Document ID: SEC-2020-1313-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2020-08-18T04:00Z

[Federal Register Volume 85, Number 160 (Tuesday, August 18, 2020)]
[Notices]
[Pages 50850-50854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17968]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89537; File No. SR-BOX-2020-16]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Amendment No. 1 and Order Instituting Proceedings To Determine 
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by 
Amendment No. 1, in Connection With the Proposed Establishment of the 
Boston Security Token Exchange LLC as a Facility of the Exchange

August 12, 2020.
    On May 12, 2020, BOX Exchange LLC (``Exchange'' or ``BOX'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change in connection 
with the proposed commencement of operations of the Boston Security 
Token Exchange LLC (``BSTX'') as a facility of the Exchange. The 
proposed rule change was published for comment in the Federal Register 
on June 1, 2020.\3\ On July 16, 2020, pursuant to Section 19(b)(2) of 
the Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On August 3, 2020, the Exchange filed 
Amendment No. 1 to the proposed rule change (``Amendment No. 1'').\6\ 
The Commission has received no comment letters on the proposed rule 
change, as modified by Amendment No. 1.\7\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 88949 (May 26, 
2020), 85 FR 33258 (June 1, 2020) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 89329 (July 16, 
2020), 85 FR 44333 (July 22, 2020). The Commission designated August 
30, 2020, as the date by which the Commission shall approve or 
disapprove, or institute proceedings to determine whether to 
disapprove, the proposed rule change.
    \6\ The Exchange states that Amendment No. 1 makes the following 
changes: (1) Where the proposed rule change used the term ``digital 
security token,'' the Exchange is now proposing to use the term 
``security'' when referring to the proposed operation of the ``BSTX 
Market''; (2) provide additional detail and clarification on the 
effect of BSTX's approval as a facility of the Exchange; and (3) 
update citations related to two Exchange rule filings. When the 
Exchange filed Amendment No. 1 to SR-BOX-2020-16, it also submitted 
a redline, which the Exchange states reflects the text of the 
partial amendment compared to the original filing, as a comment 
letter to the filing, and which the Commission made publicly 
available at https://www.sec.gov/comments/sr-box-2020-16/srbox202016-7525322-222100.pdf.
    \7\ The Commission notes that the proposed rule change, as 
modified by Amendment No. 1, is substantially similar to previously-
filed proposed rule change, SR-BOX-2019-37, which was published for 
comment in the Federal Register on January 3, 2020. See Securities 
Exchange Act Release No. 87868 (December 30, 2019), 85 FR 345 
(January 3, 2020) (SR-BOX-2019-37) (Notice of Filing of Proposed 
Rule Change).
    BOX withdrew proposed rule change SR-BOX-2019-37 on May 12, 
2020. See Securities Exchange Act Release No. 89017 (June 4, 2020), 
85 FR 35473 (June 10, 2020) (Notice of Withdrawal of a Proposed Rule 
Change).
    Comments on SR-BOX-2019-37 can be found at: https://www.sec.gov/comments/sr-box-2019-37/srbox201937.htm.
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    The Commission is publishing this notice and order to solicit 
comments on the proposed rule change, as modified by Amendment No. 1, 
from interested persons and to institute proceedings pursuant to 
Section 19(b)(2)(B) of the Act \8\ to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No.1.
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    \8\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal, as Modified by Amendment No. 1

    As described in the Notice, as modified by Amendment No. 1,\9\ the 
Exchange proposes to establish BSTX as a facility (as defined in 
Section 3(a)(2) of the Act) of the Exchange that will operate a market 
for the trading of securities (the ``BSTX Market'') and adopt the 
Second Amended and Restated Limited Liability Company Agreement of BSTX 
(the ``BSTX LLC Agreement'') for BSTX as a facility of the 
Exchange.\10\ The Exchange states that it has filed trading rules as 
part of a separate proposed rule change, and subject to Commission 
approval of those rules, BSTX would operate the BSTX Market.\11\ The 
Exchange states that without Commission approval of the trading rules, 
it would not permit BSTX to commence operations of the BSTX Market, and 
that the Exchange's regulatory oversight responsibilities with respect 
to BSTX would not be triggered unless SR-BOX-2020-16 is approved by the 
Commission.\12\
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    \9\ See Notice, supra note 3; Amendment No. 1, supra note 6.
