BSTX in furtherance of the protection of 

investors.103

Business Conduct for BSTX Participants 

(Rule 19000 Series) 

The Exchange proposes to adopt as its 

Rule 19000 Series (Business Conduct for 

BSTX Participants), twenty two rules 

relating to business conduct 

requirements for BSTX Participants that 

are substantially similar to business 

conduct rules of other exchanges.104

The proposed Rule 19000 Series would 

specify business conduct requirements 

with respect to: (i) Just and equitable 

principles of trade; 105 (ii) adherence to 

law; 106 (iii) use of fraudulent 

devices; 107 (iv) false statements; 108 (v) 

know your customer; 109 (vi) fair dealing 

with customers; 110 (vii) suitability; 111

(viii) the prompt receipt and delivery of 

securities; 112 (ix) charges for services 

performed; 113 (x) use of information 

obtained in a fiduciary capacity; 114 (xi) 

publication of transactions and 

quotations; 115 (xii) offers at stated 


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or quotation information unless the BSTX 

Participant believes it to be bona fide. 

116Proposed Rule 19110 (Offers at Stated Prices) 

generally prohibits a BSTX Participant from offering 

to transact in a security at a stated price unless it 

is in fact prepared to do so. 

117Proposed Rule 19120 (Payments Involving 

Publications that Influence the Market Price of a 

Security) generally prohibits direct or indirect 

payments with the aim of disseminating 

information that is intended to effect the price of 

a security. 

118Proposed Rule 19130 (Customer 

Confirmations) requires that BSTX Participants 

comply with Rule 10b–10 of the Exchange Act. 17 

CFR 240.10b–10. 

119Proposed Rule 19140 (Disclosure of Control 

Relationship with Issuer) generally requires BSTX 

Participants to disclose any control relationship 

with an issuer of a security before effecting a 

transaction in that security for the customer. 

120Proposed Rule 19150 (Discretionary Accounts) 

generally provides certain restrictions on BSTX 

Participants handling of discretionary accounts, 

such as by effecting excessive transactions or 

obtained authorization to exercise discretionary 

powers. 

121Proposed Rule 19160 (Improper Use of 

Customers’ Securities or Funds and Prohibition 

against Guarantees and Sharing in Accounts) 

generally prohibits BSTX Participants from making 

improper use of customers securities or funds and 

prohibits guarantees to customers against losses. 

122Proposed Rule 19170 (Sharing in Accounts; 

Extent Permissible) generally prohibits BSTX 

Participants and their associated persons from 

sharing directly or indirectly in the profit or losses 

of the account of a customer unless certain 

exceptions apply such as where an associated 

person receives prior written authorization from the 

BSTX Participant with which he or she is 

associated. 

123Proposed Rule 19180 (Communications with 

Customers and the Public) generally provides that 

BSTX Participants and their associated persons 

shall comply with FINRA Rule 2210 as if such rule 

were part of the Exchange Rules. 

124Proposed Rule 19190 (Gratuities) requires 

BSTX Participants to comply with the requirements 

set forth in BOX Exchange Rule 3060 (Gratuities). 

125Proposed Rule 19200 (Telemarketing) requires 

that BSTX Participants and their associated persons 

comply with FINRA Rule 3230 as if such rule were 

part of the Exchange’s Rules. 

126Proposed Rule 19210 (Mandatory Systems 

Testing) requires that BSTX Participants comply 

with Exchange Rule 3180 (Mandatory Systems 

Testing). 

127For example, the Exchange is not proposing to 

adopt a rule contained in other exchanges’ business 

conduct rules relating to disclosures that brokerdealers give to their customers regarding the risks 

of effecting securities transactions during times 

other than during regular trading hours (e.g., higher 

volatility, possibly lower liquidity) because 

executions may only occur during regular trading 

hours on the BSTX System. See e.g., IEX Rule 3.290, 

Cboe BZX Rule 3.21. 

128 15 U.S.C. 78f(b)(5). 

129See supra note 1044. 

130See Cboe BZX Chapter 6 rules and IEX 

Chapter 5 rules. 

131Proposed Rule 20000 (Maintenance, Retention 

and Furnishing of Books, Records and Other 

Information) requires that BSTX Participants 

comply with current Exchange Rule 1000 

(Maintenance, Retention and Furnishing of Books, 

Records and Other Information) and that BSTX 

Participants shall submit to the Exchange order, 

market and transaction data as the Exchange may 

specify by Information Circular. 

132Proposed Rule 20010 (Financial Reports) 

provides that BSTX Participants shall comply with 

the requirements of current Exchange Rule 10020 

(Financial Reports). 

133Proposed Rule 20020 (Capital Compliance) 

provides that each BSTX Participant subject to Rule 

15c3–1 under the Exchange Act (17 CFR 240.15c3– 

1) shall comply with such rule and other financial 

and operational rules contained in the proposed 

Rule 20000 series. 

134 17 CFR 240.17a–11. Proposed Rule 20030 

(‘‘Early Warning’’ Notification) provides that BSTX 

Participants subject to the reporting or notifications 

requirements of Rule 17a–11 under the Exchange 

Act (17 CFR 240.17a–11) or similar ‘‘early warning’’ 

requirements imposed by other regulators shall 

provide the Exchange with certain reports and 

financial statements. 

135Proposed Rule 20040 (Power of CRO to Impose 

Restrictions) generally provides that the Exchange’s 

Chief Regulatory Officer may impose restrictions 

and conditions on a BSTX Participant subject to the 

early warning notification requirements under 

certain circumstances. 

136Proposed Rule 20050 (Margin) sets forth the 

required margin amounts for certain securities held 

in a customer’s margin account. 

137Proposed Rule 20060 (Day Trading Margin) 

sets forth additional requirements with respect to 

customers that engage in day trading. 

138Proposed Rule 20070 (Customer Account 

Information) requires that BSTX Participants 

comply with FINRA Rule 4512 as if such rule were 

part of the Exchange Rules and further clarifies 

certain cross-references within FINRA Rule 4512. 

139Proposed Rule 20080 (Record of Written 

Customer Complaints) requires that BSTX 

Participants comply with FINRA Rule 4513 as if 

such rule were part of the Exchange Rules. 

140Proposed Rule 20090 (Disclosure of Financial 

Condition) generally requires that BSTX 

Participants make available certain information 

regarding the BSTX Participant’s financial 

condition upon request of a customer. 

141 15 U.S.C. 78f(b)(5). 

prices; 116 (xiii) payments involving 

publications that influence the market 

price of a security; 117 (xiv) customer 

confirmations; 118 (xv) disclosure of a 

control relationship with an issuer of 

Securities; 119 (xvi) discretionary 

accounts; 120 (xvii) improper use of 

customers’ securities or funds and a 

prohibition against guarantees and 

sharing in accounts; 121 (xviii) the extent 

to which sharing in accounts is 

permissible; 122 (xix) communications 

with customers and the public; 123 (xx) 

gratuities; 124 (xxi) telemarketing; 125

and (xxii) mandatory systems testing.126

The Exchange notes that the proposed 

financial responsibility rules are 

virtually identical to those of other 

national securities exchanges other than 

changes to defined terms and certain 

other provisions that would not apply to 

the trading of Securities on the BSTX 

System.127

The Exchange believes that the 

proposed Rule 19000 Series (Business 

Conduct) is consistent with Section 

6(b)(5) of the Exchange Act 128 because 

these proposed rules are designed to 

prevent fraudulent and manipulative 

acts and practices, promote just and 

equitable principles of trade, and 

protect investors and the public interest 

by setting forth appropriate standards of 

conduct applicable to BSTX Participants 

in carrying out their business activities. 

For example, proposed Rule 19000 (Just 

and Equitable Principles of Trade) and 

19010 (Adherence to Law) would 

prohibit BSTX Participants from 

engaging in acts or practices 

inconsistent with just and equitable 

principles of trade or that would violate 

applicable laws and regulations. 

Similarly, proposed Rule 19050 (Fair 

Dealing with Customers) would require 

that BSTX Participants deal fairly with 

their customers and proposed Rule 

19030 (False Statements) would 

generally prohibit BSTX Participants, or 

their associated persons from making 

false statements or misrepresentations to 

the Exchange. The Exchange believes 

that requiring that BSTX Participants 

comply with the proposed business 

conduct rules in the Rule 19000 Series 

would further the protection of 

investors and the public interest by 

promoting high standards of commercial 

honor and integrity. In addition, each of 

the rules in the proposed Rule 19000 

Series (Business Conduct) is 

substantially similar to supervisory 

rules of other exchanges.129

Financial and Operational Rules for 

BSTX Participants (Rule 20000 Series) 

The Exchange proposes to adopt as its 

Rule 20000 Series (Financial and 

Operational Rules), ten rules relating to 

financial and operational requirements 

for BSTX Participants that are 

substantially similar to financial and 

operational rules of other exchanges.130

The proposed Rule 20000 Series would 

specify financial and operational 

requirements with respect to: (i) 

Maintenance and furnishing of books 

and records; 131 (ii) financial reports; 132

(iii) net capital compliance; 133 (iv) early 

warning notifications pursuant to Rule 

17a–11 under the Exchange Act; 134 (v) 

authority of the Chief Regulatory Officer 

to impose certain restrictions; 135 (vi) 

margin; 136 (vii) day-trading margin; 137

(viii) customer account information; 138

(ix) maintaining records of customer 

complaints; 139 and (x) disclosure of 

financial condition.140

The Exchange believes that the 

proposed Rule 20000 (Financial and 

Operational Rules) Series is consistent 

with Section 6(b)(5) of the Exchange 

Act 141 because these proposed rules are 

designed to prevent fraudulent and 

manipulative acts and practices, 

promote just and equitable principles of 

trade, and protect investors and the 

public interest by subjecting BSTX 

Participants to certain recordkeeping, 


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142See Cboe BZX Chapter 5 rules. See also IEX 

Rule 5.150 with respect to proposed Rule 21040 

(Prevention of the Misuse of Material, Non-Public 

Information). 

143Proposed Rule 21000 (Written Procedures). 

144Proposed Rule 21010 (Responsibility of BSTX 

Participants) would also require that a copy of a 

BSTX’s written supervisory procedures be kept in 

each office and makes clear that final responsibility 

for proper supervision rests with the BSTX 

Participant. 

145Proposed Rule 21020 (Records). 

146Proposed Rule 21030 (Review of Activities). 

147Proposed Rule 21040 (Prevention of the 

Misuse of Material, Non-Public Information) 

generally requires BSTX Participants to enforce 

written procedures designed to prevent misuse of 

material non-public information and sets forth 

examples of conduct that would constitute a misuse 

of material, non-public information. 

148Proposed Rule 21050 (Anti-Money Laundering 

Compliance Program). The Exchange already has 

rules with respect to Exchange Participants 

enforcing an AML compliance program set forth in 

Exchange Rule 10070 (Anti-Money Laundering 

Compliance Program), so proposed Rule 21050 

specifies that BSTX Participants shall comply with 

the requirements of that pre-existing rule. 

149 15 U.S.C. 78f(b)(5). 

150 Id. 

151See supra note 142. 

152See Cboe BZX Chapter 13 rules. See also IEX 

Rule 6.180 with respect to proposed Rule 22050 

(Transactions Involving BOX Employees). 153Proposed Rule 22000 (Comparison and 

Settlement Requirements) provides that a BSTX 

Participant that is a member of a registered clearing 

agency shall implement comparison and settlement 

procedures as may be required under the rules of 

such entity. The proposed rule would further 

provide that, notwithstanding this general 

provision, the Board may extend or postpone the 

time of delivery of a BSTX transaction whenever 

the Board determines that it is called for by the 

public interest, just and equitable principles of 

trade or to address unusual conditions. In such a 

case, delivery will occur as directed by the Board. 

154Proposed Rule 22010 (Failure to Deliver and 

Failure to Receive) provides that borrowing and 

deliveries must be effected in accordance with Rule 

203 of Regulation SHO (17 CFR 242.203) and 

incorporates Rules 200–203 of Regulation SHO by 

reference into the rule (17 CFR 242.200 through 

.203). 

155Proposed Rule 22020 (Forwarding of Proxy 

and Other Information; Proxy Voting) generally 

provides that BSTX Participants shall forward 

proxy materials when requested by an issuer and 

sets forth certain conditions and limitations for 

BSTX Participants to give a proxy to vote stock that 

is registered in its name. 

156Proposed Rule 22030 (Commissions) provides 

that the Exchange Rules or practices shall not be 

construed to allow a BSTX Participant or its 

associated persons to agree or arrange for the 

charging of fixed rates commissions for transactions 

on the Exchange. 

157Proposed Rule 22040 (Regulatory Service 

Agreement) provides that the Exchange may enter 

into regulatory services agreements with other SROs 

to assist in carrying out regulatory functions, but 

the Exchange shall retain ultimate legal 

responsibility for, and control of, its SRO 

responsibilities. 

158Proposed Rule 22040 (Transactions Involving 

Exchange Employees) sets forth conditions and 

limitations on a BSTX Participant providing loans 

or supporting the account of an Exchange employee 

(e.g., promptly obtaining and implementing an 

instruction from the employee to provide duplicate 

account statement to the Exchange) in order to 

mitigate any potential conflicts of interest that 

might arise from such a relationship. 

159 17 CFR 242.200 through .203. 

160 15 U.S.C. 78f(b)(5). 

disclosure, and related requirements 

designed to ensure that BSTX 

Participants conduct themselves in a 

financially responsible manner. For 

example, proposed Rule 20000 would 

require BSTX Participants to comply 

with existing Exchange Rule 1000, 

which sets forth certain recordkeeping 

responsibilities and the obligation to 

furnish these to the Exchange upon 

request so that the Exchange can 

appropriately monitor the financial 

condition of a BSTX Participant and its 

compliance with applicable regulatory 

requirements. Similarly, proposed Rule 

20050 would set forth the margin 

requirements that BSTX Participants 

must retain with respect to customers 

trading in a margin account to ensure 

that BSTX Participants are not 

extending credit to customers in a 

manner that might put the financial 

condition of the BSTX Participant in 

jeopardy. Each of the proposed rules in 

the Rule 20000 Series (Financial and 

Operational Rules) is substantially 

similar to existing rules of other 

exchanges or incorporates an existing 

rule of the Exchange or another selfregulatory organization (‘‘SRO’’) by 

reference. 

Supervision (Rule 21000 Series) 

The Exchange proposes to adopt as its 

Rule 21000 Series (Supervision), six 

rules relating to certain supervisory 

requirements for BSTX Participants that 

are substantially similar to supervisory 

rules of other exchanges.142 The 

Proposed Rule 21000 Series would 

specify supervisory requirements with 

respect to: (i) Enforcing written 

procedures to appropriately supervise 

the BSTX Participant’s conduct and 

compliance with applicable regulatory 

requirements; 143 (ii) designation of an 

individual to carry out written 

supervisory procedures; 144 (iii) 

maintenance and keeping of records 

carrying out the BSTX Participant’s 

written supervisory procedures; 145 (iv) 

review of activities of each of a BSTX 

Participant’s offices, including periodic 

examination of customer accounts to 

detect and prevent irregularities or 

abuses; 146 (v) the prevention of the 

misuse of material non-public 

information; 147 and (vi) implementation 

of an anti-money laundering (‘‘AML’’) 

compliance program.148 These rules are 

designed to ensure that BSTX 

Participants are able to appropriately 

supervise their business activities, 

review and maintain records with 

respect to such supervision, and enforce 

specific procedures relating insidertrading and AML. 

The Exchange believes that the 

proposed Rule 21000 (Supervision) 

Series is consistent with Section 6(b)(5) 

of the Exchange Act 149 because these 

proposed rules are designed to prevent 

fraudulent and manipulative acts and 

practices, promote just and equitable 

principles of trade, and protect investors 

and the public interest by ensuring that 

BSTX Participants have appropriate 

supervisory controls in place to carry 

out their business activities in 

compliance with applicable regulatory 

requirements. For example, proposed 

Rule 21000 (Written Procedures) would 

require BSTX Participants to enforce 

written procedures which enable them 

to supervise the activities of their 

associated persons and proposed Rule 

21010 (Responsibility of BSTX 

Participants) would require a BSTX 

Participant to designate a person in each 

office to carry out written supervisory 

procedures. Requiring appropriate 

supervision of a BSTX Participant’s 

business activities and associated 

persons would promote compliance 

with the federal securities laws and 

other applicable regulatory 

requirements in furtherance of the 

protection of investors and the public 

interest.150 In addition, each of the rules 

in the proposed Rule 21000 Series 

(Supervision) is substantially similar to 

supervisory rules of other exchanges.151

Miscellaneous Provisions (Rule 22000 

Series) 

The Exchange proposes to adopt as its 

Rule 22000 Series (Miscellaneous 

Provisions), six rules relating to a 

variety of miscellaneous requirements 

applicable to BSTX Participants that are 

substantially similar to rules of other 

exchanges.152 These miscellaneous 

provisions relate to: (i) Comparison and 

settlement requirements; 153 (ii) failures 

to deliver and failures to receive; 154 (iii) 

forwarding of proxy and other issuerrelated materials; 155 (iv) 

commissions; 156 (v) regulatory services 

agreements; 157 and (vi) transactions 

involving Exchange employees.158

These rules are designed to capture 

additional regulatory requirements 

applicable to BSTX Participants, such as 

setting forth their obligation to deliver 

proxy materials at the request of an 

issuer and to incorporate by reference 

Rule 200–203 of Regulation SHO.159

The Exchange believes that the 

proposed Rule 22000 (Miscellaneous 

Provisions) Series is consistent with 

Section 6(b)(5) of the Exchange Act 160

because these proposed rules are 

designed to prevent fraudulent and 

manipulative acts and practices, 


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161 17 CFR 242.203. 

162 15 U.S.C. 78f(e)(1). 

163See Cboe BZX Chapter 12 rules. 

164Proposed Rule 23030 (Manipulative 

Transactions) specifies further prohibitions relating 

to potential manipulation by prohibiting BSTX 

Participants from, among other things, participating 

or having any direct or indirect interest in the 

profits of a manipulative operation or knowingly 

managing or financing a manipulative operation. 

165Other proposed rules relating to potential 

manipulation include: (i) Rule 23040 

(Dissemination of False Information), which 

generally prohibits, consistent with Exchange Rule 

3080, BSTX Participants from spreading 

information that is false or misleading; (ii) Rule 

23070 (Influencing Data Feeds), which generally 

prohibits transactions to influence data feeds; (iii) 

Rule 23080 (Trade Shredding), which generally 

prohibits conduct that has the intent or effect of 

splitting any order into multiple smaller orders for 

the primary purpose of maximizing remuneration to 

the BSTX Participant; (iv) Rule 23110 (Trading 

Ahead of Research Reports), which generally 

prohibits BSTX Participants from trading based on 

non-public advance knowledge of a research report 

and requires BSTX Participants to enforce policies 

and procedures to limit information flow from 

research personnel to trading personnel that might 

trade on such information; (v) Rule 23120 (Front 

Running Block Transactions), which incorporates 

FINRA Rule 5270 as though it were part of the 

Exchange’s Rules; and (vi) Rule 23130 (Disruptive 

Quoting and Trading Activity Prohibited), which 

incorporates Exchange Rule 3220 by reference. 

166 In addition, proposed Rule 23100 (Publication 

of Transactions and Changes) provides that the 

Exchange will disseminate transaction information 

to appropriate data feeds, BSTX participants must 

provide information necessary to facilitate the 

dissemination of such information, and that an 

Exchange official shall be responsible for approving 

corrections to any reports transmitted over data 

feeds. 

167See e.g., Cboe BZX Rule 12.6. 

168See e.g., Cboe BZX Rule 12.6.07. 

169See e.g., Cboe BZX Rule 12.5.05. 

promote just and equitable principles of 

trade, and protect investors and the 

public interest by ensuring that BSTX 

Participants comply with additional 

regulatory requirements, such as Rule 

203 of Regulation SHO 161 as provided 

in proposed Rule 22010 (Failure to 

Deliver and Failure to Receive), in 

connection with their participation on 

BSTX. For example, proposed Rule 

22030 (Commissions) prohibits BSTX 

Participants from charging fixed rates of 

commissions for transactions on the 

Exchange consistent with Section 6(e)(1) 

of the Exchange Act.162 Similarly, 

proposed Rule 22050 (Transactions 

involving Exchange Employees) sets 

forth certain requirements and 

prohibitions relating to a BSTX 

Participant providing certain financial 

services to an Exchange employee, 

which the Exchange believes helps 

prevent potentially fraudulent and 

manipulative acts and practices and 

furthers the protection of investors and 

the public interest. 

Trading Practice Rules (Rule 23000 

Series) 

The Exchange proposes to adopt as its 

Rule 23000 Series (Trading Practice 

Rules), 14 rules relating to trading 

practice requirements for BSTX 

Participants that are substantially 

similar to trading practice rules of other 

exchanges.163 The proposed Rule 23000 

Series would specify trading practice 

requirements related to: (i) Market 

manipulation; (ii) fictitious transactions; 

(iii) excessive sales by a BSTX 

Participant; (iv) manipulative 

transactions; (v) dissemination of false 

information; (vi) prohibition against 

trading ahead of customer orders; (vii) 

joint activity; (viii) influencing data 

feeds; (ix) trade shredding; (x) best 

execution; (xi) publication of 

transactions and changes; (xii) trading 

ahead of research reports; (xiii) front 

running of block transactions; and (xiv) 

a prohibition against disruptive quoting 

and trading activity. The purpose of the 

trading practice rules is to set forth 

standards and rules relating to the 

trading conduct of BSTX Participants, 

primarily with respect to prohibiting 

forms of market manipulation and 

specifying certain obligations brokerdealers have to their customers, such as 

the duty of best execution. For example, 

proposed Rule 23000 (Market 

Manipulation) sets forth a general 

prohibition against a BSTX Participant 

purchasing a security at successively 

higher prices or sales of a security at 

successively lower prices, or to 

otherwise engage in activity for the 

purpose of creating or inducing a false, 

misleading or artificial appearance of 

activity in such security.164 Proposed 

Rule 23010 (Fictitious Transactions) 

similarly prohibits BSTX Participants 

from fictitious transaction activity, such 

as executing a transaction which 

involves no beneficial change in 

ownership, and proposed Rule 23020 

(Excessive Sales by a BSTX Participant) 

prohibits a BSTX Participant from 

executing purchases or sales in any 

security trading on the Exchange for any 

account in which it has an interest, 

which are excessive in view of the 

BSTX Participant’s financial resources 

or in view of the market for such 

security.165 Proposed Rule 23060 (Joint 

Activity) prohibits a BSTX Participant 

from directly or indirectly holding any 

interest or participation in any joint 

account for buying or selling a security 

traded on the Exchange unless reported 

to the Exchange with certain 

information provided and proposed 

Rule 23090 (Best Execution) reaffirms 

BSTX Participants best execution 

obligations to their customers.166

Proposed Rule 23050 (Prohibition 

against Trading Ahead of Customer 

Orders) is substantially similar to 

FINRA 5320 and rules adopted by other 

exchanges,167 and generally prohibits 

BSTX Participants from trading ahead of 

customer orders unless certain 

enumerated exceptions are available 

and requires BSTX Participants to have 

a written methodology in place 

governing execution priority to ensure 

compliance with the Rule. The 

Exchange proposes to adopt each of the 

exceptions to the prohibition against 

trading ahead of customer orders as 

provided in FINRA Rule 5320 other 

than the exception related to trading 

outside of normal market hours, since 

trading on the Exchange would be 

limited to regular trading hours. 

The Exchange proposes to adopt the 

order handling procedures requirement 

in proposed Rule 23050(i) consistent 

with the rules of other exchanges.168

Specifically, proposed Rule 23050(i) 

would provide that a BSTX Participant 

must make every effort to execute a 

marketable customer order that it 

receives fully and promptly and must 

cross customer orders when they are 

marketable against each other consistent 

with the proposed Rule. 

The Exchange proposes to adopt a 

modified version of the exception set 

forth in FINRA Rule 5320.06 relating to 

minimum price improvement standards 

as proposed in Rule 23050(h). Under 

proposed Rule 23050(h), BSTX 

Participants would be permitted to 

execute an order on a proprietary basis 

when holding an unexecuted limit order 

in that same security without being 

required to execute the held limit order 

provided that they give price 

improvement of $0.01 to the unexecuted 

held limit order. While FINRA Rule 

5320.06 sets forth alternate, lower price 

improvement standards for securities 

priced below $1, the Exchange proposes 

to adopt a uniform price improvement 

requirement of $0.01 for Securities 

traded on the BSTX System consistent 

with the Exchange’s proposed uniform 

minimum price variant of $0.01 set forth 

in proposed Rule 25030. 

