Document ID: SEC-2021-1768-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange LLC
Posted Date: 2021-12-20T05:00Z

[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 72021-72024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27427]

[[Page 72021]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93778; File No. SR-BOX-2021-19]

Self-Regulatory Organizations; BOX Exchange LLC; Order Approving 
a Proposed Rule Change, as Modified by Amendment No. 1, Related to BOX 
Exchange LLC and BOX Holdings Group LLC Ownership Transfer Transactions

December 14, 2021.

I. Introduction

    On August 27, 2021, BOX Exchange LLC (``BOX Exchange'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change related to the Exchange and BOX Holdings Group LLC 
(``BOX Holdings'') ownership transfer transactions. The proposed rule 
change was published for comment in the Federal Register on September 
15, 2021.\3\ The Commission received one comment on the proposed rule 
change.\4\ On September 28, 2021, pursuant to Section 19(b)(2) of the 
Act,\5\ 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.\6\ On December 13, 2021, the Exchange filed 
Amendment No. 1 to the proposed rule change, which amended and 
superseded the Notice in its entirety.\7\ The Commission is approving 
the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92926 (September 9, 
2021), 86 FR 51410 (``Notice'').
    \4\ See letter from Seymour Johnson, dated September 10, 2021, 
available at https://www.sec.gov/comments/sr-box-2021-19/srbox202119-9221992-250319.htm. The commenter is critical of the 
voting and economic interests of Citadel Securities Principal 
Investments LLC (``Citadel'') in BOX Holdings Group and believes 
that such interests should be reduced.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 93156, 86 FR 54780 
(October 4, 2021). The Commission designated December 14, 2021, as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \7\ In Amendment No. 1, the Exchange revised the proposal to: 
(1) Provide updated and additional ownership and voting percentage 
interests information; (2) correct a reference from BOX Holdings to 
BOX Options Market LLC; (3) specify that all foreign upstream owners 
have signed onto the BOX Exchange LLC Agreement and the BOX Holdings 
LLC Agreement. Because Amendment No. 1 is a technical amendment that 
does not materially alter the substance of the proposed rule change 
or raise unique or novel regulatory issues, it is not subject to 
notice and comment. Amendment No. 1 to the proposed rule change is 
available at https://www.sec.gov/rules/sro/box.htm.
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II. Description of the Proposed Rule Change 8
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    \8\ For a more complete description of all the changes as 
proposed, see Amendment No. 1, supra note 7.
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    The Exchange is a limited liability company, organized under the 
laws of the State of Delaware on August 26, 2010. The Exchange's 
charter is a Second Amended and Restated Limited Liability Company 
Agreement, dated as of May 29, 2020, as amended November 30, 2020 
(``BOX Exchange LLC Agreement''). Citigroup Financial Products Inc. 
(``Citi''), CSFB Next Fund Inc. (``CSFB''), and MX US 2, Inc., 
(``MXUS2'') each became a Member \9\ of the Exchange on May 10, 2012. 
Wolverine Holdings, L.P. (``Wolverine'') is not currently a Member of 
the Exchange.
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    \9\ A ``Member'' of the Exchange means the current owners of 
Economic Units and Voting Units of the Exchange and includes any 
person subsequently admitted to the Exchange as an additional or 
substitute Member of the Exchange. See Article 1. 1 of the BOX 
Exchange LLC Agreement. ``Economic Units'' refer to equal units of 
limited liability company interest in the Exchange collectively 
comprising all interests in the profits and losses of the Exchange 
and all rights to receive distributions from the Exchange as set 
forth in the BOX Exchange LLC Agreement. See Article 2.5(a) of the 
BOX Exchange LLC Agreement. ``Voting Units'' refer to equal units of 
limited liability company interest in the Exchange collectively 
comprising all voting interests of Members with respect to Exchange 
matters. See Article 2.5(b) of the BOX Exchange LLC Agreement.
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    BOX Holdings is a limited liability company, organized under the 
laws of the State of Delaware on August 26, 2010. BOX Holdings is the 
sole owner of BOX Options Market LLC, a facility of the Exchange (``BOX 
Options''). The BOX Holdings charter is a Second Amended and Restated 
Limited Liability Company Agreement, dated as of September 13, 2018 
(``BOX Holdings LLC Agreement''). Citi and CSFB each became a Member 
\10\ of BOX Holdings on May 10, 2012.
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    \10\ A ``Member'' of BOX Holdings means the current owners of 
BOX Holdings Units and includes any Person subsequently admitted to 
BOX Holdings as an additional or substitute Member of BOX Holdings. 
See BOX Holdings LLC Agreement Sec.  1.1. BOX Holdings ``Units'' 
means Class A Membership Units, Class B Membership Units, and Class 
C Membership Units of BOX Holdings. See Article 1.1 of the BOX 
Holdings LLC Agreement. The current Members of BOX Holdings are: 
MXUS2, IB Exchange Corp. (``IB''), Citadel, Citi, UBS Americas Inc. 
(``UBS''), CSFB, JPMC Strategic Investments I Corporation 
(``JPMC''), Wolverine, and Aragon Solutions Ltd (``Aragon'').
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    The Exchange proposes several transactions related to the ownership 
of the Exchange and BOX Holdings. First, the Exchange would repurchase 
the ownership interests in the Exchange held by Citi and CSFB.\11\ 
Second, BOX Holdings would repurchase the ownership interests in BOX 
Holdings held by Citi and CSFB.\12\ Finally, Wolverine would purchase 
an ownership interest in the Exchange from MXUS2.\13\ The charts below 
summarize the ownership and voting percentage changes in the Exchange 
and BOX Holdings that would result from the proposed transactions:
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    \11\ See Notice, supra note 3, 86 FR at 51411 and Amendment No. 
1, supra note 7.
    \12\ See id.
    \13\ See Notice, supra note 3, 86 FR at 51411-12 and Amendment 
No. 1, supra note 7.
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BOX Exchange
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    \14\ ``Economic Percentage Interest'' with respect to a Member 
of the Exchange means 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 Article 1.1 of the BOX 
Exchange LLC Agreement.