    \10\ See Amendment No. 1, supra note 6, at 3-4; Notice, supra 
note 3, at 33258. The proposed Boston Security Token Exchange LLC, 
Second Amended and Restated Limited Liability Company Agreement, 
dated as of December 20, 2019 (``BSTX LLC Agreement'') is attached 
as Exhibit 5A to the Form 19b-4 for SR-BOX-2020-16 (available on the 
Commission's website at https://www.sec.gov/rules/sro/box/2020/34-88949-ex5a.pdf).
    \11\ See Amendment No. 1, supra note 6, at 4 (citing Securities 
Exchange Act Release No. 88946 (May 26, 2020), 85 FR 33454 (June 1, 
2020) (SR-BOX-2020-14), as amended by Amendment No. 1 (filed on July 
31, 2020)).
    \12\ See id. at 4.
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    The Exchange states that ownership interests in BSTX are 
represented by two classes of units (``Units''): Class A Units, which 
represent equal units of limited liability interest in BSTX, including 
an interest in the ownership and profits and losses of BSTX and the 
right to receive distributions from BSTX as set forth in the BSTX LLC 
Agreement (``Class A Units''); and Class B Units, which are identical 
to Class A Units, except that they do not have the right to vote on any 
matter related to BSTX (``Class B Units'').\13\ According to the 
Exchange: (1) 50% of the voting Class A Units are owned by BOX Digital, 
which is 98% owned by BOX Holdings Group

[[Page 50851]]

LLC (``BOX Holdings'') and 2% owned by Lisa Fall; \14\ and (2) the 
other 50% of the voting Class A Units are owned by tZERO, which is 
80.07% owned by Medici Ventures, Inc. (``Medici''), a wholly owned 
subsidiary of a publicly held corporation, Overstock.com, Inc. 
(``Overstock''), and 19.93% owned by individuals and companies.\15\ BOX 
Holdings is (1) 42.63% owned by MX US 2, Inc., which is 100% owned by 
MX US 1, Inc., a wholly owned subsidiary of Bourse de Montreal, Inc., 
which in turn is a wholly owned subsidiary of TMX Group Limited 
(``TMX''); (2) 22.69% owned by IB Exchange Corp.; and (3) 34.68% owned 
by seven separate, unaffiliated owners.\16\ According to the Exchange, 
BOX Digital and tZERO each have over a 45% economic interest in BSTX, 
and the non-voting Class B Units are held by various employees and 
directors of BSTX, each of whom hold less than a 5% economic interest 
in BSTX.\17\ The Exchange also states that BSTX is an affiliate of the 
Exchange and, if approved as an affiliate of the Exchange, will be 
subject to regulatory oversight by the Exchange,\18\ and that tZERO and 
BSTX are affiliates of Overstock.\19\
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    \13\ See Notice, supra note 3, 85 FR at 33259, nn.10-12 and 
accompanying text. According to the Exchange, Class B Units will 
automatically convert to an equal number of Class A Units upon the 
sale or transfer of a majority of the Class A Units or majority of 
the assets of BSTX, directly or indirectly, to any party or group of 
related parties. See id. at 33259-60, n.13.
    \14\ See id. at 33260. Lisa Fall is the Chief Executive Officer 
of BSTX and President of the Exchange. See BSTX LLC Agreement, supra 
note 10, Signature Page.
    \15\ See Notice, supra note 3, 85 FR at 33260. One individual 
holds 7.53% of the outstanding shares of tZERO, and Newer Ventures 
LLC, SpeedRoute Technologies Inc., Dinosaur Financial, and 28 
individuals each own less than 3% of the outstanding shares of 
tZERO. See id.
    \16\ See id. The following entities each hold less than 15% of 
the outstanding units of BOX Holdings: Citadel Securities Principal 
Investments LLC, Citigroup Financial Products Inc., UBS Americas 
Inc., CSFB Next Fund Inc., LabMorgan Corp., Wolverine Trading, LLC, 
and Aragon Solutions Ltd. See id.
    \17\ See id. at 33260.
    \18\ See id. at 33259; Amendment No. 1, supra note 6, at 4.