In addition, the Exchange proposes to 

adopt an exception for bona fide error 

transactions as proposed in Rule 

25030(g) which would allow a BSTX 

Participant to trade ahead of a customer 

order if the trade is to correct a bona 

fide error, as defined in the rule. This 

proposed exception is nearly identical 

to similar exceptions of other 

exchanges 169 except that other 

exchange rules also provide an 

exception whereby firms may submit a 

proprietary order ahead of a customer 

order to offset a customer order that is 


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170 15 U.S.C. 78f(b)(5). 

171The proposed additions to the Exchange’s 

minor rule violation plan pursuant to proposed 

Rule 24010 are discussed below in Part IV. 

172 15 U.S.C. 78f(b)(5). 

173 15 U.S.C. 78f(b)(5). 

174 15 U.S.C. 78f(b)(5). 

175See e.g., IEX Rule 11.180. 

in an amount other than a round lot (i.e., 

100 shares). The Exchange is not 

adopting an exception for odd-lot orders 

under these circumstances because the 

minimum unit of trading for Securities 

pursuant to proposed Rule 25020 is one 

Security. The Exchange believes that 

there may be a notable amount of 

trading in amounts of less than 100 

Securities (i.e., trading in odd-lot 

amounts), and the Exchange accordingly 

does not believe that it is appropriate to 

allow BSTX Participants to trade ahead 

of customer orders just to offset an oddlot customer order. 

The Exchange believes that the 

proposed Rule 23000 Series relating to 

trading practice rules is consistent with 

Section 6(b)(5) of the Exchange Act 170

because these proposed rules are 

designed to prevent fraudulent and 

manipulative acts and practices that 

could harm investors and to promote 

just and equitable principles of trade. 

The proposed rules in the Rule 23000 

Series are substantially similar to the 

rules of other exchanges and generally 

include a variety of prohibitions against 

types of trading activity or other 

conduct that could potentially be 

manipulative, such as prohibitions 

against market manipulation, fictitious 

transactions, and the dissemination of 

false information. The Exchange has 

proposed to exclude certain provisions 

from, or make certain modifications to, 

comparable rules of other SROs, as 

detailed above, in order to account for 

certain unique aspects related to the 

proposed trading of Securities. The 

Exchange believes that it is consistent 

with applicable requirements under the 

Exchange Act to exclude these 

provisions and exceptions because they 

set forth requirements that would not 

apply to BSTX Participants trading in 

Securities and are not necessary for the 

Exchange to carry out its functions of 

facilitating Security transactions and 

regulating BSTX Participants. 

Disciplinary Rules (Rule 24000 Series) 

With respect to disciplinary matters, 

the Exchange proposes to adopt Rule 

24000 (Discipline and Summary 

Suspension), which provides that the 

provisions of the Exchange Rule 11000 

Series (Summary Suspension), 12000 

Series (Discipline), 13000 Series 

(Review of Certain Exchange Actions), 

and 14000 Series (Arbitration) of the 

Exchange Rules shall be applicable to 

BSTX Participants and trading on the 

BSTX System. The Exchange already 

has Rules pertaining to discipline and 

suspension of Exchange Participants 

that it proposes to extend to BSTX 

Participants and trading on the BSTX 

System. The Exchange also proposes to 

adopt as Rule 24010 a minor rule 

violation plan with respect to 

transactions on BSTX.171

Proposed Rule 24000 incorporates by 

reference existing rules that have 

already been approved by the 

Commission. 

Trading Rules and the BSTX System 

(Rule 25000 Series) 

Rule 25000—Access to and Conduct on 

the BSTX Marketplace 

The Exchange proposes to adopt Rule 

25000 (Access to and Conduct on the 

BSTX Marketplace) to set forth rules 

relating to access to the BSTX System 

and certain conduct requirements 

applicable to BSTX Participants. 

Specifically, proposed Rule 25000 

provides that only BSTX Participants, 

including their associated persons, that 

are approved for trading on the BSTX 

System shall effect any transaction on 

the BSTX System. Proposed Rule 

25000(b) generally requires that a BSTX 

Participant maintain a list of authorized 

traders that may obtain access to the 

BSTX System on behalf of the BSTX 

Participant, have procedures in place 

reasonably designed to ensure that all 

authorized traders comply with 

Exchange Rules and to prevent 

unauthorized access to the BSTX 

System, and to provide the list of 

authorized traders to the Exchange upon 

request. Proposed Rule 25000(c) and (d) 

restate provisions that are already set 

forth in Exchange Rule 7000, generally 

providing that BSTX Participants shall 

not engage in conduct that is 

inconsistent with the maintenance of a 

fair and orderly market or the ordinary 

and efficient conduct of business, as 

well as conduct that is likely to impair 

public confidence in the operations of 

the Exchange. Examples of such 

prohibited conduct include failure to 

abide by a determination of the 

Exchange, refusal to provide 

information requested by the Exchange, 

and failure to adequately supervise 

employees. Proposed Rule 25000(f) 

provides the Exchange with authority to 

suspend or terminate access to the 

BSTX System under certain 

circumstances. 

The Exchange believes that proposed 

Rule 25000 is consistent with Section 

6(b)(5) of the Exchange Act 172 because 

it is designed to protect investors and 

the public interest and promote just and 

equitable principles of trade by ensuring 

that BSTX Participants would not allow 

for unauthorized access to the BSTX 

System and would not engage in 

conduct detrimental to the maintenance 

of fair and orderly markets. 

Rule 25010—Days/Hours 

Proposed Rule 25010 sets forth the 

days and hours during which BSTX 

would be open for business and during 

which transactions may be effected on 

the BSTX System. Under the proposed 

rule, transactions may be executed on 

the BSTX System between 9:30 a.m. and 

4:00 p.m. Eastern Time. The proposed 

rule also specifies certain holidays 

BSTX would not be open (e.g., New 

Year’s Day) and provides that the Chief 

Executive Officer, President, or Chief 

Regulatory Officer of the Exchange, or 

such person’s designee who is a senior 

officer of the Exchange, shall have the 

power to halt or suspend trading in any 

Securities, close some or all of BSTX’s 

facilities, and determine the duration of 

any such halt, suspension, or closing, 

when such person deems the action 

necessary for the maintenance of fair 

and orderly markets, the protection of 

investors, or otherwise in the public 

interest. 

The Exchange believes that proposed 

Rule 25010 is designed to protect 

investors and the public interest, 

consistent with Section 6(b)(5) of the 

Exchange Act,173 by setting forth the 

days and hours that trades may be 

effected on the BSTX System and by 

providing officers of the Exchange with 

the authority to halt or suspend trading 

when such officers believe that such 

action is necessary or appropriate to 

maintain fair and orderly markets or to 

protect investors or in the public 

interest. 

Rule 25020—Units of Trading 

Proposed Rule 25020 sets forth the 

minimum unit of trading on the BSTX 

System, which shall be one Security. 

The Exchange believes that proposed 

Rule 25020 is consistent with Section 

6(b)(5) of the Exchange Act 174 because 

it fosters cooperation and coordination 

of persons engaged in facilitating 

transactions in securities by specifying 

the minimum unit of trading of 

Securities on the BSTX System. In 

addition, other exchanges similarly 

provide that the minimum unit of 

trading is one share for their market 

and/or for certain securities.175


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176 17 CFR 242.611. 

177As a result, orders marked IOC submitted 

during the Pre-Opening Phase would be rejected by 

the BSTX System. See proposed Rule 25040(a)(7). 

178The TOP can only be calculated where the 

BSTX Book is crossed during the Pre-Opening 

Phase. See proposed Rule 25040(a)(2). 

179Pursuant to proposed Rule 25040(a)(3), any 

orders which are at a better price (i.e., bid higher 

or offer lower) than the TOP would be shown only 

as a total quantity on the BSTX Book at a price 

equal to the TOP. 180See proposed Rule 25040(a)(4)(ii). 181With respect to an initial public offering of a 

Security where there is no previous day’s closing 

price, the opening price would be the price 

assigned to the Security by the underwriter for the 

offering, referred to as the ‘‘Initial Security Offering 

Reference Price.’’ See Proposed Rule 

25040(a)(5)(ii)(3). 

182See proposed Rule 25040(a)(5). The Exchange 

notes that the auction collars proposed in Rule 

25040(a)(5) are substantially similar to those of 

Cboe BZX. See Cboe BZX Rule 11.23. 

183See proposed Rule 25040(a)(7). 

184 Id. 

185See proposed Rule 25040(b)(1). 

186Such cases are when: (i) There is no TOP; (ii) 

the underwriter requests an extension; (iii) the TOP 

moves the greater of 10% or fifty (50) cents in the 

fifteen (15) seconds prior to the initial cross; or (iv) 

in the event of a technical or systems issue at the 

Exchange that may impair the ability of BSTX 

Participants to participate in the Initial Security 

Offering or of the Exchange to complete the Initial 

Security Offering. See proposed Rule 25040(b)(2). 

187See proposed Rule 25040(b)(3). 

188See proposed Rule 25040(b)(4). The Exchange 

also proposes that if a trading pause is triggered by 

the Exchange or if the Exchange is unable to reopen 

trading at the end of the trading pause due to a 

systems or technology issue, the Exchange will 

immediately notify the single plan processor 

responsible for consolidation of information for the 

security pursuant to Rule 603 of Regulation NMS 

under the Securities Exchange Act of 1934. Id. 

189See proposed Rule 25040(b)(5). 

190As with the regular opening process, orders 

marked IOC submitted during the Pre-Opening 

Phase of an Initial Security Offering Auction would 

be rejected. See proposed Rule 25040(b)(6). 

Rule 25030—Minimum Price Variant 

Proposed Rule 25030 provides the 

minimum price variant for Securities 

shall be $0.01. The Exchange believes 

that proposed Rule 25030 is consistent 

with Section 6(b)(5) of the Exchange Act 

because it fosters cooperation and 

coordination of persons engaged in 

facilitating transactions in securities by 

specifying the minimum price variant 

for Securities and promotes compliance 

with Rule 612 of Regulation NMS.176

Under Rule 612 of Regulation NMS, the 

Exchange is, among other things, 

prohibited from displaying, ranking or 

accepting from any person a bid or offer 

or order in an NMS stock in an 

increment smaller than $0.01 if that bid 

or offer or order is priced equal to or 

greater than $1.00 per share. Where a 

bid or offer or order is priced less than 

or equal to $1.00 per share, the 

minimum acceptable increment is 

$0.0001. Proposed Rule 25030 sets a 

uniform minimum price variant for all 

Securities of $0.01 irrespective of 

whether the Security is trading below 

$1.00. 

Rule 25040—Opening the Marketplace 

Proposed Rule 25040 sets forth the 

opening process for the BSTX System 

for BSTX-listed Securities and nonBSTX-listed securities. For BSTX-listed 

Securities, the Exchange proposes to 

allow for order entry to commence at 

8:30 a.m. ET during the Pre-Opening 

Phase. Proposed Rule 25040(a) provides 

that orders will not execute during the 

Pre-Opening Phase, which lasts until 

regular trading hours begin at 9:30 a.m. 

ET.177 Similar to how the Exchange’s 

opening process works for options 

trading, BSTX would disseminate a 

theoretical opening price (‘‘TOP’’) to 

BSTX Participants, which is the price at 

which the opening match would occur 

at a given moment in time.178 Under the 

proposed rule, the Exchange will also 

broadcast other information during the 

Pre-Opening Phase. Specifically, in 

addition to the TOP, the Exchange 

would disseminate pursuant to 

proposed Rule 25040(a)(3): (i) ‘‘Paired 

Securities,’’ which is the quantity of 

Securities that would execute at the 

TOP; (ii) the ‘‘Imbalance Quantity,’’ 

which is the number of Securities that 

may not be matched with other orders 

at the TOP at the time of dissemination; 

and (iii) the ‘‘Imbalance Side,’’ which is 

the buy/sell direction of any imbalance 

at the time of dissemination 

(collectively, with the TOP, ‘‘Broadcast 

Information’’).179 Broadcast Information 

would be recalculated and disseminated 

every time a new order is received or 

cancelled and where such event causes 

the TOP or Paired Securities to change. 

With respect to priority during the 

opening match for all Securities, 

consistent with proposed Rule 25080 

(Execution and Price/Time Priority), 

among multiple orders at the same 

price, execution priority during the 

opening match is determined based on 

the time the order was received by the 

BSTX System. 

Consistent with the manner in which 

the Exchange opens options trading, the 

BSTX System would determine a single 

price at which a BSTX-listed Security 

would be opened by calculating the 

optimum number of Securities that 

could be matched at a price, taking into 

consideration all the orders on the 

BSTX Book.180 Proposed Rule 

25040(a)(6) provides that the opening 

match price is the price which results in 

the matching of the highest number of 

Securities. If two or more prices would 

satisfy this maximum quantity criteria, 

the price leaving the fewest resting 

Securities in the BSTX Book will be 

selected at the opening price and where 

two or more prices would satisfy the 

maximum quantity criteria and leave 

the fewest Securities in the BSTX Book, 

the price closest to the previous day’s 

closing price will be selected.181 The 

opening price must also be within the 

‘‘Collar Price Range’’ as set forth in 

proposed Rule 25040(a)(5), which is 

designed to ensure that a Security opens 

in an fair and orderly manner and under 

market conditions where there is 

sufficient quotation interest (e.g., a 

national best bid and offer), the market 

is not crossed, and where the opening 

price will not drastically depart from 

the market at the time of the auction or 

the preceding day’s closing price.182

Unexecuted trading interest during the 

opening match will move to the BSTX 

Book and will preserve price time 

priority.183 When the BSTX System 

cannot determine an opening price of a 

BSTX-listed Security at the start of 

regular trading hours, BSTX would 

nevertheless open the Security for 

trading and move all trading interest 

received during the Pre-Opening Phase 

to the BSTX Book.184

For initial public offerings of 

Securities (‘‘Initial Security Offerings’’), 

the process would be generally the same 

as regular market openings. However, in 

advance of an Initial Security Offering 

auction (‘‘Initial Security Offering 

Auction’’), the Exchange shall announce 

a ‘‘Quote-Only Period’’ that shall be 

between fifteen (15) and thirty (30) 

minutes plus a short random period 

prior to the Initial Security Offering 

Auction.185 The Quote-Only Period may 

be extended in certain cases.186 As with 

regular market openings the Exchange 

would disseminate Broadcast 

Information at the commencement of 

the Quote Only Period, and Broadcast 

Information would be re-calculated and 

disseminated every time a new order is 

received or cancelled and where such 

event causes the TOP price or Paired 

Securities to change.187 In the event of 

any extension to the Quote-Only Period 

or a trading pause, the Exchange will 

notify market participants regarding the 

circumstances and length of the 

extension.188 Orders will be matched 

and executed at the conclusion of the 

Quote-Only Period, rather than at 9:30 

a.m. Eastern Time.189 Following the 

initial cross at the end of the QuoteOnly Period wherein orders will execute 

based on price/time priority consistent 

with proposed Rule 25080, the 

Exchange will transition to normal 

trading pursuant to proposed Rule 

25040(a)(6).190


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191See proposed Rule 25040(c)(1). Orders marked 

IOC submitted during the Quote-Only Period would 

be rejected. In addition, Halt Auctions would be 

subject to the proposed Halt Auction Collar, as set 

forth in proposed Rule 25040(c)(2)(i) and (ii). These 

proposed collars for Halt Auctions are substantially 

similar to those provided by Cboe BZX, and are 

designed to make sure that the Exchange is able to 

reopen trading in a Security in a fair and orderly 

manner. See Cboe BZX Rule 11.23(d). To the extent 

an Halt Auction would occur at an ‘‘Impermissible 

Price’’ (i.e., a price outside of the proposed Halt 

Auction collars), the Exchange would extend the 

period of Halt Auction and gradually expand the 

scope of the collar price range over time until it is 

able to re-open trading in the Security in a manner 

consistent with proposed Rule 25040(c)(2). 

192See proposed Rule 25040(c)(2). The QuoteOnly Period shall be extended for an additional five 

(5) minutes should a Halt Auction be unable to be 

performed due to the absence of a TOP (‘‘Initial 

Extension Period’’). After the Initial Extension 

Period, the Exchange proposes that the Quote-Only 

Period shall be extended for additional five (5) 

minute periods should a Halt Auction be unable to 

be performed due to absence of a TOP (‘‘Additional 

Extension Period’’) until a Halt Auction occurs. 

Under the proposed Rule, the Exchange shall 

attempt to conduct a Halt Auction during the course 

of each Additional Extension Period. Id. 

193See proposed Rule 25040(c)(3)–(5). 

194 Id. 

195See proposed Rule 25040(d)(1). 

196See proposed Rule 25040(d)(2). The Exchange 

notes that these contingency procedures are 

substantially similar to those of another exchange 

(see e.g., IEX Rule 11.350(c)(4)) and are designed to 

ensure that the Exchange has appropriate 

mechanisms in place to address possible 

disruptions that may arise in an Initial Security 

Offering Auction or Halt Auction, consistent with 

the protection of investors and the public interest 

pursuant to Section 6(b)(5) of the Exchange Act. 15 

U.S.C. 78f(b)(5). 

197See proposed Rule 25040(e)(2). 

198See proposed Rule 25040(e)(5). 

199See e.g., Cboe BZX Rule 11.24. 

200 15 U.S.C. 78f(b)(5). 

201The Exchange has not proposed to operate a 

closing auction at this time. As a result, the closing 

price of a Security on BSTX would be the last 

regular way transaction occurring on BSTX, which 

the Exchange believes is a simple and fair way to 

establish the closing price of a Security that does 

not permit unfair discrimination among customers, 

issuers, or broker-dealers consistent with Section 

6(b)(5) of the Exchange Act. Id. This proposed 

process is consistent with the overall proposed 

simplified market structure for BSTX, which does 

not include a variety of order types offered by other 

exchanges such as market-on-close and limit-onclose orders. The Exchange believes that a 

simplified market structure, including the proposed 

manner in which a closing price would be 

determined, promotes the public interest and the 

protection of investors consistent with Section 

6(b)(5) of the Exchange Act through reduced 

complexity. Id. 

202See e.g., BOX Rule 7070. 

203The Exchange notes that its proposed opening, 

Initial Security Offering Auction, and Halt Auction 

processes are substantially similar to those of 

another exchange. See Cboe BZX Rule 11.23. The 

key differences between the Exchange’s proposed 

processes and those of the Cboe BZX exchange are 

that the Exchange has substantially fewer order 

types, which make its opening process less 

complex. 

204The Exchange notes that rules on opening 

trading for non-BSTX-listed security are set forth in 

proposed Rule 25040(e). 

The Exchange also proposes a process 

for reopening trading following a Limit 

Up-Limit Down Halt or trading pause 

(‘‘Halt Auctions’’). For Halt Auctions, 

the Exchange proposes that in advance 

of reopening, the Exchange shall 

announce a Quote-Only Period that 

shall be five (5) minutes prior to the 

Halt Auction.191 This Quote-Only 

Period may be extended in certain 

circumstances.192 The Exchange 

proposes to disseminate the same 

Broadcast Information as it does for an 

Initial Security Offering Auction and 

would similarly provide notification of 

any extension to the quote-only period 

as with an Initial Security Offering 

Auction.193 The transition to normal 

trading would also occur in the same 

manner as Initial Security Offering 

Auctions, as described above.194

The Exchange also proposes to adopt 

certain contingency procedures in 

proposed Rule 25040(d) that would 

provide that when a disruption occurs 

that prevents the execution of an Initial 

Security Offering Auction the Exchange 

will publicly announce the Quote-Only 

Period for the Initial Security Offering 

Auction, and the Exchange will then 

cancel all orders on the BSTX Book and 

disseminate a new scheduled time for 

the Quote-Only Period and opening 

match.195 Similarly, when a disruption 

occurs that prevents the execution of a 

Halt Auction, the Exchange will 

publicly announce that no Halt Auction 

will occur, and all orders in the halted 

Security on the BSTX Book will be 

canceled after which the Exchange will 

open the Security for trading without an 

auction.196

The opening process with respect to 

non-BSTX-listed securities is set forth in 

proposed Rule 25040(e). Pursuant to 

that Rule, BSTX Participants who wish 

to participate in the opening process 

may submit orders and quotes for 

inclusion in the BSTX Book, but such 

orders and quotes cannot execute until 

the termination of the Pre-Opening 

Phase (‘‘Opening Process’’). Orders that 

are canceled before the Opening Process 

will not participate in the Opening 

Process. The Exchange will attempt to 

perform the Opening Process and will 

match buy and sell orders that are 

executable at the midpoint of the 

NBBO.197 Generally, the price of the 

Opening Process will be at the midpoint 

of the first NBBO subsequent to the first 

two-sided quotation published by the 

listing exchange after 9:30:00 a.m. 

Eastern Time. Pursuant to proposed 

Rule 25040(e)(4), if the conditions to 

establish the price of the Opening 

Process set forth above do not occur by 

9:45:00 a.m. Eastern Time, orders will 

be handled in time sequence, beginning 

with the order with the oldest time 

stamp, and will be placed on the BSTX 

Book cancelled, or executed in 

accordance with the terms of the order. 

A similar process will occur for reopening a non-BSTX-listed security 

subject to a halt.198 The proposed 

opening process for Securities listed on 

another exchange serves as a 

placeholder in anticipation of other 

exchanges eventually listing and trading 

Securities, or the equivalent thereof, 

given that there are no other exchanges 

currently trading Securities. The 

proposed process for opening Securities 

listed on another exchange is similar to 

existing exchange rules governing the 

opening of trading of a security listed on 

another exchange.199

Consistent with Section 6(b)(5) of the 

Exchange Act,200 the Exchange believes 

that the proposed process for opening 

trading in BSTX-listed Securities and 

Securities listed on other exchanges will 

promote just and equitable principles of 

trade and will help perfect the 

mechanism of a free and open market by 

establishing a uniform process to 

determine the opening price of 

Securities.201 Proposed Rule 25040 

provides a mechanism by which BSTX 

Participants may submit orders in 

advance of the start of regular trading 

hours, perform an opening cross, and 

commence regular hours trading in 

Securities listed on BSTX or otherwise. 

Where an opening cross is not possible 

in a BSTX-listed Security, the Exchange 

will proceed by opening regular hours 

trading in the Security anyway, which 

is consistent with the manner in which 

other exchanges open trading in 

securities.202 With respect to initial 

public offerings of Securities and 

openings after a Limit Up-Limit Down 

halt or trading pause, BSTX proposes to 

use a process with features similar to its 

normal opening process. There are a 

variety of different ways in which an 

exchange can open trading in securities, 

including with respect to an initial 

public offering of a Security, and the 

Exchange believes that proposed Rule 

25040 provides a simple and clear 

method for opening transactions that is 

consistent with the protection of 

investors and the public interest.203

Additionally, proposed Rule 25040 

applies to all BSTX Participants in the 

same manner and is therefore not 

designed to permit unfair 

discrimination among BSTX 

Participants. 

Rule 25050—Trading Halts 

BSTX proposes to adopt rules relating 

to trading halts 204 that are substantially 


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205See e.g., Cboe BZX 11.18(e)(5)(B). 

206 IOC orders would be handled pursuant to 

proposed Rule 25050(g)(5). 

207Trading would resume pursuant to proposed 

Rule 25040(e)(5). See proposed Rule 25050(g)(7). 

208 15 U.S.C. 78f(b)(5). 

209 Id. 

210The BSTX System will also accept incoming 

Intermarket Sweep Orders (‘‘ISO’’) pursuant to 

proposed Rule 25060(c)(2). ISOs must be limit 

orders, are ineligible for routing, may be submitted 

with a limit price during Regular Trading Hours, 

and must have a time-in-force of IOC. Proposed 

Rule 25060(c)(2) is substantially similar to rules of 

other national securities exchanges. See e.g., Cboe 

BZX Rule 11.9(d). 

211Proposed Rule 25060(c)(1). 

