Document ID: SEC-2022-0264-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC; BSTX, LLC
Posted Date: 2022-02-24T05:00Z

[Federal Register Volume 87, Number 37 (Thursday, February 24, 2022)]
[Notices]
[Pages 10401-10411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03873]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94278; File No. SR-BOX-2021-14]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, in Connection 
With the Proposed Establishment of BSTX LLC as a Facility of the 
Exchange

February 17, 2022.

I. Introduction

    On June 7, 2021, 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 (``Exchange 
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change in 
connection with the proposed commencement of operations of BSTX LLC 
(``BSTX'') as a facility of the Exchange. The proposed rule change was 
published for comment in the Federal Register on June 24, 2021.\3\ On 
August 3, 2021, pursuant to Section 19(b)(2) of the Exchange Act,\4\ 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On September 16, 2021, the Exchange filed Amendment No. 1 to 
the proposed rule change (``Amendment No. 1''), which replaced and 
superseded the proposed rule change as originally filed.\6\ On 
September 21, 2021, the Commission published notice of Amendment No. 1 
and instituted proceedings pursuant to Section 19(b)(2)(B) of the 
Exchange Act \7\ to determine whether to approve or disapprove the 
proposed rule change, as modified by Amendment No. 1.\8\ On December 
15, 2021, pursuant to Section 19(b)(2) of the Exchange Act,\9\ the 
Commission designated a longer period for Commission action on the 
proposed rule change, as modified by Amendment No. 1.\10\ On January 
18, 2022, the Exchange filed Amendment No. 2, which replaced and 
superseded the proposed rule change, as modified by Amendment No. 
1.\11\ The Commission

[[Page 10402]]

is publishing this notice to solicit comments on the proposed rule 
change, as modified by Amendment No. 2 (``BSTX Governance Proposal''), 
from interested persons and is approving the proposed rule change, as 
modified by Amendment No. 2, on an accelerated basis.
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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. 92206 (June 17, 
2021), 86 FR 33402 (``Notice''). Comments on the proposed rule 
change can be found at: https://www.sec.gov/comments/sr-box-2021-14/srbox202114.htm. The Commission received one comment letter that 
expresses opposition to the proposal but without specificity as to 
why. See Letter from David (September 23, 2021).
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92556, 86 FR 43572 
(August 9, 2021). The Commission designated September 22, 2021, as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
    \6\ In Amendment No. 1, the Exchange revised the proposal to: 
(1) Adopt the BSTX LLC Third Amended and Restated Limited Liability 
Company Agreement prior to the commencement of operations of BSTX as 
a facility of the Exchange, which, among other things, (a) changes 
the legal name of the facility from ``Boston Security Token Exchange 
LLC'' to ``BSTX LLC,'' (b) modifies certain defined terms, including 
``BSTX Product'' and ``Competing Business,'' (c) defines the term 
``Governmental Authority'' and modifies certain provisions to permit 
access to certain confidential information by any such authority, 
and (d) adds a provision that would, among other things, require an 
effective rule filing pursuant to Section 19 of the Exchange Act 
prior to any Member, or Related Person of such Member, becoming a 
BSTX Participant if such Member, alone or together with any Related 
Persons of such Member, has the right to appoint more than 20% of 
the BSTX Directors entitled to vote; (2) provide additional 
information about ownership of non-voting Class B Units; (3) clarify 
how limitations on voting of interests in BOX Holdings are 
implemented by reallocating voting rights to other BOX Holdings 
owners, and how a similar provision in the BSTX LLC Agreement would 
operate; (4) discuss certain provisions and associated definitions 
in the BSTX LLC Agreement that are the same or different from those 
that currently apply to BOX Holdings and BOX Options, particularly 
with respect to the board structure, intellectual property, and 
automatic admission of Class B Units as Members; (5) provide 
additional description of limitations on voting and ownership of 
interests in the Exchange; (6) provide additional description of the 
roles, obligations, and authorities of BOX Digital, tZERO, and the 
Exchange with respect to BSTX; (7) describe the funding of 
operations of BSTX; (8) clarify representation of BSTX Participants 
on the Exchange's Board and committees, and how those 
representatives would be appointed at the commencement of 
operations; and (9) make other technical, clarifying and conforming 
changes.
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 93094, 86 FR 53365 
(September 27, 2021) (Notice of Filing of Amendment No. 1 and Order 
Instituting Proceedings) (``OIP'').
    \9\ 15 U.S.C. 78s(b)(2).
    \10\ See Securities Exchange Act Release No. 93786, 86 FR 72296 
(December 21, 2021).
    \11\ In Amendment No. 2, the Exchange revised the proposal to: 
(1) Revise the BSTX LLC Agreement by, among other things, (a) 
introducing certain defined terms, including ``Shortfall Amount,'' 
``Statutory Disqualification,'' and ``Tax Matters Representative,'' 
(b) converting existing class A and class B units of BSTX to 
economic units and voting units of BSTX, (c) prohibiting events that 
would result in any person, together with its related persons, 
holding an economic interest in BSTX greater than 40% or a voting 
interest in BSTX greater than 20% without both Exchange approval and 
an effective rule filing pursuant to Section 19 of the Exchange Act, 
(d) prohibiting BSTX Participants from holding either an economic 
interest or voting interest in BSTX greater than 20%, (e) modifying 
the structure and composition of the BSTX board of directors by 
limiting BOX Digital and tZERO to one director each, providing the 
regulatory director with voting rights, adding the BSTX CEO as a 
director, and providing that the independent director will serve as 
chairman of the board of directors, (f) providing that no person 
subject to a statutory disqualification will serve as a BSTX 
director or officer, and (g) removing the requirement that the BSTX 
board of directors will create and appoint audit and compensation 
committees; (2) specify the individuals and entities that own 
economic and voting interests in BSTX and at what levels, including 
that BOX Digital and tZERO's economic interests have been reduced to 
40% each and that BOX Digital and tZERO's voting interests have been 
reduced to 20% each; (3) state that the Exchange will not distribute 
regulatory funds to its owners and that regulatory funds will not be 
used for non-regulatory purposes; (4) represent that the Exchange 
will have adequate funding for the Exchange's operations with 
respect to BSTX; (5) revise Exhibit 5B to propose the form of 
Instrument of Accession that each identified Controlling Person 
would sign; and (6) make other technical, clarifying and conforming 
changes. Amendment No. 2 is available on the Commission's website 
at: https://www.sec.gov/comments/sr-box-2021-14/srbox202114-20112131-265232.pdf (``Amendment No. 2'').
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II. Overview

    As set forth in the OIP and Amendment No. 2,\12\ the Exchange 
proposes to establish BSTX as a facility of the Exchange (as defined in 
Section 3(a)(2) of the Exchange Act).\13\ The Exchange proposes that 
BSTX would operate a market for the trading of securities (``BSTX 
Market''), and with this proposed rule change, the Exchange proposes to 
adopt the BSTX LLC Third Amended and Restated Limited Liability Company 
Agreement (``BSTX LLC Agreement'' or ``LLC Agreement'') \14\ as the 
source of governance and operating authority for BSTX.\15\ In a 
separate action, the Commission approved the Exchange's proposed rule 
change to establish the trading rules for BSTX.\16\
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    \12\ See OIP, supra note 8; Amendment No. 2, supra note 11.
    \13\ See OIP, supra note 8, 86 FR at 53366. Pursuant to Section 
3(a)(2) of the Exchange Act, 15 U.S.C. 78c(a)(2), 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.''
    \14\ The proposed LLC Agreement is Exhibit 5A to Amendment No. 
2. See Amendment No. 2, supra note 11. Capitalized terms not 
otherwise defined herein have the meanings specified in the BSTX LLC 
Agreement.
    \15\ See id. at 3, 5.
    \16\ See Securities Exchange Act Release No. 94092 (January 27, 
2022), 87 FR 5881 (February 2, 2022) (SR-BOX-2021-06) (approving the 
trading of equity securities on the Exchange through a facility of 
the Exchange known as BSTX). Among other things, the BSTX trading 
rules proposal established rules regarding the listing and trading 
of securities on BSTX and the operations of and eligibility to 
participate on the BSTX Market.
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    Ownership interests in BSTX would be represented by two classes of 
Units: Economic Units \17\ and Voting Units.\18\ Duly admitted holders 
of these limited liability company interests would be ``Members'' of 
BSTX.\19\ Economic Units would represent equity interests in BSTX and 
entitle holders to participate in BSTX's allocations and distributions, 
but would not include the right to vote.\20\ Voting Units would 
represent voting interests in BSTX and entitle holders to participate 
in votes of BSTX's Members.\21\ Each Member would be a holder of both 
Voting Units and Economic Units.\22\ The total number of Voting Units 
would be equal to the total number of Economic Units; \23\ Voting Units 
may not be transferred separately from their related Economic 
Units.\24\ Unless required to be adjusted, as discussed further 
below,\25\ each Member would hold the number of Voting Units equal to 
the number of Economic Units it holds.\26\ A Member's level of 
ownership interest would be expressed in terms of its Economic 
Percentage Interest and Voting Percentage Interest.\27\
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    \17\ See BSTX LLC Agreement, Sections 1.1 and 2.5(a); Amendment 
No. 2, supra note 11, at 7.
    \18\ See BSTX LLC Agreement, Sections 1.1 and 2.5(b); Amendment 
No. 2, supra note 11, at 7. The Exchange proposes that all Economic 
Units would be identical to each other and accord the holders 
thereof the same obligations, rights, and privileges as accorded to 
each other holder thereof. Similarly, all Voting Units would be 
identical to each other and accord the holder thereof the same 
obligations, rights, and privileges as accorded to each other holder 
thereof. See BSTX LLC Agreement, Sections 2.5(a), (b); Amendment No. 
2, supra note 11, at 7.
    \19\ See BSTX LLC Agreement, Section 1.1; Amendment No. 2, supra 
note 11, at 7. Members of the Exchange that are eligible for trading 
on the BSTX Market would be ``BSTX Participants.'' See BSTX LLC 
Agreement, Section 1.1 (defining BSTX Participant as a firm or 
organization that is registered with the Exchange pursuant to 
Exchange Rules for purposes of participating in Trading on the BSTX 
Market as an order flow provider or market maker).
    \20\ See Amendment No. 2, supra note 11, at 7-8.
    \21\ See id. at 8; see also id. at 7, n.14.
    \22\ See BSTX LLC Agreement, Section 2.5(c); Amendment No. 2, 
supra note 11, at 8.
    \23\ See BSTX LLC Agreement, Section 2.5(b).
    \24\ See id. Section 7.1(a); Amendment No. 2, supra note 11, at 
47-48.
    \25\ See infra note 102 and accompanying text.
    \26\ See BSTX LLC Agreement, Section 7.4(g)(i); Amendment No. 2, 
supra note 11, at 19-20.
    \27\ ``Economic Percentage Interest'' would mean, with respect 
to a Member, the ratio of the number of Economic Units held by the 
Member, directly or indirectly, of record or beneficially, to the 
total of all of the issued and outstanding Economic Units held by 
Members, expressed as a percentage. See BSTX LLC Agreement, Section 
1.1. ``Voting Percentage Interest'' would mean, with respect to a 
Member, the ratio of the number of Voting Units held by the Member, 
directly or indirectly, of record or beneficially, to the total of 
all of the issued and outstanding Voting Units held by Members, 
expressed as a percentage. Voting Units held by a Member that are 
ineligible to vote would not be counted in the numerator or the 
denominator when determining such ratio. See id.
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    Upon adoption of the LLC Agreement, BOX Digital Markets LLC (``BOX 
Digital''), a Delaware limited liability company and a subsidiary of 
BOX Holdings Group LLC (``BOX Holdings''),\28\ and tZERO Group, Inc. 
(``tZERO''), a Delaware corporation and an affiliate of Overstock.com, 
Inc. (``Overstock''),\29\ would each own a 40% Economic Percentage 
Interest and a 20% Voting Percentage Interest in BSTX.\30\

