Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Proposed Rule Change in Connection With the Proposed Commencement of Operations of Boston Security Token Exchange LLC (“BSTX”) as a Facility of the Exchange, 33258-33271 [2020-11653]
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
protection. To the extent that there is a
competitive burden on those option
classes that do not qualify for the Penny
Program, the Exchange believes that it is
appropriate because the proposal should
benefit all market participants and
investors by maximizing the benefit of
a finer quoting increment in those
option classes with the most trading
interest while minimizing the burden of
greater quote traffic in option classes
with less trading interest. The Exchange
believes that adopting rules, which it
anticipates will likewise be adopted by
all option exchanges that are
participants in the OLPP, would allow
for continued competition between
Exchange market participants trading
similar products as their counterparts
on other exchanges, while at the same
time allowing the Exchange to continue
to compete for order flow with other
exchanges.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 15 and Rule
19b–4(f)(6) thereunder.16 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.17
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
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15 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
17 15 U.S.C. 78s(b)(3)(A)(iii). Rule 19b–4(f)(6)(iii)
requires a self-regulatory organization to give the
Commission written notice of its intent to file the
proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Commission notes that the
Exchange satisfied this requirement.
16 17
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investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 18 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2020–50 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–NYSEArca-2020–50. 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 (https://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–NYSEArca–2020–50 and
should be submitted on or before June
22, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11648 Filed 5–29–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88949; File No. SR–BOX–
2020–16]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing of
Proposed Rule Change in Connection
With the Proposed Commencement of
Operations of Boston Security Token
Exchange LLC (‘‘BSTX’’) as a Facility of
the Exchange
May 26, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 12,
2020, BOX Exchange LLC (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is submitting this
Proposed Rule Change to the
Commission in connection with the
proposed commencement of operations
of BSTX. In this Proposed Rule Change,
the proposed Amended and Restated
Limited Liability Company Agreement
of the Company dated December 24,
2019 (the ‘‘LLC Agreement’’), is attached
as Exhibit 5A hereto [sic]. The text of
the proposed rule change is available
from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s internet website at https://
boxoptions.com.
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
18 15
PO 00000
U.S.C. 78s(b)(2)(B).
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is submitting this
Proposed Rule Change to the
Commission in connection with the
proposed commencement of operations
of BSTX. The Exchange proposes to
establish BSTX as a facility, as that term
is defined in Section 3(a)(2) of the Act,3
of the Exchange.4 BSTX would be a
facility of the Exchange that will operate
a market for the trading of digital
security tokens. BSTX would operate a
fully automated, price/time priority
execution system for the trading of
‘‘security tokens,’’ which would be
equity securities that meet BSTX listing
standards and for which ancillary
records of ownership would be able to
be created and maintained using
distributed ledger (or ‘‘blockchain’’)
technology. The security tokens would
qualify as NMS stocks pursuant to
Regulation NMS.5 All transactions in
security tokens would clear and settle in
accordance with the rules, policies and
procedures of registered clearing
agencies.
BSTX is controlled jointly by BOX
Digital, a Delaware limited liability
company and a subsidiary of BOX
Holdings Group LLC, and tZERO Group,
Inc., a Delaware corporation and an
affiliate of Overstock.com, Inc. BSTX is
an affiliate of the Exchange and, when
3 15
U.S.C. 78c(a)(2).
for the BSTX facility will be sought by
the Exchange through a separate proposed rule
change with the Commission. (‘‘BSTX Rulebook
Proposal’’). The Exchange has also separately
proposed certain other rule changes with the
Commission designed to provide sufficient
flexibility for there to be multiple facilities under
the Exchange’s regulatory authority. Currently,
there is only one facility of the Exchange, BOX
Options Market LLC. See Securities Exchange Act
Release No. 88236 February 19, 2020, 85 FR 10765
February 25, 2020.
5 17 CFR 242.600 through 613.
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it commences trading operations, will
be subject to regulatory oversight by the
Exchange. In addition, the Exchange
will enter into a facility agreement with
BSTX (the ‘‘Facility Agreement’’)
pursuant to which the Exchange will
regulate the Company as a facility of the
Exchange. The Exchange’s powers and
authority under the Facility Agreement
ensure that the Exchange has full
regulatory control over BSTX, which is
designed to prevent any owner of BSTX
from exercising undue influence over
the regulated activities of the Company.