------------------------------------------------------------------------
                                              Current        Proposed
                                             economic        economic
          Exchange unit holder              percentage      percentage
                                           interest \14\     interest
------------------------------------------------------------------------
MXUS2...................................           40.00           40.00
IB......................................           20.00           20.00
Citadel.................................            7.68           12.28
Citi....................................            7.68  ..............
UBS.....................................            7.45           11.92
CSFB....................................            7.30  ..............
LabMorgan Corp./JPMC....................            7.30           11.67
Aragon..................................            2.58            4.13

[[Page 72022]]

 
Wolverine...............................  ..............           <0.01
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    \15\ ``Voting Percentage Interest'' with respect to a Member of 
the Exchange means 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 of 
the Exchange that are ineligible to vote shall not be counted in the 
numerator or the denominator when determining such ratio. See id.
    \16\ ``Percentage Interest'' with respect to a Member of BOX 
Holdings means the ratio of the number of Units held by the Member 
to the total of all of the issued Units, expressed as a percentage 
and determined with respect to each class of Units, whenever 
applicable. See id.

------------------------------------------------------------------------
                                                             Proposed
                                          Current voting      voting
          Exchange unit holder              percentage      percentage
                                           interest \15\     interest
------------------------------------------------------------------------
MXUS2...................................           20.00           20.00
IB......................................           20.00           20.00
Citadel.................................           18.73           20.00
Citi....................................           10.00  ..............
UBS.....................................            4.99            4.99
CSFB....................................           10.00  ..............
LabMorgan Corp./JPMC....................            9.99            9.99
Aragon..................................            6.30           20.00
Wolverine...............................  ..............            5.03
------------------------------------------------------------------------

BOX Holdings

------------------------------------------------------------------------
                                              Current        Proposed
        BOX holdings unit holder            percentage      percentage
                                           interest \16\     interest
------------------------------------------------------------------------
MXUS2...................................           42.62           47.89
IB......................................           22.69           25.50
Citadel.................................           13.80           15.50
Citi....................................            7.85  ..............
UBS.....................................            3.23            3.63
CSFB....................................            3.16  ..............
LabMorgan Corp./JPMC....................            3.16            3.55
Aragon..................................            1.12            1.26
Wolverine...............................            2.38            2.67
------------------------------------------------------------------------

------------------------------------------------------------------------
                                                             Proposed
    BOX holdings unit holder       Current voting power    voting power
------------------------------------------------------------------------
MXUS2..........................  44.10% (Member votes)..           51.43
                                 45.50% (total Board
                                  voting power).
IB.............................  20.00%.................           20.00
Citadel........................  14.28% (Member votes)..           16.65
                                 14.73% (total Board
                                  voting power).
Citi...........................  8.13% (Member votes)...  ..............
                                 8.38% (total Board
                                  voting power).
UBS............................  3.34% (Member votes)...            3.90
                                 3.45% (total Board
                                  voting power).
CSFB...........................  3.27% (Member votes)...  ..............
                                 3.37% (total Board
                                  voting power).
LabMorgan Corp./JPMC...........  3.27% (Member votes)...            3.82
                                 3.37% (total Board
                                  voting power).
Aragon.........................  1.16% (Member votes)...            1.35
                                 1.19% (total Board
                                  voting power).
Wolverine......................  2.46% (Member votes)...            2.87
                                 0.00% (total Board
                                  voting power because
                                  Wolverine does not
                                  have a Board seat).
------------------------------------------------------------------------