[[Page 10403]]

The Exchange proposes that pursuant to the LLC Agreement, tZERO would 
provide BSTX the intellectual property license and services necessary 
to operate the BSTX trading system.\31\ The Exchange also proposes that 
pursuant to the LLC Agreement, the Exchange will regulate BSTX as a 
facility of the Exchange for the listing and trading of BSTX Products, 
but will not regulate any other market trading BSTX Products.\32\
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    \28\ The Exchange states that BOX Digital is a subsidiary of BOX 
Holdings and an affiliate of the Exchange, and that BSTX would be an 
affiliate of the Exchange. BOX Holdings owns 98% of BOX Digital and 
2% of BOX Digital is held by Lisa Fall. BOX Holdings already owns 
one subsidiary that is an existing facility of the Exchange--BOX 
Options Market LLC (``BOX Options'')--which operates a market for 
trading option contracts on U.S. equities. BOX Holdings is the 
parent company for both BOX Digital and BOX Options and currently 
has seven separate, unaffiliated owners. See Amendment No. 2, supra 
note 11, at 9. The seven separate, unaffiliated owners include: MX 
US 2, Inc. (``MX US 2''), a wholly owned, indirect subsidiary of TMX 
Group Limited (``TMX''), which holds 47.89% of the outstanding units 
of BOX Holdings, IB Exchange Corp. (``IB''), which holds 25.5% of 
the outstanding units in BOX Holdings, and Citadel Securities 
Principal Investment LLC, which holds 15.5% of the outstanding units 
in BOX Holdings. The additional four owners each hold less than five 
percent of the outstanding units of BOX Holdings. See id. at 9. The 
Exchange states that Lisa Fall is a Director of BOX Digital. See id. 
at 8 n.18.
    \29\ The Exchange states that ownership of tZERO is held by 
Medici Ventures, L.P. (``Medici''), a Delaware limited partnership, 
which owns 44% of the outstanding shares of tZERO, and Overstock, a 
publicly held corporation organized under the laws of Delaware, 
which owns 43% of the outstanding shares of tZERO. An individual, 
Joseph Cammarata, holds 7.53% of the outstanding shares of tZERO, 
and the remaining shares are held in less than three percent by 
thirty-one individuals and entities. Pelion MV GP, L.L.C. (``Medici 
GP''), a Delaware limited liability company, serves as the general 
partner of Medici and has the sole right to manage its affairs. 
Medici GP owns one percent of the partnership interest in Medici and 
Overstock owns 99% of the partnership interests in Medici. 
Membership interests in Medici GP are held by fifteen individuals 
and entities, all of who hold less than a 25% interest. The Exchange 
states that both tZERO and BSTX are affiliates of Overstock, Medici, 
and Medici GP. See OIP, supra note 8, 86 FR at 53367-68.
    \30\ See Amendment No. 2, supra note 11, at 8. The Exchange 
states that FBP Digital LLC, which is wholly owned by Lisa Fall, 
would own an 11.1% Economic Percentage Interest in BSTX, and each of 
the following would own less than 5% Economic Percentage Interest: 
Susan Chamberlin (1.9%), Saum Noursalehi (0.4%), Will Easley (0.4%), 
Alan Konevsky (0.7%), Jay Fraser (1.4%), Enid Acquisition LLC 
(1.9%), Chris Zaremba (1.4%), and Todd Treworgy (0.4%). The Exchange 
also states that FBP Digital LLC will own a 19.6% Voting Percentage 
Interest in BSTX, and each of the following will own less than a 10% 
Voting Percentage Interest: Susan Chamberlin (8.8%), Saum Noursalehi 
(2.1%), Will Easley (2.1%), Alan Konevsky (3.1%), Jay Fraser (6.6%), 
Enid Acquisition LLC (wholly owned by Glen Openshaw) (8.8%), Chris 
Zaremba (6.6%), and Todd Treworgy (2.2%). See id. at 8-9. The 
Exchange states that Alan Konevsky is the CEO of tZERO. See id. at 8 
n.21. The Exchange also states that the eleven Members are parties 
to the LLC Agreement. See id. at 7-8 n.15.
    \31\ See BSTX LLC Agreement, Section 3.2(b); OIP, supra note 8, 
86 FR at 53375. The Exchange states that among other things, under 
an IP License and Services Agreement by and between tZERO and BSTX 
(``LSA''), tZERO will provide BSTX and the Exchange with a license 
to use tZERO's intellectual property comprising the BSTX trading 
system, and will provide services to BSTX related to implementing, 
administering, maintaining, supporting, hosting, developing, testing 
and securing the trading system. See OIP, supra note 8, 86 FR at 
53369, 53375.
    \32\ See BSTX LLC Agreement, Section 3.2(c); Amendment No. 2, 
supra note 11, at 37. ``BSTX Product'' would mean a Security, as 
defined in the Exchange Rules, trading on the BSTX System. See BSTX 
LLC Agreement, Section 1.1. ``BSTX System'' would mean the 
technology, know-how, software, equipment, communication lines or 
services, services and other deliverables or materials of any kind 
as may be necessary or desirable for the operation of the BSTX 
Market. See id. Section 1.1.
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    As is the case with the Exchange's current facility for trading 
options, BOX Options, the Exchange would not hold an ownership interest 
in BSTX,\33\ but would regulate BSTX as a facility of the Exchange 
pursuant to an agreement between the Exchange and BSTX (``Facility 
Agreement'').\34\ As a self-regulatory organization (``SRO''), the 
Exchange has regulatory responsibility for all of its facilities, 
including BSTX, and must be so organized and have the capacity to carry 
out the purposes of the Exchange Act.\35\ Specifically, an exchange 
must be able to enforce compliance by its members, and persons 
associated with its members, with federal securities laws and rules 
thereunder and the rules of the Exchange.\36\ Pursuant to the LLC 
Agreement, the Members would agree that the Exchange would provide 
regulatory oversight of BSTX,\37\ and the Exchange states that its 
powers and authority under the Facility Agreement would ensure that the 
Exchange would have full regulatory control over BSTX.\38\ The LLC 
Agreement would also specifically require the Exchange to receive 
notice of and approve, among other things, changes to the BSTX System, 
and would give the Exchange the authority to direct BSTX to eliminate 
or prevent Regulatory Deficiencies and allow the Exchange to perform 
and fulfill its regulatory responsibilities under the Exchange Act.\39\ 
The Exchange will also provide certain business services to BSTX such 
as providing human resources and office technology support pursuant to 
an administrative services agreement between the Exchange and BSTX.\40\
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    \33\ See OIP, supra note 8, 86 FR at 53366 (describing BOX 
Holdings ownership of BOX Options, as well as the ownership of BOX 
Holdings).
    \34\ See id. at 53366. The Exchange states that it currently 
operates BOX Options as its only facility, and that it filed a 
separate proposed rule change to accommodate regulation of BSTX in 
addition to BOX Options (``Multiple Facilities Filing''). See id. 
The Commission approved this proposal, which included amendments to 
the Exchange's governing documents designed to provide the Exchange 
the flexibility to regulate additional facilities. See Securities 
Exchange Act Release Nos. 88236 (February 19, 2020), 85 FR 10765 
(February 25, 2020) (Notice of Filing of Proposed Rule Change); 
88934 (May 22, 2020), 85 FR 32085 (May 28, 2020) (Order Granting 
Approval of a Proposed Rule Change) (``BOX-2020-04 Approval'').
    \35\ See 15 U.S.C. 78f(b)(1).
    \36\ See id.; see also Section 19(g) of the Exchange Act, 15 
U.S.C. 78s(g).
    \37\ The Exchange proposes that the LLC Agreement would provide 
that the Exchange will act as the SEC-approved SRO for the BSTX 
Market, have regulatory responsibility for the activities of the 
BSTX Market, and provide regulatory services to the BSTX pursuant to 
the Facility Agreement. See BSTX LLC Agreement, Section 3.2(a); OIP, 
supra note 8, 86 FR at 53370; see also infra Sections III.A and 
III.B (describing provisions in the LLC Agreement providing for and 
clarifying the regulatory authority and jurisdiction of the Exchange 
over the BSTX facility and its Members, Officers, Directors, 
employees, agents, and Controlling Persons (see infra note 57)).
    \38\ See OIP, supra note 8, 86 FR at 53366. For example, the 
Exchange would receive notice of all planned or proposed changes to 
BSTX (other than with respect to Non-Market Matters). The Exchange 
states that this authority would ensure that while BSTX operates as 
a facility of the Exchange, BSTX would be required to submit any 
such changes to the Exchange for approval and the Exchange would 
have the right to direct BSTX to make any modifications deemed 
necessary or appropriate by the Exchange to resolve any Regulatory 
Deficiency. The Exchange states that this regulatory authority would 
override any authority of BSTX management, its Members or its Board 
regardless of any Member's level of ownership or control of the 
Board at the facility level. See OIP, supra note 8, 86 FR at 53381; 
Amendment No. 2, supra note 11, at 68.
    \39\ See BSTX LLC Agreement, Section 3.2(a); OIP, supra note 8, 
86 FR at 53372-73. ``Regulatory Deficiency'' would be defined as 
``the operation of the Company (in connection with matters that are 
not Non-Market Matters) or the BSTX Market (including, but not 
limited to, the BSTX System) in a manner that is not consistent with 
the Exchange Rules and/or the SEC Rules governing the BSTX Market or 
BSTX Participants, or that otherwise impedes the Exchange's ability 
to regulate the BSTX Market or BSTX Participants or to fulfill its 
obligations under the Exchange Act as an SRO.'' See BSTX LLC 
Agreement, Section 1.1. The Exchange states that the proposed 
provisions in Section 3.2(a) of the LLC Agreement are substantially 
the same as those in the Amended and Restated Limited Liability 
Company Agreement of BOX Options Market LLC, dated as of August 15, 
2018, and help guarantee the Exchange's ability to fulfill its 
regulatory responsibilities and operate in a manner consistent with 
the Exchange Act, and in particular with Section 6(b)(1) of the 
Exchange Act. See OIP, supra note 8, 86 FR at 53373; see also id. at 
53377 n.87 and accompanying text.
    \40\ See OIP, supra note 8, 86 FR at 53366.
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    The Exchange proposes that, subject to the regulatory oversight by 
the Exchange, the board of directors of BSTX (``BSTX Board'') would 
manage the business and affairs of BSTX without the need for approval 
of the Members.\41\ The Board would consist of five directors (each a 
``Director''): One Director appointed by BOX Digital, so long as BOX 
Digital holds an Economic Percentage Interest equal to or greater than 
35%, and one Director appointed by tZERO, so long as tZERO holds an 
Economic Percentage Interest equal to or greater than 35% (each a 
``Member Director''),\42\ the CEO of BSTX, a ``Regulatory Director,'' 
\43\ and an ``Independent Director.'' \44\ Generally,