The Exchange will also provide certain
business services to the Company such
as providing human resources and office
technology support pursuant to an
administrative services agreement
between the Exchange and BSTX.
The LLC Agreement is the source of
governance and operating authority for
the Company and, therefore, functions
in a similar manner as articles of
incorporation and bylaws would
function for a corporation. The
Exchange is submitting a separate filing
to establish rules relating to trading on
BSTX.6 The Exchange also submitted a
separate filing to introduce structural
changes to the Exchange to
accommodate regulation of BSTX in
addition to the Exchange’s existing
facility. With the addition of BSTX as an
Exchange facility, BSTX Participants 7
will have the same representation, rights
and responsibilities as Participants on
the Exchange’s other facility.
The Exchange currently operates BOX
Options Market LLC (‘‘BOX Options’’),
which is a facility of the Exchange, as
that term is defined in Section 3(a)(2) of
the Act. The proposed LLC Agreement
provisions are generally the same as the
provisions of the BOX Options LLC
Agreement or, where indicated herein,
are the same as provisions of the BOX
Holdings LLC Agreement.8 Currently,
BOX Holdings has nine separate,
unaffiliated owners. BOX Holdings
owns 100% of BOX Options so BOX
Holdings is essentially the alter ego of
BOX Options. By contrast, the Company
has two separate, unaffiliated voting
6 See
BSTX Rulebook Proposal.
BSTX Participant is a firm or organization that
is registered with the Exchange pursuant to
Exchange Rules for the purposes of participating on
the BSTX Market as an order flow provider or
market maker. See Section 1.1, LLC Agreement.
8 The Exchange notes, as further described in the
Proposed Rule Change, that certain provisions of
the BOX Holdings LLC and BOX Options LLC
Agreements are not included in the LLC Agreement
because they are not applicable. For example,
certain provisions in the BOX Holdings LLC
Agreement that are related to different voting
classes of ownership are not present in the LLC
Agreement because BSTX has only one voting class
of ownership. See, e.g., Sections 4.1, 4.4, 4.13 and
7 of the BOX Holdings LLC Agreement.
7A
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33259
owners, BOX Digital and tZERO, each of
which owns 50% of the voting class of
equity of the Company. Ownership
diverges for BOX Options directly above
BOX Holdings in its ownership
structure and ownership diverges for the
Company directly above the Company
in its ownership structure. Therefore, as
discussed below, when comparing
various provisions in the LLC
Agreement, some provisions are more
appropriately compared with the BOX
Holdings LLC Agreement, particularly
with respect to ownership issues. The
Exchange believes that governance
consistent with established provisions
that have already received Commission
approval harmonizes rules and practices
across the Exchange’s facilities, which
may foster cooperation and coordination
with persons engaged in regulating,
clearing, settling, processing
information with respect to, and
facilitating transactions in securities,
consistent with Section 6(b)(5) of the
Act.9
Structure of the Company
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to the structure of the
Company, highlighting areas that vary
in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC
Agreement and provides the statutory
basis for such variation.
Ownership interests of the Company
are represented by Units.10 The
Company has two classes of Units: Class
A Units 11 and Class B Units.12 Except
as otherwise provided in the LLC
Agreement, all Units are identical to
each other and accord the holders
thereof the same obligations, rights, and
privileges as accorded to each other
holder thereof.13 The duly admitted
9 15
U.S.C. 78f(b)(5).
mean Class A Units and Class B Units.
For the avoidance of doubt, the ownership or
possession of Units shall not in and of itself entitle
the owner or holder thereof to vote or consent to
any action with respect to the Company (which
rights shall be vested only in duly admitted
Members of the Company), or to exercise any right
of a Member of the Company under the LLC
Agreement, the LLC Act, or other applicable law.
See Section 1.1, LLC Agreement.
11 ‘‘Class A Units’’ shall mean equal units of
limited liability company interest in the Company,
including an interest in the ownership and profits
and losses of the Company and the right to receive
distributions from the Company as set forth in the
LLC Agreement. See Section 1.1, LLC Agreement.