    \19\ See Notice, supra note 3, 85 FR at 33260.
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    The Exchange states that BOX Holdings wholly owns BOX Options 
Market LLC (``BOX Options''), which is a facility of the Exchange \20\ 
and the only facility that the Exchange currently operates.\21\ The 
Exchange notes that the BSTX LLC Agreement provisions are generally the 
same as provisions of the BOX Options LLC Agreement or the BOX Holdings 
LLC Agreement, with certain exceptions.\22\ The Exchange states that it 
will enter into a facility agreement with BSTX (``Facility Agreement'') 
pursuant to which the Exchange will exercise regulatory oversight over 
BSTX.\23\ Furthermore, the Exchange has entered into an IP License and 
Services Agreement (``LSA'') with tZERO,\24\ under which tZERO will 
provide BSTX and the Exchange with a license to use its intellectual 
property that comprises the BSTX trading system and services related 
to, among other things, implementing and maintain the trading 
system.\25\
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    \20\ See id. at 33259.
    \21\ See id. at 33259, n.4; Amendment No. 1, supra note 6, at 5.
    \22\ See Notice, supra note 3, 85 FR at 33259, n.8 and 
accompanying text.
    \23\ See id. at 33259. The Exchange will also provide certain 
business services to BSTX pursuant to an administrative services 
agreement. See id.
    \24\ See id. at 33261.
    \25\ See id. at 33266. The Facility Agreement, administrative 
services agreement, and LSA were not provided as exhibits to the 
proposal.
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    Holders of Units are referred to as LLC Members,\26\ and a record 
of the LLC Members will be maintained by the Secretary of BSTX and 
updated from time to time, which shall include the name and address of 
each LLC Member and the number of Units of each class held by each LLC 
Member.\27\ The Exchange proposes that a person would become an 
additional or substitute LLC Member of BSTX only upon that person's 
execution of a counterpart of the BSTX LLC Agreement to evidence that 
person's written acceptance of the terms and provisions of the BSTX LLC 
Agreement.\28\ According to the Exchange, the Commission would be 
notified if an LLC Member's ownership interest in BSTX, alone or 
together with any related person of that LLC Member, meets or exceeds 
5%, 10%, or 15%, and the BSTX LLC Agreement provides that any 
``Transfer'' that results in the acquisition and holding by any person, 
alone or together with its related persons, of an ownership interest 
that meets or crosses 20% or any subsequent 5% increment, would be 
subject to the rule filing process pursuant to Section 19 of the 
Act.\29\
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    \26\ ``LLC Members'' are duly admitted holders of BSTX Units and 
would include any person later admitted to BSTX as an additional or 
substitute LLC Member as provided by the BSTX LLC Agreement. See id. 
at 33260; BSTX LLC Agreement, supra note 10, Section 1.1.
    \27\ See Notice, supra note 3, 85 FR at 33260, n.14 and 
accompanying text; BSTX LLC Agreement, supra note 10, Section 1.1.
    \28\ See Notice, supra note 3, 85 FR at 33266; BSTX LLC 
Agreement, supra note 10, Section 7.1(b).
    \29\ See Notice, supra note 3, 85 FR at 33267; BSTX LLC 
Agreement, supra note 10, Section 7.4(e) and (f). The term 
``Transfer'' is defined in Section 7.1(a) of the BSTX LLC Agreement, 
and excludes ``(i) transfers among [LLC] Members, (ii) transfers to 
any Person directly or indirectly owning, controlling or holding 
with power to vote all of the outstanding voting securities of and 
equity beneficial interests in such [LLC] Member, or (iii) any 
Person that is a wholly owned Affiliate of such [LLC] Member.'' See 
BSTX LLC Agreement, supra note 10, Section 7.1(a); Notice, supra 
note 3, 85 FR at 33266.