[[Page 10404]]

each of the Directors would be entitled to vote on any action to be 
taken by the Board.\45\
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    \41\ See BSTX LLC Agreement, Section 4.1(a); OIP, supra note 8, 
86 FR at 53370, 53881. The Exchange proposes that only to the extent 
expressly provided for in the LLC Agreement and the Related 
Agreements, and as delegated by the Board to committees of the Board 
or to duly appointed Officers or agents of BSTX, neither a Member 
nor any other Person other than the Board of Directors shall be an 
agent of BSTX or have any right, power or authority to transact any 
business in the name of BSTX or to act for or on behalf of or to 
bind BSTX. See BSTX LLC Agreement, Section 4.9; OIP, supra note 8, 
86 FR at 53370; Amendment No. 2, supra note 11, at 23-24. Members 
would have the right to vote on the admission of additional or 
substitute Members, the admission of a personal representative or 
successor in interest of a Member, and the dissolution and winding 
up of the BSTX. See BSTX LLC Agreement, Sections 7.1(b), 7.5, and 
10.1(a)(iii); Amendment No. 2, supra note 11, at 7 n.14.
    \42\ The Exchange states that the one Member Director appointed 
by each of BOX Digital and tZERO would comprise a maximum of 20% of 
all Directors on BSTX's Board. See Amendment No. 2, supra note 11, 
at 70. A Member Director would not have more than 20% of the total 
voting power on any committee of the BSTX Board. See BSTX LLC 
Agreement, Section 4.2(c); Amendment No. 2, supra note 11, at 25 
n.52.
    \43\ The Exchange proposes that for so long as BSTX is a 
facility of the Exchange, the Exchange will have the right to 
appoint a member of the senior management of the regulation staff of 
the Exchange to serve as Regulatory Director. See BSTX LLC 
Agreement, Section 4.1(a); OIP, supra note 8, 86 FR at 53370.
    \44\ The Exchange proposes that the Independent Director would 
be appointed by the affirmative vote of a majority of the other 
Directors. See BSTX LLC Agreement, Section 4.1(a); Amendment No. 2, 
supra note 11, at 25.
    \45\ See BSTX LLC Agreement, Section 4.3; Amendment No. 2, supra 
note 11, at 27.
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    To help ensure that the Exchange has and will continue to have 
adequate funding to be able to meet its responsibilities under the 
Exchange Act, the Exchange represents that it would have adequate 
funding for the Exchange's operations with respect to BSTX, including 
the regulation of the Exchange.\46\ The Exchange also states that the 
Facility Agreement would require BSTX to provide adequate funding to 
the Exchange's operations with respect to BSTX, including regulation of 
BSTX by the Exchange, and that prior to commencing operations as a 
facility of the Exchange, BSTX will have the necessary funds and 
assets, including furnishings, equipment, and servers, to adequately 
operate the BSTX facility until it begins receiving revenues from 
operations to operate BSTX as a facility of the Exchange.\47\ Further, 
BSTX would not be entitled to any revenue generated from fines, fees, 
or penalties imposed on BSTX Participants with respect to trading on 
BSTX (``Regulatory Funds''). Any Regulatory Funds received by the 
Exchange will not be used for non-regulatory purposes, distributed to 
the Exchange's owners, or remitted to BSTX.\48\
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    \46\ See Amendment No. 2, supra note 11, at 37.
    \47\ See id. at 37-38.
    \48\ See id. at 38. Pursuant to the Facility Agreement, the 
Exchange would be entitled to receive all fees, fines and penalties 
imposed upon BSTX Participants with respect to the BSTX trading 
system, as well as market data fees, tape and other revenue 
including regulatory fees and trading fees, payable by BSTX 
Participants, as well as any funds received from any applicable 
market data fees, tape revenue, and other revenue. All such funds 
may be used by the Exchange for regulatory purposes, as determined 
solely by the Exchange, and any excess funds will be remitted to 
BSTX. See id. Further, any ``Regulatory Funds'' received by the 
Exchange will not be distributed to the Exchange's owners or used 
for non-regulatory purpose. See id. at 39 n.77 and accompanying 
text; see also BOX Exchange LLC Second Amended and Restated Limited 
Liability Company Agreement, dated November 30, 2020 (``Exchange LLC 
Agreement''), Sections 1.1, 8.1.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\49\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(1) of 
the Exchange Act,\50\ which requires a national securities exchange to 
be so organized and have the capacity to carry out the purposes of the 
Exchange Act and to enforce compliance by its members and persons 
associated with its members with the provisions of the Exchange Act, 
the rules or regulations thereunder, and the rules of the exchange. The 
Commission also finds that the proposed rule change, as amended, is 
consistent with Section 6(b)(3) of the Exchange Act,\51\ which, among 
other things, requires that the rules of an exchange ensure fair 
representation of its members in the selection of its directors and 
administration of its affairs. In addition, the Commission finds that 
the proposed rule change, as amended, is consistent with Section 
6(b)(5) of the Exchange Act,\52\ which requires 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, in general, to 
protect investors and the public interest.
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    \49\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \50\ 15 U.S.C. 78f(b)(1).
    \51\ 15 U.S.C. 78f(b)(3).
    \52\ 15 U.S.C. 78f(b)(5).
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A. BSTX as a Facility of the Exchange

    The proposed rule change is consistent with Section 6(b)(1) of the 
Exchange Act in that, upon establishing BSTX as a facility, the 
Exchange would remain so organized and have the capacity to carry out 
the purposes of the Exchange Act. As an SRO, the Exchange would have 
regulatory control over BSTX and would be responsible for ensuring 
BSTX's compliance with the federal securities laws and all applicable 
rules and regulations thereunder. Furthermore, BSTX would be obligated 
under the LLC Agreement to operate in a manner consistent with the 
regulatory and oversight responsibilities of the Exchange and the 
Exchange Act and the rules and regulations thereunder.\53\ The 
Commission has previously approved similar structures with respect to 
the operation of exchange facilities.\54\
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    \53\ See BSTX LLC Agreement, Section 4.11(b).
    \54\ See, e.g., Securities Exchange Act Release Nos. 59281 
(January 22, 2009), 74 FR 5014 (January 28, 2009) (order approving 
New York Block Exchange as a facility of the New York Stock 
Exchange); 55389 (March 2, 2007), 72 FR 10575 (March 8, 2007) (order 
approving CBOE Stock Exchange as a facility of the Chicago Board 
Options Exchange) (``CBSX Order''); 54399 (September 1, 2006), 71 FR 
53728 (September 12, 2006) (order approving the ISE Stock Exchange 
as a facility of the International Securities Exchange) (``ISE Stock 
Order''); 54364 (August 25, 2006), 71 FR 52185 (September 1, 2006) 
(order approving the Boston Equities Exchange as a facility of the 
Boston Stock Exchange); and 49065 (January 13, 2004), 69 FR 2768 
(January 20, 2004) (order approving the Boston Options Exchange 
Regulation as a facility of the Boston Stock Exchange).
---------------------------------------------------------------------------

    Although BSTX would not carry out any regulatory functions, all of 
its activities must be consistent with the Exchange Act. As a facility 
of a national securities exchange, BSTX would not be solely a 
commercial enterprise, but an integral part of an SRO that is 
registered pursuant to the Exchange Act and therefore subject to 
obligations imposed by the Exchange Act. The proposed LLC Agreement is 
reasonably designed to enable BSTX to operate in a manner consistent 
with this principle. The LLC Agreement would provide that BSTX and its 
Members, Officers, Directors, agents, and employees shall comply with 
the federal securities laws and the rules and regulations promulgated 
thereunder and cooperate with the Exchange and the Commission.\55\ 
Further, BSTX's Members, Officers, Directors, agents, and employees 
shall give due regard to the preservation of the independence of the 
self-regulatory function of the Exchange and shall not take actions 
which would interfere with the Exchange's regulatory functions or the 
Exchange's ability to carry out its responsibilities under the Exchange 
Act.\56\ In addition, each Controlling Person \57\ would be required to 
become a party to and abide by all the provisions of the LLC 
Agreement,\58\ and