212Proposed Rule 25060(d)(1). 213 15 U.S.C. 78f(b)(5). 

similar to other exchange rules adopted 

in connection with the NMS Plan to 

Address Extraordinary Market Volatility 

(‘‘LULD Plan’’), with certain exceptions 

that reflect Exchange functionality. 

BSTX intends to join the LULD Plan 

prior to the commencement of trading 

Securities. Below is an explanation of 

BSTX’s approach to certain categories of 

orders during a trading halt: 

• Short Sales—BSTX cancels all 

orders on the book during a halt and 

rejects any new orders, so rules relating 

to the repricing of short sale orders 

during a trading halt that certain other 

exchanges have adopted have been 

omitted. 

• Pegged Orders—BSTX would not 

support pegged orders, at least initially, 

so rules relating to pegged orders during 

a trading halt have been omitted. 

• Routable Orders—Pursuant to 

proposed Rule 25130, the BSTX System 

will reject any order or quotation that 

would lock or cross a protected 

quotation of another exchange (rather 

than routing such order or quotation), 

and therefore rules relating to handling 

of routable orders during a trading halt 

have been omitted. 

• Limit Orders—Because BSTX 

would cancel resting order interest and 

reject incoming orders during a trading 

halt, specific rules relating to the 

repricing of limit-priced interest that 

certain other exchanges have adopted 

have been omitted.205

• Auction Orders, Market Orders, and 

FOK Orders—BSTX would not support 

these order types, at least initially, so 

rules relating to these order types during 

a trading halt have been omitted.206

Pursuant to proposed Rule 25050(d), 

the Exchange would cancel all resting 

orders in a non-BSTX listed security 

subject to a trading halt, reject any 

incoming orders in that Security, and 

will only resume accepting orders 

following a broadcast message to BSTX 

Participants indicating a forthcoming reopening of trading.207

BSTX believes that it is in the public 

interest and furthers the protection of 

investors, consistent with Section 

6(b)(5) of the Exchange Act 208 to 

provide for a mechanism to halt trading 

in Securities during periods of 

extraordinary market volatility 

consistent with the LULD Plan. 

However, the Exchange has excluded 

rules relating to order types and other 

aspects of the LULD Plan that would not 

be supported by the Exchange, such as 

market orders and auction orders. The 

Exchange has also reserved the right in 

proposed Rule 25050(f) to halt or 

suspend trading in other circumstances 

where the Exchange deems it necessary 

to do so for the protection of investors 

and in the furtherance of the public 

interest. 

The Exchange believes that canceling 

resting order interest during a trading 

halt and rejecting incoming orders 

received during the trading halt is 

consistent with Section 6(b)(5) of the 

Exchange Act 209 because it is not 

designed to permit unfair 

discrimination among BSTX 

Participants. The orders and trading 

interest of all BSTX Participants would 

be canceled in the event of a trading halt 

and each BSTX Participant would be 

required to resubmit any orders they 

had resting on the order book. 

Rule 25060—Order Entry 

Proposed Rule 25060 sets forth the 

manner in which BSTX Participants 

may enter orders to the BSTX System. 

The BSTX System would initially only 

support limit orders.210 Orders that do 

not designate a limit price would be 

rejected.211 The BSTX System would 

also only support two time-in-force 

(‘‘TIF’’) designations initially: (i) DAY; 

and (ii) immediate or cancel (‘‘IOC’’). 

DAY orders will queue during the PreOpening Phase, may trade during 

regular market hours, and, if unexecuted 

at the close of the trading day (4:00 p.m. 

ET), are canceled by the BSTX 

System.212 All orders are given a default 

TIF of DAY. BSTX Participants may also 

designate orders as IOC, which 

designation overrides the default TIF of 

DAY. IOC orders are not accepted by the 

BSTX System during the Pre-Opening 

Phase. During regular trading hours, IOC 

orders will execute in whole or in part 

immediately upon receipt by the BSTX 

System. The BSTX System will not 

support modification of resting orders. 

To change the price or quantity of an 

order resting on the BSTX Book, a BSTX 

Participant must cancel the resting order 

and submit a new order, which will 

result in a new time stamp for purposes 

of BSTX Book priority. In addition, all 

orders on BSTX will be displayed, and 

the BSTX System will not support 

hidden orders or undisplayed liquidity, 

as set forth in proposed Rule 25100. The 

Exchange has also proposed an 

additional order parameter for BSTX 

Participants to indicate a preference for 

T+0 or T+1 settlement, as previously 

described in Item 3, Part II.I. 

Consistent with Section 6(b)(5) of the 

Exchange Act,213 the Exchange believes 

that the proposed order entry rules will 

promote just and equitable principles of 

trade and help perfect the mechanism of 

a free and open market by establishing 

the types of orders and modifiers that all 

BSTX Participants may use in entering 

orders to the BSTX System. Because 

these order types and TIFs are available 

to all BSTX Participants, the proposed 

rule does not unfairly discriminate 

among market participants, consistent 

with Section 6(b)(5) of the Exchange 

Act. The proposed rule sets forth a very 

simple exchange model whereby there 

is only one order type—limit orders— 

and two TIFs. Upon the initial launch 

of BSTX, there will be no hidden orders, 

price sliding, pegged orders, or other 

order type features that add complexity. 

The Exchange believes that creating a 

simplified exchange model is designed 

to protect investors and is in the public 

interest because it reduces complexity, 

thereby helping market participants 

better understand how orders would 

operate on the BSTX System. 

Rule 25070—Audit Trail 

Proposed Rule 25070 (Audit Trail) is 

designed to ensure that BSTX 

Participants provide the Exchange with 

information to be able to identify the 

source of a particular order and other 

information necessary to carry out the 

Exchange’s oversight functions. The 

proposed rule is substantially similar to 

existing BOX Rule 7120 but eliminates 

certain information unique to orders for 

options contracts (e.g., exercise price) 

because Securities are equity securities. 

The proposed rule also provides that 

BSTX Participants that employ an 

electronic order routing or order 

management system that complies with 

Exchange requirements will be deemed 

to comply with the Rule if the required 

information is recorded in an electronic 

format. The proposed rule also specifies 

that order information must be kept for 

no less than three years and that where 

specific customer or account number 

information is not provided to the 

Exchange, BSTX Participants must 

maintain such information on their 

books and records. 

The Exchange believes that proposed 

Rule 25070 is designed to protect 


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214 15 U.S.C. 78f(b)(5). 

215See e.g., Cboe BZX Rule 11.13(a)(2)–(3) 

governing regular trading hours. 

216 15 U.S.C. 78f(b)(5). 217 15 U.S.C. 78f(b)(5). 

218 17 CFR 242.600(b)(4) and (5). The general 

purpose of an exchange being deemed an 

‘‘automated trading center’’ displaying ‘‘automated 

quotations’’ relates to whether or not an exchange’s 

quotations may be considered protected under 

Regulation NMS. See Exchange Act Release No. 

51808, 70 FR 37495, 37520 (June 29, 2005). Other 

trading centers may not effect transactions that 

would trade through a protected quotation of 

another trading center. The Exchange believes that 

it is useful to specify that it will operate as an 

automated trading center at this time to make clear 

to market participants that it is not operating a 

manual market with respect to Securities. 

219 17 CFR 242.602. 

investors and the public interest, 

consistent with Section 6(b)(5) of the 

Exchange Act,214 because it will provide 

the Exchange with information 

necessary to carry out its oversight role. 

Without being able to identify the 

source and terms of a particular order, 

the Exchange’s ability to adequately 

surveil its market, with or through 

another SRO, for trading inconsistent 

with applicable regulatory requirements 

would be impeded. In order to promote 

compliance with Rule 201 of Regulation 

SHO, proposed Rule 25080(b)(3) 

provides that when a short sale price 

test restriction is in effect, the execution 

price of the short sale order must be 

higher than (i.e., above) the best bid, 

unless the sell order is marked ‘‘short 

exempt’’ pursuant to Regulation SHO. 

Rule 25080—Execution and Price Time 

Priority 

Proposed Rule 25080 governs the 

execution of orders on the BSTX 

System, providing a price-time priority 

model. The proposed rule provides that 

orders of BSTX Participants shall be 

ranked and maintained in the BSTX 

Book according to price-time priority, 

such that within each price level, all 

orders shall be organized by the time of 

entry. The proposed rule further 

provides that sell orders may not 

execute a price below the best bid in the 

marketplace and buy orders cannot 

execute at a price above the best offer in 

the marketplace. Further, the proposed 

rule ensures compliance with 

Regulation SHO, Regulation NMS, and 

the LULD Plan, in a manner consistent 

with the rulebooks of other national 

securities exchanges.215

The Exchange believes that proposed 

Rule 25080 is consistent with Section 

6(b)(5) of the Exchange Act 216 because 

it is designed to promote just and 

equitable principles of trade and foster 

cooperation and coordination with 

persons facilitating transactions in 

securities by setting forth the order 

execution priority scheme for Security 

transactions. Numerous other exchanges 

similarly operate a price-time priority 

structure for effecting transactions. The 

proposed rule also does not permit 

unfair discrimination among BSTX 

Participants because all BSTX 

Participants are subject to the same 

price-time priority structure. In 

addition, the Exchange believes that 

specifying in proposed Rule 25080(b)(3) 

that execution of short sale orders when 

a short sale price test restriction is in 

effect must occur at a price above the 

best bid unless the order is market 

‘‘short exempt,’’ is consistent with the 

Exchange Act because it is intended 

promote compliance with Regulation 

SHO in furtherance of the protection of 

investors and the public interest. 

Rule 25090—BSTX Risk Controls 

Proposed Rule 25090 sets forth certain 

risk controls applicable to orders 

submitted to the BSTX System. The 

proposed risk controls are designed to 

prevent the submission and execution of 

potentially erroneous orders. Under the 

proposed rule, the BSTX System will 

reject orders that exceed a maximum 

order size, as designated by each BSTX 

Participant. The Exchange, however 

may set default values for this control. 

The proposed rule also provides a 

means by which all of a BSTX 

Participant’s orders will be canceled in 

the event that the BSTX Participant 

loses its connection to the BSTX 

System. Proposed Rule 25090(c) 

provides a risk control that prevents 

incoming limit orders from being 

accepted by the BSTX System if the 

order’s price is more than a designated 

percentage away from the National Best 

Bid or Offer in the marketplace. 

Proposed Rule 25090(d) provides a 

maximum order rate control whereby 

the BSTX System will reject an 

incoming order if the rate of orders 

received by the BSTX System exceeds a 

designated threshold. With respect to 

both of these risk controls (price 

protection for limit orders and 

maximum order rate), BSTX 

Participants may designate the 

appropriate thresholds, but the 

Exchange may also provide default 

values and mandatory minimum levels. 

The Exchange believes the proposed 

risk controls in Rule 25090 are 

consistent with Section 6(b)(5) of the 

Exchange Act 217 because they are 

designed to help prevent the execution 

of potentially erroneous orders, which 

furthers the protection of investors and 

the public interest. Among other things, 

erroneous orders can be disruptive to 

the operation of an exchange 

marketplace, can lead to temporary 

price dislocations, and can hinder price 

formation. The Exchange believes that 

offering configurable risk controls to 

BSTX Participants, along with default 

values where a BSTX Participant has 

not designated its desired controls, will 

protect investors by reducing the 

number of erroneous executions on the 

BSTX System and will remove 

impediments to and perfect the 

mechanism of a free and open market 

system. The proposed risk controls are 

also similar to existing risk controls 

provided by the Exchange to Options 

Participants. 

Rule 25100—Trade Execution, 

Reporting, and Dissemination of 

Quotations 

Proposed Rule 25100 provides that 

the Exchange shall collect and 

disseminate last sale information for 

transactions executed on the BSTX 

system. The proposed rule further 

provides that the aggregate of the bestranked non-marketable Limit Order(s), 

pursuant to Rule 25080, to buy and the 

best-ranked non-marketable Limit 

Order(s) to sell in the BSTX Book shall 

be collected and made available to 

quotation vendors for dissemination. 

Proposed Rule 25100 further provides 

that the BSTX System will operate as an 

‘‘automated market center’’ within the 

meaning of Regulation NMS and will 

display ‘‘automated quotations’’ at all 

times except in the event of a system 

malfunction.218 In addition, the 

proposed Rule specifies that the 

Exchange shall identify all trades 

executed pursuant to an exception or an 

exemption of Regulation NMS. The 

Exchange will disseminate last sale and 

quotation information pursuant to Rule 

602 of Regulation NMS and will 

maintain connectivity to the securities 

information processors for 

dissemination of quotation 

information.219 BSTX Participants may 

obtain access to this information 

through the securities information 

processors. 

Proposed Rule 25100(d) provides that 

executions that occur as a result of 

orders matched against the BSTX Book, 

pursuant to Rule 25080, shall clear and 

settle pursuant to the rules, policies, 

and procedures of a registered clearing 

agency. Rule 25100(e) obliges BSTX 

Participants, or a clearing member/ 

participant clearing on behalf of a BSTX 

Participant to honor trades effected on 

the BSTX System on the scheduled 

settlement date, and the Exchange shall 

not be liable for the failure of BSTX 


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220These proposed provisions are substantially 

similar to those of exchanges. See e.g., Nasdaq Rule 

4627 and IEX Rule 10.250. 

221 15 U.S.C. 78f(b)(5). 

222 Id. 

223A transaction made in clearly erroneous error 

and canceled by both parties or determined by the 

Exchange to be clearly erroneous would be removed 

from the Consolidated Tape. Proposed Rule 

25110(a). 

224Proposed Rule 25110(b). The Official may also 

consider certain ‘‘outlier’’ transactions on a case by 

case basis where the request for review is submitted 

after 30 minutes but no longer than sixty (60) 

minutes after the transaction. Proposed Rule 

2511(d). 

225The Reference Price would be equal to the 

consolidated last sale immediately prior to the 

execution(s) under review except for in 

circumstances, such as, for example, relevant news 

impacting a security or securities, periods of 

extreme market volatility, sustained illiquidity, or 

widespread system issues, where use of a different 

Reference Price is necessary for the maintenance of 

a fair and orderly market and the protection of 

investors and the public interest. Proposed Rule 

25110(c)(1). 

226The proposed Numerical Guidelines are 10% 

where the Reference Price ranges from $0.00 to 

$25.00, 5% where the Reference Price is greater 

than $25.00 up to and including $50.00, and 3% 

where the Reference Price ranges is greater than 

$50. Proposed Rule 25110(c)(1). 

227Proposed Rule 25110(c)(1). 

228See proposed Rule 25110(f)–(j). These 

provisions are virtually identical to similar 

provisions of other exchanges’ clearly erroneous 

rules other than by making certain administrative 

edits (e.g., replacing the term ‘‘security’’ with 

‘‘Security’’). 

229 Determinations by an Official pursuant to 

proposed Rule 25110(f) relating to system 

disruptions or malfunctions may not be appealed if 

the Official made a determination that the 

nullification of transactions was necessary for the 

maintenance of a fair and orderly market or the 

protection of invests and the public interest. 

Proposed Rule 25110(d)(2). 

230 15 U.S.C. 78f(b)(5). 

231 Id. 

232See e.g., Cboe BZX Rule 11.17. Similar to other 

exchanges’ comparable rules, proposed Rule 25110 

provides BSTX with the ability to determine clearly 

erroneous trades that result from a system 

disruption or malfunction, a BSTX Official acting 

on his or her own motion, trading halts, multi-day 

trading events, multi-stock events involving five or 

more (but less than twenty) securities whose 

executions occurred within a period of five minutes 

or less, multi-stock events involving twenty or more 

securities whose executions occurred within a 

period of five minutes or less, securities subject to 

the LULD Plan, and for leveraged ETP Securities. 

233Other exchange clearly erroneous rules 

reference removing trades from the Consolidated 

Tape. Because Security transactions would be 

reported pursuant to a separate transaction 

reporting plan, proposed Rule 25110 eliminates 

references to the ‘‘Consolidated Tape’’ and provides 

that clearly erroneous Security transactions will be 

removed from ‘‘all relevant data feeds 

disseminating last sale information for Security 

transactions.’’ See proposed Rule 25110(a). 

234The Exchange notes that not all equities 

exchanges have a provision with respect to trade 

nullification for UTP securities that are the subject 

of an initial public offering. See IEX Rule 11.270. 

235 15 U.S.C. 78f(b)(5). 

Participants to satisfy these 

obligations.220

The Exchange believes that proposed 

Rule 25100 is consistent with Section 

6(b)(5) of the Exchange Act 221 because 

it will foster cooperation and 

coordination with persons processing 

information with respect to, and 

facilitating transactions in securities by 

requiring the Exchange to collect and 

disseminate quotation and last sale 

transaction information to market 

participants. BSTX Participants will 

need last sale and quotation information 

to effectively trade on the BSTX System, 

and proposed Rule 25100 sets forth the 

requirement for the Exchange to provide 

this information as well as the 

information to be provided. The 

proposed rule is similar to rules of other 

exchanges relating to the dissemination 

of last sale and quotation information. 

The Exchange believes that requiring 

BSTX Participants (or firms clearing 

trades on behalf of other BSTX 

Participants) to honor their trade 

obligations on the settlement date is 

consistent with the Exchange Act 

because it will foster cooperation with 

persons engaged in clearing and settling 

transactions in Securities, consistent 

with Section 6(b)(5) of the Exchange 

Act.222

Rule 25110—Clearly Erroneous 

Proposed Rule 25110 sets forth the 

manner in which BSTX will resolve 

clearly erroneous executions that might 

occur on the BSTX System and is 

substantially similar to comparable 

clearly erroneous rules on other 

exchanges. Under proposed Rule 25100, 

transactions that involve an obvious 

error such as price or quantity, may be 

canceled after review and a 

determination by an officer of BSTX or 

such other employee designee of BSTX 

(‘‘Official’’).223 BSTX Participants that 

believe they submitted an order 

erroneously to the Exchange may 

request a review of the transaction, and 

must do so within thirty (30) minutes of 

execution and provide certain 

information, including the factual basis 

for believing that the trade is clearly 

erroneous, to the Official.224 Under 

proposed Rule 25100(c), an Official may 

determine that a transaction is clearly 

erroneous if the price of the transaction 

to buy (sell) that is the subject of the 

complaint is greater than (less than) the 

‘‘Reference Price’’ 225 by an amount that 

equals or exceeds specified ‘‘Numerical 

Guidelines.’’ 226 The Official may 

consider additional factors in 

determining whether a transaction is 

clearly erroneous, such as whether 

trading in the security had recently 

halted or overall market conditions.227

Similar to other exchanges ‘clearly 

erroneous rules, the Exchange may 

determine that trades are clearly 

erroneous in certain circumstances such 

as during a system disruption or 

malfunction, on a BSTX Officer’s (or 

senior employee designee) own motion, 

during a trading halt, or with respect to 

a series of transactions over multiple 

days.228 Under proposed Rule 

25110(e)(2), BSTX Participants affected 

by a determination by an Official may 

appeal this decision to the Chief 

Regulatory Officer of BSTX, provided 

such appeal is made within thirty (30) 

minutes after the party making the 

appeal is given notice of the initial 

determination being appealed.229 The 

Chief Regulatory Officer’s determination 

shall constitute final action by the 

Exchange on the matter at issue 

pursuant to proposed Rule 

25110(e)(2)(ii). 

The Exchange believes that proposed 

Rule 25110 is consistent with Section 

6(b)(5) of the Exchange Act,230 because 

it would promote just and equitable 

principles of trade, remove 

impediments to, and perfect the 

mechanism of, a free and open market 

and a national market system by setting 

forth the process by which clearly 

erroneous trades on the BSTX System 

may be identified and remedied. 

Proposed Rule 25110 would apply 

equally to all BSTX Participants and is 

therefore not designed to permit unfair 

discrimination among BSTX 

Participants, consistent with Section 

6(b)(5) of the Exchange Act.231 The 

proposed rule is substantially similar to 

the clearly erroneous rules of other 

exchanges.232 For example, proposed 

Rule 25110 does not include provisions 

related to clearly erroneous transactions 

for routed orders because orders for 

Securities will not route to other 

exchanges.233 Securities would also 

only trade during regular trading hours 

(i.e., 9:30 a.m. ET to 4:00 p.m. ET), so 

provisions from comparable exchange 

rules relating to clearly erroneous 

executions occurring outside of regular 

trading hours have been excluded. 

Proposed Rule 25110 also excludes 

provisions from comparable clearly 

erroneous rules of certain other 

exchanges relating to clearly erroneous 

executions in unlisted trading privileges 

securities that are subject to an initial 

public offering.234

The Exchange believes that its 

proposed process for BSTX Participants 

to appeal clearly erroneous execution 

determinations made by an Exchange 

Official pursuant to proposed Rule 

25110 to the Chief Regulatory Officer of 

BSTX is consistent with Section 6(b)(5) 

of the Exchange Act 235 because it 


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236See BOX Rule 7170(n). 

237 15 U.S.C. 78s. 

238See e.g., IEX Rule 11.290. 

239Proposed Rule 25120(b) provides that the 

terms ‘‘covered security,’’ ‘‘listing market,’’ and 

‘‘national best bid’’ shall have the same meaning as 

in Rule 201 of Regulation SHO. 17 CFR 242.201(a). 

240Proposed Rule 25120(d). The proposed rule 

further provides in paragraph (d)(1) that if a covered 

security did not trade on BSTX on the prior trading 

day, BSTX’s determination of the Trigger Price shall 

be based on the last sale price on the BSTX System 

for that Security on the most recent day on which 

the Security traded. 

241 15 U.S.C. 78f(b)(5). 

242 17 CFR 242.200(g). 

243 17 CFR 242.201(b)(1). 

244See IEX Rule 11.310. 

245 15 U.S.C. 78f(b)(5). 

246 15 U.S.C. 78f(b)(5). 

247See e.g. IEX Rule 11.250. 

promotes just and equitable principles 

of trade and fosters cooperation and 

coordination with persons regulating, 

settling, and facilitating transactions in 

securities by providing a clear and 

expedient process to appeal 

determinations made by an Official. 

BSTX Participants benefit from having a 

quick resolution to potentially clearly 

erroneous executions and giving the 

Chief Regulatory Officer discretion to 

decide any appeals of an Official’s 

determination provides an efficient 

means to resolve potential appeals that 

applies equally to all BSTX Participants 

and therefore does not permit unfair 

discrimination among BSTX 

Participants, consistent with Section 

6(b)(5) of the Exchange Act. The 

Exchange notes that, with respect to 

options trading on the Exchange, the 

Exchange’s Chief Regulatory Officer 

similarly has sole authority to overturn 

or modify obvious error determinations 

made by an Exchange Official and that 

such determination constitutes final 

Exchange action on the matter at 

issue.236 In addition, proposed Rule 

25110(e)(2)(iii) provides that any 

determination made by an Official or 

the Chief Regulatory Officer of BSTX 

under proposed Rule 25110 shall be 

rendered without prejudice as to the 

rights of the parties to the transaction to 

submit their dispute to arbitration. 

Accordingly, there is an additional 

safeguard in place for BSTX Participants 

to seek further review of the Exchange’s 

clearly erroneous determination. 

To the extent Securities become 

tradeable on other national securities 

exchanges or other changes arise that 

may necessitate changes to proposed 

Rule 25110 to conform more closely 

with the clearly erroneous execution 

rules of other exchanges, the Exchange 

intends to implement changes as 

necessary through a proposed rule 

change filed with the Commission 

pursuant to Section 19 of the Exchange 

Act 237 at such future date. 

Rule 25120—Short Sales 

Proposed Rule 25120 sets forth certain 

requirements with respect to short sale 

orders submitted to the BSTX System 

that is virtually identical to similar rules 

on other exchanges.238 Specifically, 

proposed Rule 25120 requires BSTX 

Participants to appropriately mark 

orders as long, short, or short exempt 

and provides that the BSTX System will 

not execute or display a short sale order 

not marked short exempt with respect to 

a ‘‘covered security’’ 239 at a price that 

is less than or equal to the current 

national best bid if the price of that 

security decreases by 10% or more, as 

determined by the listing market for the 

covered security, from the covered 

security’s closing price on the listing 

market as of the end of Regular Trading 

Hours on the prior day (the ‘‘Trigger 

Price’’). The proposed rule further 

specifies the duration of the ‘‘Short Sale 

Price Test’’ and that the BSTX System 

shall determine whether a transaction in 

a covered security has occurred at a 

Trigger Price and shall immediately 

notify the responsible single plan 

processor.240

The Exchange believes that proposed 

Rule 25120 is consistent with Section 

6(b)(5) of the Exchange Act,241 because 

it would promote just and equitable 

principles of trade and further the 

protection of investors and the public 

interest by enforcing rules consistent 

with Regulation SHO. Pursuant to 

Regulation SHO, broker-dealers are 

required to appropriately mark orders as 

long, short, or short exempt,242 and 

trading centers are required to establish, 

maintain, and enforce written policies 

and procedures reasonably designed to, 

among other things, prevent the 

execution or display of a short sale 

order of a covered security at a price 

that is less than or equal to the current 

national best bid if the price of that 

covered security decreases by 10% or 

more from its closing price on the 

primary listing market on the prior 

day.243 Proposed Rule 25120 is designed 

to promote compliance with Regulation 

SHO, is nearly identical to similar rules 

of other exchanges, and would apply 

equally to all BSTX Participants. 