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    Pursuant to the BSTX LLC Agreement, a Controlling Person that 
establishes a Controlling Interest \30\ in an LLC Member that holds 
equal to or greater than a 20% ownership interest in BSTX will be 
required to become a party to the BSTX LLC Agreement, by executing an 
instrument of accession, and abide by its provisions to the same extent 
as if they were LLC Members.\31\ The Exchange also states that these 
amendments to the BSTX LLC Agreement will be subject to the rule filing 
process pursuant to Section 19 of

[[Page 50852]]

the Act.\32\ The Exchange further proposes that any BSTX Participant 
that directly or indirectly together with its Related Persons holds 
more than 20% of BSTX would have its voting power capped at 20%.\33\ 
According to the Exchange, this limitation is designed to prevent a 
market participant from exerting undue influence on an Exchange 
facility.\34\
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    \30\ ``Controlling Person'' is defined as ``a Person who, alone 
or together with any Related Persons of such Person, holds a 
Controlling Interest in [an LLC] Member.'' ``Controlling Interest'' 
is defined as ``the direct or indirect ownership of 25% or more of 
the total voting power of all equity securities of [an LLC] Member . 
. . by any Person, alone or together with any Related Persons of 
such Person.'' See BSTX LLC Agreement, supra note 10, Section 
7.4(g)(v)(A)-(B). ``Related Person'' is defined as ``with respect to 
any Person: (A) any Affiliate of such Person; (B) any other Person 
with which such first Person has any agreement, arrangement or 
understanding (whether or not in writing) to act together for the 
purpose of acquiring, voting, holding or disposing of Interests; (C) 
in the case of a Person that is a company, corporation or similar 
entity, any executive officer (as defined under Rule 3b-7 under the 
Exchange Act) or director of such Person and, in the case of a 
Person that is a partnership or limited liability company, any 
general partner, managing member or manager of such Person, as 
applicable; (D) in the case of any BSTX Participant who is at the 
same time a broker-dealer, any Person that is associated with the 
BSTX Participant (as determined using the definition of `person 
associated with a member' as defined under Section 3(a)(21) of the 
Exchange Act); (E) in the case of a Person that is a natural person 
and a BSTX Participant, any broker or dealer that is also a BSTX 
Participant with which such Person is associated; (F) in the case of 
a Person that is a natural person, any relative or spouse of such 
Person, or any relative of such spouse who has the same home as such 
Person or who is a director or officer of the Exchange or any of its 
parents or subsidiaries; (G) in the case of a Person that is an 
executive officer (as defined under Rule 3b-7 under the Exchange 
Act) or a director of a company, corporation or similar entity, such 
company, corporation or entity, as applicable; and (H) in the case 
of a Person that is a general partner, managing member or manager of 
a partnership or limited liability company, such partnership or 
limited liability company, as applicable.'' See id. Section 1.1. 
``Person'' and ``BSTX Participant'' are also defined in Section 1.1 
of the BSTX LLC Agreement.
    \31\ See Notice, supra note 3, 85 FR at 33260, 33267; BSTX LLC 
Agreement, supra note 10, Section 7.4(g). The proposed Form of 
Instrument of Accession to Boston Security Token Exchange LLC, 
Amended and Restated Limited Liability Company Agreement is attached 
as Exhibit 5B to the Form 19b-4 for SR-BOX-2020-16 (available on the 
Commission's website at https://www.sec.gov/rules/sro/box/2020/34-88949-ex5b.pdf). The Exchange specifically notes that Medici, 
Overstock, BOX Digital, BOX Holdings, MX US 1, Inc., MX US 2, Inc., 
Bourse de Montreal, Inc., and TMX would be required to execute an 
instrument of accession substantially in the form attached as 
Exhibit 5B. See Notice, supra note 3, 85 FR at 33260.
     Pursuant to Section 7.4(g)(iii) of the BSTX LLC Agreement, ``a 
Person shall not be required to execute an amendment to [the BSTX 
LLC Agreement] . . . if such Person does not, directly or 
indirectly, hold any interest in [an LLC] Member.'' BSTX LLC 
Agreement, supra note 10, Section 7.4(g)(iii).
    \32\ See Notice, supra note 3, 85 FR at 36227; BSTX LLC 
Agreement, supra note 10, Section 7.4(g)(iv).
    \33\ See Notice, supra note 3, 85 FR at 33260; BSTX LLC 
Agreement, supra note 10, Section 7.4(h).
    \34\ See Notice, supra note 3, 85 FR at 33260.
