Document ID: SEC-2020-0530-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2020-04-07T04:00Z

[Federal Register Volume 85, Number 67 (Tuesday, April 7, 2020)]
[Notices]
[Pages 19537-19540]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07229]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88536; File No. SR-BOX-2019-37]

Self-Regulatory Organizations; BOX Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change in Connection With the Proposed Commencement of 
Operations of the Boston Security Token Exchange LLC as a Facility of 
the Exchange

April 1, 2020.
    On December 18, 2019, BOX Exchange LLC (``Exchange'' or ``BOX'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change in 
connection with the proposed commencement of operations of the Boston 
Security Token Exchange LLC (``BSTX'') as a facility of the Exchange. 
The proposed rule change was published for comment in the Federal 
Register on January 3, 2020.\3\ On February 13, 2020, pursuant to 
Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ The Commission has received 
comment letters on the proposed rule change.\6\ This order institutes 
proceedings pursuant to Section 19(b)(2)(B) of the Act \7\ to determine 
whether to approve or disapprove the proposed rule change.
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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. 87868 (December 30, 
2019), 85 FR 345 (January 3, 2020) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 88206 (February 13, 
2020), 85 FR 9824 (February 20, 2020). The Commission designated 
April 2, 2020, as the date by which the Commission shall approve or 
disapprove, or institute proceedings to determine whether to 
disapprove, the proposed rule change.
    \6\ All comments on the proposed rule change are available on 
the Commission's website at https://www.sec.gov/comments/sr-box-2019-37/srbox201937.htm.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal

    As described in the Notice,\8\ the Exchange proposes to adopt the 
Amended and Restated Limited Liability Company Agreement of BSTX (the 
``BSTX LLC Agreement'') for BSTX as a facility of the Exchange.\9\ BSTX 
proposes to operate a fully automated, price-time priority execution 
system to list and trade NMS stocks that meet BSTX listing standards 
and for which ancillary records of ownership reflecting certain end-of-
day security token balances as reported by market participants would be 
created and maintained using distributed ledger technology (such 
securities to be referred to as ``security tokens'').\10\
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    \8\ See Notice, supra note 3.
    \9\ See id., 85 FR at 345. The proposed Boston Security Token 
Exchange LLC, Amended and Restated Limited Liability Company 
Agreement, dated as of January 29, 2019 (``BSTX LLC Agreement'') is 
attached as Exhibit 5A to the Form 19b-4 for SR-BOX-2019-37 
(available on the Commission's website at https://www.sec.gov/rules/sro/box/2019/34-87868-ex5a.pdf).
    \10\ See Notice, supra note 3, 85 FR at 345. The Exchange has 
separately filed with the Commission a proposed rule change 
regarding the listing and trading rules for the BSTX facility. See 
Securities Exchange Act Release No. 88300 (February 28, 2020), 85 FR 
13242 (March 6, 2020) (``BSTX Trading Rules Proposal'').
     The Commission also published an order instituting proceedings 
to determine whether to approve or disapprove the BSTX Trading Rules 
Proposal. See Securities Exchange Act Release No. 88002 (January 16, 
2020), 85 FR 4040 (January 23, 2020) (SR-BOX-2019-19) (Notice of 
Filing of Amendment No. 1 and Order Instituting Proceedings to 
Determine Whether to Approve or Disapprove a Proposed Rule Change, 
as Modified by Amendment No. 1, to Adopt Rules Governing the Trading 
of Equity Securities on the Exchange Through a Facility of the 
Exchange Known as the Boston Security Token Exchange LLC).