[[Page 10405]]

thereby, like Members, commit to comply with the federal securities 
laws and the rules and regulations promulgated thereunder and to 
cooperate with the Exchange and the Commission,\59\ to give due regard 
to the preservation of the independence of the self-regulatory function 
of the Exchange,\60\ and to not take actions which would interfere with 
the regulatory functions of the Exchange or the Exchange's ability to 
carry out its responsibilities under the Exchange Act.\61\ According to 
the Exchange, these provisions are designed to help maintain the 
independence of the Exchange's regulatory function.\62\
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    \55\ See BSTX LLC Agreement, Section 4.11(b).
    \56\ See id. Section 4.11(a).
    \57\ ``Controlling Person'' would mean a Person who, alone or 
together with any Related Persons of such Person, holds a 
Controlling Interest in a Member. ``Controlling Interest'' would 
mean direct or indirect ownership of 25% or more of the total voting 
power of all equity securities of a Member (other than voting rights 
solely with respect to matters affecting the rights, preferences, or 
privileges of a particular class of equity securities), by any 
Person, alone or together with any Related Persons of such Person. 
See id. Section 7.4(h)(iv). The Exchange represents that the 
definitions of ``Controlling Person'' and ``Controlling Interest'' 
are the same as those that currently apply to BOX Holdings. See OIP, 
supra note 8, 86 FR at 53368.
    \58\ See BSTX LLC Agreement, Section 7.4(h)(i); OIP, supra note 
8, 86 FR at 53368; Amendment No. 2, supra note 11, at 12-13. The 
Exchange states that BOX Digital's upstream owners (BOX Holdings, MX 
US 2, MX US 1, Inc. (``MX US 1''), Bourse de Montreal Inc. (``Bourse 
de Montreal''), and TMX) and tZERO's upstream owners (Medici, Medici 
GP, and Overstock) would be Controlling Persons and, prior to the 
commencement of operations of BSTX, would be required to become 
parties to the LLC Agreement and abide by its provisions to the same 
extent as Members. See OIP, supra note 8, 86 FR at 53368; Amendment 
No. 2, supra note 11, at 13-14. The Exchange also states that any 
future Controlling Person would also be subject to its requirements. 
See OIP, supra note 8, 86 FR at 53376-77; Amendment No. 2, supra 
note 11, at 51; see also infra note 112 and accompanying text 
(enumerating the current persons who would be Controlling Persons of 
BSTX at the commencement of operations).
    \59\ See BSTX LLC Agreement, Section 4.11(b).
    \60\ See id. Section 4.11(a).
    \61\ See id.
    \62\ See Amendment No. 2, supra note 11, at 72-73.
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    The proposed LLC Agreement would provide that all Confidential 
Information of BSTX or the Exchange pertaining to regulatory matters 
(including but not limited to disciplinary matters, trading data, 
trading practices, and audit information) contained in the books and 
records of BSTX shall not be made available to any persons other than 
to those Officers, Directors, employees, and agents of BSTX that have a 
reasonable need to know the contents thereof; would be retained in 
confidence by BSTX and its Officers, Directors, employees, and agents; 
and would not be used for any non-regulatory purpose.\63\ Nothing in 
the LLC Agreement, however, would limit or impede the rights of the 
Commission or the Exchange to access and examine Confidential 
Information of BSTX pursuant to the federal securities laws or limit or 
impede the ability of Directors, Officers, employees, or agents of BSTX 
to disclose confidential information to the Commission or the 
Exchange.\64\
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    \63\ See BSTX LLC Agreement, Section 15.6. The Exchange states 
that, in order to protect the confidential information of the 
Exchange, tZERO directors, officers, and employees will only receive 
confidential information of BSTX and the Exchange, including 
confidential information pertaining to regulatory matters of BSTX 
and the Exchange (including but not limited to disciplinary matters, 
trading data, trading practices and audit information), on a need-
to-know basis as it relates to the technology services being 
provided or specific roles with respect to BSTX and the Exchange, 
and that they will be subject to confidentiality obligations with 
respect to any confidential information they receive in the course 
of performing their services, including regulatory information. The 
Exchange also states that tZERO employees providing technology 
services to BSTX or the Exchange will have offices physically 
separate from employees of BSTX and the Exchange. See Amendment No. 
2, supra note 11, at 45-46.
    \64\ See BSTX LLC Agreement, Section 15.6; see also OIP, supra 
note 8, 86 FR at 53372; Amendment No. 2, supra note 11, at 57-58.
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    The LLC Agreement would also provide that the Exchange will receive 
notice of planned or proposed changes to BSTX (excluding Non-Market 
Matters \65\) or the BSTX Market (including, but not limited to, the 
BSTX System) which would require an affirmative approval by the 
Exchange prior to implementation.\66\ Also, the Exchange proposes that 
if the Exchange determines that the planned or proposed changes could 
cause BSTX or the BSTX Market to operate in a manner that is not 
consistent with the Exchange Act or the Exchange's rules or would 
otherwise impede the Exchange's ability to regulate the BSTX Market or 
BSTX Participants or to fulfill its obligations under the Exchange Act 
as an SRO (each a ``Regulatory Deficiency''), the Exchange may direct 
BSTX to modify the proposal as necessary to ensure that it does not 
cause a Regulatory Deficiency.\67\ Likewise, if the Exchange determines 
that a Regulatory Deficiency exists or is planned, the Exchange could 
direct BSTX to undertake such modifications to BSTX or the BSTX Market 
as are necessary or appropriate to eliminate or prevent the Regulatory 
Deficiency and allow the Exchange to perform and fulfill its regulatory 
responsibilities.\68\ Furthermore, the Exchange would review any 
amendment, modification, waiver or supplement to the LLC Agreement and 
if such amendment is required to be filed with, or filed with and 
approved by, the Commission before it may be effective, then such 
amendment would not be effective until filed with, or filed with and 
approved by, the Commission.\69\
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    \65\ Non-Market Matters would be defined as changes relating 
solely to one or more of the following: Marketing, administrative 
matters, personnel matters, social or team-building events, meetings 
of the Members, communication with the Members, finance, location 
and timing of Board meetings, market research, real property, 
equipment, furnishings, personal property, intellectual property, 
insurance, contracts unrelated to the operation of the BSTX Market, 
and de minimis items. See BSTX LLC Agreement, Section 3.2(a)(ii).
    \66\ See id.; see also Amendment No. 2, supra note 11, at 34-35.
    \67\ See BSTX LLC Agreement, Section 3.2(a)(iii). See also 
Amendment No. 2, supra note 11, at 35.
    \68\ See BSTX LLC Agreement, Section 3.2(a)(iv).
    \69\ See id. Section 18.1; see also Amendment No. 2, supra note 
11, at 62.
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    Certain additional provisions in the LLC Agreement that make 
accommodation for the Exchange as the SRO for BSTX are consistent with 
the Exchange Act because they enhance the ability of the Exchange to 
carry out its self-regulatory responsibilities with respect to BSTX. 
The LLC Agreement would provide that the Board of Directors may suspend 
or terminate a Member's voting privileges or membership in BSTX if the 
Member is subject to Statutory Disqualification, violates a material 
provision of the LLC Agreement or any federal or state securities law, 
or such action is necessary or appropriate in the public interest or 
for the protection of investors.\70\ Any Director appointed by the 
Member subject to sanction would be excluded from any vote to suspend 
or terminate such Member.\71\ To reflect further that BSTX is not 
solely a commercial enterprise, the LLC Agreement would also provide 
that no person subject to a Statutory Disqualification shall serve as a 
Director or Officer of BSTX.\72\
---------------------------------------------------------------------------

    \70\ See BSTX LLC Agreement, Section 5.8; see also Amendment No. 
2, supra note 11, at 53.
    \71\ See BSTX LLC Agreement, Section 5.8.
    \72\ See id. Section 4.1(a), (b); Section 4.5; see also 
Amendment No. 2, supra note 11, at 24-25, 24 n.51.
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    The provisions discussed above, which are designed to help ensure 
the independence of the Exchange's regulatory function and facilitate 
the ability of the Exchange to carry out its regulatory 
responsibilities under, and operate in a manner consistent with, the 
Exchange Act, are appropriate and consistent with the requirements of 
the Exchange Act, particularly with Section 6(b)(1), which requires, in 
part, an exchange to be so organized and have the capacity to carry out 
the purposes of the Exchange Act.\73\
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

B. Regulatory Jurisdiction Over BSTX, the LLC Members, and Controlling 
Persons

    The terms of the proposed LLC Agreement clearly describe the 
Commission's and the Exchange's regulatory jurisdiction over BSTX and 
its Members. The LLC Agreement would provide that, to the extent 
related to the operation or administration of the Exchange or the BSTX 
Market, the books, records, premises, officers, directors, agents, and 
employees of BSTX and its Members shall be deemed

[[Page 10406]]

to be the books, records, premises, officers, directors, agents, and 
employees of the Exchange for purposes of, and subject to oversight 
pursuant to, the Exchange Act.\74\ The LLC Agreement would also provide 
that the books and records of BSTX and its Members shall be maintained 
in the United States and shall be subject at all times to inspection 
and copying by the Commission and the Exchange.\75\ As discussed above, 
Controlling Persons would also be required to abide by the provisions 
of the LLC Agreement, including the books and records requirements of 
Section 11.1.\76\
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    \74\ See BSTX LLC Agreement, Section 11.1.
    \75\ See id.
    \76\ See supra note 58 and accompanying text.
---------------------------------------------------------------------------

    Further, the LLC Agreement would provide that BSTX, its Members, 
and the officers, directors, agents, and employees of BSTX and its 
Members irrevocably submit to the jurisdiction of the U.S. federal 
courts, the Commission, and the Exchange for purposes of any suit, 
action, or proceeding pursuant to U.S. federal securities laws and the 
rules and regulations thereunder arising out of, or relating to, 
activities of the Exchange and BSTX (except that such jurisdictions 
shall also include Delaware state courts for any such matter relating 
to the organization or internal affairs of BSTX) and waive, and agree 
not to assert by way of motion, as a defense or otherwise in any such 
suit, action, or proceeding, any claims that they are not personally 
subject to the jurisdiction of the U.S. federal courts, the Commission, 
the Exchange, or Delaware state courts, as applicable; that the suit, 
action, or proceeding is an inconvenient forum; that the venue of the 
suit, action, or proceeding is improper; or that the subject matter may 
not be enforced in or by such courts or agency.\77\ Moreover, BSTX, the 
Exchange, and each Member would be required to take such action as is 
necessary to ensure that BSTX's, the Exchange's, and such Member's 
officers, directors, and employees consent in writing to the 
application to them of the provisions in the LLC Agreement regarding 
books and records, regulatory obligations, and regulatory jurisdiction 
to the extent related to the operation or administration of the 
Exchange or the BSTX Market.\78\ As discussed above, Controlling 
Persons must also abide by the provisions of the LLC Agreement, 
including the jurisdictional requirements of Section 18.6(b), as well 
as the requirement of Section 18.6(c) to take such action as is 
necessary to ensure that its officers, directors, and employees consent 
in writing to the application to them of certain provisions in the LLC 
Agreement to the extent related to the operation or administration of 
the Exchange or the BSTX Market.\79\
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    \77\ See BSTX LLC Agreement, Section 18.6(b).
    \78\ See id. Section 18.6(c); see also OIP, supra note 8, 86 FR 
at 53379; Amendment No. 2, supra note 11, at 61.
    \79\ See supra note 58 and accompanying text.
---------------------------------------------------------------------------