Rule 25130—Locking or Crossing 

Quotations in NMS Stocks 

Proposed Rule 25130 sets forth 

provisions related to locking or crossing 

quotations. The proposed rule is 

substantially similar to the rules of other 

national securities exchanges.244

Proposed Rule 25130 is designed to 

promote compliance with Regulation 

NMS and prohibits BSTX participants 

from engaging in a pattern or practice of 

displaying quotations that lock or cross 

a protected quotation unless an 

exception applies. The Exchange 

proposes in Rule 25130(d) that the 

BSTX System will reject any order or 

quotation that would lock or cross a 

protected quotation of another exchange 

at the time of entry. 

The Exchange believes proposed Rule 

25130 is consistent with Section 6(b)(5) 

of the Exchange Act 245 because it is 

designed to promote just and equitable 

principles of trade and foster 

cooperation and coordination with 

persons facilitating transactions in 

securities by ensuring that the Exchange 

prevents display of quotations that lock 

or cross any protected quotation in an 

NMS stock, in compliance with 

applicable provisions of Regulation 

NMS. 

Rule 25140—Clearance and Settlement: 

Anonymity 

Proposed Rule 25140 provides that 

each BSTX Participant must either (1) 

be a member of a registered clearing 

agency that uses a CNS system, or (2) 

clear transactions executed on the 

Exchange through another Participant 

that is a member of such a registered 

clearing agency. The Exchange would 

maintain connectivity and access to the 

UTC of NSCC for transmission of 

executed transactions. The proposed 

Rule requires a Participant that clears 

through another participant to obtain a 

written agreement, in a form acceptable 

to the Exchange, that sets out the terms 

of such arrangement. The proposed Rule 

also provides that BSTX transaction 

reports shall not reveal contra party 

identities and that transactions would 

be settled and cleared anonymously. In 

certain circumstances, such as for 

regulatory purposes, the Exchange may 

reveal the identity of a Participant or its 

clearing firm such as to comply with a 

court order. 

The Exchange believes that proposed 

Rule 25140 is consistent with Section 

6(b)(5) of the Exchange Act 246 because 

it would foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities. 

Proposed Rule 25140 is similar to rules 

of other exchanges relating to clearance 

and settlement.247


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248Proposed Rule 25200 is substantially similar 

to IEX Rule 11.150. 

249See proposed Rule 25210(a)(1). 

250See proposed Rule 25210(a)(1)(ii)(A). 

251See proposed Rule 25210(a)(1)(ii)(B). 

252See NYSE American Rule 7.23E(a)(1)(B)(iii) 

(providing that, other than during certain time 

periods around the market open and close, the 

Designated Percentage for Tier 2 NMS stocks priced 

below $1.00 is 30% and for Tier 2 NMS stocks 

priced above $1.00 is 28%). 

253See proposed Rule 25210(a)(1)(ii)(3). 

254See proposed Rule 25210(b) and (c). Pursuant 

to proposed Rule 25310(d), a BSTX Market Maker, 

other than a DMM, may apply for a temporary 

withdrawal from its Market Maker status provided 

it meets certain conditions such as demonstrating 

legal or regulatory requirements that necessitate its 

temporary withdrawal. 

255See proposed Rule 25210(a)(1). 

256See proposed 25220(b). DMMs would be 

approved by the Exchange pursuant to an 

application process an [sic]. 257See proposed Rule 25220(c). 258See proposed Rule 25220(b). 259See proposed Rule 25210(d). 260See e.g., NYSE American Rule 7.24E(b)(4). 

Rule 25150—Thinly Traded Securities 

and Suspension of Unlisted Trading 

Privileges 

Proposed Rule 25150 would set forth 

the criteria for eligible Securities to be 

considered ‘‘Thinly Traded Securities’’ 

for which UTP may be suspended at the 

election of the issuer. Discussion of this 

Rule is set forth above in Part II.H. 

Market Making on BSTX (Rule 25200 

Series) 

The BSTX Market Making Rules 

(Rules 25200—25240) provide for 

registration and describe the obligations 

of Market Makers on the Exchange. The 

proposed Market Making Rules also 

provide for registration and obligations 

of Designated Market Makers (‘‘DMMs’’) 

in a given Security, allocation of a DMM 

to a particular Security, and parameters 

for business combinations of DMMs. 

Proposed Rule 25200 sets forth the 

basic registration requirement for a 

BSTX Market Maker by noting that a 

Market Maker must enter a registration 

request to BSTX and that such 

registration shall become effective on 

the next trading day after the 

registration is entered, or, in the 

Exchange’s discretion, the registration 

may become effective the day that it is 

entered (and the Exchange will provide 

notice to the Market Maker in such 

cases). The proposed Rule further 

provides that a BSTX Market Maker’s 

registration shall be terminated by the 

Exchange if the Market Maker fails to 

enter quotations within five business 

days after the registration becomes 

effective.248

Proposed Rule 25210 sets forth the 

obligations of Market Makers, including 

DMMs. Under the proposed Rule, a 

BSTX Participant that is a Market 

Maker, including a DMM, is generally 

required to post two-sided quotes 

during the regular market session for 

each Security in which it is registered 

as a Market Maker.249 The Exchange 

proposes that such quotes must be 

entered within a certain percentage, 

called the ‘‘Designated Percentage,’’ of 

the National Best Bid (Offer) price in 

such Security (or last sale price, in the 

event there is no National Best Bid 

(Offer)) on the Exchange.250 The 

Exchange proposes that the Designated 

Percentage would be 30%.251 The 

Exchange notes that the proposed 

Designated Percentage is substantially 

similar to the corresponding Designated 

Percentage for NYSE American market 

makers with respect to Tier 2 NMS 

stocks (as defined under the LULD 

plan).252 The Exchange believes that the 

proposed Designated Percentage for 

quotation obligations of Market Makers 

would be sufficient to ensure that there 

is adequate liquidity sufficiently close 

to the National Best Bid or Offer 

(‘‘NBBO’’) in Securities and to ensure 

fair and orderly markets. The Exchange 

notes that pursuant to proposed Rule 

25210(a)(1)(iii), there is nothing to 

preclude a Market Maker from entering 

trading interest at price levels that are 

closer to the NBBO, so Market Makers 

have the ability to quote must closer to 

the NBBO than required by the 

Designated Percentage requirement if 

they so choose. 

The Exchange proposes in Rule 

25210(a)(4) that, in the event that price 

movements cause a Market Maker or 

DMM’s quotations to fall outside of the 

National Best Bid (Offer) (or last sale 

price in the event there is no National 

Best Bid (Offer)) by a given percentage, 

with such percentage called the 

‘‘Defined Limit,’’ in a Security for which 

they are a Market Maker, the Market 

Maker or DMM must enter a new bid or 

offer at not more than the Designated 

Percentage away from the National Best 

Bid (Offer) in that Security. The 

Exchange proposes that the Defined 

Limit shall be 31.5%.253 Under the 

proposed Rules, a Market Maker’s 

quotations must be firm and 

automatically executable for their size, 

and, to the extent the Exchange finds 

that a Market Maker has a substantial or 

continued failure to meet its quotation 

obligations, such Market Maker may 

face disciplinary action from the 

Exchange.254 Under the proposed 

Market Maker and DMM Rules, Market 

Makers and DMMs’ two-sided quotation 

obligations must be maintained for a 

quantity of a ‘‘normal unit of trading’’ 

which is defined as one Security.255 The 

Exchange believes that Securities may 

initially trade in smaller increments 

relative to other listed equities and that 

reducing the two-sided quoting 

increment from one round lot (i.e., 100 

shares) to one Security will be sufficient 

to meet liquidity demands and would 

make it easier for Market Makers and 

DMMs to meet their quotation 

obligations, which in turn incentivize 

more Market Maker participation. 

The Exchange notes that proposed 

Rule 25210 is substantially similar to 

NYSE American Rule 7.23E, with the 

exceptions of: (i) The modified normal 

unit of trading, Designated Percentage, 

and Defined Limit (as discussed above); 

(ii) specifying that the minimum 

quotation increment shall be $0.01; and 

(iii) specifying that Market Maker 

quotations must be firm for their 

displayed size and automatically 

executable. The Exchange believes that 

the additional specifications with 

respect to the minimum quotation 

increment and firm quotation 

requirement will add additional clarity 

to the expectations of Market Makers on 

the Exchange. 

Proposed Rule 25220 sets forth the 

registration requirements for a DMM. 

Under proposed Rule 25220, a DMM 

must be a registered Market Maker and 

be approved as a DMM in order to 

receive an allocation of Securities 

pursuant to proposed Rule 25230, 

which is described below.256 For 

Securities in which a Participant serves 

as a DMM, it must meet the same 

obligations as if it were a Market Maker 

and must also maintain a bid or offer at 

the National Best Bid and Offer at least 

25% of the day measured across all 

Securities in which such Participant 

serves as DMM.257 The proposed Rule 

provides, among other things, that a 

there will be no more than one DMM 

per Security and that a DMM must 

maintain information barriers between 

the trading unit operating as a DMM and 

the trading unit operating as a BSTX 

Market Maker in the same Security (to 

the extent applicable).258 The Rule 

further provides a process by which a 

DMM may temporarily withdraw from 

its DMM status, which is similar to the 

same process for a BSTX Market 

Maker 259 and similar to the same 

process for DMMs on other 

exchanges.260 The Exchange notes that 

proposed Rule 25220 is substantially 

similar to NYSE American Rule 7.24E 

with the exception that the Exchanges 

proposes to add a provision stating that 

the Exchange is not required to assign 

a DMM if the Security has an adequate 

number of BSTX Market Makers 

assigned to such Security. The purpose 


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261As previously noted, pursuant to proposed 

Rule 26106, a Security may, in lieu of having a 

DMM assigned to it, have a minimum of three nonDMM Market Makers at initial listing and two nonDMM Market Makers for continued listing to be 

eligible for listing on the Exchange. Consequently, 

a Security might not have a DMM when it initially 

begins trading on BSTX, but may acquire a DMM 

later. 

262See proposed Rule 25230(a)(4). The proposed 

handling of these scenarios where a DMM does not 

meet its obligations is substantially similar to 

parallel requirements in NYSE American Rule 

7.25E(a)(4). 

263The Exchange believes that providing the 

Exchange with flexibility to shorten the one year 

commitment period is appropriate to accommodate 

unforeseen events or circumstances that might arise 

with respect to a DMM, such as a force majeure 

event, preventing a DMM from being able to carry 

out its functions. 

264See proposed Rule 25230(b)(4)–(11). 

265 In addition, proposed Rule 25230(c)(2) sets 

forth provisions that allow for the Exchange’s CEO 

to immediately initiate a reallocation proceeding 

upon written notice to the DMM and the issuer 

when the DMM’s performance in a particular 

market situation was, in the judgment of the 

Exchange, so egregiously deficient as to call into 

question the Exchange’s integrity or impair the 

Exchange’s reputation for maintaining an efficient, 

fair, and orderly market. 

266 15 U.S.C. 78f(b)(5). 

267See NYSE American Rule 7, Section 2. 

268 In this regard, the Exchange believes the 

proposed Market Making Rules are not designed to 

permit unfair discrimination between BSTX 

Participants, consistent with Section 6(b)(5) of the 

Exchange Act. 15 U.S.C. 78f(b)(5). 

269 15 U.S.C. 78f(b)(5). 

of this requirement is to acknowledge 

the possibility that a Security need not 

necessarily have a DMM provided that 

each Security has been assigned at least 

three active Market Makers at initial 

listing and two Market Makers for 

continued listing, consistent with 

proposed Rule 26106 (Market Maker 

Requirement), which is discussed 

further below. 

In proposed Rule 25230, the Exchange 

proposes to set forth the process by 

which a DMMs are allocated and 

reallocated responsibility for a 

particular Security. Proposed Rule 

25230(a) sets forth the basic eligibility 

criteria for when a Security may be 

allocated to a DMM, providing that this 

may occur when the Security is initially 

listed on BSTX, when it is reassigned 

pursuant to Rule 25230, or when it is 

currently listed without a DMM 

assigned to the Security.261 Proposed 

Rule 2530(a) also specifies that a DMM’s 

eligibility to participate in the allocation 

process is determined at the time the 

interview is scheduled by the Exchange 

and specifies that a DMM must meet 

with the quotation requirements set 

forth in proposed Rule 25220(c) (DMM 

obligations). The proposed Rule further 

specifies how the Exchange will handle 

several situations in which the DMM 

does not meet its obligations, such as, 

for example, by issuing an initial 

warning advising of poor performance if 

the DMM fails to meet its obligations for 

a one-month period.262

Proposed Rule 25230(b) sets forth the 

manner in which a DMM may be 

selected and allocated a Security. Under 

proposed Rule 25230(b), an issuer may 

select its DMM directly, delegate the 

authority to the Exchange to selects its 

DMM, or may opt to proceed with 

listing without a DMM, in which case a 

minimum of three non-DMM Market 

Makers at initial listing and two nonDMM Market Makers for continued 

listing must be assigned to its Security 

consistent with proposed Rule 26106. 

Proposed Rule 25230(b) further sets 

forth provisions relating to the interview 

between the issuer and DMMs, the 

Exchange selection by delegation, and a 

requirement that a DMM serve as a 

DMM for a Security for at least one year 

unless compelling circumstances exist 

for which the Exchange may consider a 

shorter time period. Each of these 

provisions is substantially similar to 

corresponding provisions in NYSE 

American Rule 7.25E(b)(1)–(3), with the 

exception that the Exchange may 

shorten the one year DMM commitment 

period in compelling circumstances.263

Proposed Rule 25230(b) further sets 

forth specific provisions related to a 

variety of different issuances and types 

of securities, including spin-offs or 

related companies, warrants, rights, 

relistings, equity Security listing after 

preferred Security, listed company 

mergers, target Securities, and closedend management investment 

companies.264 Each of these provisions 

is substantially similar to corresponding 

provisions in NYSE American Rule 

7.25E(b)(4)–(11). 

Proposed Rule 25230(c) sets forth the 

reallocation process for a DMM in a 

manner that is substantially similarly to 

corresponding provisions in NYSE 

American Rule 7.25E(c). Generally, 

under the proposed Rule, an issuer may 

request a reallocation to a new DMM 

and Exchange staff will review this 

request, along with any DMM response 

letter, and eventually make a 

determination.265 Proposed Rule 

25230(d), (e), and (f), set forth 

provisions governing an allocation 

freeze, allocation sunset, and criteria for 

applicants that are not currently DMMs 

to be eligible to be allocated a Security 

as a DMM respectively. Each of these 

provisions are likewise substantially 

similar to corresponding provisions in 

NYSE American Rule 7.25E(d)–(f). 

Finally, proposed Rule 25240 sets 

forth the DMM combination review 

policy. The proposed Rule, among other 

things, defines a proposed combination 

among DMMs, requires that DMMs 

provide a written submission to the 

Office of the Corporate Secretary of the 

Exchange and specifies, among other 

things, the items to be disclosed in the 

written submission, the criteria that the 

Exchange will use to evaluate a 

proposed combination, and the timing 

for a decision by the Exchange, subject 

to the Exchange’s right to extend such 

time period. The Exchange notes that 

proposed Rule 25240 is substantially 

similar to NYSE American Rule 7.26E. 

The Exchange believes that the 

proposed Market Making Rules set forth 

in the Rule 25200 Series are consistent 

with Section 6(b)(5) of the Exchange 

Act 266 because they are designed to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, 

and to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system. The Exchange notes that the 

proposed Rules are substantially similar 

to the market making rules of other 

exchanges, as detailed above,267 and 

that all BSTX Participants are eligible to 

become a Market Maker or DMM 

provided they comply with the 

proposed requirements.268 The 

proposed Market Maker Rules set forth 

the quotation and related expectations 

of BSTX Market Makers which the 

Exchange believes will help ensure that 

there is sufficient liquidity in Securities. 

Although the corresponding NYSE 

American rules upon which the 

proposed Rules are based provide for 

multiple tiers and classes of stocks that 

were each associated with a different 

Designated Percentage and Defined 

Limit, the Exchange has collapsed all 

such classes in to one category and 

provided a single Designated Percentage 

of 30% and Defined Limit of 31.5% for 

all Security trading on BSTX. The 

Exchange believes that simplifying the 

Rules in this manner can reduce the 

potential for confusion and allows for 

easier compliance and will still 

adequately serve the liquidity needs of 

investors of Security investors, which 

the Exchange believes promotes the 

removal of impediments to and 

perfection of the mechanism of a free 

and open market and a national market 

system, consistent with Section 6(b)(5) 

of the Exchange Act.269

The Exchange has also proposed that 

the minimum quotation size of Market 

Makers will be one Security. As noted 

above, the Exchange believes that 

Securities may initially trade in smaller 

increments relative to other listed 


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270All references to various ‘‘Sections’’ in the 

discussion of these Listing Rules refer to the various 

Sections of the NYSE American Company Guide. 

271The Exchange notes that while the numbering 

of BSTX’s Listing Rules generally corresponds to a 

Section of the NYSE American LLC Company 

Guide, BSTX did not integrate certain Sections of 

the NYSE American Company Guide that the 

Exchange deemed inapplicable to its operations, 

such as with respect to types of securities which the 

Exchange is not proposing to make eligible for 

listing (i.e., bonds, debentures, securities of foreign 

companies (other than Canadian companies), 

investment trusts, and securities such as equitylinked term notes). The Exchange also proposes to 

modify cross-references in the proposed Non-ETP 

Listing Rules to accord with its Rules. 

272Pursuant to proposed Rule 26136, all 

securities initially listing on BSTX, except 

securities which are book-entry only, must be 

eligible for a Direct Registration Program operated 

by a clearing agency registered under Section 17A 

of the Exchange Act. 15 U.S.C. 78q–1. 

273The Exchange notes that the proposed fees for 

certain items in the proposed Listing Rules (e.g., 

proxy follow-up mailings) are the same as those 

charged by NYSE American. See e.g., proposed IM– 

26722–8 cf. NYSE American Section 722.80. 

274 15 U.S.C. 78f(b)(5). 

275See NYSE American Section 101. The 

Exchange understands that the Commission has 

extended relief to NYSE American with respect to 

certain quantitative listing standards that do not 

meet the thresholds of SEC Rule 3a51–1. 17 CFR 

240.3a51–1. Initial listings of securities that do not 

meet such thresholds and are not subject to the 

relief provided to NYSE American would qualify as 

‘‘penny stocks’’ and would be subject to additional 

regulation. BSTX notes that it is not seeking relief 

related to SEC Rule 3a51–1 and therefore has 

clarified proposed Rule 26101(a)(2) to ensure that 

issuers have at least one year of operating history. 

BSTX will also require new listings pursuant to 

proposed Rule 26102 to have a public distribution 

of 1 million Securities, 400 public Security holders, 

and a minimum market price of $4 per Security. 

These provisions meet the requirements in SEC 

Rule 3a51–1 and are consistent with the rules of 

other national securities exchanges. See e.g., 

Nasdaq Rule 5510. The quantitative thresholds 

specified in Rule 26102 are also reflected in the 

Sample Underwriter’s Letter that has been 

submitted as Exhibit 3L to this proposal. In 

addition, the Exchange notes that proposed Rule 

26140, which governs the additional listing 

requirements of a company that is affiliated with 

the Exchange, is based on similar provisions in 

NYSE American Rule 497 and IEX 14.205. 

276 15 U.S.C. 78f(b)(5). 

277See proposed Rule 26103. 

278See proposed Rule 26103(b)(2). Preferred 

Security Distribution Standard 2 requires that a 

preferred Security listing satisfy the following 

conditions: Minimum bid price of at least $4 per 

Security; at least 10 Round Lot holders; At least 

Continued 

equities and that reducing the two-sided 

quoting increment from one round lot 

(i.e., 100 shares) to one Security would 

be sufficient to meet liquidity demands 

and would make it easier for Market 

Makers and DMMs to meet their 

quotation obligations, which in turn 

incentivize more Market Maker 

participation. The Exchange believes 

that adopting quotation requirements 

and parameters that are appropriate for 

the nature and types of securities that 

will trade on the Exchange will promote 

the protection of investors and the 

public interest by assuring that the 

Exchange Rules are appropriately 

tailored to its market. 

BSTX Listing Rules Other Than for 

Exchange Traded Products and 

Suspension and Delisting Rules (Rule 

26000 and 27000 Series) 

The BSTX Listing Rules Other than 

for Exchange Traded Products (the 

‘‘Non-ETP Listing Rules’’) in the Rule 

Series 26000 and the Suspension and 

Delisting Rules in the Rule 27000 Series 

have been adapted from, and are 

substantially similar to, Parts 1—12 of 

the NYSE American LLC Company 

Guide.270 Except as described below, 

each proposed Rule in the BSTX 26000 

and 27000 Series is substantially similar 

to a Section of the NYSE American 

Company Guide.271 Below is further 

detail. 

• The BSTX Rule 26100 Series are 

based on the NYSE American Original 

Listing Requirements (Sections 101– 

146).272

• The BSTX Original Listing 

Procedures (26200 Series) are based on 

the NYSE American Original Listing 

Procedures (Sections 201–222). 

• The BSTX Additional Listings 

Rules (26300 Series) are based on the 

NYSE American Additional Listings 

Sections (Sections 301–350). 

• The BSTX Disclosure Policies 

(26400 Series) are based on the NYSE 

American Disclosure Policies (Sections 

401–404). 

• The BSTX Dividends and Splits 

Rules (26500 Series) are based on the 

NYSE American Dividends and Stock 

Splits Sections (Sections 501–522). 

• The BSTX Accounting; Annual and 

Quarterly Reports Rules (26600 Series) 

are based on the NYSE American 

Accounting; Annual and Quarterly 

Reports Sections (Sections 603–624). 

• The BSTX Shareholders’ Meetings, 

Approval and Voting of Proxies Rules 

(26700 Series) are based on the NYSE 

American Shareholders’ Meetings, 

Approval and Voting of Proxies Sections 

(Sections 701–726).273

• The BSTX Corporate Governance 

Rules (26800 Series) are based on the 

NYSE American Corporate Governance 

Sections (Sections 801–809). 

• The BSTX Additional Matters Rules 

(26900 Series) are based on the NYSE 

American Additional Matters Sections 

(Sections 920–994). 

• The BSTX Suspension and 

Delisting Rules (27000 Series) are based 

on the NYSE American Suspension and 

Delisting Sections (Sections 1001–1011). 

• The BSTX Guide to Filing 

Requirements (27100 Series) are based 

on the NYSE American Guide to Filing 

Requirements (Section 1101). 

• The BSTX Procedures for Review of 

Exchange Listing Determinations (27200 

Series) are based on the NYSE American 

Procedures for Review of Exchange 

Listing Determinations (Sections 1201– 

1211). 

Notwithstanding that the proposed 

Rule 26000 and 27000 Series are 

substantially similar to those of other 

exchanges, BSTX proposes certain 

additions or modifications to these rules 

specific to its market. For example, 

BSTX proposes to add definitions that 

apply to the proposed BSTX Rule 26000 

and 27000 Series. The definitions set 

forth in proposed Rule 26000 are 

designed to facilitate understanding of 

these Rule Series by market 

participants. Increased clarity may serve 

to remove impediments to and perfect 

the mechanism of a free and open 

market and a national market system 

and may also 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 

Exchange Act.274

With respect to initial listing 

standards for non-ETP Securities, which 

begin at proposed Rule 26101, the 

Exchange proposes to adopt listing 

standards that are substantially similar 

to the NYSE American listing rules.275

The Exchange believes that adopting 

listing rules similar to those in place on 

other national securities exchanges will 

facilitate more uniform standards across 

exchanges, which helps 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 Exchange Act.276 Market 

participants that are already familiar 

with NYSE American’s listing standards 

will already be familiar with most of the 

substance of the proposed listing rules. 