[[Page 72023]]

    In addition to the transactions, the Exchange proposes to update 
the name of one of its Members in the BOX Exchange LLC Agreement. 
LabMorgan Corp., a Member of the Exchange, has changed its legal name 
to ``JPMC Strategic Investments I Corporation.'' \17\
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    \17\ See Notice, supra note 3, 86 FR at 51413, and Amendment No. 
1, supra note 7.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\18\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\19\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission also finds that these proposed rule 
changes, as modified by Amendment No. 1, are consistent with Section 
6(b)(1) of the Act, which requires, among other things, that a national 
securities exchange be so organized and have the capacity 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.
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    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    Both the BOX Exchange LLC Agreement and the BOX Holdings LLC 
Agreement contain provisions relating to limitations on ownership and 
voting power. In particular, the BOX Exchange LLC Agreement provides 
that no Person,\20\ either alone or together with any Related Persons 
\21\ may own, directly or indirectly, of record or beneficially, an 
aggregate Economic Percentage Interest greater than 40%.\22\ Exchange 
Facility Participants,\23\ alone or together with any Related Persons 
may not own, directly or indirectly, of record or beneficially, an 
Economic Percentage Interest greater than 20%.\24\ In addition, no 
Person, either alone or together with any Related Persons, may own, 
directly or indirectly, of record or beneficially, an aggregate Voting 
Percentage Interest greater than 20%.\25\ Moreover, any Member \26\ of 
the Exchange involved in a transaction that would result in a Member 
having a Voting Percentage Interest or Economic Percentage Interest, 
alone or together with any Related Person, of record or beneficially, 
of 5% or more will be required to provide written notice to BOX 
Exchange 14 days before the transaction that would exceed the 5% 
limit.\27\ BOX Exchange will then be required to provide written notice 
to the Commission 10 days before the transaction.\28\
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    \20\ ``Person'' means 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 Article 
1.1 of the BOX Exchange LLC Agreement.
    \21\ The term ``Related Person'' is defined in Article 1.1 of 
the BOX Exchange LLC Agreement.
    \22\ See Article 7.3(f) of the BOX Exchange LLC Agreement.
    \23\ ``Exchange Facility Participant'' means a firm or 
organization that is registered with the Exchange pursuant to the 
Exchange Rules for purposes of participant in trading on any 
Exchange Facility. See Article 1.1 of the BOX Exchange LLC 
Agreement. ``Exchange Facility'' means any facility of the Exchange 
as the term ``facility'' is defined in Section 3 of the Act. See id.
    \24\ Id.
    \25\ See Article 7.3(g)(i) of the BOX Exchange LLC Agreement.
    \26\ See supra note 9.
    \27\ See Article 7.3(e) of the BOX Exchange LLC Agreement.
    \28\ Id.
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    In addition, the BOX Holdings LLC Agreement provides that if a 
Member \29\ of BOX Holdings or any of its Related Persons \30\ is 
approved by the Exchange as a BOX Options Participant,\31\ and if such 
Member, alone or together with the Related Persons, own more than 20% 
of BOX Holdings Units,\32\ then such Member and any director of BOX 
Holdings designated by such Member will not have any voting rights with 
respect to any Units owned in excess of 20%.\33\ The BOX Holdings LLC 
Agreement further provides that any Member of BOX Holdings involved in 
a transaction in which the Member's Percentage Interest \34\ in BOX 
Holdings, either alone or together with any Related Person, will meet 
or cross the threshold level of 5% or the successive 5% percentage 
levels of 10% and 15% will be required to provide written notice to BOX 
Holdings 14 days before the transaction.\35\ BOX Holdings will then be 
required to provide written notice to BOX Exchange and the Commission 
10 days before the transaction.\36\ In addition to these notices, any 
transaction of Units that results in the acquisition and holding by any 
Person,\37\ alone or with its Related Persons, of a Percentage Interest 
that meets or crosses the threshold level of 20% or any successive 5% 
percentage interest will be subject to the rule filing process of 
Section 19 of the Act.\38\ Further, any transaction that is in 
contravention of the notification and filing provisions shall be 
void.\39\
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    \29\ See supra note 10.
    \30\ The term ``Related Person'' is defined in Article 1.1 of 
the BOX Holdings LLC Agreement.
    \31\ ``Options Participant'' means a firm, or organization that 
is registered with the Exchange pursuant to the Rule 2000 Series for 
purposes of participating in trading on a facility of the Exchange. 
See BOX Rule 100(a)(41).
    \32\ See supra note 10.
    \33\ See Article 7.4(h) of the BOX Holdings LLC Agreement.
    \34\ See supra note 16.
    \35\ See Article 7.4(e) of the BOX Holdings LLC Agreement.
    \36\ Id.
    \37\ ``Person'' means 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 Article 
1.1 of the BOX Holdings LLC Agreement.
    \38\ See Article 7.4(f) of the BOX Holdings LLC Agreement.
    \39\ See Article 7.4(d) of the BOX Holdings LLC Agreement.
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    The ownership and voting limitations are designed to help ensure 
that BOX Exchange is able to effectively carry out its regulatory 
obligations under the Act. In addition, the limitations are designed to 
address the conflicts of interests that might result from a member of a 
national securities exchange owning interests in the exchange. The 
Commission believes that the Exchange has followed the required notice 
procedures set forth in the BOX Exchange LLC Agreement and BOX Holdings 
LLC Agreement and that the proposed transactions are in compliance with 
the ownership and voting limitations in the governance documents.\40\ 
The Commission also notes that the BOX Exchange LLC Agreement \41\ and 
BOX Holdings LLC