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    According to the Exchange, BSTX is (1) 50% owned by BOX Digital 
Markets LLC (``BOX Digital''), which is 98% owned by BOX Holdings Group 
LLC (``BOX Holdings'') and 2% owned by Lisa Fall; \11\ and (2) 50% 
owned by tZERO Group, Inc. (``tZERO''), which is 80.07% owned by Medici 
Ventures, Inc. (``Medici''), a wholly owned subsidiary of a publicly 
held corporation, Overstock.com, Inc. (``Overstock''), and 19.93% owned 
by individuals and companies.\12\ BOX Holdings is (1) 41.33% owned by 
MX US 2, Inc., which is 100% owned by MX US 1, Inc., a wholly owned 
subsidiary of Bourse de Montreal, Inc., which in turn is a wholly owned 
subsidiary of TMX Group Limited (``TMX''); (2) 22.01% owned by IB 
Exchange Corp.; and (3) 36.66% owned by seven separate, unaffiliated 
owners.\13\ The Exchange also states that BSTX is an affiliate of the 
Exchange and will be subject to regulatory oversight by the 
Exchange,\14\ and that tZERO and BSTX are affiliates of Overstock.\15\
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    \11\ Lisa Fall is the Chief Executive Officer of BSTX, and 
President of the Exchange. See BSTX LLC Agreement, supra note 9, 
Signature Page.
    \12\ See Notice, supra note 3, 85 FR at 346. One individual 
holds 7.53% of the outstanding shares of tZERO, and Newer Ventures 
LLC, SpeedRoute Technologies Inc., Dinosaur Financial, and 28 
individuals each own less than 3% of the outstanding shares of 
tZERO. See id.
    \13\ See id. The following entities each hold less than 17% of 
the outstanding units of BOX Holdings: Citadel Securities Principal 
Investments LLC, Citigroup Financial Products Inc., UBS Americas 
Inc., CSFB Next Fund Inc., LabMorgan Corp., Wolverine Trading, LLC, 
and Aragon Solutions Ltd. See id.
    \14\ See id. at 345.
    \15\ See id. at 346.
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    The Exchange states that BOX Holdings wholly owns BOX Options 
Market LLC (``BOX Options''), which is a facility of the Exchange \16\ 
and the only facility that the Exchange currently operates.\17\ The 
Exchange notes that the BSTX LLC Agreement provisions are generally the 
same as provisions of the BOX Options LLC Agreement or the BOX Holdings 
LLC Agreement, with certain exceptions.\18\ The Exchange states that it 
will enter into a facility agreement with BSTX (``Facility Agreement'') 
pursuant to which the Exchange will exercise regulatory oversight over 
BSTX.\19\ Furthermore, the Exchange has entered into an IP License and 
Services Agreement (``LSA'') with tZERO,\20\ under which tZERO will 
provide BSTX and the Exchange with a license to use its intellectual 
property that comprises the BSTX trading system and services related 
to, among other things, implementing and maintain the trading 
system.\21\
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    \16\ See id. at 345.
    \17\ See id. at 345, n.4.
    \18\ See id. at 345, n.8 and accompanying text.
    \19\ See id. at 345. The Exchange will also provide certain 
business services to BSTX pursuant to an administrative services 
agreement. See id.
    \20\ See id. at 347.
    \21\ See id. at 352. The Facility Agreement, administrative 
services agreement, and LSA were not provided as exhibits to the 
proposal.
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    Currently, BOX Digital and tZERO are the only holders of the 
limited liability company interests of BSTX (``LLC Members'').\22\ The 
Exchange proposes that a person would become an additional or 
substitute LLC Member of BSTX only upon that person's execution of a 
counterpart of the BSTX LLC Agreement to evidence that person's written 
acceptance of the terms and

[[Page 19538]]

provisions of the BSTX LLC Agreement.\23\ According to the Exchange, 
the Commission would be notified if an LLC Member's ownership interest 
in BSTX, alone or together with any related person of that LLC Member, 
meets or exceeds 5%, 10%, or 15%, and the BSTX LLC Agreement provides 
that any ``Transfer'' that results in the acquisition and holding by 
any person, alone or together with its related persons, of an ownership 
interest that meets or crosses 20% or any subsequent 5% increment, 
would be subject to the rule filing process pursuant to Section 19 of 
the Act.\24\
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    \22\ See id. at 346; BSTX LLC Agreement, supra note 9. ``LLC 
Members'' are duly admitted holders of limited liability company 
interests in BSTX and would include any person later admitted to 
BSTX as an additional or substitute LLC Member as provided by the 
BSTX LLC Agreement. See Notice, supra note 3, 85 FR at 346; BSTX LLC 
Agreement, supra note 9, Section 1.1.