The Exchange also believes that 

adopting proposed listing standards that 

closely resemble those of NYSE 

American may also foster competition 

among listing exchanges for companies 

seeking to publicly list their securities. 

The Exchange is proposing an addition 

(relative to the NYSE American listing 

rules) to the initial listing standards for 

preferred Securities.277 Specifically, the 

Exchange proposes an additional 

standard for preferred Securities to list 

on the Exchange based on NASDAQ 

Rule 5510.278 The Exchange believes a 


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200,000 Publicly Held Securities; and Market Value 

of Publicly Held Securities of at least $3.5 million. 

279 15 U.S.C. 78f(b)(5). 

280 Id. 

281See Proposed Rule 26502, which requires, 

among other things, a listing company to give the 

Exchange at least ten days’ notice in advance of a 

record date established for any other purpose, 

including meetings of shareholders. 

282 15 U.S.C. 78f(b)(5). 

283See proposed Rule 26205. BSTX-listed 

Securities must meet the criteria specified in 

proposed Rule 26106, which provides that unless 

otherwise provided, all Securities listed pursuant to 

the BSTX Listing Standards must meet one of the 

following requirements: (1) The DMM Requirement 

whereby a DMM must be assigned to a given 

Security; or (2) the Active Market Maker 

Requirement which states that (i) for initial 

inclusion the Security must have at least three 

registered and active Market Makers, and (ii) for 

continued listing, a Security must have at least two 

registered and active Market Makers, one of which 

may be a Market Maker entering a stabilizing bid. 

284Exchange personnel responsible for managing 

the listing and onboarding process would be 

responsible for determining to which DMM a 

Security would be assigned. As provided in 

proposed Rule 26205, the Exchange makes every 

effort to see that each Security is allocated in the 

best interests of the company and its shareholders, 

as well as that of the public and the Exchange. 

Similarly, the Exchange anticipates that these same 

personnel would be responsible for answering 

questions relating to the Exchange’s listing rules 

pursuant to proposed Rule 26994 (New Policies). 

The Exchange notes that certain provisions in the 

NYSE American Listing Manual contemplate a 

‘‘Listing Qualifications Analyst’’ that would 

perform a number of these functions. The Exchange 

is not proposing to adopt provisions that 

specifically contemplate a ‘‘Listing Qualifications 

Analyst,’’ but expects to have personnel that will 

perform the same basic functions, such as advising 

issuers and prospective issuers with respect to 

relevant rules related to listing. 

285 15 U.S.C. 78f(b)(5). 

286See e.g., IEX Rule 14.206. 

287See e.g., NYSE American Section 513(f), 

noting that open orders to buy and open orders to 

sell on the books of a specialist on an ex rights date 

are reduced by the cash value of the rights. 

Proposed Rule 26340(f) deletes this provision 

because BSTX will not have specialists. Similarly, 

because BSTX will not have specialists, the 

Exchange is not proposing to adopt a parallel rule 

to NYSE American Section 516, which specifies 

that certain types of orders are to be reduced by a 

specialist when a security is quoted ex-dividend, 

ex-distribution or ex-rights are set forth in NYSE 

American Rule 132. 

288See e.g., NYSE American Section 117 

including a clause relating to paired securities for 

which ‘‘the stock certificates of which are printed 

back-to-back on a single certificate’’). Similarly, the 

Exchange has proposed to replace certain references 

to the ‘‘Office of General Counsel’’ contained in 

certain NYSE American Listing Rule (see e.g., 

Section 1205) with references to the Exchange’s 

‘‘Legal Department’’ to accommodate differences in 

BSTX’s organizational structure. See proposed Rule 

27204. As another example, proposed Rule 27205 

refers to the Exchange’s ‘‘Hearing Committee’’ as 

defined in Section 6.08 of the Exchange’s By-Laws 

to similarly accommodate organizational 

differences between the Exchange and NYSE 

American. 

289See proposed Rule 26623. 

290Specifically, proposed Rule 26720 would 

provide that participants must comply with Rules 

26720 through 26725 and BSTX’s Rule 22020 

(Forwarding of Proxy and Other Issuer-Related 

Materials; Proxy Voting). NYSE American Section 

726, upon which proposed Rule 26720 is based, 

includes cross-references to NYSE American’s 

corresponding rules to proposed Rules 26720 

through 26725, and also includes cross-references 

to NYSE American Rules 578 through 585, for 

which the Exchange is not proposing corresponding 

rules. These NYSE American rules for which the 

Exchange is not proposing to adopt a parallel rule 

relate to certain requirements specific to proxy 

voting (e.g., requiring that a member state the actual 

number of shares for which a proxy is given—NYSE 

American Rule 578) or, in some cases, relate to 

certificated securities (e.g., NYSE American Rule 

proposed rule providing an additional 

initial listing standard for preferred 

Securities consistent with a similar 

provision of NASDAQ would expand 

the possible universe of issuances that 

would be eligible to list on the Exchange 

to include preferred Securities. The 

Exchange believes that such a rule 

would help 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 Exchange Act by giving issuers an 

additional means by which it could list 

a different type of security (i.e., a 

preferred Security) and investors the 

opportunity to trade in such preferred 

Securities.279 Further, consistent with 

the public interest, rules that provide 

more opportunity for listings may 

promote competition among listing 

exchanges and capital formation for 

issuers. 

With respect to the definitions in 

proposed Rule 26000, these are 

designed to facilitate understanding of 

the BSTX Non-ETP Listing Rules by 

market participants. The Exchange 

believes that allowing market 

participants to better understand and 

interpret the BSTX Non-ETP Listing 

Rules removes impediments to and 

perfects the mechanism of a free and 

open market and a national market 

system, and may also 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 Exchange Act.280

The Exchange also proposes certain 

enhancements to the notice 

requirements for listed companies to 

communicate to BSTX related to record 

dates and defaults.281 The Exchange 

believes that these additional disclosure 

and communication obligations can 

help BSTX in monitoring for listed 

company compliance with applicable 

rules and regulations; such additional 

disclosure obligations are 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, in general, to protect 

investors and the public interest, 

consistent with Section 6(b)(5) of the 

Exchange Act.282

The Exchange’s proposed Rules 

provide additional flexibility for listed 

companies in choosing how liquidity 

would be provided in their listings by 

allowing listed companies to meet either 

the DMM Requirement or Active Market 

Maker Requirement for initial listing 

and continued trading.283 Pursuant to 

proposed Rule 26205, a company may 

choose to be assigned a DMM by the 

Exchange or to select its own DMM.284

Alternatively, a company may elect, or 

the Exchange may determine, that, in 

lieu of a DMM, a minimum of three (3) 

market makers would be assigned to the 

Security at initial listing; such 

requirement may be reduced to two (2) 

market makers following the initial 

listing, consistent with proposed Rule 

26106. The Exchange believes that such 

additional flexibility would promote the 

removal of impediments to and 

perfection of the mechanism of a free 

and open market and a national market 

system, consistent with Section 6(b)(5) 

of the Exchange Act.285 The 

Commission has previously approved 

exchange rules providing for three 

market makers to be assigned to a 

particular security upon initial listing 

and only two for continued listing.286 In 

accordance with these previously 

approved rules, the Exchange believes 

proposed Rule 26205 would ensure fair 

and orderly markets and would 

facilitate the provision of sufficient 

liquidity for Securities. 

The Exchange also proposes a number 

of other non-substantive changes from 

the baseline NYSE American listing 

rules, such as to eliminate references to 

the concept of a ‘‘specialist,’’ since 

BSTX will not have a specialist,287 or 

references to certificated equities, since 

Securities will be uncertificated 

equities.288 As another example, NYSE 

American Section 623 requires that 

three copies of certain press releases be 

sent to the exchange, while the 

Exchange proposes only that a single 

copy of such press release be shared 

with the Exchange.289 In addition, the 

Exchange proposes to adopt Rule 26720 

in a manner that is substantially similar 

to NYSE American Section 720, but 

proposes to modify the internal citations 

to ensure consistency with its proposed 

Rulebook.290 In its proposed Rules, the 


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579), which would be inapplicable to the Exchange 

since it proposes to only list uncertificated 

securities. The Exchange believes that it does not 

need to propose to adopt parallel rules 

corresponding to NYSE American Rules 578–585 at 

this time and notes that other listing exchanges do 

not appear have corresponding versions of these 

NYSE American Rules. See e.g., Cboe BZX Rules. 

The Exchange believes that proposed Rule 26720 

and the Exchange’s other proposed Rules governing 

proxies, including those referenced in proposed 

Rule 26720, are sufficient to govern BSTX 

Participants’ obligations with respect to proxies. 

291The forms found in NYSE American Section 

722.20 and 722.40 would be included in the BSTX 

Listing Supplement. 

292The BSTX Listing Supplement would contain 

samples of letters containing the information and 

instructions required pursuant to the proxy rules to 

be given to clients in the circumstances indicated 

in the appropriate heading. These are intended to 

serve as examples and not as prescribed forms. 

Participants would be permitted to adapt the form 

of these letters for their own purposes provided all 

of the required information and instructions are 

clearly enumerated in letters to clients. Pursuant to 

proposed Rule 26212, the BSTX Listing Supplement 

would also include a sample application for 

original listing, which the Exchange has submitted 

as Exhibit 3G. In addition, proposed Rule 26350 

states that the BSTX Listing Supplement will 

include a sample cancellation notice; the Exchange 

expects such notice to be substantially in the same 

form as NYSE American’s sample notice in NYSE 

American Section 350. Other examples of items that 

would appear in the BSTX Listing Supplement 

include certain certifications to be completed by the 

CEO of listed companies pursuant to proposed Rule 

26810(a) and (c), and forms of letters to be sent to 

clients requesting voting instructions and other 

letters relating to proxy votes pursuant to proposed 

IM–26722–2 and IM–26722–4. The Exchange 

expects that these proposed materials in the BSTX 

Listing Supplement would be substantially similar 

to the corresponding versions of such samples used 

by NYSE American. The purpose of putting these 

sample letters and other information into the BSTX 

Listing Supplement rather than directly in the rules 

is to improve the readability of the Rules. 

293See e.g., NYSE American Section 101, 

Commentary .02. The Exchange is also not 

proposing to adopt a parallel provision to NYSE 

American Section 950 (Explanation of Difference 

between Listed and Unlisted Trading Privileges) 

because the Exchange believes that such provision 

is not necessary and contains extraneous historical 

details that are not particularly relevant to the 

trading of Securities. The Exchange notes that 

numerous other listing exchanges do not have a 

similar provision to NYSE American Section 950. 

See e.g., IEX Listing Rules. 

294See proposed Rule 26109. Because the 

Exchange does not propose to allow foreign issuers 

of Securities, it does not propose to adopt a parallel 

provision to NYSE American Section 110 and other 

similar provisions relating to foreign issuers—e.g., 

NYSE American Section 801(f). 

295Consequently, the Exchange does not propose 

to adopt a parallel provision to NYSE American 

Section 113 at this time. 296See e.g., NYSE American Sections 1003(b)(iv) 

and (e). 

297See e.g., NYSE American Sections 106(f), 

401(i), and 1003(g). 

298 15 U.S.C. 78f(b)(5). 

299The Exchange also proposes certain 

conforming changes in Rule 26503 (Form of Notice) 

to reiterate that fractional interests in Securities are 

not permitted by the Exchange. 

300 15 U.S.C. 78f(b)(5). 

301 Id. 

302See proposed Rule 26802(d). 

303See proposed Rule 26801(b). 

304As with all sections of the proposed rules, 

references to ‘‘securities’’ have been changed to 

‘‘Securities’’ where appropriate and, in the Rule 

27000 Series, certain references have been 

conformed from the baseline NYSE American 

provisions to account for the differences in 

governance structure and naming conventions of 

BSTX. 

Exchange has not included certain form 

letters related to proxy rules that are 

included in the NYSE American 

rules; 291 instead, these forms will be 

included in the BSTX Listing 

Supplement.292 The Exchange is not 

proposing to adopt provisions relating 

to future priced securities at this 

time.293 In addition, the Exchange is not 

proposing to allow for listing of foreign 

companies, other than Canadian 

companies,294 or to allow for issuers to 

transfer their existing securities to 

BSTX.295 Similarly, the Exchange is not 

proposing at this time to support debt 

securities (other than those that may be 

ETPs), so the Exchange has not 

proposed to adopt certain provisions 

from the NYSE American Listing 

Manual related to bonds/debt 

securities 296 or the trading of units.297

The Exchange believes that the 

departures from the NYSE American 

rules upon which the proposed Rules 

are based, as described above, are nonsubstantive (e.g., by not including 

provisions relating to instruments that 

will not trade on the Exchange), would 

apply to all issuers in the same manner 

and are therefore not designed to permit 

unfair discrimination, consistent with 

Section 6(b)(5) of the Exchange Act.298

The Exchange proposes in Rule 26507 

to prohibit the issuance of fractional 

Securities and to provide that cash must 

be paid in lieu of any distribution or 

part of a distribution that might result 

in fractional interests in Securities.299

The Exchange believes that disallowing 

fractional shares reduces complexity. By 

extension, the requirement to provide 

cash in lieu of fractional shares 

simplifies the process related to share 

transfer and tracking of share 

ownership. The Exchange believes that 

this simplification promotes just and 

equitable principles of trade, fosters 

cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with 

respect to, and facilitating transactions 

in securities, removes impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system, and, in general, protects 

investors and the public interest, 

consistent with Section 6(b)(5) of the 

Exchange Act.300

Proposed BSTX Rule 26130 (Original 

Listing Applications) would require 

listing applicants to furnish a legal 

opinion that the applicant’s Security is 

a security under applicable United 

States securities laws. Such a 

requirement provides assurance to the 

Exchange that Security trading relates to 

appropriate asset classes. The Exchange 

believes that this Rule promotes just and 

equitable principles of trade and, in 

general, protects investors and the 

public interest, consistent with Section 

6(b)(5) of the Exchange Act.301

The Exchange proposes to adopt 

corporate governance listing standards 

as its Rule 26800 Series that are 

substantially similar to the corporate 

governance listing standards set forth in 

Part 8 of the NYSE American Listing 

Manual. However, it includes certain 

clarifications, most notably that certain 

proposed provisions are not intended to 

restrict the number of terms that a 

director may serve 302 and that, if a 

limited partnership is managed by a 

general partner rather than a board of 

directors, the audit committee 

requirements applicable to the listed 

entity should be satisfied by the general 

partner.303 The Exchange also notes 

that, unlike the current NYSE American 

rules upon which the proposed Rules 

are based, the proposed Rules on 

corporate governance do not include 

provisions on asset-backed securities 

and foreign issues (other than those 

from Canada), since the Exchange does 

not proposed to allow for such foreign 

issuers to list on BSTX at this time. 

The Exchange proposes to adopt 

additional listing rules as its Rule 26900 

Series that are substantially similar to 

the corporate governance listing 

standards set forth in Part 9 of the NYSE 

American Listing Manual. The only 

significant difference from the baseline 

NYSE American rules is that the 

proposed BSTX Rules do not include 

provisions related to certificated 

securities, since Securities listed on 

BSTX will be uncertificated. 

The Exchange proposes to adopt 

suspension and delisting rules as its 

Rule 27000 Series that are substantially 

similar to the corporate governance 

listing standards set forth in Parts 10, 

11, and 12 of the NYSE American 

Listing Manual. The proposed rules do 

not include concepts from the baseline 

NYSE American rules regarding foreign, 

fixed income securities, or other nonequity securities because the Exchange 

is not proposing to allow for listing of 

such securities at this time.304

The Exchange believes that the 

proposals in the Rule 26800 to Rule 

27000 Series, which are based on the 

rules of NYSE American with the 

differences explained above, are 


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305 15 U.S.C. 78f(b)(5). 

306As another example, the concept of ‘‘Core 

Trading Hours’’ in the NYSE Arca Rulebook (as 

defined therein) has no analog in the BSTX 

Rulebook. The BSTX Rulebook only allows for 

Regular Trading Hours and thus the proposal 

references the concept of Regular Trading Hours. 

307See proposed IM–28000–1g. In the NYSE Arca 

rule book, the comparable definition is set forth in 

NYSE Arca Rulebook Rule 1. 

308Specifically, Section 2 of Rule 8–E in the 

NYSE Arca rulebook allows for trading of a 

Nasdaq–100 Index product, Currency Trust Shares, 

and Commodity Index Trust Shares. 

309Proposed Rule 29000 further provides 

authority for the Exchange to charge BSTX 

Participants a regulatory transaction fee pursuant to 

Section 31 of the Exchange Act (15 U.S.C. 78ee) and 

that the Exchange will set forth fees pursuant to 

publicly available schedule of fees. 

310 15 U.S.C. 78f(b)(5). 

designed to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, 

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. Further, the differences 

in the proposals compared to the 

analogous NYSE American provisions 

appropriately reflect the differences 

between the two exchanges. The 

Exchange believes that ensuring that its 

systems are appropriately described in 

the BSTX Rules facilitates market 

participants’ review of such Rules, 

which serves to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system by ensuring that market 

participants can easily navigate, 

understand and comply with the 

Exchange’s rulebook. Therefore, the 

Exchange believes its proposals are 

consistent with Section 6(b)(5) of the 

Exchange Act.305

Trading and Listing Rules for ExchangeTrade Products (Rule 28000 Series) 

The Exchange proposes as the Rule 

28000 Series rules related to trading and 

listing ETPs. These proposed Rules 

allow for an array of different types of 

ETPs to be traded and listed on the 

Exchange and would provide 

individuals and institutions with 

diverse range of products in which to 

invest. The proposed Rules would set 

forth requirements and initial as well as 

continued listing standards for a variety 

of ETPs noted in the bulleted list below. 

The proposed Rules have been adapted 

from, and are substantially similar to, 

rules found in the NYSE Arca Inc. 

(‘‘NYSE Arca’’) rulebook. Below is a list 

of the proposed Rules in the 28000 

Series and the NYSE Arca rules on 

which it is based: 

• Proposed Rule 28000 (Investment 

Company Units) is based on NYSE Arca 

Rule 5.2–E(j)(3) 

• Proposed Rule 28001 (Equity IndexLinked Securities, Commodity-Linked 

Securities, Currency-Linked Securities, 

Fixed Income Index-Linked Securities, 

Futures-Linked Securities and 

Multifactor Index-Linked Securities) is 

based on NYSE Arca Rule 5.2–E(j)(6) 

• Proposed Rule 28002 (ExchangeTraded Fund Shares) is based on NYSE 

Arca Rule 5.2–E(j)(8) 

• Proposed Rule 28003 (Trust Issued 

Receipts) is based on NYSE Arca Rule 

8.200–E 

• Proposed Rule 28004 (CommodityBased Trust Shares) is based on NYSE 

Arca Rule 8.201–E 

• Proposed Rule 28005 (Managed 

Fund Shares) is based on NYSE Arca 

Rule 8.600–E 

• Proposed Rule 28006 (Active Proxy 

Portfolio Shares) is based on NYSE Arca 

Rule 8.601–E 

• Proposed Rule 28007 (Managed 

Portfolio Shares) is based on NYSE Arca 

Rule 8.900–E 

For each Rule in the 28000 Series, the 

Exchange proposes provisions that are 

substantially similar to provisions in the 

NYSE Arca rulebook, with adjustments 

made to ensure appropriate reference to 

concepts in other parts of the BSTX 

Rulebook. For example, in cases where 

the precedent NYSE Arca rule referred 

to a specific provision regarding 

delisting procedures, the Exchange has 

modified the proposed Rules to 

reference to the proposed Rule 27000 

Series, which set forth the Exchange’s 

proposed Rules governing suspension 

and delisting.306 As another example, 

the proposed definition of ‘‘ETP 

Holder,’’ which closely parallels the 

same definition in the NYSE Arca 

Rulebook, but is located in a different 

place in the proposed BSTX Rulebook 

as compared to the NYSE Arca 

rulebook.307 In addition, certain 

products or concepts that are supported 

by NYSE Arca but are not supported by 

the Exchange have not been included in 

the proposal. For example, the Exchange 

notes that the NYSE Arca rulebook 

provides for trading of a Nasdaq–100 

Index product, Currency Trust Shares, 

and Commodity Index Trust Shares,308

whereas the Exchange will not support 

trading in these specific ETPs and 

therefore has not included provisions 

relating to the listing and trading of 

such products in its proposal. The 

discussion below describes other 

notable variations from the NYSE Arca 

rules set forth in the proposed Rule 

Series 28000. 

The Exchange believes that the 

proposals in the Rule 28000 Series help 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general promote the protecting of 

investors and the public interest 

because they will facilitate an additional 

exchange on which ETPs can be listed 

and traded. This adds competition to 

the marketplace for the listing of ETPs, 

providing greater choice for issuers of 

ETPs and an additional trading venue 

on which market participants can trade 

such products. As noted, the proposed 

Rule 28000 Series is substantially 

similar to the rules of NYSE Arca 

relating to ETPs, with only nonsubstantive differences, which 

differences appropriately reflect the 

differences between the two exchanges 

(e.g., internal cross-references within 

each rule book or excluding provisions 

related to products that the Exchange 

will not support). 

Fees (Rule 29000 Series) 

The Exchange proposes to set forth as 

its Rule 29000 Series (Fees) the 

Exchange’s authority to prescribe 

reasonable dues, fees, assessments or 

other charges as it may deem 

appropriate. As provided in proposed 

Rule 29000 (Authority to Prescribe 

Dues, Fees, Assessments and Other 

Charges), these fees may include 

membership dues, transaction fees, 

communication and technology fees, 

regulatory fees, and other fees, which 

will be equitably allocated among BSTX 

Participants, issuers, and other persons 

using the Exchange’s facilities.309

Proposed Rule 29010 (Regulatory 

Revenues) generally provides that any 

revenues received by the Exchange from 

fees derived from its regulatory function 

or regulatory fines will not be used for 

non-regulatory purposes or distributed 

to the stockholder, but rather, shall be 

applied to fund the legal and regulatory 

operations of the Exchange (including 

surveillance and enforcement activities). 

The Exchange believes that the 

proposed Rule 29000 Series (Fees) is 

consistent with Sections 6(b)(5) of the 

Exchange Act because these proposed 

rules are designed to protect investors 

and the public interest by setting forth 

the Exchange’s authority to assess fees 

on BSTX Participants, which would be 

used to operate the BSTX System and 

surveil BSTX for compliance with 

applicable laws and rules. The 

Exchange believes that the proposed 

Rule 29000 Series (Fees) is also 

consistent with Sections 6(b)(3) of the 

Exchange Act 310 because the proposed 

Rules specify that all fees assessed by 

the Exchange shall be equitably 

allocated among BSTX Participants, 

issuers and other persons using the 


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311See Cboe BZX Rules 15.1 and 15.2. 

312 17 CFR 240.19d–1(c)(1). 

313The Commission adopted amendments to 

paragraph (c) of Rule 19d–1 to allow SROs to 

submit for Commission approval plans for the 

abbreviated reporting of minor disciplinary 

infractions. See Exchange Act Release No. 21013 

(June 1, 1984), 49 FR 23828 (June 8, 1984). Any 

disciplinary action taken by an SRO against any 

person for violation of a rule of the SRO which has 

been designated as a minor rule violation pursuant 

to such a plan filed with and declared effective by 

the Commission will not be considered ‘‘final’’ for 

purposes of Section 19(d)(1) of the Exchange Act if 

the sanction imposed consists of a fine not 

exceeding $2,500 and the sanctioned person has not 

sought an adjudication, including a hearing, or 

otherwise exhausted his administrative remedies. 

314See e.g., IEX Rule 9.218 and Cboe BZX Rule 

8.15.01. 

315 15 U.S.C. 78f(b)(1), 78f(b)(5) and 78f(b)(6). 

316 15 U.S.C. 78f(b)(7). 

317 17 CFR 240.19d–1(c)(2). 

318 In addition, as a result of these new defined 

terms, the Exchange proposes to renumber 

definitions set forth in Rule 100(a) to keep the 

definitions in alphabetical order. 