    These provisions are consistent with the Exchange Act because they 
are reasonably designed to facilitate the Commission's and the 
Exchange's regulatory jurisdiction over BSTX and the BSTX Market. These 
provisions help facilitate the Commission's inspections of BSTX's books 
and records by deeming them to be the books and records of a national 
securities exchange. Further, these provisions specify that the 
Commission may exercise its authority under Section 19(h)(4) of the 
Exchange Act \80\ with respect to the officers and directors of BSTX 
and its Members, because such officers and directors are deemed to be 
officers and directors of the Exchange. Finally, the LLC Agreement 
states that, to the extent that they are related to BSTX's business, 
the books and records of BSTX are subject to the Commission's 
examination authority under Section 17(b)(1) of the Exchange Act.\81\
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    \80\ 15 U.S.C. 78s(h)(4) (authorizing the Commission, by order, 
to remove from office or censure any officer or director of a 
national securities exchange if it finds, after notice and an 
opportunity for hearing, that such officer or director has: (1) 
Willfully violated any provision of the Exchange Act or the rules 
and regulations thereunder, or the rules of a national securities 
exchange; (2) willfully abused his or her authority; or (3) without 
reasonable justification or excuse, has failed to enforce compliance 
with any such provision by a member or person associated with a 
member of the national securities exchange).
    \81\ 15 U.S.C. 78q(b)(1).
---------------------------------------------------------------------------

    Furthermore, even in the absence of these provisions, Section 20(a) 
of the Exchange Act \82\ provides that any person with a controlling 
interest in BSTX would be jointly and severally liable with and to the 
same extent that BSTX is liable under any provision of the Exchange 
Act, unless the controlling person acted in good faith and did not 
directly or indirectly induce the act or acts constituting the 
violation or cause of action. Moreover, the Exchange is required to 
enforce compliance with these provisions, because they are ``rules of 
the exchange'' within the meaning of Section 3(a)(27) of the Exchange 
Act.\83\ A failure on the part of the Exchange to enforce its rules 
could result in suspension or revocation of its registration, pursuant 
to Section 19(h)(1) of the Exchange Act.\84\ Also, Section 20(e) of the 
Exchange Act \85\ creates aiding and abetting liability for any person 
who knowingly provides substantial assistance to another person in 
violation of any provision of the Exchange Act or rule thereunder. 
Further, Section 21C of the Exchange Act \86\ authorizes the Commission 
to enter a cease-and-desist order against any person who has been ``a 
cause of'' a violation of any provision of the Exchange Act through an 
act or omission that the person knew or should have known would 
contribute to the violation.
---------------------------------------------------------------------------

    \82\ 15 U.S.C. 78t(a).
    \83\ 15 U.S.C. 78c(a)(27).
    \84\ 15 U.S.C. 78s(h)(1).
    \85\ 15 U.S.C. 78t(e).
    \86\ 15 U.S.C. 78u-3.
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C. Voting and Ownership Limitations; Changes in Control of BSTX

    The provisions in the LLC Agreement placing limits on the ownership 
of Economic Units and Voting Units as a result of certain ownership 
transactions and limits on ownership of Economic Units and Voting Units 
by BSTX Participants,\87\ as well as other provisions in the LLC 
Agreement relating to changes in control of BSTX, are consistent with 
the Exchange Act. These limitations and provisions are

[[Page 10407]]

designed to prevent any owner of BSTX from exercising undue control 
over the operation of the Exchange and to help ensure that the Exchange 
is able to carry out its regulatory obligations under the Exchange Act.
---------------------------------------------------------------------------

    \87\ These provisions are consistent with ownership and voting 
limits approved by the Commission for other SROs. See, e.g., 
Securities Exchange Act Release Nos. 88806 (May 4, 2020), 85 FR 
27451 (May 8, 2020) (File No. 10-237) (order granting the 
registration of MEMX LLC) (``MEMX Order''); 78101 (June 17, 2016), 
81 FR 41142 (June 23, 2016) (File No. 10-222) (order granting the 
registration of Investors' Exchange, LLC); 85828 (May 10, 2019), 84 
FR 21841 (May 15, 2019) (File No. 10-234) (order granting 
registration of Long Term Stock Exchange, Inc.) (``LTSE Order''); 
79543 (December 13, 2016), 81 FR 92901, 92903 (December 20, 2016) 
(File No. 10-227) (order granting registration of MIAX PEARL, LLC) 
(``MIAX Pearl Order''); 68341 (December 3, 2012), 77 FR 73065, 73067 
(December 7, 2012) (File No. 10-207) (order granting the 
registration of Miami International Securities Exchange, LLC); 58375 
(August 18, 2008), 73 FR 49498, 49501 (August 21, 2008) (File No. 
10-182) (order granting the registration of BATS Exchange, Inc.); 
see also Securities Exchange Release Nos. 76998 (January 29, 2016), 
81 FR 6066, 6069 (February 4, 2016) (File No. 10-221) (order 
granting exchange registration of ISE Mercury, LLC); 70050 (July 26, 
2013), 78 FR 46622, 46624 (August 1, 2013) (File No. 10-209) (order 
granting the exchange registration of Topaz Exchange, LLC (n.k.a. 
Nasdaq GEMX, LLC; f.k.a. ISE Gemini, LLC); 62158 (May 24, 2010), 75 
FR 30082 (May 28, 2010) (SR-CBOE-2008-88) (Cboe demutualization 
order); 53963 (June 8, 2006), 71 FR 34660 (June 15, 2006) (SR-NSX-
2006-03) (NSX demutualization order); 51149 (February 8, 2005), 70 
FR 7531 (February 14, 2005) (SR-CHX-2004-26) (CHX demutualization 
order); and 49098 (January 16, 2004), 69 FR 3974 (January 27, 2004) 
(SR-Phlx-2003-73) (Phlx demutualization order). The Exchange states 
that Section 7.4 of the proposed LLC Agreement is substantially 
similar to provisions in the BOX Holdings LLC Agreement, subject to 
changes related to differences in BSTX's structure, or provisions in 
the Exchange LLC Agreement. See Amendment No. 2, supra note 11, at 
53.
---------------------------------------------------------------------------

    As described above, the BSTX Market would be operated by BSTX, and 
BSTX would be a facility of the Exchange.\88\ Ownership and voting 
interests in BSTX would be held by 11 Members, and the Exchange would 
not itself hold a voting or ownership interest.\89\ Under the LLC 
Agreement, no event that would result in a Person,\90\ together with 
its Related Persons,\91\ owning directly or indirectly, of record or 
beneficially, an aggregate Economic Percentage Interest greater than 
40% (``Economic Ownership Limit'') would be effective without both the 
approval of the Exchange and an effective rule filed pursuant to 
Section 19 of the Exchange Act.\92\ Notwithstanding the foregoing, a 
BSTX Participant, together with its Related Persons, would not be 
permitted to own directly or indirectly, of record or beneficially, an 
aggregate Economic Percentage Interest greater than 20% (``BSTX 
Participant Economic Ownership Limit'').\93\ With respect to Voting 
Units, no event that would result in a Person, together with its 
Related Persons, owning directly or indirectly, of record or 
beneficially, an aggregate Voting Percentage Interest greater than 20% 
(``Voting Ownership Limit'') would be effective without both the 
approval of the Exchange and an effective rule filed pursuant to 
Section 19 of the Exchange Act. No BSTX Participant, however, would be 
permitted to exceed this Voting Ownership Limit.\94\ Additionally, the 
LLC Agreement would prohibit any Person from entering into any 
agreement, plan, or other arrangement with any other Person that would 
enable such Person, either alone or together with its Related Persons, 
to vote, possess the right to vote, or cause the voting of Voting Units 
in excess of the Voting Ownership Limit.\95\ In addition to the 
approval of the Exchange and an effective rule filed pursuant to 
Section 19 of the Exchange Act, any waiver of the 40% Economic 
Ownership Limit or 20% Voting Ownership Limit would require the 
Exchange to make certain determinations.\96\ As discussed above, the 
Exchange proposed to establish BSTX as a facility of the Exchange to 
operate the BSTX Market, and to adopt the LLC Agreement as the source 
of governance and operating authority for BSTX.\97\ Additionally, the 
Exchange proposed that, upon adoption of the LLC Agreement, no person 
would hold more than a 40% Economic Percentage Interest or a 20% Voting 
Percentage Interest in BSTX,\98\ and per the terms of the LLC 
Agreement, no person would be permitted to exceed a 40% Economic 
Percentage Interest or 20% Voting Percentage Interest in contravention 
of the Economic Ownership Limit or Voting Ownership Limit without the 
required waiver and an effective proposed rule change, each as would be 
required by Section 7.4 of the LLC Agreement.\99\ Accordingly, pursuant 
to the Exchange's proposal, BSTX cannot commence operations as a 
facility of the Exchange until the proposed LLC Agreement is adopted, 
and the Economic Percentage Interest and Voting Percentage Interest of 
each of the Members does not exceed 40% and 20%, respectively.
---------------------------------------------------------------------------