    \23\ See Notice, supra note 3, 85 FR at 352-53; BSTX LLC 
Agreement, supra note 9, Section 7.1(b).
    \24\ See Notice, supra note 3, 85 FR at 353; BSTX LLC Agreement, 
supra note 9, Section 7.4(e) and (f). The term ``Transfer'' is 
defined in Section 7.1(a) of the BSTX LLC Agreement, and excludes 
``(i) transfers among [LLC] Members, (ii) transfers to any Person 
directly or indirectly owning, controlling or holding with power to 
vote all of the outstanding voting securities of and equity 
beneficial interests in such [LLC] Member, or (iii) any Person that 
is a wholly owned Affiliate of such [LLC] Member.'' See BSTX LLC 
Agreement, supra note 9, Section 7.1(a); Notice, supra note 3, 85 FR 
at 352.
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    Pursuant to the BSTX LLC Agreement, a Controlling Person that 
establishes a Controlling Interest \25\ in an LLC Member that holds 
equal to or greater than a 20% ownership interest in BSTX will be 
required to become a party to the BSTX LLC Agreement, by executing an 
instrument of accession, and abide by its provisions to the same extent 
as if they were LLC Members.\26\ The Exchange also states that these 
amendments to the BSTX LLC Agreement will be subject to the rule filing 
process pursuant to Section 19 of the Act.\27\ The Exchange further 
proposes that any BSTX Participant that directly or indirectly with 
Related Persons holds more than 20% of BSTX would have its voting power 
capped at 20%.\28\ According to the Exchange, this limitation is 
designed to prevent a market participant from exerting undue influence 
on an Exchange facility.\29\
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    \25\ ``Controlling Person'' is defined as ``a Person who, alone 
or together with any Related Persons of such Person, holds a 
Controlling Interest in [an LLC] Member.'' ``Controlling Interest'' 
is defined as ``the direct or indirect ownership of 25% or more of 
the total voting power of all equity securities of [an LLC] Member . 
. . by any Person, alone or together with any Related Persons of 
such Person.'' See BSTX LLC Agreement, supra note 9, Section 
7.4(g)(v)(A)-(B). ``Related Person'' is defined as ``with respect to 
any Person: (A) Any Affiliate of such Person; (B) any other Person 
with which such first Person has any agreement, arrangement or 
understanding (whether or not in writing) to act together for the 
purpose of acquiring, voting, holding or disposing of Interests; (C) 
in the case of a Person that is a company, corporation or similar 
entity, any executive officer (as defined under Rule 3b-7 under the 
Exchange Act) or director of such Person and, in the case of a 
Person that is a partnership or limited liability company, any 
general partner, managing member or manager of such Person, as 
applicable; (D) in the case of any BSTX Participant who is at the 
same time a broker-dealer, any Person that is associated with the 
BSTX Participant (as determined using the definition of `person 
associated with a member' as defined under Section 3(a)(21) of the 
Exchange Act); (E) in the case of a Person that is a natural person 
and a BSTX Participant, any broker or dealer that is also a BSTX 
Participant with which such Person is associated; (F) in the case of 
a Person that is a natural person, any relative or spouse of such 
Person, or any relative of such spouse who has the same home as such 
Person or who is a director or officer of the Exchange or any of its 
parents or subsidiaries; (G) in the case of a Person that is an 
executive officer (as defined under Rule 3b-7 under the Exchange 
Act) or a director of a company, corporation or similar entity, such 
company, corporation or entity, as applicable; and (H) in the case 
of a Person that is a general partner, managing member or manager of 
a partnership or limited liability company, such partnership or 
limited liability company, as applicable.'' See BSTX LLC Agreement, 
supra note 9, Section 1.1.