319 In addition to revising Rule 2020(g)(2) to 

broaden it to include securities activities beyond 

just options trading, the Exchange proposes to add 

greater specificity to define persons that are exempt 

from registration, consistent with the approach 

adopted by other exchanges. See e.g., IEX Rule 

2.160(m). 

Exchange’s facilities. The Exchange 

notes that the proposed Rule 29000 

Series is substantially similar to the 

existing rules of another exchange.311

The Exchange intends to submit a 

proposed rule change to the 

Commission setting forth the proposed 

fees relating to trading on BSTX in 

advance of the launch of BSTX. 

Minor Rule Violation Plan 

The Exchange’s disciplinary rules, 

including Exchange Rules applicable to 

‘‘minor rule violations,’’ are set forth in 

the Rule 12000 Series of the Exchange’s 

current Rules. Such disciplinary rules 

would apply to BSTX Participants and 

their associated persons pursuant to 

proposed Rule 24000. The Exchange’s 

Minor Rule Violation Plan (‘‘MRVP’’) 

specifies those uncontested minor rule 

violations with sanctions not exceeding 

$2,500 that would not be subject to the 

provisions of Rule 19d–1(c)(1) under the 

Exchange Act 312 requiring that an SRO 

promptly file notice with the 

Commission of any final disciplinary 

action taken with respect to any person 

or organization.313 The Exchange’s 

MRVP includes the policies and 

procedures set forth in Exchange Rule 

12140 (Imposition of Fines for Minor 

Violations). 

The Exchange proposes to amend its 

MRVP and Rule 12140 to include 

proposed Rule 24010 (Penalty for Minor 

Rule Violations). The Rules included in 

proposed Rule 24010 as appropriate for 

disposition under the Exchange’s MRVP 

are: (a) Rule 20000 (Maintenance, 

Retention and Furnishing of Records); 

(b) Rule 25070 (Audit Trail); (c) Rule 

25210(a)(1) (Two-Sided Quotation 

Obligations of BSTX Market Makers); 

and Rule 25120 (Short Sales). The rules 

included in proposed Rule 12140 are 

the same as the rules included in the 

MRVPs of other exchanges.314 Upon 

implementation of this proposal, the 

Exchange will include the enumerated 

trading rule violations in the Exchange’s 

standard quarterly report of actions 

taken on minor rule violations under the 

MRVP. The quarterly report includes: 

The Exchange’s internal file number for 

the case, the name of the individual 

and/or organization, the nature of the 

violation, the specific rule provision 

violated, the sanction imposed, the 

number of times the rule violation has 

occurred, and the date of disposition. 

The Exchange’s MRVP, as proposed to 

be amended, is consistent with Sections 

6(b)(1), 6(b)(5) and 6(b)(6) of the 

Exchange Act,315 which require, in part, 

that an exchange have the capacity to 

enforce compliance with, and provide 

appropriate discipline for, violations of 

the rules of the Commission and of the 

exchange. In addition, because amended 

Rule 12140 will offer procedural rights 

to a person sanctioned for a violation 

listed in proposed Rule 24010, the 

Exchange will provide a fair procedure 

for the disciplining of members and 

associated persons, consistent with 

Section 6(b)(7) of the Exchange Act.316

This proposal to include the rules 

listed in Rule 24010 in the Exchange’s 

MRVP is consistent with the public 

interest, the protection of investors, or 

otherwise in furtherance of the purposes 

of the Exchange Act, as required by Rule 

19d–1(c)(2) under the Exchange Act,317

because it should strengthen the 

Exchange’s ability to carry out its 

oversight and enforcement 

responsibilities as an SRO in cases 

where full disciplinary proceedings are 

unsuitable in view of the minor nature 

of the particular violation. In requesting 

the proposed change to the MRVP, the 

Exchange in no way minimizes the 

importance of compliance with 

Exchange Rules and all other rules 

subject to the imposition of fines under 

the MRVP. However, the MRVP 

provides a reasonable means of 

addressing rule violations that do not 

rise to the level of requiring formal 

disciplinary proceedings, while 

providing greater flexibility in handling 

certain violations. The Exchange will 

continue to conduct surveillance with 

due diligence and make a determination 

based on its findings, on a case-by-case 

basis, whether a fine of more or less 

than the recommended amount is 

appropriate for a violation under the 

MRVP or whether a violation requires a 

formal disciplinary action. 

Amendments to Existing BOX Rules 

Due to the new BSTX trading facility 

and the introduction of trading in 

Securities= [sic] on the Exchange, the 

Exchange proposes to amend those 

Exchange Rules that would apply to 

BSTX Participants, but that currently 

only contemplate trading in options. 

Therefore, the Exchange is seeking to 

amend the following Exchange Rules, 

each of which is set forth in Exhibit 5B 

submitted with the proposal: 

• Rule 100(a) (Definitions) ‘‘Options 

Participant’’ or ‘‘Participant’’: The 

Exchange proposes to change the 

definition of ‘‘Options Participant or 

Participant’’ to ‘‘Participant’’ to reflect 

Options Participants and BSTX 

Participants and to amend the definition 

as follows: ‘‘The term ‘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 and includes an ‘Options 

Participant’ and ‘BSTX Participant.’ ’’ 

• Rule 100(a) (Definitions) ‘‘Options 

Participant’’: The Exchange proposes to 

add a definition of ‘‘Options 

Participant’’ that would be defined as 

follows: ‘‘The term ‘Options Participant’ 

is a Participant registered with the 

Exchange for purposes of participating 

in options trading on the Exchange.’’ 318

• Rule 2020(g)(2) (Participant 

Eligibility and Registration): The 

Exchange proposes to delete subsection 

(g)(2) and replace it with the following: 

‘‘(2) Persons associated with a 

Participant whose functions are related 

solely and exclusively to transactions in 

municipal securities; (3) persons 

associated with a Participant whose 

functions are related solely and 

exclusively to transactions in 

commodities; (4) persons associated 

with a Participant whose functions are 

related solely and exclusively to 

transactions in securities futures, 

provided that any such person is 

appropriately registered with a 

registered futures association; and (5) 

persons associated with a Participant 

who are restricted from accessing the 

Exchange and that do not engage in the 

securities business of the Participant 

relating to activity that occurs on the 

Exchange.’’ 319

• Rule 2060 (Revocation of 

Participant Status or Association with a 

Participant): The Exchange proposes to 

amend Rule 2060 to refer to ‘‘securities 


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320 15 U.S.C. 78f(b)(5). 

321 Id. 

transactions’’ rather than ‘‘options 

securities transactions.’’ 

• Rule 3180(a) (Mandatory Systems 

Testing): The Exchange proposes to 

amend subsection (a)(1) of Rule 3180 to 

also include BSTX Participants, in 

addition to the categories of Market 

Makers and OFPs. 

• Rule 7130(a)(2)(v) Execution and 

Price/Time Priority: The Exchange 

proposes to update the cross reference 

to Rule 100(a)(58) to refer to Rule 

100(a)(59), which defines the term 

‘‘Request for Quote’’ or ‘‘RFQ’’ under 

the Rules after the proposed 

renumbering. 

• Rule 7150(a)(2) (Price Improvement 

Period): The Exchange proposes to 

amend Rule 7150(a)(2) to update the 

cross reference to the definition of a 

Professional in Rule 100(a)(51) to 

instead refer to Rule 100(a)(52), which 

is where that term would be defined in 

the Rules after the proposed 

renumbering. 

• Rule 7230 (Limitation of Liability): 

The Exchange proposes to amend the 

references in Rule 7230 to ‘‘Options 

Participants’’ to simply ‘‘Participants.’’ 

• Rule 7245(a)(4) (Complex Order 

Price Improve Period): The Exchange 

proposes to update the cross reference 

to Rule 100(a)(51) to refer to Rule 

100(a)(52), which defines the term 

‘‘Professional’’ after the proposed 

renumbering. 

• IM–8050–3: The Exchange proposes 

to update the cross reference to Rule 

100(a)(56) to refer to Rule 100(a)(57), 

which defines the term ‘‘quote’’ or 

‘‘quotation’’ after the proposed 

renumbering. 

• Rule 11010(a) ‘‘Investigation 

Following Suspension’’: The Exchange 

proposes to amend subsection (a) of 

Rule 11010 to remove the reference to 

‘‘in BOX options contracts’’ and to 

modify the word ‘‘position’’ with the 

word ‘‘security’’ as follows: ‘‘. . . the 

amount owing to each and a complete 

list of each open long and short security 

position maintained by the Participant 

and each of his or its Customers.’’ 

• Rule 11030 (Failure to Obtain 

Reinstatement): The Exchange proposes 

to amend Rule 11030 to replace the 

reference to ‘‘Options Participant’’ to 

simply ‘‘Participant.’’ 

• Rule 12140 (Imposition of Fines for 

Minor Rule Violations): The Exchange 

proposes to amend Rule 12140 to 

replace references to ‘‘Options 

Participant’’ to simply ‘‘Participant.’’ In 

addition, the Exchange proposes to add 

paragraph (f) to Rule 12140, to 

incorporate the aforementioned 

modifications to the Exchange’s MRVP. 

New paragraph (f) of Rule 12140 would 

provide: ‘‘(f) Transactions on BSTX. 

Rules and penalties relating to trading 

on BSTX that are set forth in Rule 24010 

(Penalty for Minor Rule Violations).’’ 

The Exchange believes that the 

proposed amendments to the definitions 

set forth in Rule 100 are consistent with 

Section 6(b)(5) of the Exchange Act 320

because they protect investors and the 

public interest by setting forth clear 

definitions that help BOX and BSTX 

Participants understand and apply 

Exchange Rules. Without defining terms 

used in the Exchange Rules clearly, 

market participants could be confused 

as to the application of certain rules, 

which could cause harm to investors. 

The Exchange believes that the 

proposed amendments to the other 

Exchange Rules detailed above are 

consistent with Section 6(b)(5) of the 

Exchange Act 321 because the proposed 

rule change is designed to foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities, 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 Exchange believes 

that the proposed rule change would 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system by 

ensuring that market participants can 

easily navigate, understand and comply 

with the Exchange’s rulebook. The 

Exchange believes that the proposed 

rule change enables the Exchange to 

continue to enforce the Exchange’s 

rules. The Exchange notes that none of 

the proposed changes to the current 

Exchange rulebook would materially 

alter the application of any of those 

Rules, other than by extending them to 

apply to BSTX Participants and trading 

on the BSTX System. As such, the 

proposed amendments would foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities and would 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national exchange system. 

Further, the Exchange believes that, by 

ensuring the rulebook accurately reflects 

the intention of the Exchange’s rules, 

the proposed rule change reduces 

potential investor or market participant 

confusion. 

Forms To Be Used in Connection With 

BSTX 

In connection with the operation of 

BSTX, the Exchange proposes to use a 

series of new forms to facilitate 

becoming a BSTX Participant and for 

issuers to list their Securities. These 

forms have been submitted with the 

proposal as Exhibits 3A–3L. Each are 

described below. 

BSTX Participant Application 

Pursuant to proposed Rule 18000(b), 

in order to become a BSTX Participant, 

an applicant must complete a BSTX 

Participant Application, which has been 

submitted with the proposal as Exhibit 

3A. The proposed BSTX Participant 

Application requires the applicant to 

provide certain basic information such 

as identifying the applicants name and 

contact information, Designated 

Examining Authority, organizational 

structure, and Central Registration 

Depository (‘‘CRD’’) number. The BSTX 

Participant Application also requires 

applicants to provide additional 

information including certain beneficial 

ownership information, the applicant’s 

current Form BD, an organization chart, 

a description of how the applicant 

receives orders from customers, how it 

will send orders to BSTX, and a copy of 

written supervisory procedures and 

information barrier procedures. 

In addition, the BSTX Participant 

Application allows applicants to 

indicate whether they are applying to be 

a BSTX Market Maker or a Designated 

Market Maker. Applicants wishing to 

become a BSTX Market Maker or 

Designated Market Maker must provide 

certain additional information including 

a list of each of the applicant’s trading 

representatives (including a copy of 

each representative’s Form U4), a copy 

of the applicant’s written supervisory 

procedures relating to market making, a 

description of the source and amount of 

the applicant’s capital, and information 

regarding the applicant’s other business 

activities and information barrier 

procedures. 

BSTX Participant Agreement 

Pursuant to Exchange Rule 18000(b), 

to transact business on BSTX, 

prospective BSTX Participants must 

complete a BSTX Participant 

Agreement. The BSTX Participant 

Agreement has been submitted with the 

proposal as Exhibit 3B. The BSTX 

Participant Agreement provides that a 

BSTX Participant must agree with the 

Exchange as follows: 

1. Participant agrees to abide by the 

Rules of the Exchange and applicable 

bylaws, as amended from time to time, 

and all circulars, notices, 

interpretations, directives and/or 

decisions adopted by the Exchange. 

2. Participant acknowledges that 

BSTX Participant and its associated 


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322The Exchange will not submit a rule filing if 

the changes made to a document are solely 

typographical or stylistic in nature. 

323Pursuant to proposed Exchange Rule 26130, 

an applicant seeking the initial listing of its 

Security must also provide a legal opinion that the 

applicant’s Security is a security under applicable 

United States securities laws. 

324 15 U.S.C. 78l(b). 

persons are subject to the oversight and 

jurisdiction of the Exchange. 

3. Participant authorizes the Exchange 

to make available to any governmental 

agency or SRO any information it may 

have concerning the BSTX Participant 

or its associated persons, and releases 

the Exchange from any and all liability 

in furnishing such information. 

4. Participant acknowledges its 

obligation to update any and all 

information contained in any part of the 

BSTX Participant’s application, 

including termination of membership 

with another SRO. 

These provisions of the BSTX 

Participant Agreement and others 

therein are generally designed to reflect 

the Exchange’s SRO obligations to 

regulate BSTX Participants. 

Accordingly, these provisions 

contractually bind a BSTX Participant to 

comply with Exchange rules, 

acknowledge the Exchange’s oversight 

and jurisdiction, authorize the Exchange 

to disclose information regarding the 

Participant to any governmental agency 

or SRO and acknowledge the obligation 

to update any and all Application 

contained in the Participant’s 

application. 

BSTX User Agreement 

In order to become a BSTX 

Participant, prospective participants 

must also execute a BSTX User 

Agreement pursuant to proposed Rule 

18000(b). The BSTX User Agreement, 

submitted with the proposal as Exhibit 

3C, includes provisions related to the 

term of the agreement, compliance with 

exchange rules, right and obligations 

under the agreement, changes to BSTX, 

proprietary rights under the agreement, 

use of information received under the 

relationship, disclaimer of warranty, 

limitation of liability, indemnification, 

termination and assignment. The 

information is necessary to outline the 

rights and obligations of the prospective 

Participant and the Exchange under the 

terms of the agreement. Both the BSTX 

Participant Agreement and BSTX User 

Agreement will be available on the 

Exchange’s website (boxoptions.com). 

BSTX Security Market Designated 

Market Maker Selection Form 

In accordance with proposed Rule 

25230(b)(1), BSTX will maintain the 

BSTX Security Designated Market 

Maker Selection Form, which has been 

submitted with the proposal as Exhibit 

3D. The issuer may select its DMM from 

among a pool of DMMs eligible to 

participate in the process. Within two 

business days of the issuer selecting its 

DMM, it will use the BSTX Security 

Market Designated Market Maker 

Selection form to notify BSTX of the 

selection. The form must be signed by 

a duly authorized officer as specified in 

proposed Rule 25230(b)(1). 

Clearing Authorization Forms 

In accordance with proposed Rule 

18010, BSTX Participants that are not 

members/participants of a registered 

clearing agency must clear their 

transactions through a BSTX Participant 

that is a member of a registered clearing 

agency. A BSTX Participant clearing 

through another BSTX Participant 

would do so using, as applicable, either 

the BSTX Clearing Authorization (nonMarket Maker) form (submitted with the 

proposal as Exhibit 3E) or the BSTX 

Participant Clearing Authorization 

(Market Maker) form (submitted with 

the proposal as Exhibit 3F). Each form 

would be maintained by BSTX and each 

form specifies that the BSTX Participant 

clearing on behalf of the other BSTX 

Participant accepts financial 

responsibility for all transactions on 

BSTX that are made by the BSTX 

Participant designated on the form. 

BSTX Listing Applications 

The Exchange proposes to specify the 

required forms of listing application, 

listing agreement and other 

documentation that listing applicants 

and listed companies must execute or 

complete (as applicable) as a 

prerequisite for initial and ongoing 

listing on the Exchange, as applicable 

(collectively, ‘‘listing documentation’’). 

As proposed, the listing forms are 

substantially similar to those currently 

in use by NYSE American LLC, with 

certain differences to account for the 

trading of Securities. All listing 

documentation will be available on the 

Exchange’s website (boxoptions.com). 

Each of the listing documents form a 

duly authorized representative of the 

company must sign an affirmation that 

the information provided is true and 

correct as of the date the form was 

signed. In the event that in the future 

the Exchange makes any substantive 

changes (including changes to the 

rights, duties, or obligations of a listed 

company or listing applicant or the 

Exchange, or that would otherwise 

require a rule filing) to such documents, 

it will submit a rule filing in accordance 

with Rule 19b–4.322

Pursuant to Rule 26130 and 26300 of 

the Exchange Rules, a company must 

file and execute the BSTX Original 

Listing Application (submitted with the 

proposal as Exhibit 3G) or the BSTX 

Additional Listing Application 

(submitted with the proposal as Exhibit 

3H) to apply for the listing of Securities 

on BSTX.323 The BSTX Original Listing 

Application provides information 

necessary, and in accordance with 

Section 12(b) of the Exchange Act,324 for 

Exchange regulatory staff to conduct a 

due diligence review of a company to 

determine if it qualifies for listing on the 

Exchange. The BSTX Additional Listing 

Application requires certain further 

information for an additional listing of 

Securities. Relevant factors regarding 

the company and securities to be listed 

would determine the type of 

information required. The following 

describes each category and use of 

application information: 

1. Corporate information regarding the 

issuer of the security to be listed, 

including company name, address, 

contact information, Central Index Key 

Code (CIK), SEC File Number, state and 

country of incorporation, date of 

incorporation, whether the company is 

a foreign private issuer, website address, 

SIC Code, CUSIP number of the security 

being listed and the date of fiscal year 

end. This information is required of all 

applicants and is necessary in order for 

the Exchange’s regulatory staff to collect 

basic company information for 

recordkeeping and due diligence 

purposes, including review of 

information contained in the company’s 

SEC filings. 

2. For original listing applications 

only, corporate contact information 

including the company’s Chief 

Executive Officer, Chief Financial 

Officer, Corporate Secretary, General 

Counsel and Investor Relations Officer. 

This information is required of all initial 

applicants and is necessary in order for 

the Exchange’s regulatory staff to collect 

current company contact information 

for purposes of obtaining any additional 

due diligence information to complete a 

listing qualification review of the 

applicant. 

3. For original listing applications 

only, offering and security information 

regarding an offering, including the type 

of offering, a description of the issue, 

par value, number of Securities 

outstanding or offered, total Securities 

unissued, but reserved for issuance, date 

authorized, purpose of Securities to be 

issued, number of Securities authorized, 

and information relating to payment of 

dividends. This information is required 

of all applicants listing Securities on the 


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Exchange, and is necessary in order for 

the Exchange’s regulatory staff to collect 

basic information about the offering. 

4. For original listing applications 

only, information regarding the 

company’s transfer agent. Transfer agent 

information is required for all 

applicants. This information is 

necessary in order for the Exchange’s 

regulatory staff to collect current contact 

information for such company transfer 

agent for purposes of obtaining any 

additional due diligence information to 

complete a listing qualification review 

of the applicant. 

5. For original listing applications 

only, contact information for the outside 

counsel with respect to the listing 

application, if any. This information is 

necessary in order for the Exchange’s 

regulatory staff to collect applicable 

contact information for purposes of 

obtaining any additional due diligence 

information to complete a listing 

qualification review of the applicant 

and assess compliance with Exchange 

Rule 26130. 

6. For original listing applications 

only, a description of any security 

preferences. This information is 

necessary to determine whether the 

Applicant issuer has any existing class 

of common stock or equity securities 

entitling the holders to differential 

voting rights, dividend payments, or 

other preferences. 

7. For original listing applications 

only, type of Security listing, including 

the type of transaction (initial public 

offering of a Security, merger, spin-off, 

follow on offering, reorganization, 

exchange offer or conversion) and other 

details related to the transaction, 

including the name and contact 

information for the investment banker/ 

financial advisor contacts. This 

information is necessary in order for the 

Exchange’s regulatory staff to collect 

information for such company for 

purposes of obtaining any additional 

due diligence information to complete a 

listing qualification review of the 

applicant. 

8. For original listing applications 

only, exchange requirements for listing 

consideration. This section notes that to 

be considered for listing, the Applicant 

Issuer must meet the Exchange’s 

minimum listing requirements, that the 

Exchange has broad discretion regarding 

the listing of any Security and may deny 

listing or apply additional or more 

stringent criteria based on any event, 

condition or circumstance that makes 

the listing of an Applicant Issuer’s 

Security inadvisable or unwarranted in 

the opinion of the Exchange. The 

section also notes that even if an 

Applicant Issuer meets the Exchange’s 

listing standards for listing on the BSTX 

Security Market, it does not necessarily 

mean that its application will be 

approved. This information is necessary 

in order for the Exchange’s regulatory 

staff to assess whether an Applicant 

Issuer is qualified for listing. 

9. For original listing applications 

only, regulatory review information, 

including a certification that no officer, 

board member or non-institutional 

shareholder with greater than 10% 

ownership of the company has been 

convicted of a felony or misdemeanor 

relating to financial issues during the 

past ten years or a detailed description 

of any such matters. This section also 

notes that the Exchange will review 

background materials available to it 

regarding the aforementioned 

individuals as part of the eligibility 

review process. This regulatory review 

information is necessary in order for the 

Exchange’s regulatory staff to assess 

whether there are regulatory matters 

related to the company that render it 

unqualified for listing. 

10. For original listing applications 

only, supporting documentation 

required prior to listing approval 

includes a listing agreement, corporate 

governance affirmation, listing 

application checklist and underwriter’s 

letter. This documentation is necessary 

in order to support the Exchange’s 

regulatory staff listing qualification 

review (corporate governance 

affirmation, listing application checklist 

and underwriter’s letter) and to 

effectuate the listed company’s 

agreement to the terms of listing (listing 

agreement). 

11. For additional listing applications 

only, transaction details, including the 

purpose of the issuance, total Securities, 

date of board authorization, date of 

shareholder authorization and 

anticipated date of issuance. This 

information is required of all applicants 

listing additional Securities on the 

Exchange, and is necessary in order for 

the Exchange’s regulatory staff to collect 

basic information about the offering. 

12. For additional listing applications 

only, insider participation and future 

potential issuances, including whether 

any director, officer or principal 

shareholder of the company has a direct 

or indirect interest in the transaction, 

and if the transaction potentially 

requires the company to issue any 

Securities in the future above the 

amount they are currently applying for. 

This information is required of all 

applicants listing additional Securities 

on the Exchange, and is necessary in 

order for the Exchange’s regulatory staff 

to collect basic information about the 

offering. 

13. For additional listing applications 

only, information for a technical 

original listing, including reverse 

Security splits and changes in states of 

incorporation. This information is 

required of all applicants listing 

additional Securities on the Exchange, 

and is necessary in order for the 

Exchange’s regulatory staff to collect 

basic information about the offering. 

14. For additional listing applications 

only, information for a forward Security 

split or Security dividend, including 

forward Security split ratios and 

information related to Security 

dividends. This information is required 

of all applicants listing additional 

Securities on the Exchange, and is 

necessary in order to determine the 

rights associated with the Securities. 

15. For additional listing applications 

only, relevant company documents. 

This information is required of all 

applicants listing additional Securities 

on the Exchange, and is necessary to 

assess to support the Exchange’s 

regulatory staff listing qualification 

review. 

16. For additional listing applications 

only, reconciliation for technical 

original listing, including Securities 

issued and outstanding after the 

technical original event, listed reserves 

previously approved for listing, and 

unlisted reserves not yet approved by 

the Exchange. This information is 

required of all applicants listing 

additional Securities on the Exchange, 

and is necessary to assess to support the 

Exchange’s regulatory staff listing 

qualification review and to obtain all of 

the information relevant to the offering. 