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    The Exchange states that the BSTX LLC Agreement includes provisions 
that ensure that the Exchange has full regulatory control over BSTX and 
these provisions are designed to prevent any owner of BSTX from having 
undue influence over regulatory actions.\35\ The BSTX LLC Agreement 
provides that BSTX's board of directors (``Board'') will consist of six 
directors, comprised of (1) two directors appointed by each of BOX 
Digital and tZERO (the ``Member Directors''); (2) one director 
appointed by the unanimous vote of the Member Directors (the 
``Independent Director''); and (3) one non-voting director appointed by 
the Exchange (``the ``Regulatory Director'').\36\ The Exchange states 
that BSTX will have an Independent Director to avoid either BOX Digital 
or tZERO from controlling or creating deadlock on the Board.\37\ The 
Exchange also states that BSTX's Board structure differs from that of 
BOX Options because BOX Options, as a wholly-owned subsidiary of BOX 
Holdings, has the same directors as BOX Holdings, and BOX Holdings, 
unlike BSTX, has no owners with 50% or greater ownership.\38\
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    \35\ See id. at 33259.
    \36\ See id. at 33262; BSTX LLC Agreement, supra note 10, 
Section 4.1(a). The Exchange states that the Regulatory Director 
must be a member of senior management of the regulation staff of the 
Exchange. See Notice, supra note 3, 85 FR at 33262. See also BSTX 
LLC Agreement, supra note 10, Section 1.1.
    \37\ See Notice, supra note 3, 85 FR at 33262.
    \38\ See id.
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    Generally, actions by the Board will be considered effective only 
if approved by at least a majority of the votes entitled to vote on 
that action.\39\ The Board must approve, by an affirmative vote of the 
Member Directors, any ``major action,'' which will include, among other 
things, changes to operating the BSTX Market using any software system 
other than the BSTX trading system, except as otherwise provided in the 
LSA or to the extent otherwise required by the Exchange to fulfill its 
regulatory functions or responsibilities or to oversee the BSTX Market 
as determined by the board of the Exchange.\40\ The BSTX LLC Agreement 
also provides that the Exchange shall receive notice of planned or 
proposed changes to BSTX, with the exception of certain changes not 
related to the operation of the market, or to the BSTX Market, and that 
such changes will require affirmative approval by the Exchange before 
implementation.\41\ If the Exchange determines that planned or proposed 
changes could cause a regulatory deficiency, the Exchange may direct 
BSTX, subject to Board approval, to modify the proposal as 
necessary.\42\
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    \39\ See id.; BSTX LLC Agreement, supra note 10, Section 4.3.
    \40\ See Notice, supra note 3, 85 FR at 33262-63; BSTX LLC 
Agreement, supra note 10, Section 4.4(a).
    \41\ See Notice, supra note 3, 85 FR at 33264; BSTX LLC 
Agreement, supra note 10, Section 3.2(a)(ii).
    \42\ See Notice, supra note 3, 85 FR at 33264; BSTX LLC 
Agreement, supra note 10, Section 3.2(a)(iii).
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    The Exchange also proposes how regulatory funds may be allocated. 
The Exchange states that, pursuant to the Facility Agreement, the 
Exchange will have the right to receive all fees, fines, and 
disgorgements imposed upon BSTX Participants with respect to BSTX's 
trading system (``Regulatory Funds'') and all other market data fees, 
tape, and other revenue (``Non-regulatory Funds''), and all Regulatory 
Funds and Non-regulatory Funds collected in respect to BSTX may be used 
by the Exchange, at its sole discretion, for regulatory purposes.\43\ 
Furthermore, all Regulatory Funds collected by the Exchange will be 
retained by the Exchange and not transferred to BSTX; however, Non-
regulatory Funds collected may be transferred to BSTX after the 
Exchange has made adequate provisions for all regulatory purposes.\44\
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    \43\ See Notice, supra note 3, 85 FR at 33264. If BSTX incurs 
costs and expenses for regulatory purposes, the Exchange may 
reimburse BSTX using Regulatory Funds. See id. at 33264. In the 
event that the Exchange does not hold sufficient funds to meet all 
regulatory purposes, BSTX will reimburse the Exchange for any such 
additional costs and expenses. See id. The BSTX LLC Agreement does 
not include provisions regarding Regulatory Funds.
    \44\ See id at 33264-65.