    \88\ See supra note 34 and accompanying text.
    \89\ See supra notes 28-30 and accompanying text.
    \90\ ``Person'' would be defined as any individual, partnership, 
corporation, association, trust, limited liability company, joint 
venture, unincorporated organization and any government, 
governmental department or agency or political subdivision thereof. 
See BSTX LLC Agreement, Section 1.1.
    \91\ ``Related Person'' would mean 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 Units; (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. ``Units'' would 
mean Economic Units and/or Voting Units. See id. ``Affiliate'' would 
mean with respect to any Person, any other Person controlling, 
controlled by or under common control with, such Person. As used in 
this definition, the term ``control'' means the possession, directly 
or indirectly, of the power to direct or cause the direction of the 
management and policies of a Person, whether through the ownership 
of voting securities, by contract or otherwise with respect to such 
Person. A Person is presumed to control any other Person, if that 
Person: (i) Is a director, general partner, or officer exercising 
executive responsibility (or having similar status or performing 
similar functions); (ii) directly or indirectly has the right to 
vote 25 percent or more of a class of voting security or has the 
power to sell or direct the sale of 25 percent or more of a class of 
voting securities of the Person; or (iii) in the case of a 
partnership, has contributed, or has the right to receive upon 
dissolution, 25 percent or more of the capital of the partnership. 
See id.
    \92\ See id. Section 7.4(f); see also Amendment No. 2, supra 
note 11, at 16-17.
    \93\ See BSTX LLC Agreement, Section 7.4(f).
    \94\ See id. Section 7.4(g). The Exchange states that owners of 
the Exchange that are also Exchange Facility Participants are 
similarly limited to a maximum of 20% economic ownership of the 
Exchange. See OIP, supra note 8, 86 FR at 53369, n.39 and 
accompanying text (citing to Exchange LLC Agreement, supra note 48, 
Section 7.3); Amendment No. 2, supra note 11, at 21 n.41 and 
accompanying text (citing to Exchange LLC Agreement, supra note 48, 
Section 7.3). The Exchange also represents that the existing 
ownership limits of 40% economic ownership for owners of the 
Exchange, and further limitation of 20% economic ownership for 
owners that are Exchange Facility Participants, and the general 
limitation of 20% voting power of the Exchange would remain 
unchanged, and that these existing ownership limits would help 
ensure the independence of the Exchange's regulatory oversight of 
BSTX and facilitate the ability of the Exchange to carry out its 
regulatory responsibilities and operate in a manner consistent with 
Section 6(b)(1) of the Exchange Act. See OIP, supra note 8, 86 FR at 
53369. ``Exchange Facility Participant'' means a firm or 
organization (including a BSTX Participant) that is registered with 
the Exchange pursuant to the rules of the Exchange that constitute 
the ``rules of an exchange'' within the meaning of Section 3 of the 
Exchange Act for purposes of participating in trading on any 
Exchange Facility. See Exchange LLC Agreement, supra note 48, 
Section 1.1; Amendment No. 2, supra note 11, at 5 n.9. ``Exchange 
Facility'' means any facility of the Exchange as defined in Section 
3 of the Exchange Act. See Exchange LLC Agreement, supra note 48, 
Section 1.1.
    \95\ See BSTX LLC Agreement, Section 7.4(g). A Member could also 
voluntarily impose a lower ownership or voting restriction on 
itself. See id. Sections 7.4(g), (f); see also Amendment No. 2, 
supra note 11, at 18-19.
    \96\ See BSTX LLC Agreement, Sections 7.4(g), (f). The required 
determinations would be that (A) such waiver will not impair the 
ability of the Exchange to carry out its functions and 
responsibilities under the Exchange Act and the rules and 
regulations thereunder, (B) such waiver is otherwise in the best 
interests of the Exchange and the Members of BSTX, (C) such waiver 
will not impair the ability of the Commission to enforce the 
Exchange Act and (D) if applicable, the transferee in such transfer 
and its Related Persons are not subject to a Statutory 
Disqualification. See id. The Commission has previously approved the 
rules of other exchanges that provide for the ability of the 
exchange or its facility to waive comparable ownership and voting 
limitations for non-members of the exchange. See, e.g., MEMX Order, 
supra note 87, 85 FR at 27454; CBSX Order, supra note 54, 72 FR at 
10578.
    \97\ See supra notes 13-15 and accompanying text.
    \98\ See supra note 30 and accompanying text (discussing the 
specific Economic Percentage Interest and Voting Percentage Interest 
to be held by each Member upon adoption of the proposed BSTX LLC 
Agreement pursuant to the proposed rule change).
    \99\ See BSTX LLC Agreement, Sections 7.4(g), (f). BSTX 
Participants, however, would not be eligible for a waiver of the 
applicable 20% BSTX Participant Economic Ownership Limit or the 
Voting Ownership Limit. See id.
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    The LLC Agreement also contains a provision designed to ensure that 
no

[[Page 10408]]

owner of BSTX will exceed the Voting Ownership Limit. Specifically, 
with certain exceptions,\100\ each Member would hold the number of 
Voting Units equal to the number of Economic Units held by such 
Member.\101\ However, if any Member holds an Economic Percentage 
Interest in excess of the applicable Voting Ownership Limit, then the 
excess Voting Units held by such Member would be automatically reduced 
and redistributed among the remaining Members pro rata according to 
each such Member's respective Economic Percentage Interest (``Voting 
Units Adjustment''), so that the Member does not exceed the applicable 
limit.\102\
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    \100\ See infra note 102 and accompanying text.
    \101\ See BSTX LLC Agreement, Section 7.4(g)(i). Upon any change 
in the ownership of Economic Units for any reason, the Voting Units 
held by the Members would be recalculated simultaneously so that 
each Member holds the number of Voting Units equal to the number of 
Economic Units, subject to any automatic reallocation of Voting 
Units required by the Voting Units Adjustment (see infra note 102). 
See BSTX LLC Agreement, Section 7.4(g)(ii).
    \102\ See BSTX LLC Agreement, Section 7.4(g)(i). In calculating 
the Voting Units Adjustment, any applicable Voting Ownership Limit 
with respect to each Member would be observed and no Member would be 
permitted to hold Voting Units in excess of such Member's applicable 
Voting Ownership Limit. See id.
---------------------------------------------------------------------------

    The LLC Agreement also contains other provisions that are designed 
to further safeguard the ownership and voting limitations described 
above, or are otherwise related to direct and indirect changes in 
control. Specifically, the LLC Agreement would require a Member to 
provide BSTX with written notice 14 days prior, and BSTX to provide the 
Exchange and the Commission with written notice ten days prior, to the 
closing date of any ownership transaction that would result in the 
Member's Economic Percentage Interest or a Voting Percentage Interest 
in BSTX, either alone or together with its Related Persons, meeting or 
crossing the 5%, 10%, or 15% thresholds.\103\ In addition, any Person 
that, either alone or together with its Related Persons, owns, directly 
or indirectly, of record or beneficially, 5% or more of Voting 
Percentage Interest or Economic Percentage Interest would, immediately 
upon acquiring knowledge of its ownership, be required to give BSTX 
written notice of that ownership.\104\ In addition to these notice 
requirements, the LLC Agreement would require that any transfer or 
other ownership transaction that results in the acquisition and holding 
by any Person, alone or together with its Related Persons, of an 
aggregate Voting Percentage Interest or Economic Percentage Interest 
level which meets or crosses the threshold level of 20% or any 
successive 5 percentage interest would be subject to the rule filing 
process of Section 19 of the Exchange Act.\105\ Further, any ownership 
transaction that would be in contravention of these notification and 
filing provisions, or otherwise violate Article 7 of the LLC Agreement, 
would be void.\106\
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    \103\ See id. Section 7.4(e); OIP, supra note 8, 86 FR at 53369. 
The Exchange states that the provisions in proposed Section 7.4(e) 
are the same as those contained in Section 7.4(e) of the BOX 
Holdings LLC Agreement. See OIP, supra note 8, 86 FR at 53369 n.34.
    \104\ See BSTX LLC Agreement, Section 7.4(e). The notice would 
be required to state: (i) Such Person's full legal name; (ii) the 
number of Voting Units and Economic Units owned, directly or 
indirectly, of record or beneficially, by such Person together with 
such Person's Related Persons; and (iii) whether such Person has the 
power, directly or indirectly, to direct the management or policies 
of BSTX, whether through ownership of Voting Units, by contract or 
otherwise. See id.
    \105\ See id. Section 7.4(e).
    \106\ See id. Section 7.4(d).
---------------------------------------------------------------------------

    Moreover, the LLC Agreement would provide that a Controlling 
Person, unless it does not directly or indirectly hold any interest in 
a Member, shall be required to execute an amendment to the BSTX LLC 
Agreement upon establishing a Controlling Interest in a Member that, 
alone or together with its Related Persons, holds an Economic 
Percentage Interest or Voting Percentage Interest in BSTX equal to or 
greater than 20%, and abide by the provisions of the BSTX LLC Agreement 
to the same extent as if they were a Member.\107\ The LLC Agreement 
would further provide that the rights and privileges, including all 
voting rights, of the Member in whom a Controlling Interest is held 
would be suspended until the amendment has become effective pursuant to 
Section 19 of the Exchange Act or the Controlling Person no longer 
holds, directly or indirectly, a Controlling Interest in the 
Member.\108\ According to the Exchange, as Controlling Persons of BSTX, 
Overstock, Medici, Medici GP,\109\ BOX Holdings,\110\ MX US 2, MX US 1, 
Bourse de Montreal, and TMX would be required to become parties to the 
BSTX LLC Agreement prior to commencement of operations of BSTX as a 
facility of the Exchange, by executing an instrument of accession,\111\ 
and abide by its provisions to the same extent and as if they were 
Members.\112\ The LLC Agreement also

[[Page 10409]]

provides that any amendment to the LLC Agreement caused by the addition 
of a Controlling Person is subject to the rule filing requirements of 
Section 19(b) of the Exchange Act.\113\ Thus, the addition of any 
future Controlling Person as a party to the LLC Agreement would be 
subject to the rule filing requirements of Section 19(b) of the 
Exchange Act.\114\
---------------------------------------------------------------------------