Checklist for Original Listing 

Application 

In order to assist issuers seeking to list 

its Securities on BSTX, the Exchange 

has provided a checklist for issuers to 

seeking to file an original listing 

application with BSTX. The BSTX 

Listing Application Checklist, submitted 

with the proposal as Exhibit 3I, provides 

that issuers must provide BSTX with a 

listing application, listing agreement, 

corporate governance affirmation, 

underwriter’s letter (for an initial public 

offering of a Security only) and relevant 

SEC filings (e.g., 8–A, 10, 40–F, 20–F). 

Each of the above referenced forms are 

fully described herein. The checklist is 

necessary to assist issuers and the 

Exchange regulatory staff in assessing 

the completion of the relevant 

documents. 

BSTX Security Market Listing 

Agreement 

Pursuant to proposed Exchange Rule 

26132, to apply for listing on the 


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325 15 U.S.C. 78f. 

326 15 U.S.C. 78q(d). 

327 17 CFR 240.17d–1. 

Exchange, a company must execute the 

BSTX Security Market Listing 

Agreement (the ‘‘Listing Agreement’’), 

which has been submitted with this 

proposal as Exhibit 3J. Pursuant to the 

proposed Listing Agreement, a company 

agrees with the Exchange as follows: 

1. Company certifies that it will 

comply with all Exchange rules, 

policies, and procedures that apply to 

listed companies as they are now in 

effect and as they may be amended from 

time to time, regardless of whether the 

Company’s organization documents 

would allow for a different result. 

2. Company shall notify the Exchange 

at least 20 days in advance of any 

change in the form or nature of any 

listed Securities or in the rights, 

benefits, and privileges of the holders of 

such Securities. 

3. Company understands that the 

Exchange may remove its Securities 

from listing on the BSTX Security 

Market, pursuant to applicable 

procedures, if it fails to meet one or 

more requirements of Paragraphs 1 and 

2 of this agreement. 

4. In order to publicize the Company’s 

listing on the BSTX Security Market, the 

Company authorizes the Exchange to 

use the Company’s corporate logos, 

website address, trade names, and trade/ 

service marks in order to convey 

quotation information, transactional 

reporting information, and other 

information regarding the Company in 

connection with the Exchange. In order 

to ensure the accuracy of the 

information, the Company agrees to 

provide the Exchange with the 

Company’s current corporate logos, 

website address, trade names, and trade/ 

service marks and with any subsequent 

changes to those logos, trade names and 

marks. The Listing Agreement further 

requires that the Company specify a 

telephone number to which questions 

regarding logo usage should be directed. 

5. Company indemnifies the Exchange 

and holds it harmless from any thirdparty rights and/or claims arising out of 

use by the Exchange or, any affiliate or 

facility of the Exchange 

(‘‘Corporations’’) of the Company’s 

corporate logos, website address, trade 

names, trade/service marks, and/or the 

trading symbol used by the Company. 

6. Company warrants and represents 

that the trading symbol to be used by 

the Company does not violate any trade/ 

service mark, trade name, or other 

intellectual property right of any third 

party. The Company’s trading symbol is 

provided to the Company for the limited 

purpose of identifying the Company’s 

security in authorized quotation and 

trading systems. The Exchange reserves 

the right to change the Company’s 

trading symbol at the Exchange’s 

discretion at any time. 

7. Company agrees to furnish to the 

Exchange on demand such information 

concerning the Company as the 

Exchange may reasonably request. 

8. Company agrees to pay when due 

all fees associated with its listing of 

Securities on the BSTX Security Market, 

in accordance with the Exchange’s 

Rules. 

9. Company agrees to file all required 

periodic financial reports with the SEC, 

including annual reports and, where 

applicable, quarterly or semi-annual 

reports, by the due dates established by 

the SEC. 

The various provisions of the Listing 

Agreement are designed to accomplish 

several objectives. First, clauses 1–3 and 

6–8 reflect the Exchange’s SRO 

obligations to assure that only listed 

companies that are compliant with 

applicable Exchange rules may remain 

listed. Thus, these provisions 

contractually bind a listed company to 

comply with Exchange rules, provide 

notification of any corporate action or 

other event that will cause the company 

to cease to be in compliance with 

Exchange listing requirements, evidence 

the company’s understanding that it 

may be removed from listing (subject to 

applicable procedures) if it fails to be in 

compliance or notify the Exchange of 

any event of noncompliance, furnish the 

Exchange with requested information on 

demand, pay all fees due and file all 

required periodic reports with the SEC. 

Clauses four and five contain standard 

legal representations and agreements 

from the listed company to the 

Exchange regarding use of its logo, trade 

names, trade/service markets, and 

trading symbols as well as potential 

legal claims against the Exchange in 

connection thereto. 

BSTX Security Market Company 

Corporate Governance Affirmation 

In accordance with the proposed Rule 

26800 Series, companies listed on BSTX 

would be required to comply with 

certain corporate governance standards, 

relating to, for example, audit 

committees, director nominations, 

executive compensation, board 

composition, and executive sessions. In 

certain circumstances the corporate 

governance standards that apply vary 

depending on the nature of the 

company. In addition, there are phasein periods and exemptions available to 

certain types of companies. The 

proposed BSTX Security Market 

Corporate Governance Affirmation, 

submitted with this proposal as Exhibit 

3K, enables a company to confirm to the 

Exchange that it is in compliance with 

the applicable standards, and specify 

any applicable phase-ins or exemptions. 

Companies are required to submit a 

BSTX Security Market Corporate 

Governance Affirmation upon initial 

listing on the Exchange and thereafter 

when an event occurs that makes an 

existing form inaccurate. This BSTX 

Security Market Corporate Governance 

Affirmation assists the Exchange 

regulatory staff in monitoring listed 

company compliance with the corporate 

governance requirements. 

Sample Underwriter’s Letter 

In accordance with proposed Rule 

26101, an initial public offering of a 

Security must meet certain listing 

requirements. The Exchange seeks to 

require the issuer’s underwriter to 

execute a letter setting forth the details 

of the offering, including the name of 

the offering and why the offering meets 

the criteria of the BSTX rules. This 

information, set forth in the proposed 

Sample Underwriter’s Letter and 

submitted with this proposal as Exhibit 

3L, is necessary to assist the Exchange’s 

regulatory staff in assessing the 

offering’s compliance with BSTX listing 

standards for an initial public offering of 

a Security. 

Regulation 

In connection with the operation of 

BSTX, the Exchange will leverage many 

of the structures it established to operate 

a national securities exchange in 

compliance with Section 6 of the 

Exchange Act.325 Specifically, the 

Exchange will extend its Regulatory 

Services Agreement with FINRA to 

cover BSTX Participants and trading on 

the BSTX System. This Regulatory 

Services Agreement will govern many 

aspects of the regulation and discipline 

of BSTX Participants, just as it does for 

options regulation. The Exchange will 

perform Security listing regulation, 

authorize BSTX Participants to trade on 

the BSTX System, and conduct 

surveillance of Security trading on the 

BSTX System. 

Section 17(d) of the Exchange Act 326

and the related Exchange Act rules 

permit SROs to allocate certain 

regulatory responsibilities to avoid 

duplicative oversight and regulation. 

Under Exchange Act Rule 17d–1,327 the 

SEC designates one SRO to be the 

Designated Examining Authority, or 

DEA, for each broker-dealer that is a 

member of more than one SRO. The 

DEA is responsible for the financial 

aspects of that broker-dealer’s regulatory 


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328See Exchange Rule 2020(a) (requiring that a 

Participant be a member of another registered 

national securities exchange or association). 

329 17 CFR 240.17d–2. 

330Exchange Act Release No. 85046 (February 4, 

2019), 84 FR 2643 (February 7, 2019). 

331Exchange Act Release No. 84392 (October 10, 

2018), 83 FR 52243 (October 16, 2018). 

332 15 U.S.C. 78f(b)(5). 

333 15 U.S.C. 78a et seq. 

334 15 U.S.C. 78f(b)(5). 

335All non-anonymized information would be 

available only to the BSTX Participant who 

provided such information to the Exchange through 

its trading activity on BSTX. 

336See e.g., NYSE, Daily TAQ Fact Sheet, (noting 

that TAQ data ‘‘provides users access to all trades 

and quotes for all issues traded on NYSE, Nasdaq 

and the regional exchanges for a single trading day’’ 

and is ‘‘a comprehensive history of daily activity 

from NYSE markets and the U.S. Consolidated Tape 

covering U.S. Equities instruments (CTA and UTP 

participating markets’’) https://www.nyse.com/ 

publicdocs/nyse/data/Daily_TAQ_Fact_Sheet.pdf. 

oversight. Because Exchange 

Participants, including BSTX 

Participants, also must be members of at 

least one other SRO, the Exchange 

would generally not be designated as 

the DEA for any of its members.328

Rule 17d–2 under the Exchange 

Act 329 permits SROs to file with the 

Commission plans under which the 

SROs allocate among each other the 

responsibility to receive regulatory 

reports from, and examine and enforce 

compliance with specified provisions of 

the Exchange Act and rules thereunder 

and SRO rules by, firms that are 

members of more than one SRO 

(‘‘common members’’). If such a plan is 

declared effective by the Commission, 

an SRO that is a party to the plan is 

relieved of regulatory responsibility as 

to any common member for whom 

responsibility is allocated under the 

plan to another SRO. The Exchange 

plans to join the Plan for the Allocation 

of Regulatory Responsibilities Regarding 

Regulation NMS.330 The Exchange may 

choose to join certain Rule 17d–2 

agreements such as the agreement 

allocating responsibility for insider 

trading rules.331

For those regulatory responsibilities 

that fall outside the scope of any Rule 

17d–2 agreements that the Exchange 

may join, subject to Commission 

approval, the Exchange will retain full 

regulatory responsibility under the 

Exchange Act. However, as noted, the 

Exchange will extend its existing 

Regulatory Services Agreement with 

FINRA to provide that FINRA personnel 

will operate as agents for the Exchange 

in performing certain regulatory 

functions with respect to BSTX. As is 

the case with the Exchange’s options 

trading platform, the Exchange will 

supervise FINRA and continue to bear 

ultimate regulatory responsibility for 

BSTX. Consistent with the Exchange’s 

existing regulatory structure, the 

Exchange’s Chief Regulatory Officer 

shall have general supervision of the 

regulatory operations of BSTX, 

including responsibility for overseeing 

the surveillance, examination, and 

enforcement functions and for 

administering all regulatory services 

agreements applicable to BSTX. 

Similarly, the Exchange’s existing 

Regulatory Oversight Committee will be 

responsible for overseeing the adequacy 

and effectiveness of Exchange’s 

regulatory and self-regulatory 

organization responsibilities, including 

those applicable to BSTX. Finally, as it 

does with options, the Exchange will 

perform automated surveillance of 

trading on BSTX for the purpose of 

maintaining a fair and orderly market at 

all times and monitor BSTX to identify 

unusual trading patterns and determine 

whether particular trading activity 

requires further regulatory investigation 

by FINRA. 

In addition, the Exchange will oversee 

the process for determining and 

implementing trade halts, identifying 

and responding to unusual market 

conditions, and administering the 

Exchange’s process for identifying and 

remediating ‘‘clearly erroneous trades’’ 

pursuant to proposed Rule 25110. 

NMS Plans 

The Exchange intends to join the 

Order Execution Quality Disclosure 

Plan, the Plan to Address Extraordinary 

Market Volatility, the Plan Governing 

the Process of Selecting a Plan 

Processor, and the applicable plan(s) for 

consolidation and dissemination of 

market data. The Exchange is already a 

participant in the NMS plan related to 

the Consolidated Audit Trail. Consistent 

with Section 6(b)(5) of the Exchange 

Act,332 the Exchange believes that 

joining the same set of NMS plans that 

all other national securities exchanges 

that trade equities must join fosters 

cooperation and coordination with other 

national securities exchanges and other 

market participants engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of the Exchange Act,333

in general and with Section 6(b)(5) of 

the Exchange Act,334 in particular, in 

that 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 title matters not 

related to the purposes of this title or 

the administration of the Exchange. 

The Exchange believes that BSTX will 

benefit individual investors, other 

market participants, and the equities 

market generally. The Exchange 

proposes to establish BSTX as a facility 

of the Exchange that would trade 

equities in a similar manner to how 

equities presently trade on other 

exchanges. BSTX would also make 

available to BSTX Participants the BSTX 

Market Data Blockchain, which 

provides certain order and transaction 

information with respect to a BSTX 

Participant’s trading activity on BSTX, 

as well as anonymized order and 

transaction data with respect to all 

trading activity occurring on BSTX. The 

Exchange believes that the content of 

information available on the BSTX 

Market Data Blockchain would 

generally be similar to TAQ data made 

available by NYSE today, except that (i) 

the BSTX Market Data Blockchain 

would use a private, permissioned 

network controlled by the Exchange to 

make the market data available to BSTX 

Participants; (ii) a BSTX Participant 

would be able to certain see nonanonymized information about its own 

trading activity on BSTX; 335 and (iii) 

the BSTX Market Data Blockchain 

would include market data only with 

respect to trading activity occurring on 

BSTX, while the Exchange understands 

that TAQ data includes certain trading 

and quotation data that may occur on 

other markets.336 The Exchange believes 

that the use of blockchain technology, 

through a private permissioned network 

that operates in manner that is fully 

compatible with the existing regulatory 

structures for trading, recordkeeping, 

and clearance and settlement that 

market participants are familiar with is 

an appropriate way to introduce 

blockchain to the current market 

structure. BSTX Participants would 

have not have affirmative obligations to 

provide information to the blockchain 

nor would they be required to access or 

use it. The data inputs to the BSTX 

Market Data Blockchain would be 

captured in the ordinary course as BSTX 

Participants’ orders and messages are 


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337 15 U.S.C. 78f(b)(5). 

338The Exchange reiterates that non-anonymized 

market data available on the BSTX Market Data 

Blockchain would only ever be accessible by the 

BSTX Participant who provided such market data 

through its trading on BSTX. 

339For example, the Exchange might provide 

temporary access to the BSTX Market Data 

Blockchain to academics studying equity markets. 

340 15 U.S.C. 78f(b)(5) and (8). 

341 15 U.S.C. 78f(b)(8). 

342See proposed Rule 25060(h). 

343See proposed Rule 25100(d). 

344 15 U.S.C. 78f(b)(5). 

345See supra notes 888–91 and accompanying 

text. 

346 15 U.S.C. 78f(b)(5). 

sent to the Exchange through the FIX 

gateway. The BSTX Market Data 

Blockchain, therefore, would be 

optional functionality available to all 

BSTX Participants on equal terms, and 

therefore is not unfairly discriminatory, 

consistent with Section 6(b)(5) of the 

Exchange Act.337

The Exchange has proposed to make 

the BSTX Market Data Blockchain 

available only to BSTX Participants 

rather than other market participants 

that are not BSTX Participants primarily 

because the Exchange believes that 

BSTX Participants would be the most 

likely to be interested in potentially 

using the BSTX Market Data 

Blockchain. The BSTX Market Data 

Blockchain would consist of 

information that pertains solely to 

trading activity on BSTX and not other 

exchanges. The Exchange believes, 

therefore, that most persons interested 

in market data relating to trading on 

BSTX would likely become a BSTX 

Participant, at which time they would 

have access to the BSTX Market Data 

Blockchain. The Exchange solicits 

comment from the public as to whether 

non-BSTX Participants would be 

interested in having access to the BSTX 

Market Data Blockchain and the 

anticipated uses of the BSTX Market 

Data Blockchain by such non-BSTX 

Participants.338 To the extent that nonBSTX Participants are interested in 

access to General Market Data (i.e., 

anonymized market data) available on 

the BSTX Market Data Blockchain, the 

Exchange would consider providing 

access to such persons on an ad hoc 

basis 339 or may consider amendments 

to the proposal (or subsequent rule 

filings) to provide regular access to 

General Market Data on the BSTX 

Market Data Blockchain if there is 

sufficient interest or demand from nonBSTX Participants. The Exchange notes 

that the anonymized data that would be 

available on the BSTX Market Data 

Blockchain would be the same 

information that would be available 

through the Exchange’s proprietary 

market data feeds, which any person 

(i.e., both BSTX Participants and nonBSTX Participants) would be able to 

acquire. Accordingly, under the 

proposal, non-BSTX Participants would 

still be able to access the same 

anonymized market data information 

available on the BSTX Market Data 

Blockchain as BSTX Participants, but 

through a different means (i.e., through 

the proprietary market data feeds rather 

than via the BSTX Market Data 

Blockchain). Because the same 

anonymized information would be 

available to non-BSTX Participants 

through another means, the Exchange 

believes that the proposed limitation of 

access to the BSTX Market Data 

Blockchain is not unfairly 

discriminatory and does not impose a 

burden on competition, consistent with 

Sections 6(b)(5) and 6(b)(8) of the 

Exchange Act.340

In addition, because the BSTX Market 

Data Blockchain only captures 

information with respect to trading 

activity on BSTX, it would have no 

effect or impact on other exchanges, 

promoting consistency with Section 

6(b)(8) of the Exchange Act, which 

prohibits an exchange’s rules from 

imposing a burden on competition not 

necessary or appropriate in furtherance 

of the Exchange Act.341 The entry of an 

innovative competitor such as BSTX 

seeking to implement a measured 

introduction of blockchain technology 

in connection with the trading of equity 

securities may promote competition by 

encouraging other market participants to 

find ways of using blockchain 

technology in connection with 

securities transactions. The proposed 

regulation of BSTX and BSTX 

Participants, as well as the execution of 

Securities using a price-time priority 

model and the clearance and settlement 

of Securities pursuant to the rules, 

policies and procedures of a registered 

clearing agency will all operate in a 

manner substantially similar to existing 

equities exchanges. In this way, the 

Exchange believes that BSTX provides a 

robust regulatory structure that protects 

investors and the public interest while 

introducing the use of blockchain 

technology as an additional feature in 

connection with Securities traded on 

the Exchange. 

In connection with the clearance and 

settlement of Securities pursuant to the 

rules, policies and procedures of a 

registered clearing agency, the Exchange 

proposes that BSTX Participants would 

be able to include in their orders in 

Securities that are submitted to BSTX 

certain parameters to indicate a 

preference for settlement on a same day 

(T+0) or next trading day (T+1) basis 

when certain conditions are met.342 Any 

such orders would at the time of order 

entry represent orders that would be 

regular-way and would be presumed to 

settle on a T+2 basis just like any other 

order submitted by a BSTX Participant 

that does not include a parameter 

indicating a preference for faster 

settlement. As described in greater 

detail above, however, an Order with a 

T+0 Preference or an Order with a T+1 

Preference would only result in 

executions that would actually settle 

more quickly than on a T+2 basis if, and 

only if, all of the conditions in Rule 

25060(h) are met and the execution that 

is transmitted to NSCC is eligible for 

T+0 or T+1 settlement under the rules, 

policies and procedures of a registered 

clearing agency.343 Any such preference 

included by a BSTX Participant would 

only become operative if the order 

happens to execute against another 

order from a BSTX Participant that also 

includes a parameter indicating a 

preference for settlement on a T+0 or 

T+1 basis. 

The Exchange believes that the 

proposed ability for BSTX Participants 

to indicate a preference for shorter 

settlement times as described above is 

consistent with the Exchange Act and in 

particular Section 6(b)(5) of the 

Exchange Act because it would help 

remove impediments to and perfect the 

mechanism of a free and open market 

and is not designed to permit unfair 

discrimination between or among 

market participants.344 Specifically, 

allowing for BSTX Participants to 

potentially reduce the settlement time 

for transactions on BSTX pursuant to 

the rules, policies and procedures of a 

registered clearing agency helps remove 

impediments to and perfects a free an 

open market by allowing greater choice 

for BSTX Participants who may want to 

avail themselves of currently available 

functionality at registered clearing 

agencies. Moreover, the Commission has 

previously noted a number of positive 

effects relating to the liquidity risks and 

costs faced by members in a clearing 

agency, and the Exchange believes that 

this proposed functionality on BSTX 

would help realize such positive 

effects.345 Proposed Rule 25060(h) is not 

designed to permit unfair 

discrimination between market 

participants consistent with Section 

6(b)(5) 346 because the Rule would allow 

all orders that are marketable against 

one another—regardless of the 

settlement preference of the BSTX 

Participant submitting the order (or 

their customer)—to execute against each 


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347See supra notes 71–76 and accompanying text. 

348 15 U.S.C. 78f(b)(5). 

349 Id. 

350See Part II.H.5. 

351Commission Statement on Thinly Traded 

Securities at 56956. 352 15 U.S.C. 78f(b)(8). 

other. A BSTX Participant that would 

like settlement of T+2 could still 

interact with orders on BSTX that 

indicate a preference for a shorter 

settlement cycle and vice-versa. Only 

where two orders that both indicate a 

preference for a shorter settlement cycle 

match on BSTX would a shorter 

settlement cycle be possible. 

The Exchange also proposes to 

suspend unlisted trading privileges for 

Securities that qualify as Thinly Traded 

Securities, which the Exchange also 

believes is consistent with the Exchange 

Act for the reasons detailed in Part II.H 

above.347 The Exchange proposes to 

suspend UTP only for Securities that 

qualify as Thinly Traded Securities, 

which are generally those with an ADV 

of trading of 100,000 or less and a 

market capitalization of less than $1 

billion, and where an issuer of a Thinly 

Traded Security elects to have UTP 

suspended. The Exchange believes that 

the proposed suspension of UTP is 

consistent with Section 6(b)(5) of the 

Exchange Act 348 because it is designed 

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 by concentrating 

displayed liquidity on a single 

exchange, which many, including the 

Commission, have suggested could 

potentially improve the market quality 

for thinly traded securities. The 

Exchange believes that concentrating 

displayed liquidity on a single venue 

could make market making more 

attractive in Thinly Traded Securities, 

thereby increasing the overall amount 

and depth of liquidity in the market and 

in turn making it easier for investors to 

acquire and dispose of positions in 

Thinly Traded Securities, which 

furthers the protection of investors and 

the public interest, consistent with 

Section 6(b)(5) of the Exchange Act.349

The Exchange would make available 

order and transaction data relating to 

Thinly Traded Securities to regulators, 

academics, and others upon request to 

evaluate how the suspension of UTP has 

impacted Thinly Traded Securities. The 

Exchange will also perform its own 

analysis across a range of market quality 

metrics to evaluate whether the 

suspension of UTP has had the intended 

effect of improving market quality for 

Thinly Traded Securities.350 The 

Exchange believes that by studying the 

effect of the suspension of UTP for 

Thinly Traded Securities and making 

available market data for others to make 

similar studies, the Exchange can help 

ensure that the suspension of UTP is in 

fact having the intended effect of 

improving market quality for Thinly 

Traded Securities and/or determine 

what else might be necessary to improve 

market quality, all of which the 

Exchange believes will help further the 

protection of investors and the public 

interest. 

Similarly, consistent the Exchange 

believes that the proposed suspension of 

UTP for Thinly Traded Securities would 

not permit unfair discrimination 

between customers, issuers, brokers or 

dealers, because the suspension is for 

the purpose of furthering the regulatory 

objective of improving market quality 

for securities that are thinly traded. 

Although non-Thinly Traded Securities 

would not be able to have UTP 

suspended, this discriminatory 

treatment is not ‘‘unfair’’ given the 

substantial public interest, as 

demonstrated through the Commission’s 

statements and by market participants at 

the Roundtable, in improving market 

conditions for thinly traded securities. 

The Exchange believes that the 

proposed suspension of UTP would 

help protect investors and the public 

interest, consistent with Section 6(b)(5), 

by concentrating displayed liquidity on 

a single venue, thereby providing 

greater incentives for market makers in 

Thinly Traded Securities and in turn 

making it easier for investors to buy and 

sell shares of Thinly Traded Securities. 

The Exchange believes that there is a 

general consensus among members of 

Commission staff, former 

Commissioners (including former 

Chairman Jay Clayton), the Department 

of the Treasury, and market 

participants, as well as empirical 

evidence, making clear that operating 

company stocks with an ADV of less 

than 100,000 shares suffer significant 

liquidity and market quality challenges 

not faced by stocks with greater trading 

volume. It is for this reason, the 

Exchange believes, that the Commission 

specifically solicited requests from 

exchanges for innovative approaches to 

improve the market for thinly traded 

securities, including requests for 

suspension of UTP.351

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.352

The Exchange operates in an intensely 

competitive global marketplace for 

transaction services. The Exchange 

competes for the privilege of providing 

market services to broker-dealers 

through the Exchange’s service offerings 

and associated benefits it is able to 

provide. The Exchange’s ability to 

compete in this environment is based in 

large part on the quality of its trading 

systems, the overall quality of its market 

and its attractiveness to market 

participants who evaluate the Exchange 

on, among other things, speed, 

reliability, the likelihood and costs of 

executions, as well as spreads, fairness, 

and transparency. 