[[Page 72024]]

Agreement \42\ contain certain provisions designed to help maintain the 
independence of the regulatory functions of BOX Exchange. The 
Commission believes that the potential for conflicts of interest or 
unfair competition is mitigated by these provisions.
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    \40\ Although a commenter objects to Citadel's ownership and 
voting percentages in BOX Holdings increasing because of the 
contemplated transaction, the increase is consistent with the 
ownership and voting limitations set forth in BOX Holdings governing 
documents as previously approved by the Commission. See Securities 
Exchange Act Release No. 66871 (April 27, 2012), 77 FR 26323 (May 3, 
2012).
    \41\ See, e.g., Article 4.6(b) of the BOX Exchange LLC Agreement 
(requiring the Exchange and its Members to cooperate with BOX 
Exchange and the Commission and to comply with federal securities 
laws); and Article 18.6(b) of the BOX Holdings LLC Agreement 
(deeming the Exchange, its Members and officers, directors, 
employees and agents of each to submit to the jurisdiction of the US 
federal courts and the Commission).
    \42\ See, e.g., Article 4.12(b) of the BOX Holdings LLC 
Agreement (requiring BOX Holdings and its Members to cooperate with 
BOX Exchange and the Commission and to comply with federal 
securities laws); Article 11.1 of the BOX Holdings LLC Agreement 
(requiring the books and records of BOX Holdings and its Members to 
be subject to inspection and copying by the Exchange and the 
Commission at all times); and Article 18.6(b) of the BOX Holdings 
LLC Agreement (deeming BOX Holdings, its Members and officers, 
directors, employees and agents of each to submit to the 
jurisdiction of the US federal courts, the Commission, and BOX 
Exchange).
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    With respect to the ownership of BOX Exchange, the Commission notes 
that no BOX Exchange Member will own in excess of 40% of the Exchange's 
Economic Units (20% if an Exchange Facility Participant) and 20% of the 
Exchange's Voting Units. The board composition of the Exchange will not 
change. And although BOX Holdings is not independently responsible for 
regulation of BOX Options, its activities with respect to the operation 
of BOX Options must be consistent with, and not interfere with, the 
self-regulatory obligations of BOX Exchange. Pursuant to the 
transaction, with respect to the ownership of BOX Holdings, the voting 
power of IB, a BOX Options Participant, would remain at 20.00%. 
Further, while MXUS2's voting power in BOX Holdings would increase, 
MXUS2's power to appoint directors would remain unchanged.\43\ The 
Commission accordingly believes that the proposed transfers are in 
compliance with requirements in the BOX Exchange LLC Agreement and the 
BOX Holdings LLC Agreement and provisions designed to help maintain BOX 
Exchange's regulatory function.
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    \43\ MXUS2 (through MXUS1) is a wholly-owned subsidiary of the 
Bourse de Montreal (``Bourse'') and the Bourse is a wholly-owned 
subsidiary of TMX Group Limited. Each of MXUS1, Bourse, and TMX 
Group Limited is a party to the BOX Exchange LLC Agreement and BOX 
Holdings LLC Agreement and has all the rights and responsibilities 
of the Members of BOX Exchange and BOX Holdings. See Amendment No 1, 
supra note 7.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\44\ that the proposed rule change (SR-BOX-2021-19), as modified by 
Amendment No. 1, be, and hereby is, approved.
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    \44\ Id.
    \45\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27427 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P