    \107\ See id.; OIP, supra note 8, 86 FR at 53368 (stating that 
this proposed provision is the same as a BOX Holdings provision). 
The Exchange states that Related Persons that are otherwise 
Controlling Persons are not required to become parties to the LLC 
Agreement if they are only under common control of an upstream owner 
but are not in the upstream ownership chain above a BSTX owner 
because they will not have the ability to exert any control over 
BSTX. See OIP, supra note 8, 86 FR at 53368; see also supra notes 
59-61, 79, and accompanying text (setting forth some of the 
provisions in the BSTX LLC Agreement to which Controlling Persons 
required to become parties to the BSTX LLC Agreement would be 
subject). Also, any additional or substitute Member of BSTX would be 
required to execute a counterpart to the LLC Agreement to evidence 
its acceptance of the terms and provisions of the LLC Agreement. See 
BSTX LLC Agreement, Section 7.1(b); see also Amendment No. 2, supra 
note 11, at 48.
    \108\ See BSTX LLC Agreement, Section 7.4(h)(iii).
    \109\ The Exchange states that membership interests in Medici GP 
are held by the following, each of which holds less than 25% of 
Medici GP: Carine Clark, Susannah Duke, Steve Glover, Brad Hintze, 
Jeff Kearl, Trevor Lund, Matt Mosman, Erika Nash, Zain Rizavi, Laura 
Summerhays, The Blake G Modersitzki 2020 Irrevocable Trust 
(affiliated with Blake G. Modersitzki), The Capitola Trust 
(affiliated with Chad Packard), The GP Investment Trust (affiliated 
with Chris Cooper), and The Oaxaca Dynasty Trust (affiliated with 
Ben Lambert). See OIP, supra note 8, 86 FR at 53368; Amendment No. 
2, supra note 11, at 12.
    \110\ In addition to the direct owners of BOX Holdings 
identified above (see supra note 28), the Exchange states that UBS 
Americas Inc., JPMC Strategic Investments I Corporation, Wolverine 
Holdings, L.P., and Aragon Solutions Ltd. (``Aragon''), each hold 
less than a 5% outstanding units of BOX Holdings. See Amendment No. 
2, supra note 11, at 9. The Exchange states that the current equity 
ownership and voting power of the direct owners of BOX Holdings are 
reflected in Securities Exchange Act Release No. 93778. See id. at 9 
n.26. In Securities Exchange Act Release No. 93778, the Commission 
approved a proposed rule change related to changes in ownership of 
the Exchange and BOX Holdings. See Securities Exchange Act Release 
No. 93778 (December 14, 2021), 86 FR 72021 (December 20, 2021) (SR-
BOX-2021-19). The Exchange also states that Will Easley owns Aragon 
and is a Director of BOX Holdings. See Amendment No. 2, supra note 
11, at 8 n.20.
    \111\ Specifically, Exhibit 5B of the proposal contains 
instruments of accession that will be executed by all Controlling 
Persons prior, and as a condition, to commencement of operations of 
BSTX as a facility of the Exchange. Following commencement of 
operations as a facility of the Exchange, any new Controlling Person 
will be required to execute an amendment in substantially the same 
form, and the Controlling Person will agree to become a party to the 
LLC Agreement and abide by all of its provisions, to the same extent 
and as if they were Members. See Amendment No. 2, supra note 11, at 
51.
    \112\ See id. at 13-14. As discussed above, BOX Digital and 
tZERO will each hold a 40% Economic Percentage Interest in BSTX. See 
supra notes 28-30 and accompanying text (discussing upstream 
ownership of BSTX). The Exchange states that Overstock owns 43% of 
tZERO directly and 99% of Medici, which owns 44% of tZERO, and that 
as a result, Overstock owns, directly or indirectly, more than 80% 
of tZERO, which will own 40% of the Economic Units and 20% of the 
Voting Units of BSTX. The Exchange states that as such, Overstock, 
Medici, and Medici GP will be required to become parties to BSTX's 
LLC Agreement by executing an instrument of accession and abide by 
its provisions, to the same extent and as if they were Members, 
because they are Controlling Persons of BSTX. In addition to the 
direct owners of tZERO identified above, the Exchange states that 
each of the following own less than 3% of the outstanding shares of 
tZERO: Todd Tobacco, Newer Ventures LLC, Schalk Steyn, Raj Karkara, 
Alec Wilkins, Dohi Ang, Brian Capuano, Trent Larson, Eric Fish, 
Kristen Anne Bagley, Kirstie Dougherty, SpeedRoute Technologies 
Inc., Tommy McSherry, Rob Collucci, John Gilchrist, John Paul 
DeVito, Jimmy Ambrose, Jason Heckler, Max Melmed, Alex Vlastakis, 
Olalekan Abebefe, Samson Arubuola, Ryan Mitchell, Zachary Wilezol, 
Anthony Bove, Ralph Daiuto, Rob Christiansen, Amanda Gervase, Derek 
Tobacco, Steve Bailey, and Dinosaur Financial. The Exchange also 
states that BOX Holdings, MX US 2, MX US 1, Bourse de Montreal, and 
TMX will each be required to become parties to the LLC Agreement by 
executing an instrument of accession and abide by its provisions to 
the same extent and as if they were Members because they are 
Controlling Persons of BSTX. The Exchange states that TMX owns 100% 
of Bourse de Montreal, which owns 100% of MX US 1, which owns 100% 
of MX US 2, which owns more than 40% of BOX Holdings, and that BOX 
Holdings owns 98% of BOX Digital, which will own 40% of the Economic 
Units and 20% of the Voting Units of BSTX. See Amendment No. 2, 
supra note 11, at 11-14. The Exchange represents that there are no 
other ``Controlling Persons'' that would be required to become 
parties to the LLC Agreement prior to the commencement of operations 
of BSTX. See id. at 14.
    \113\ See BSTX LLC Agreement, Section 7.4(h)(iii). The Exchange 
states that the amendment will be in substantially the form of the 
instruments of accession filed by the Exchange as Exhibit 5B to the 
proposal and subject to the rule filing process pursuant to Section 
19 of the Exchange Act. See Amendment No. 2, supra note 11, at 51.
    \114\ The Exchange states that it will implement policies and 
procedures, including annual attestations by Members, to ensure 
potential direct and indirect owners of BSTX are required to provide 
any required notice to BSTX or to take other actions, such as 
executing an amendment to the LLC Agreement upon establishing a 
Controlling Interest, if applicable, and to monitor compliance with 
the proposed provisions related to changes in ownership and control. 
See Amendment No. 2, supra note 11, at 52.
---------------------------------------------------------------------------

    A proposed rule change submitted in any of the circumstances noted 
above would afford the Commission an opportunity to evaluate whether a 
change to the LLC Agreement, or a change in the ownership of BSTX, 
would be consistent with the Exchange Act, including whether the 
Commission and the Exchange would retain sufficient regulatory 
jurisdiction over the proposed indirect controlling party. The LLC 
Agreement would apply to any ultimate parent of BSTX, no matter how 
many levels of ownership are involved, provided that a Controlling 
Interest meeting the required threshold exists at each such level.
    Although BSTX is not independently responsible for regulation, its 
activities with respect to the operation of BSTX must be consistent 
with, and not interfere with, the self-regulatory obligations of the 
Exchange. The proposed requirements in the LLC Agreement applicable to 
direct and indirect changes in control of BSTX described above, 
including the Economic Ownership Limit and Voting Ownership Limit 
imposed on Economic and Voting Unit transactions, as well as the 
Economic Ownership Limit and BSTX Participant Voting Limit imposed on 
owners of BSTX who are also BSTX Participants, are appropriate to help 
ensure that the Exchange is able to effectively carry out its self-
regulatory responsibilities, including with respect to BSTX, and are 
consistent with the requirements of the Exchange Act. These limitations 
are also designed to help prevent any owner of BSTX from exercising 
undue control over the operation of the Exchange and to help assure 
that the Exchange is able to effectively carry out its regulatory 
obligations under the Exchange Act. In addition, these limitations are 
designed to address the conflicts of interests that might result from a 
member of a national securities exchange owning interests in a facility 
of the exchange. As the Commission has stated in the past, a member's 
interest in an exchange or a facility thereof could become so large as 
to cast doubts on whether the exchange may fairly and objectively 
exercise its self-regulatory responsibilities with respect to such 
member.\115\ A member that is a controlling shareholder of an exchange 
or its facility could seek to exercise that controlling influence by 
directing the exchange to refrain from, or the exchange may hesitate 
to, diligently monitor and conduct surveillance of the member's conduct 
or diligently enforce the exchange's rules and the federal securities 
laws with respect to conduct by the member that violates such 
provisions.\116\ As such, these requirements are expected to minimize 
the potential that a person or entity can improperly interfere with or 
restrict the ability of the Exchange to effectively carry out its 
regulatory oversight responsibilities under the Exchange Act.
---------------------------------------------------------------------------

    \115\ See, e.g., MEMX Order, supra note 87, 85 FR at 27455; LTSE 
Order, supra note 87, 84 FR at 21845; MIAX PEARL Order, supra note 
87, 81 FR at 92906; and Securities Exchange Act Release No. 59281 
(January 22, 2009), 74 FR 5014, 5018 (January 28, 2009) (SR-NYSE-
2008-120) (order approving a proposed rule change relating to the 
Limited Liability Company Agreement of the New York Block Exchange, 
a facility of NYSE) (``NYBX Order'').
    \116\ See, e.g., MEMX Order, supra note 87, 85 FR at 27455; ISE 
Stock Order, supra note 54, 71 FR at 53735.
---------------------------------------------------------------------------

    BSTX's proposed governance provisions are consistent with the 
Exchange Act, including Section 6(b)(1), which requires, in part, an 
exchange to be so organized and have the capacity to carry out the 
purposes of the Exchange Act.\117\ In particular, these requirements 
are designed to minimize the potential that a person could improperly 
interfere with or restrict the ability of the Commission or the 
Exchange to effectively carry out their regulatory oversight 
responsibilities under the Exchange Act.
---------------------------------------------------------------------------

    \117\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

D. Fair Representation of BSTX Participants

    The Exchange's governance provisions are designed to provide fair 
representation of members in the selection of directors and the 
administration of the Exchange and are consistent with the Exchange 
Act. The Exchange states that it previously proposed structural changes 
to the Exchange to accommodate regulation of BSTX, in addition to the 
Exchange's existing facility (i.e., BOX Options), which the Commission 
approved,\118\ and that, pursuant to the proposed rule change the 
Commission is approving today, with the addition of BSTX as a facility 
of the Exchange, BSTX Participants would have the same representation, 
rights, and responsibilities as the Exchange's other Exchange Facility 
Participants.\119\
---------------------------------------------------------------------------

    \118\ See OIP, supra note 8, 86 FR at 53366 n.13 and 
accompanying text (citing BOX-2020-04 Approval, supra note 34); see 
also Bylaws of BOX Exchange LLC (``Exchange Bylaws'').
    \119\ See OIP, supra note 8, 86 FR at 53366; Amendment No. 2, 
supra note 11, at 14.
---------------------------------------------------------------------------

    The Exchange currently operates one facility, BOX Options,\120\ and 
there are provisions in the Exchange LLC Agreement and the Exchange 
Bylaws (together the ``Exchange Governing Documents'') that provide for 
the fair representation of Exchange members in the selection of 
directors and the administration of the Exchange that the Commission 
has previously found to be consistent with the Exchange Act, and in 
particular Section 6(b)(3) of the Exchange Act,\121\ which, among other 
things, requires that the rules of an exchange ensure fair 
representation of its members in the selection of its directors and 
administration of its affairs.\122\ Previously, because the Exchange 
regulated only one facility, the provisions in the Exchange Governing 
Documents providing for the fair representation of Exchange members 
were specifically applicable to BOX Options and to BOX Options

[[Page 10410]]

Participants.\123\ The Exchange subsequently amended those provisions 
to accommodate the Exchange's regulation of multiple facilities.\124\ 
The Exchange states that, with the Multiple Facilities Filing, it 
introduced structural changes to the Exchange to accommodate regulation 
of BSTX in addition to the Exchange's existing facility.\125\ For 
example and among other changes, with the Multiple Facilities Filing, 
the Exchange replaced certain references in the Exchange Governing 
Documents to BOX Options with the term ``Exchange Facility,'' and to 
BOX Options Participant with the term ``Exchange Facility 
Participant.'' \126\ The Commission found the provisions in the 
Exchange Governing Documents consistent with the Exchange Act as they 
applied to the Exchange's existing facility--BOX Options.\127\ In 
particular, the Commission found the Exchange Governing Document 
provisions to be consistent with Sections 6(b)(1), (3), and (5) of the 
Exchange Act.\128\
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    \120\ See supra note 34.
    \121\ See, e.g., Securities Exchange Act Release No. 66871 
(April 27, 2012), 86 FR 26323, 26325 (May 3, 2012) (``BOX Form 1 
Approval''); BOX-2020-04 Approval, supra note 34, 85 FR at 32085-86.
    \122\ 15 U.S.C. 78(b)(3).
    \123\ See generally BOX Form 1 Approval, supra note 121, 77 FR 
at 26325; BOX-2020-04 Approval, supra note 34. A ``BOX Options 
Participant'' is an Exchange Facility Participant that is registered 
with the Exchange pursuant to the Exchange Rules for purposes of 
participating in trading on the BOX Options Market. See BOX Holdings 
LLC Agreement, Section 1.1; Amendment No. 2, supra note 11, at 10, 
n.29.
    \124\ See BOX-2020-04 Approval, supra note 34; see also supra 
note 118 and accompanying text.
    \125\ See OIP, supra note 8, 86 FR at 53366.
    \126\ See BOX-2020-04 Approval, supra note 34, 85 FR at 32085.
    \127\ See id. at 32086.
    \128\ See id. at 32085-86.
---------------------------------------------------------------------------