12 ‘‘Class B Units’’ shall be identical to Class A
Units except that Class B Members shall not have
the right to vote on any matter related to the
Company as a result of holding Class B Units. See
Section 1.1, LLC Agreement.
13 Pursuant to Section 2.5(b) of the LLC
Agreement, upon the consummation of any sale or
transfer of a majority of the Class A Units or a
10 ‘‘Units’’
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holders of Units are referred to as the
members of the Company (‘‘Members’’).
The Units represent equity interests in
the Company and entitle the duly
admitted holders thereof to participate
in the Company’s allocations and
distributions. Voting Class A Units are
held 50/50 by BOX Digital and tZERO
with each having an economic interest
of over 45% in the Company. Nonvoting Class B Units are held by various
employees and directors of the
Company, each of whom holds less than
5% economic interest in the Company.
Pursuant to Section 1.1 of the LLC
Agreement, a record of the Members is
maintained by the Secretary of the
Company and updated from time to
time as necessary and as provided in the
LLC Agreement (‘‘Membership
Record’’).14 These provisions are
substantially the same as those in the
BOX Holdings LLC Agreement.15
BOX Digital is a subsidiary of BOX
Holdings and an affiliate of the
Exchange and, therefore, the Company
will 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. The existing facility—
BOX Options—operates a market for
trading option contracts on U.S.
equities. BOX Holdings is the parent
company for both BOX Digital and BOX
Options. BOX Holdings has nine
separate, unaffiliated owners, including
MX US 2, Inc., a wholly owned, indirect
subsidiary of TMX Group Limited
(‘‘TMX’’), which holds 42.62% of the
outstanding units of BOX Holdings, and
IB Exchange Corp., which holds 22.69%
of the outstanding units of BOX
Holdings. The other seven owners 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, each hold less
than 15% of the outstanding units of
BOX Holdings.
Medici Ventures, Inc. (‘‘Medici’’), a
Delaware corporation, owns 80.07% of
the outstanding shares of tZERO, Joseph
majority of the assets of the Company, directly or
indirectly, to any party or group of related parties,
including through a series of transactions, all then
outstanding Class B Units shall automatically
convert into an equal number of Class A units
without the need of any action by any person. For
the avoidance of doubt, a Class B Member’s Capital
Account does not change as a result of the
conversion of the Class B Units.
14 The Membership Record shall include the
name and address of each Member and the number
of Units of each class held by each Member.
15 See BOX Holdings LLC Agreement Sections 1.1
and 2.5.
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Cammarata holds 7.53%, and each of
the following owns 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. Overstock.com,
Inc. (‘‘Overstock’’), a publicly held
corporation organized under the laws of
the state of Delaware, owns 100% of the
outstanding shares of Medici. Therefore,
both tZERO and the Company are
affiliates of Overstock.
Pursuant to Section 7.4(g)(ii) of the
LLC Agreement, any Controlling
Person 16 is required to become a party
to the LLC Agreement and abide by its
provisions, to the same extent and as if
they were Members. Related Persons
16 A ‘‘Controlling Person’’ is defined as ‘‘a Person
who, alone or together with any Related Persons of
such Person, holds a Controlling Interest in a
Member.’’ See Section 7.4(g)(v)(B), LLC Agreement.
A ‘‘Controlling Interest’’ is defined as ‘‘the 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 Section 7.4(g)(v)(A),
LLC Agreement. A ‘‘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 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 [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 [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 [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.’’
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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 Company owner because
they will not have the ability to exert
any control over the Company. BOX
Holdings, Medici, and Overstock are
indirect owners of the Company.