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    The proposal includes provisions regarding capital contributions 
and distributions. According to the Exchange, capital contributions 
will be reflected on the books and records of BSTX.\45\ The BSTX LLC 
Agreement does not specify the capital contributions from BOX Digital 
and tZERO, or any other LLC Member. Pursuant to the proposed BSTX LLC 
Agreement, BOX Digital will provide executive leadership and exclusive 
rights to the regulatory services of the Exchange with respect to BSTX 
Products \46\ and tZERO will provide the license and services set forth 
in the LSA and will make the necessary arrangements with any applicable 
third parties which will permit BSTX to be an authorized sublicensee of 
any required third-party software necessary for trading on BSTX.\47\ 
The BSTX LLC Agreement also includes provisions regarding 
determinations of capital needs by the Board, including, among others, 
the requirement that at least one Member Director appointed by each LLC 
Member affirmatively vote to raise capital; \48\ potential cash 
distributions; \49\ and allocation of profits, losses, and credits for 
each fiscal year to LLC Members at least once annually on a pro rata 
basis.\50\
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    \45\ See id. at 33266; BSTX LLC Agreement, supra note 10, 
Section 6.1.
    \46\ See BSTX LLC Agreement, supra note 10, Section 3.2(c).
    \47\ See id. Section 3.2(b); Notice, supra note 3, 85 FR at 
33266.
    \48\ See Notice, supra note 3, 85 FR at 33265; BSTX LLC 
Agreement, supra note 10, Section 6.2. The Exchange states that the 
requirement concerning the affirmative vote of one Member Director 
appointed by each LLC Member is not present in the BOX Options LLC 
Agreement, but that the Exchange believes that this provision 
promotes commercial fairness and is necessary due to the differing 
ownership structure of BSTX. See Notice, supra note 3, 85 FR at 
33265.
    \49\ See BSTX LLC Agreement, supra note 10, Section 8.1.
    \50\ See id. Section 9.1.
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    The proposal also includes provisions regarding the regulation of 
BSTX and regulatory jurisdiction over LLC Members of BSTX.\51\ 
Specifically, the BSTX LLC Agreement provides that the Exchange has the 
authority to act as the self-regulatory organization (``SRO'') for 
BSTX, will provide the regulatory framework for the BSTX Market, and 
will have regulatory responsibility for the activities of the BSTX 
Market.\52\ Additionally, the BSTX LLC Agreement includes provisions, 
which the Exchange states are substantively similar to provisions in 
the BOX Options LLC Agreement, that address the handling of 
confidential information, both pertaining to regulatory matters and 
otherwise.\53\ The BSTX LLC Agreement also contains provisions, which 
the Exchange states

[[Page 50853]]

are substantially similar to those of the BOX Options LLC Agreement, 
related to regulatory jurisdiction over LLC Members; \54\ the 
maintenance of books and records; \55\ and the independence of the 
self-regulatory function of the Exchange and compliance with federal 
securities laws.\56\
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    \51\ See Notice, supra note 3, 85 FR at 33268-70.
    \52\ See id. at 33268; BSTX LLC Agreement, supra note 10, 
Section 3.2. The Exchange states that Section 3.2 of the BSTX LLC 
Agreement ensures that the Exchange has full regulatory control over 
BSTX and is designed to prevent any owner of BSTX from exercising 
undue influence over the regulated activities of BSTX. See Notice, 
supra note 3, 85 FR at 33265.
    \53\ See Notice, supra note 3, 85 FR at 33268-69; BSTX LLC 
Agreement, supra note 10, Article 15. The BSTX LLC Agreement 
contains additional language to make it clear that the Commission 
can access and examine confidential information pursuant to federal 
securities laws and rules. See Notice, supra note 3, 85 FR at 33268; 
BSTX LLC Agreement, supra note 10, Section 15.5.
    \54\ See Notice, supra note 3, 85 FR at 33269; BSTX LLC 
Agreement, supra note 10, Sections 11.1, 18.6(a), 18.6(c).
    \55\ See Notice, supra note 3, 85 FR at 33269; BSTX LLC 
Agreement, supra note 10, Section 11.1.