    ``BSTX Participant'' is defined 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.'' See id.
    \26\ See Notice, supra note 3, 85 FR at 346, 353; BSTX LLC 
Agreement, supra note 9, Section 7.4(g). The proposed Form of 
Instrument of Accession to Boston Security Token Exchange LLC, 
Amended and Restated Limited Liability Company Agreement is attached 
as Exhibit 5B to the Form 19b-4 for SR-BOX-2019-37 (available on the 
Commission's website at https://www.sec.gov/rules/sro/box/2019/34-87868-ex5b.pdf). The Exchange specifically notes that Medici, 
Overstock, BOX Digital, BOX Holdings, MX US 1, Inc., MX US 2, Inc., 
Bourse de Montreal, Inc., and TMX would be required to execute an 
instrument of accession substantially in the form attached as 
Exhibit 5B. See Notice, supra note 3, 85 FR at 346.
    Pursuant to Section 7.4(g)(iii) of the BSTX LLC Agreement, ``a 
Person shall not be required to execute an amendment to [the BSTX 
LLC Agreement] . . . if such Person does not, directly or 
indirectly, hold any interest in [an LLC] Member.'' BSTX LLC 
Agreement, supra note 9, Section 7.4(g)(iii).
    \27\ See Notice, supra note 3, 85 FR at 353; BSTX LLC Agreement, 
supra note 9, Section 7.4(g)(iv).
    \28\ See Notice, supra note 3, 85 FR at 346, 353; BSTX LLC 
Agreement, supra note 9, Section 7.4(h).
    \29\ See Notice, supra note 3, 85 FR at 346.
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    The Exchange states that the BSTX LLC Agreement includes provisions 
that ensure that the Exchange has full regulatory control over BSTX and 
these provisions are designed to prevent any owner of BSTX from having 
undue influence over regulatory actions.\30\ The BSTX LLC Agreement 
provides that BSTX's board of directors (``Board'') will consist of six 
directors, comprised of (1) two directors appointed by each of BOX 
Digital and tZERO (the ``Member Directors''); (2) one director 
appointed by the unanimous vote of the Member Directors (the 
``Independent Director''); and (3) one non-voting director appointed by 
the Exchange (``the ``Regulatory Director'').\31\ The Exchange states 
that BSTX will have an Independent Director to avoid either BOX Digital 
or tZERO from controlling or creating deadlock on the Board.\32\ The 
Exchange also states that BSTX's Board structure differs from that of 
BOX Options because BOX Options, as a wholly-owned subsidiary of BOX 
Holdings, has the same directors as BOX Holdings, and BOX Holdings, 
unlike BSTX, has no owners with 50% or greater ownership.\33\
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    \30\ See id. at 348.
    \31\ See id.; BSTX LLC Agreement, supra note 9, Section 4.1(a). 
The Exchange states that the Regulatory Director must be a member of 
senior management of the regulation staff of the Exchange. See 
Notice, supra note 3, 85 FR at 348. See also BSTX LLC Agreement, 
supra note 9, Section 1.1.
    \32\ See Notice, supra note 3, 85 FR at 348.
    \33\ See id.
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    Generally, actions by the Board will be considered effective only 
if approved by at least a majority of the votes entitled to vote on 
that action.\34\ The Board must approve, by an affirmative vote of the 
Member Directors, any ``major action,'' which will include, among other 
things, changes to operating the BSTX Market using any software system 
other than the BSTX trading system, except as otherwise provided in the 
LSA or to the extent otherwise required by the Exchange to fulfill its 
regulatory functions or responsibilities or to oversee the BSTX Market 
as determined by the board of the Exchange.\35\ The BSTX LLC Agreement 
also provides that the Exchange shall receive notice of planned or 
proposed changes to BSTX, with the exception of certain changes not 
related to the operation of the market, or to the BSTX Market, and that 
such changes will require affirmative approval by the Exchange before 
implementation.\36\ If the Exchange determines that planned or proposed 
changes could cause a regulatory deficiency, the Exchange may direct 
BSTX, subject to Board approval, to modify the proposal as 
necessary.\37\
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    \34\ See id.; BSTX LLC Agreement, supra note 9, Section 4.3.