    The requirements in the Exchange Governing Documents as they would 
now also apply to the representation of BSTX as an ``Exchange 
Facility,'' and to BSTX Participants as ``Exchange Facility 
Participants,'' are consistent with the Exchange Act. For example, the 
requirement in the Exchange Bylaws that at least 20% of the directors 
of the Exchange shall be ``Participant Directors,'' \129\ and that at 
least one Participant Director shall be selected from among the 
Exchange Facility Participants of each existing Exchange Facility,\130\ 
and the means by which they will be chosen,\131\ provide for the fair 
representation of BSTX Participants in the selection of directors and 
the administration of the Exchange, consistent with the Exchange Act, 
and in particular with Section 6(b)(3) of the Exchange Act.\132\ As the 
Commission has previously stated, these requirements help to ensure 
that members of the Exchange have a voice in the use of self-regulatory 
authority, and that the exchange is administered in a way that is 
equitable to all those who trade on its markets or through its 
facilities.\133\
---------------------------------------------------------------------------

    \129\ ``Participant Director'' means an Exchange Director who 
(i) has no material business relationship with the Exchange or any 
Affiliate of the Exchange, or any Exchange Facility Participant or 
any Affiliate of any Exchange Facility Participant and (ii) is not 
associated with any broker or dealer as required pursuant to Section 
6(b)(3) of the Exchange Act, as amended; provided, however, that an 
individual who otherwise qualifies as a Public Director shall not be 
disqualified from serving in such capacity solely because such 
individual is a Director of the Exchange and/or the Chairman or Vice 
Chairman of the Exchange. See Exchange Bylaws, Section 1.01(w).
    \130\ See id. Section 4.02.
    \131\ See id. Section 4.06.
    \132\ 15 U.S.C. 78(b)(3). Among other things, these provisions 
provide that the Nominating Committee of the Exchange shall be 
composed of at least five members, and that at least twenty percent 
(20%) of the members of the Nominating Committee shall be 
Participant Representatives and at least one Participant 
Representative shall be selected from among the Exchange Facility 
Participants of each then existing Exchange Facility. See Exchange 
Bylaws, Section 4.06(a). ``Participant Representative'' means an 
officer, director or employee of an Exchange Facility Participant. 
See id. Section 1.01(v). The Exchange states that, under the 
Exchange Bylaws, as soon as practicable after the commencement of 
operations of BSTX as a new facility of the Exchange, a Participant 
Director, Participant Representative, Facility Director (defined 
further below), and Facility Representative (defined further below) 
will be appointed by the Exchange Board from among the eligible 
individuals with respect to the BSTX facility and that such 
individuals shall serve in their respective capacities until the 
first annual meeting of the Exchange members following appointment, 
when the regular selection processes shall govern. See OIP, supra 
note 8, 86 FR at 53380 (citing Exchange Bylaws, Section 4.02). As 
Exchange Facility Participants, and as is the case with respect to 
the Exchange's existing facility, BOX Options, BSTX Participants 
will also be entitled to representation on certain other committees 
of the Exchange, such as the Exchange's Hearing Committee. For 
example, the Exchange's Hearing Committee or any panel thereof shall 
include at least one Participant Representative and shall have 
exclusive jurisdiction to conduct hearings on disciplinary 
proceedings brought by the Exchange against any Exchange Facility 
Participant, or any Person employed by or associated with any 
Exchange Facility Participant for any alleged violation of the 
Exchange Act, the rules and regulations thereunder, the Exchange 
Bylaws or Exchange Rules, or the interpretations and stated policies 
of the Exchange Board. See Exchange Bylaws, Section 6.08(a); see 
also OIP, supra note 8, 86 FR at 53380 (stating that the Exchange's 
Hearing Committee includes Exchange Facility Participants, which 
could include one or more BSTX Participants). The Exchange's 
Executive Committee, if appointed and with certain exceptions, may 
exercise all the powers and authority of the Exchange Board in the 
management of the business and affairs of the Exchange. Pursuant to 
the Exchange Bylaws, at least 20% of the members of the Executive 
Committee shall be Participant Directors and at least one 
Participant Director shall be selected from among the Exchange 
Facility Participants of each then existing Exchange Facility. See 
Exchange Bylaws, Section 6.04; see also Amendment No. 2, supra note 
11, at 63-64.
    \133\ See BOX Form 1 Approval, supra note 121, 86 FR at 26325.
---------------------------------------------------------------------------

    As discussed above, the Commission also found the Exchange's 
amendments to the Exchange Governing Documents to provide for direct 
representation of the Exchange's facility (BOX Options) on the Exchange 
Board and its Nominating Committee to be consistent with the Exchange 
Act.\134\ The Exchange believes that the provisions in the Exchange 
Bylaws that a Facility Director \135\ representing BSTX would serve on 
the Exchange Board \136\ and that a Facility Representative \137\ would 
serve on the Exchange Nominating Committee \138\ provide additional 
protection for both BSTX and BSTX Participants, and help to ensure that 
BSTX and BSTX Participants have a voice in the use of self-regulatory 
authority and that an exchange is administered in a way that is 
equitable to all those who trade on its market or through its 
facilities.\139\ The Commission previously stated, in the context of 
the Exchange's existing facility, that changes to these provisions 
provide mechanisms whereby a facility of the Exchange would have direct 
representation on the Exchange Board and are appropriate and consistent 
with the Exchange Act.\140\ The Commission finds that these provisions 
would similarly provide a mechanism whereby BSTX as a facility of the 
Exchange, like BOX Options, would have representation on the Exchange 
Board and are appropriate and consistent with the Exchange Act.
---------------------------------------------------------------------------

    \134\ See supra note 128.
    \135\ ``Facility Director'' means a Director who is a director 
or senior executive officer of an Exchange Facility. See Exchange 
Bylaws, Section 1.01(j).
    \136\ A number of directors equal to the number of Exchange 
Facilities shall be Facility Directors and one such Facility 
Director shall be selected by each Exchange Facility. See id. 
Section 4.02.
    \137\ ``Facility Representative'' means a member of the 
Nominating Committee who is a director or senior executive officer 
of an Exchange Facility. See id. Section 1.01(j).
    \138\ One member of the Nominating Committee with respect to 
each Exchange Facility shall be the Facility Representative selected 
by such Exchange Facility. See id. Section 4.06(a).
    \139\ See OIP, supra note 8, 86 FR at 53380.
    \140\ See BOX-2020-04 Approval, supra note 34, 85 FR at 32086.
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 is consistent with the 
Exchange 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

[[Page 10411]]

     Send an email to [email protected]. Please include 
File Number SR-BOX-2021-14 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-2021-14. 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-2021-14, and should be submitted on 
or before March 17, 2022.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. The Commission notes that the original 
proposal and the proposal as modified by Amendment No. 1 were published 
for comment in the Federal Register.\141\
---------------------------------------------------------------------------

    \141\ See Notice, supra note 3; OIP, supra note 8.
---------------------------------------------------------------------------

    In Amendment No. 2, the Exchange amended the proposal to: (1) 
Introduce certain defined terms, including ``Shortfall Amount,'' 
``Statutory Disqualification,'' and ``Tax Matters Representative,'' (2) 
convert existing class A and class B units of BSTX to Economic Units 
and Voting Units of BSTX, (3) remove the requirement that the BSTX 
Board will appoint an Audit Committee and a Compensation 
Committee,\142\ (4) specify the individuals and entities that own 
economic and voting interests in BSTX and at what levels, including 
that BOX Digital and tZERO's economic interests have been reduced to 
40% each and that BOX Digital and tZERO's voting interests have been 
reduced to 20% each, (5) revise Exhibit 5B to propose the form of 
Instrument of Accession that each identified Controlling Person would 
sign, and (6) make other technical, clarifying and conforming changes. 
These changes help to clarify the proposal by providing additional 
specificity regarding how and by whom ownership and voting interests in 
BSTX are held, the structure and operation of the BSTX Board, and which 
persons will be required to comply with the LLC Agreement.
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    \142\ The Commission notes that this configuration is similar to 
other rule filings the Commission has approved. See, e.g., NYBX 
Order, supra note 115; ISE Stock Order, supra note 54.
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    In addition, the Exchange made several changes to bring the 
proposed rules into closer alignment with the rules establishing the 
governance structure of other national securities exchanges, including 
by: (1) Prohibiting events that would result in any Person, together 
with its Related Persons, holding an Economic Percentage Interest in 
BSTX greater than 40% or a Voting Percentage Interest in BSTX greater 
than 20% without both Exchange approval and an effective rule filed 
pursuant to Section 19 of the Exchange Act, (2) prohibiting BSTX 
Participants from holding either an Economic Percentage Interest or 
Voting Percentage Interest in BSTX greater than 20%, (3) providing that 
no person subject to a Statutory Disqualification will serve as a 
Director or Officer of BSTX, and (4) representing that the Exchange 
will have adequate funding for the Exchange's operations with respect 
to BSTX. These changes help make these aspects of the proposal 
substantially similar to the existing rules of national securities 
exchanges. In addition, the Exchange modified the structure and 
composition of the BSTX Board by limiting BOX Digital and tZERO to one 
Member Director each, providing the Regulatory Director with voting 
rights, adding the BSTX CEO as a Director, and providing that the 
Independent Director will serve as chairman of the BSTX Board. These 
changes enhance the ability of the Exchange to carry out its regulatory 
oversight of BSTX by limiting the ability of Members of BSTX to control 
the BSTX Board.
    For these reasons, the changes and additional information in 
Amendment No. 2 assist the Commission in finding that the proposal is 
consistent with the Exchange Act. Accordingly, the Commission finds 
good cause, pursuant to Section 19(b)(2) of the Exchange Act,\143\ to 
approve the proposed rule change, as modified by Amendment No. 2, on an 
accelerated basis.
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    \143\ 15 U.S.C. 78f(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\144\ that the proposed rule change (SR-BOX-2021-14), as 
modified by Amendment No. 2 thereto, be, and it hereby is, approved on 
an accelerated basis.
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    \144\ 15 U.S.C. 78s(b)(2).
    \145\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\145\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03873 Filed 2-23-22; 8:45 am]
BILLING CODE 8011-01-P