The Exchange believes that the 

primary areas where the proposed rule 

change could potentially result in a 

burden on competition are with regard 

to the terms on which: (1) Issuers may 

list their securities for trading, (2) 

market participants may access BSTX as 

a facility of the Exchange and use its 

services including the BSTX Market 

Data Blockchain, (3) Security 

transactions may be cleared and settled, 

(4) Security transactions would occur 

OTC (5) Security transactions would 

occur on other exchanges through an 

extension of UTP to Securities that are 

not Thinly Traded Securities; and (6) 

there would be a suspension of UTP for 

Thinly Traded Securities. 

Regarding considerations (1) and (2), 

and as described in detail in Item 3 

above, the BSTX Rules are drawn 

substantially from the existing rules of 

other exchanges that the Commission 

has already found to be consistent with 

the Exchange Act, including regarding 

whether they impose any burden on 

competition that is not necessary or 

appropriate in furtherance of its 

purposes. For example, the BSTX NonETP Listing Rules in the 26000 Series 

and Suspension and Delisting Rules in 

the 27000 Series that affect issuers and 

their ability to list Securities for trading 

are based substantially on the current 

rules of NYSE American. Additionally, 

the BSTX Trading and Listing of ETPs 

Rules in the 28000 Series that concern 

issuers and their ability to list Securities 

that are exchange-traded products are 

based substantially on the current rules 

of NYSE Arca. Additionally, the BSTX 

Rules regarding membership and access 

to and use of the facilities of BSTX are 

also substantially based on existing 

exchange rules. Specifically, the 

relevant BSTX Rules are as follows: 

participation on BSTX (Rule 18000 

Series); business conduct for BSTX 

participants (Rule 19000 Series); 


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353For example, a BSTX Participant may wish to 

use the market data to review its trading activity on 

BSTX, determine what the market quality was at a 

particular time for a given Security or to evaluate 

execution quality on BSTX. 

354See supra n. 366–38 and accompanying text. 

355 Id. 

356See supra n. 39 and accompanying text. 

financial and operational rules for BSTX 

participants (Rule 20000 Series); 

supervision (Rule 21000 Series); 

miscellaneous provisions (Rule 22000 

Series); trading practices (Rule 23000 

Series); discipline and summary 

suspension (Rule 24000 Series); trading 

(Rule 25000 Series); market making 

(Rule 25200 Series); and dues, fees, 

assessments, and other charges (Rule 

28000 [sic] Series). As described in 

detail in Item 3, these rules are 

substantially based on analogous rules 

of the following exchanges, as 

applicable: BOX; Investors Exchange 

LLC; Cboe BZX Exchange, Inc.; The 

Nasdaq Stock Market LLC; and NYSE 

American LLC. 

Regarding consideration (2) and use of 

the BSTX Market Data Blockchain, the 

terms on which BSTX would operate 

the BSTX Market Data Blockchain under 

Rule 17020 would apply equally to all 

BSTX Participants and would therefore 

not impose any different burden on one 

BSTX Participant compared to another. 

As described in detail in Item 3, BSTX 

would issue login credentials to each 

BSTX Participant through which the 

BSTX Participant may choose to access 

the BSTX Market Data Blockchain. 

Accessing the BSTX Market Data 

Blockchain would not be required. If a 

Participant chooses to do so, it would be 

able to see its order and transaction 

information on BSTX as well as certain 

anonymized General Market Data from 

other BSTX Participants. Because the 

General Market Data would be 

anonymized, the Exchange believes that 

there would not be cause for concern 

regarding potential trading information 

leakage or the ability for a BSTX 

Participant to reverse engineer another 

BSTX Participant’s trading strategies. 

Moreover, the BSTX Market Data 

Blockchain would not require any 

affirmative action on the part of a BSTX 

Participant for its information to be 

recorded to the BSTX Market Data 

Blockchain. Rather the Exchange would 

control all aspects of the BSTX Market 

Data Blockchain as a private, 

permission-based blockchain accessible 

to BSTX Participants, and the BSTX 

Market Data Blockchain would capture 

order and execution activity that occurs 

in the normal course on BSTX and is 

made available to BSTX Participants as 

an additional resource that they may use 

in their discretion. The BSTX Market 

Data Blockchain would functionally 

provide market data similarly to what 

NYSE offers through TAQ data, but 

would simply provide it using 

distributed ledger technology. 

Accordingly, although capturing a 

different set of market data than 

captured by NYSE TAQ data, the BSTX 

Market Data Blockchain is procompetitive by offering a similar type of 

market data and using an innovative 

technology to do so. For these reasons, 

the Exchange believes that the BSTX 

Market Data Blockchain would not 

impose any burden on competition. 

In addition to not imposing any 

burden on competition, the Exchange 

believes that the BSTX Market Data 

Blockchain would provide two primary 

benefits to BSTX Participants. First, the 

Exchange believes that BSTX 

Participants that choose to access the 

BSTX Market Data Blockchain may find 

the information useful as a focused 

source of market data regarding order 

and transaction information on 

BSTX.353 Second, the Exchange believes 

that the BSTX Market Data Blockchain 

would help familiarize BSTX 

Participants that access the market data 

with the capabilities of blockchain 

technology in a manner that does not 

impose any burden on competition on 

them or others. The Commission has 

stated that it is ‘‘mindful of the benefits 

of increasing use of new technologies 

for investors and the markets, and has 

encouraged experimentation and 

innovation . . .’’ stating further that 

‘‘[i]nformation and communications 

technologies are critical to healthy and 

efficient primary and secondary 

markets.’’ 354 Regarding the judgment of 

whether the benefits of certain 

technologies are meritorious, the 

Commission has explained its view that 

‘‘[t]he market will ultimately prove the 

worth of technology—whether the 

benefits to the industry and its investors 

of developing and using new services 

are greater than the associated costs.’’ 355

Consistent with these statements, the 

Exchange believes that promoting use of 

the functionality of blockchain 

technology through the BSTX Market 

Data Blockchain will allow BSTX 

Participants to observe and increase 

their familiarity with the capabilities 

and potential benefits of blockchain 

technology in a context that operates 

within the current equity market 

infrastructure and thereby advances and 

protects the public’s interest in the use 

and development of new data 

processing techniques that may create 

opportunities for more efficient, 

effective and safe securities markets.356

Regarding consideration (3) and the 

manner in which Security transactions 

may be cleared and settled, the 

Exchange proposes under BSTX Rule 

25100(d) to clear and settle transactions 

in Securities in accordance with the 

rules, policies and procedures of a 

registered clearing agency. The 

Exchange believes that this is consistent 

with how other exchange-listed equity 

securities are cleared and settled today. 

Therefore, BSTX’s rules regarding 

clearance and settlement of Security 

transactions do not impose any relative 

burden on competition regarding the 

manner in which trades may be cleared 

and settled because market participants 

would be able to clear and settle 

Security transactions in the same 

manner as they already do in other 

types of NMS stock. The Exchange 

believes that this is equally true 

regarding the proposed ability of BSTX 

Participants to submit to BSTX orders in 

Securities in which they include a 

parameter expressing a preference for 

T+1 or T+0 settlement, consistent with 

the rules, policies and procedures of a 

registered clearing agency, as proposed 

in the operation of proposed BSTX 

Rules 25060(h) and 25100(d). As 

described in detail in Item 3 above, 

BSTX believes that NSCC and DTC 

already have authority under their rules 

policies and procedures to clear and 

settle certain trades on a T+1 or T+0 

basis and that these clearing agencies do 

already clear and settle trades in 

accordance with this authority. 

The Exchange believes that answering 

the question of whether a burden on 

competition is imposed by the proposal 

to allow BSTX Participants to specify an 

order parameter indicating a preference 

for potential settlement on a T+0 or T+1 

basis requires an assessment under three 

general circumstances for order 

submissions and executions. The first 

possible circumstance contemplates 

orders that BSTX Participants would 

submit to the BSTX System and that 

would result in an execution on BSTX. 

Here, it would be entirely the choice of 

any BSTX Participant regarding whether 

to include an order parameter indicating 

a preference for T+0 or T+1 settlement 

where possible under the settlement 

logic in BSTX Rule 25060(h). If no such 

additional parameter is included in the 

order, the order defaults to settle on a 

regular-way T+2 basis under the 

settlement logic in proposed BSTX Rule 

25060(h). As described in Part II.I of 

Item 3, an order that includes a 

parameter indicating a preference for 

potential T+0 settlement will execute 

against any order against which it is 

marketable with settlement occurring on 


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357See supra n. 82 and accompanying text. 358 17 CFR 242.611. 

a regular-way settlement cycle of T+2 

except where: (i) The order with the 

parameter for potential settlement on 

T+0 executes against another order with 

a parameter for potential settlement on 

T+0 (in which case settlement would 

occur on the trade date if the transaction 

is also eligible for settlement on T+0 

under the rules, policies and procedures 

of a registered clearing agency) or (ii) 

the order with a parameter for potential 

settlement on T+0 executes against an 

order with a parameter for potential 

settlement on T+1 (in which case 

settlement would occur T+1). Similarly, 

as proposed, an order that includes a 

parameter for potential settlement on 

T+1 will execute against any order 

against which it is marketable with 

settlement occurring on a regular-way 

settlement date of T+2 except where: (i) 

An order that includes a parameter for 

potential settlement on T+1 executes 

against another such order or an order 

that includes a parameter for potential 

settlement on T+0 (in which case 

settlement would occur T+1). In all 

cases under the settlement logic in 

proposed BSTX Rule 25060(h), an order 

that does not include an optional 

parameter indicating a preference for 

potential settlement on T+0 or T+1 

would be a regular way order that 

would always receive T+2 settlement if 

it executes against any other order in the 

BSTX System. In this way, all of the 

orders submitted to BSTX would be 

regular way orders that in and of 

themselves would be presumed to settle 

on T+2. Only where a BSTX Participant 

includes the optional parameters to 

express a preference for potential T+0 or 

T+1 settlement (where consistent with 

the rules, policies and procedures of a 

registered clearing agency) and the order 

matches against another order seeking a 

shorter settlement time than T+2 could 

a transaction settle more quickly than 

T+2 under the settlement logic in 

proposed BSTX Rule 25060(h) and as 

described immediately above. Thus, 

every market participant seeking T+2 

settlement for an execution on BSTX 

would be able to interact with any order 

against which their order is marketable, 

including those marked for possible T+0 

or T+1 settlement. In addition, the 

possibility of shortened settlement 

timing would have no impact on the 

Exchange’s price time priority.357 For 

these reasons, the Exchange believes 

that no burden on competition is 

imposed in this first possible 

circumstance. 

The second possible circumstance 

arises when an order that would be 

required under Exchange Act Rule 

611,358 the Commission’s ‘‘order 

protection rule’’, to be routed to BSTX 

from a third party exchange that extends 

UTP to a Security. This required routing 

of the order in such a Security would 

occur in this setting because the NBBO 

existed on BSTX at the time of the entry 

of the order. Under proposed BSTX Rule 

25060(h), the order routed to BSTX 

would execute against any order against 

which it is marketable without regard to 

whether a BSTX Participant may have 

included an optional parameter for 

potential T+0 or T+1 settlement where 

the order executes against another order 

that also has an optional parameter for 

potential T+0 or T+1 settlement under 

the settlement logic in BSTX Rule 

25060(h). In the event the order routed 

to BSTX executes against another order 

on BSTX against which it is marketable, 

that executed transaction in the Security 

would be bound for regular way T+2 

settlement under BSTX Rule 25060(h) 

because the Exchange believes that the 

routed order from a third party 

exchange would not include a 

parameter for T+0 or T+1 settlement. 

This is because the Exchange believes 

that no other exchange currently 

includes any such optional parameters 

to be able to indicate a preference for 

potential T+0 or T+1 settlement. This 

structure means that any non-BSTX 

Participant that sees a quote in a 

Security on BSTX would remain able to 

execute against that quote even if that 

quote includes an optional parameter 

indicating a preference for T+0 or T+1 

settlement where an executed order 

becomes eligible for any such settlement 

on a basis that is faster that T+2 under 

the settlement logic in BSTX Rule 

25060(h). The Exchange believes that no 

burden on competition results in this 

second possible circumstance because 

an order routed to BSTX would interact 

against any order on BSTX against 

which it is marketable. All orders in a 

Security that are submitted directly to 

BSTX by BSTX Participants or that may 

be routed to BSTX would be regular way 

orders that when viewed in isolation 

would be presumed to settle on a T+2 

basis at the time of order entry. It would 

only be upon execution against another 

order that also includes an order 

parameter expressing a preference for 

settlement on a T+0 or T+1 basis that 

the executed transaction (i.e., not the 

initial orders) would become eligible for 

settlement faster than T+2 under the 

settlement logic in Rule 25060(h). The 

Exchange believes this imposes no 

burden on competition on BSTX 

Participants because inclusion of any 

T+0 or T+1 parameter would be entirely 

optional and any BSTX Participant that 

includes such a parameter would do so 

with an ex-ante understanding of the 

settlement logic in BSTX Rule 25060 

that could cause an executed transaction 

to settle more quickly than T+2. As 

noted, the Exchange believes that orders 

in a Security that would be required to 

be routed to BSTX, for example under 

the Commission’s Order Protection 

Rule, would also not impose any burden 

on competition because other exchanges 

do not have rules that similarly 

contemplate the inclusion of a T+0 or 

T+1 parameter, such routed orders 

would therefore result in T+2 settlement 

if executed against any other order on 

BSTX against which the order is 

marketable (regardless of whether the 

order against which it executes includes 

an optional parameter indicating a 

preference for T+0 or T+1 settlement). 

Therefore, any order routed to BSTX 

would be able to interact with any other 

order on BSTX against which it is 

marketable and would settle on a 

regular way T+2 basis just as occurs 

today regarding any order in an NMS 

stock that is routed to a national 

securities exchange. 

The third possible circumstance 

contemplates an order that must be 

routed under the order protection rule 

from BSTX to a third party exchange 

that extends UTP for a Security because 

the third party exchange has the NBBO 

at that time. The Exchange believes that 

this setting is not relevant under the 

proposed rules of BSTX. Specifically, 

the Exchange believes that it is not 

relevant because proposed BSTX Rule 

25130(d) states that the BSTX System 

will reject any order or quotation that 

would lock or cross a protected 

quotation of another exchange at the 

time of entry. Therefore, any such 

orders that would otherwise be required 

to be routed by BSTX to another 

exchange will instead be rejected by the 

BSTX System. Accordingly, any 

specification by a BSTX Participant of a 

T+0 or T+1 settlement timing parameter 

for an order in this setting could not 

create any burden on competition 

because the order will be rejected and 

would never lead to an execution. 

In addition to not imposing any 

burden on competition, the Exchange 

believes that allowing BSTX 

Participants to use faster settlement 

cycles where consistent with the rules, 

policies and procedures of a registered 

clearing agency would mitigate 

settlement risk for transactions in such 

Securities, consistent with the benefits 

the Commission has noted in this area. 

Namely, in adopting amendments to 

SEC Rule 15c6–1 in 2017 to shorten the 

standard settlement cycle for most 


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359See supra n. 88–91 and accompanying text. 

360 Id. 

361 Id. 

362 15 U.S.C. 78f(b)(8). 

363See supra n. 42–50 and accompanying text. 

364 Id. 

365 Id. 

366 Id. 

367 Id. 

368See supra note 51–52. 

369See supra note 56 noting the immaterial 

difference between the construction used by OAR 

of an ADV of less than 100,000 shares versus the 

Exchange’s proposed construction of an ADV of 

100,000 shares or less. 

broker-dealer transactions in securities 

from T+3 to T+2, the Commission stated 

its belief that the shorter settlement 

cycle would have positive effects 

regarding the liquidity risks and costs 

faced by members in a clearing agency, 

like NSCC, that performs CCP services, 

and that it would also have positive 

effects for other market participants. 

Specifically, the Commission stated its 

belief that the resulting ‘‘reduction in 

the amount of unsettled trades and the 

period of time during which the CCP is 

exposed to risk would reduce the 

amount of financial resources that the 

CCP members may have to provide to 

support the CCP’s risk management 

process . . .’’ and that ‘‘[t]his reduction 

in the potential need for financial 

resources should, in turn, reduce the 

liquidity costs and capital demands 

clearing broker-dealers face . . . and 

allow for improved capital 

utilization.’’ 359 The Commission went 

on to state its belief that shortening the 

settlement cycle ‘‘would also lead to 

benefits to other market participants, 

including introducing broker-dealers, 

institutional investors, and retail 

investors’’ such as ‘‘quicker access to 

funds and securities following trade 

execution’’ and ‘‘reduced margin 

charges and other fees that clearing 

broker-dealers may pass down to other 

market participants[.]’’ 360 The 

Commission also ‘‘noted that a move to 

a T+1 standard settlement cycle could 

have similar qualitative benefits of 

market, credit, and liquidity risk 

reduction for market participants[.]’’ 361

The Exchange agrees with these 

statements by the Commission and has 

therefore proposed BSTX Rule 25100(d) 

in a form that would promote the 

benefits of shorter settlement cycles for 

Securities without imposing burdens on 

other national securities exchanges or 

market participants that are not BSTX 

Participants. 

With respect to consideration (4) 

above, as previously noted, market 

participants would not be limited in 

their ability to trade Securities OTC 

because Securities could be traded OTC, 

including Thinly Traded Securities for 

which UTP has been suspended, and 

would be cleared and settled in the 

same manner as other NMS stocks 

through the facilities of a registered 

clearing agency. Thus, the Exchange 

does not believe that its proposal will 

place any new burden on competition 

with respect to OTC trading, given that 

trading, clearance and settlement will 

take place in the same manner as for 

other NMS stocks. 

With respect to consideration (5) 

noted above regarding other exchanges 

extending UTP to Securities that are not 

Thinly Traded Securities (and for which 

the issuer elected to suspend UTP), the 

Exchange does not believe that the 

proposed Rules would impose a burden 

on competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. This is 

because, with the exception of Thinly 

Traded Securities described below, 

other national securities exchanges 

would be able to extend UTP to 

Securities in accordance with 

Commission rules just as they can 

regarding any other NMS stock. 

Regarding consideration (6) and 

suspensions of UTP for Thinly Traded 

Securities, the Exchange believes that 

proposed BSTX Rule 25150 would 

impose a burden on competition as 

described below. However, for the 

reasons described below the Exchange 

believes that the degree of the burden on 

competition is justified under the 

Exchange Act because it is necessary 

and appropriate to promote other 

express objectives of the Exchange Act. 

If an operating company that is an 

issuer of a Security gives written notice 

to the Exchange under BSTX Rule 

25150(b) that it elects a suspension of 

UTP and the Exchange determines that 

the Security qualifies as a Thinly 

Traded Security, the Thinly Traded 

Security would be eligible to trade only 

on BSTX and OTC while the suspension 

of UTP is in effect. This would burden 

competition regarding other national 

securities exchanges for the time that 

the suspension of UTP is in effect 

because it would mean that the 

exchanges would not be permitted to 

extend UTP to the Thinly Traded 

Security and therefore the Thinly 

Traded Security would only trade on 

BSTX and OTC. The Exchange believes, 

however, that this burden on other 

exchanges is appropriately limited to 

the subset of Securities that are Thinly 

Traded Securities because it would only 

apply (i) in the event that the Security 

meets the average daily trading volume 

thresholds in BSTX Rule 25150 and (ii) 

the issuer elects to notify the Exchange 

in writing that it wishes to suspend 

UTP. Therefore, the burden on other 

exchanges would never apply regarding 

a Security that is not a Thinly Traded 

Security. 

As also described in Item 3, Part II.H, 

the Exchange believes that this limited 

burden on other exchanges would be 

offset and necessary and appropriate 

under Section 6(b)(8) of the Exchange 

Act 362 because the suspension of UTP 

has the potential to help solve market 

quality problems for Thinly Traded 

Securities that have been publicly 

identified by the Commission, 

Commission staff, the U.S. Department 

of Treasury, academics, and a broad 

spectrum of market participants.363 The 

Exchange agrees with the views 

expressed in the related publications 

that ‘‘the current ‘one-size-fits-all’ 

equity market structure, as largely 

governed under Regulation NMS, may 

not be optimal for thinly traded 

securities’’ 364 and that ‘‘more needs to 

be done to promote liquidity and to 

improve the listing and trading 

environment for thinly traded 

stocks.’’ 365 The Commission noted that 

the ‘‘secondary market for thinly traded 

securities faces liquidity challenges that 

can have a negative effect on both 

investors and issuers traded securities 

faces liquidity challenges that can have 

a negative effect on both investors and 

issuer’’ including ‘‘wider spreads and 

less displayed size relative to securities 

that trade in greater volume, often 

resulting in higher transaction costs for 

investors.’’ 366 These concerns have 

been echoed in statements by former 

Commission Chairman Jay Clayton, 

former Director of the Division of 

Trading and Market Brett Redfearn, the 

Commission’s Small Business Advisory 

Committee and demonstrated through 

empirical analyses by the Division of 

Trading and Market’s Office of 

Analytics and Research (OAR) and 

academics.367 A frequently discussed 

potential solution to these liquidity and 

poor market quality issues facing thinly 

traded securities has been the 

suspension of UTP for such securities, 

allowing for displayed liquidity to be 

concentrated on a single exchange.368

The Exchange has thus proposed the 

suspension of UTP in response to these 

concerns. The Exchange notes that it 

proposes to use the same criteria as used 

by OAR (i.e., an ADV of less than 

100,000 shares) 369 to distinguish thinly 

traded securities from more actively 

traded securities with the additional 

conditions that only the Securities of an 

operating company and must have a 

market capitalization of less than $1 


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29674 Federal Register / Vol. 86, No. 104 / Wednesday, June 2, 2021 / Notices 

370 In addition, the Exchange proposes to work 

with other SROs to amend the revenue allocation 

formula of the applicable NMS plan(s) for 

consolidated market data to exclude Thinly Traded 

Securities in order to prevent the Exchange from 

unduly profiting from the suspension of UTP under 

such formula. See supra notes 70–71 and 

accompanying text. 

371 15 U.S.C. 78f(b)(8). 372 17 CFR 200.30–3(a)(12). 

billion, which the Exchange believes 

helps ensure that the competitive 

burden imposed by the proposed 

suspension of UTP is narrowly tailored 

to address liquidity and market quality 

concerns for securities that are thinly 

traded.370 It is for these reasons that the 

Exchange believes that the burden on 

competition through the suspension of 

UTP for Thinly Traded Securities (at the 

election of the issuer) is justified in 

furtherance of goal of improving market 

quality for securities that are thinly 

traded. 

In addition, the Exchange does not 

believe that the suspension of UTP for 

Thinly Traded Securities will impose a 

burden on competition not necessary or 

appropriate in furtherance of the 

Exchange Act 371 because other 

exchanges could similarly be granted a 

suspension of UTP for qualifying thinly 

traded securities listed on their markets. 

Exchanges can compete with each other 

in attracting issuers of thinly traded 

securities to be singly-listed and traded 

on their respective exchanges. 

Exchanges would still be able to 

compete with one another for listings 

and the market for all thinly traded 

securities could be improved. Moreover, 

if the suspension of UTP has the desired 

effect of improving the overall liquidity 

of a Thinly Traded Security, such 

Security should hopefully exceed the 

100,000 share ADV or $1 billion market 

capitalization thresholds and become 

available for UTP, thus removing any 

barrier to competition once the purpose 

for which the suspension of UTP was 

initiated has been fulfilled. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were not and are 

not intended to be solicited with respect 

to the proposed rule change and none 

have been received. 

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 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

BOX–2021–06 on the subject line. 

Paper Comments 

• 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–2021–06. 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 (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for 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–2021–06 and should 

be submitted on or before June 23, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.372

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–11410 Filed 6–1–21; 8:45 am] 

BILLING CODE 8011–01–P 


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