    \35\ See Notice, supra note 3, 85 FR at 348-49; BSTX LLC 
Agreement, supra note 9, Section 4.4(a). ``BSTX Market'' is defined 
as the market operated by the Exchange pursuant to Section 3.1 of 
the BSTX LLC Agreement. See BSTX LLC Agreement, supra note 9, 
Section 1.1.
    \36\ See Notice, supra note 3, 85 FR at 350; BSTX LLC Agreement, 
supra note 9, Section 3.2(a)(ii).
    \37\ See Notice, supra note 3, 85 FR at 350; BSTX LLC Agreement, 
supra note 9, Section 3.2(a)(iii).
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    The Exchange also proposes how regulatory funds may be allocated. 
The Exchange states that, pursuant to the Facility Agreement, the 
Exchange will have the right to receive all fees, fines, and 
disgorgements imposed upon BSTX Participants with respect to BSTX's 
trading system (``Regulatory Funds'') and all other market data fees, 
tape, and other revenue (``Non-regulatory

[[Page 19539]]

Funds''), and all Regulatory Funds and Non-regulatory Funds collected 
in respect to BSTX may be used by the Exchange, at its sole discretion, 
for regulatory purposes.\38\ Furthermore, all Regulatory Funds 
collected by the Exchange will be retained by the Exchange and not 
transferred to BSTX; however, Non-regulatory Funds collected may be 
transferred to BSTX after the Exchange has made adequate provisions for 
all regulatory purposes.\39\
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    \38\ See Notice, supra note 3, 85 FR at 350-51. If BSTX incurs 
costs and expenses for regulatory purposes, the Exchange may 
reimburse BSTX using Regulatory Funds. See id. at 351. In the event 
that the Exchange does not hold sufficient funds to meet all 
regulatory purposes, BSTX will reimburse the Exchange for any such 
additional costs and expenses. See id. The BSTX LLC Agreement does 
not include provisions regarding Regulatory Funds.
    \39\ See id.
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    The proposal includes provisions regarding capital contributions 
and distributions. The BSTX LLC Agreement provides for an initial 
capital contribution from both BOX Digital and tZERO, with tZERO 
providing an initial cash contribution of $10 million and BOX Digital 
providing the ``[r]ight to seek approval to become a facility of SRO'' 
and ``[r]egulatory expertise.'' \40\ The BSTX LLC Agreement also 
includes provisions regarding determinations of capital needs by the 
Board, including, among others, the requirement that at least one 
Member Director appointed by each LLC Member affirmatively vote to 
raise capital; \41\ potential cash distributions; \42\ and allocation 
of profits, losses, and credits for each fiscal year to LLC Members at 
least once annually on a pro rata basis.\43\
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    \40\ See id.; BSTX LLC Agreement, supra note 9, Section 6.1 & 
Schedule A. tZERO will also provide ``consideration provided 
pursuant to the LSA.'' BSTX LLC Agreement, supra note 9, Schedule A.
    \41\ See Notice, supra note 3, 85 FR at 351; BSTX LLC Agreement, 
supra note 9, Section 6.2. The Exchange states that the requirement 
concerning the affirmative vote of one Member Director appointed by 
each LLC Member is not present in the BOX Options LLC Agreement, but 
that the Exchange believes that this provision promotes commercial 
fairness and is necessary due to the differing ownership structure 
of BSTX. See Notice, supra note 3, 85 FR at 351.
    \42\ See BSTX LLC Agreement, supra note 9, Section 8.1.
    \43\ See id., Section 9.1.