    \56\ See Notice, supra note 3, 85 FR at 33261-62, 33264; BSTX 
LLC Agreement, supra note 10, Section 4.12.
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    The Exchange also states that it submitted a separate filing to 
introduce structural changes to the Exchange to accommodate regulation 
of BSTX as well as BOX Options, which was approved by the 
Commission.\57\ According to the Exchange, BSTX Participants will have 
the same representation, rights, and responsibilities as BOX Options 
Participants.\58\
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    \57\ See Notice, supra note 3, 85 FR at 33259; Amendment No. 1, 
supra note 6, at 5 (citing Securities Exchange Act Release No. 88934 
(May 22, 2020), 85 FR 32085 (May 28, 2020)).
    \58\ See Notice, supra note 3, 85 FR at 33259.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-BOX-
2020-16, as Modified by Amendment No. 1, and Grounds for Disapproval 
Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \59\ to determine whether the proposed rule 
change, as modified by Amendment No. 1, should be approved or 
disapproved. Institution of such proceedings is appropriate at this 
time in view of the legal and policy issues raised by the proposed rule 
change. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to any of the 
issues involved. Rather, as described below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change to inform the Commission's analysis of whether to 
approve or disapprove the proposed rule change.
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    \59\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\60\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(1) 
of the Act, which requires that a national securities exchange be so 
organized and have the capacity to be able to carry out the purposes of 
the Act and to comply, and enforce compliance by its members and 
persons associated with its members, with the provisions of the Act, 
the rules and regulations thereunder, and the rules of the 
exchange.\61\ In addition, the Commission is instituting proceedings to 
allow for additional analysis of the proposed rule change's consistency 
with Section 6(b)(3) of the Act, which requires that the rules of a 
national securities exchange assure a fair representation of its 
members in the selection of its directors and administration of its 
affairs and provide that one or more directors shall be representative 
of issuers and investors and not be associated with a member of the 
exchange, broker, or dealer; \62\ and Section 6(b)(5) of the Act, which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and to protect investors and the public interest, and not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.\63\
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    \60\ Id.
    \61\ 15 U.S.C. 78f(b)(1).
    \62\ 15 U.S.C. 78f(b)(3).
    \63\ 15 U.S.C. 78f(b)(5).
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
[SRO] that proposed the rule change.'' \64\ The description of a 
proposed rule change, its purpose and operation, its effect, and a 
legal analysis of its consistency with applicable requirements must all 
be sufficiently detailed and specific to support an affirmative 
Commission finding,\65\ and any failure of an SRO to provide this 
information may result in the Commission not having a sufficient basis 
to make an affirmative finding that a proposed rule change is 
consistent with the Act and the applicable rules and regulations.\66\
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    \64\ 17 CFR 201.700(b)(3).
    \65\ See id.
    \66\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposal, as modified by Amendment No. 1, is consistent 
with the Act.

III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal, as 
modified by Amendment No. 1, is consistent with Sections 6(b)(1),\67\ 
6(b)(3),\68\ and 6(b)(5) \69\ of the Act or any other provision of the 
Act, or the rules and regulations thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval that would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4 under the Act,\70\ 
any request for an opportunity to make an oral presentation.\71\
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    \67\ 15 U.S.C. 78f(b)(1).
    \68\ 15 U.S.C. 78f(b)(3).
    \69\ 15 U.S.C. 78f(b)(5).
    \70\ 17 CFR 240.19b-4.
    \71\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal, as modified by Amendment No. 
1, should be approved or disapproved by September 8, 2020. Any person 
who wishes to file a rebuttal to any other person's submission must 
file that rebuttal by September 22, 2020. The Commission asks that 
commenters address the sufficiency of the Exchange's statements in 
support of the proposal, which are set forth in the Notice,\72\ as 
modified by Amendment No. 1,\73\ in addition to any other comments they 
may wish to submit about the proposed rule change.
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    \72\ See Notice, supra note 3.
    \73\ See Amendment No. 1, supra note 6.
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    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

[[Page 50854]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BOX-2020-16 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-2020-16. 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-2020-16 and should be submitted by 
September 8, 2020. Rebuttal comments should be submitted by September 
22, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\74\
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    \74\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17968 Filed 8-17-20; 8:45 am]
BILLING CODE 8011-01-P