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    The proposal also includes provisions regarding the regulation of 
BSTX and regulatory jurisdiction over LLC Members of BSTX.\44\ 
Specifically, the BSTX LLC Agreement provides that the Exchange has the 
authority to act as the self-regulatory organization (``SRO'') for 
BSTX, will provide the regulatory framework for the BSTX Market, and 
will have regulatory responsibility for the activities of the BSTX 
Market.\45\ Additionally, the BSTX LLC Agreement includes provisions, 
which the Exchange states are substantively similar to provisions in 
the BOX Options LLC Agreement, that address the handling of 
confidential information, both pertaining to regulatory matters and 
otherwise.\46\ The BSTX LLC Agreement also contains provisions, which 
the Exchange states are substantially similar to those of the BOX 
Options LLC Agreement, related to regulatory jurisdiction over LLC 
Members; \47\ the maintenance of books and records; \48\ and the 
independence of the self-regulatory function of the Exchange and 
compliance with federal securities laws.\49\
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    \44\ See Notice, supra note 3, 85 FR at 354-55.
    \45\ See id. at 354; BSTX LLC Agreement, supra note 9, Section 
3.2. The Exchange states that Section 3.2 of the BSTX LLC Agreement 
ensures that the Exchange has full regulatory control over BSTX and 
is designed to prevent any owner of BSTX from exercising undue 
influence over the regulated activities of BSTX. See Notice, supra 
note 3, 85 FR at 354.
    \46\ See Notice, supra note 3, 85 FR at 354-55; BSTX LLC 
Agreement, supra note 9, Article 15. The BSTX LLC Agreement contains 
additional language to make it clear that the Commission can access 
and examine confidential information pursuant to federal securities 
laws and rules. See Notice, supra note 3, 85 FR at 354-55; BSTX LLC 
Agreement, supra note 9, Section 15.5.
    \47\ See Notice, supra note 3, 85 FR at 355; BSTX LLC Agreement, 
supra note 9, Sections 11.1, 18.6(a), 18.6(c).
    \48\ See Notice, supra note 3, 85 FR at 355; BSTX LLC Agreement, 
supra note 9, Section 11.1.
    \49\ See Notice, supra note 3, 85 FR at 348, 350; BSTX LLC 
Agreement, supra note 9, Section 4.12.
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    The Exchange also states that it is submitting a separate filing to 
introduce structural changes to the Exchange to accommodate regulation 
of BSTX as well as BOX Options.\50\ According to the Exchange, BSTX 
Participants will have the same representation, rights, and 
responsibilities as BOX Options Participants.\51\
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    \50\ See Notice, supra note 3, 85 FR at 345.
    \51\ See id. See also Securities Exchange Act Release No. 88236 
(February 19, 2020), 85 FR 10768 (February 25, 2020) (SR-BOX-2020-
04) (``Exchange Governance Amendment Proposal''). The Commission 
notes that the Exchange Governance Amendment Proposal proposes to 
amend the Exchange's LLC Agreement and Bylaws to provide flexibility 
for the Exchange to regulate multiple facilities.
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II. Summary of the Comment Letters Received

    To date the Commission has received two comment letters on the 
proposal.\52\ One commenter notes that the proposal was only recently 
brought to its attention because it did not anticipate that a filing by 
an options exchange to create a facility could impact the U.S. equities 
markets.\53\ This commenter expresses concern that the approval of the 
proposal ``could be a significant change for the equities market.'' 
\54\ This commenter requests an extension of the comment period to 
consider the proposal.\55\ Another commenter notes that the tZERO token 
is affiliated with certain owners of the Exchange, Overstock, and other 
entities related to the Exchange.\56\ This commenter also notes that 
the price of the tZERO token is down by over 85% since issuance less 
than two years ago.\57\ This commenter believes that the Commission 
should disclose and study further details on the relationships between 
the aforementioned entities.\58\
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    \52\ See supra note 6.
    \53\ See Letter from Ellen Greene, Managing Director, SIFMA, to 
Vanessa Countryman, Secretary, Commission, dated January 13, 2020 
(``SIFMA Letter''), at 2. See also Letter from David A. Schrader, 
Partner, Paykin Krieg & Adams, LLP, to Vanessa Countryman, 
Secretary, Commission, dated February 25, 2020 (``PKA Law Letter''), 
at 2 (stating that the proposal has had little dissemination among 
market participants, particularly the exchanges and designated 
market makers).
    \54\ See SIFMA Letter, supra note 53, at 2. This commenter's 
letter also references the BSTX Trading Rules Proposal. See id. at 
1. See also PKA Law Letter, supra note 53, at 2 (stating that the 
proposal contains potentially significant changes to the operation 
and structure of the global equity trading markets).
    \55\ See SIFMA Letter, supra note 53, at 2. This commenter also 
requests more time to provide feedback on the BSTX Trading Rules 
Proposal. See id. at 2.
    \56\ See PKA Law Letter, supra note 53, at 2.
    \57\ See id.
    \58\ See id.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-BOX-
2019-37 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \59\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \59\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\60\ the Commission is 
providing

[[Page 19540]]

notice of the grounds for disapproval under consideration. The 
Commission is instituting proceedings to allow for additional analysis 
of the proposed rule change's consistency with Section 6(b)(1) of the 
Act, which requires that a national securities exchange be so organized 
and have the capacity to be able to carry out the purposes of the Act 
and to comply, and enforce compliance by its members and persons 
associated with its members, with the provisions of the Act, the rules 
and regulations thereunder, and the rules of the exchange.\61\ In 
addition, the Commission is instituting proceedings to allow for 
additional analysis of the proposed rule change's consistency with 
Section 6(b)(3) of the Act, which requires that the rules of a national 
securities exchange assure a fair representation of its members in the 
selection of its directors and administration of its affairs and 
provide that one or more directors shall be representative of issuers 
and investors and not be associated with a member of the exchange, 
broker, or dealer; \62\ and Section 6(b)(5) of the Act, which requires, 
among other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
to protect investors and the public interest, and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.\63\
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    \60\ Id.
    \61\ 15 U.S.C. 78f(b)(1).
    \62\ 15 U.S.C. 78f(b)(3).
    \63\ 15 U.S.C. 78f(b)(5).
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
[SRO] that proposed the rule change.'' \64\ The description of a 
proposed rule change, its purpose and operation, its effect, and a 
legal analysis of its consistency with applicable requirements must all 
be sufficiently detailed and specific to support an affirmative 
Commission finding,\65\ and any failure of an SRO to provide this 
information may result in the Commission not having a sufficient basis 
to make an affirmative finding that a proposed rule change is 
consistent with the Act and the applicable rules and regulations.\66\
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    \64\ 17 CFR 201.700(b)(3).
    \65\ See id.
    \66\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposal is consistent with the Act.

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Sections 6(b)(1),\67\ 6(b)(3),\68\ and 6(b)(5) \69\ of 
the Act or any other provision of the Act, or the rules and regulations 
thereunder. Although there do not appear to be any issues relevant to 
approval or disapproval that would be facilitated by an oral 
presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4 under the Act,\70\ any request for an 
opportunity to make an oral presentation.\71\
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    \67\ 15 U.S.C. 78f(b)(1).
    \68\ 15 U.S.C. 78f(b)(3).
    \69\ 15 U.S.C. 78f(b)(5).
    \70\ 17 CFR 240.19b-4.
    \71\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by April 28, 2020. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by May 12, 
2020. The Commission asks that commenters address the sufficiency of 
the Exchange's statements in support of the proposal, which are set 
forth in the Notice,\72\ in addition to any other comments they may 
wish to submit about the proposed rule change.
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    \72\ See Notice, supra note 3.
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BOX-2019-37 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-2019-37. 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-2019-37 and should be submitted by 
April 28, 2020. Rebuttal comments should be submitted by May 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\73\
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    \73\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07229 Filed 4-6-20; 8:45 am]
BILLING CODE 8011-01-P