Overstock owns 100% of Medici
Ventures, Inc., which owns more than
80% of tZERO Group, Inc., which owns
50% of the voting class of equity of
BSTX. Medici and Overstock will be
required to become parties to the
Company’s LLC Agreement by executing
an instrument of accession substantially
in the form attached hereto as Exhibit
5B [sic] and abide by its provisions, to
the same extent and as if they were
Members, because they are Controlling
Persons of the Company. Similarly, BOX
Digital, BOX Holdings, MX US 2, Inc.,
MX US 1, Inc., Bourse de Montreal Inc.,
and TMX Group Limited will also 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 the Company. TMX Group
Limited owns 100% of Bourse de
Montreal Inc., which owns 100% of MX
US 1, Inc., which owns 100% of MX US
2, Inc., which owns more than 40% of
BOX Holdings. BOX Holdings owns
98% of BOX Digital, which owns 50%
of the voting class of equity of BSTX.
Any BSTX Participant that holds,
directly or indirectly, more than 20% of
the Company will have its voting power
capped at 20% pursuant to Section
7.4(h) of the LLC Agreement, a
limitation designed to prevent a market
participant from exerting undue
influence on an Exchange facility.17
Related Persons will be grouped
together when applying these limits.
The Exchange believes the proposed
voting cap provision is consistent with
the 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 Act.18
In particular, the voting cap is designed
to minimize the ability of a BSTX
Participant to improperly interfere with
or restrict the ability of the Exchange to
effectively carry out its regulatory
oversight responsibilities under the Act.
The SEC will be required to be
notified if an owner exceeds 5%, 10%
or 15% ownership in the Company
pursuant to Section 7.4(e) of the LLC
17 LLC Agreement Section 7.4(h) is based on
Section 7.4(h) of the BOX Holdings LLC Agreement.
18 15 U.S.C. 78f(b)(1).
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Agreement.19 Further, rule filings are
required when an owner crosses above
20% or any subsequent 5% increment,
pursuant to Section 7.4(f) of the LLC
Agreement.20 Related Persons are
grouped together when applying these
limits. These are the same provisions as
are contained in the BOX Holdings LLC
Agreement. The Exchange believes the
proposed notification provisions are
consistent with the 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 Act.21 In particular, SEC notification
of ownership interests exceeding certain
percentage thresholds can help improve
the Commission’s ability to effectively
monitor and surveil for potential undue
influence and control over the operation
of the Exchange.
The Exchange notes that existing
ownership limits applicable to owners
of the Exchange, the entity that will
have regulatory oversight of BSTX, are
not changing.22 The Exchange believes
the existing ownership limits will help
to 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 the Act, and are
appropriate and consistent with the
requirements of the Act, particularly
with Section 6(b)(1), which requires, in
part, an exchange be so organized and
have the capacity to carry out the
purposes of the Act.23
The Company does not have the same
ownership as BOX Options or BOX
Holdings; therefore, the Members of the
Company differ from those of BOX
Options and BOX Holdings. The
Exchange believes that the structure of
the Company will promote just and
equitable principles of trade, and, in
general, protect investors and the public
interest, consistent with Section 6(b)(5)
of the Act.24
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Term and Termination
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to the term and
termination of the Company,
highlighting areas that vary in
comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC
19 LLC Agreement Section 7.4(e) is based on
Section 7.4(e) of the BOX Holdings LLC Agreement.
20 LLC Agreement Section 7.4(f) is based on
Section 7.4(f) of the BOX Holdings LLC Agreement.
21 15 U.S.C. 78f(b)(1).
22 See Securities Exchange Act Release No. 34–
66871 (April 27, 2012) 77 FR 26323 (May 3, 2012)
(Order granting approval of BOX Exchange).
23 15 U.S.C. 78f(b)(1).
24 15 U.S.C. 78f(b)(5).
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Agreement and provides the statutory
basis for such variation.
Pursuant to Section 2.3 of the LLC
Agreement, the Company will have a
perpetual legal existence unless it is
sooner dissolved as a result of an event
specified in the Delaware Limited
Liability Company Act, as amended and
in effect from time to time, and any
successor statute (the ‘‘LLC Act’’) or by
agreement of the Members. The term is
the same as the provision in the BOX
Options LLC Agreement,25 but also
provides that the Company can be
dissolved by agreement of the Members.
In addition, Section 10.1 of the LLC
Agreement provides that the Company
shall be dissolved upon (i) the election
to dissolve the Company made by the
Board pursuant to Section 4.4(b)(v) of
the LLC Agreement; (ii) the entry of a
decree of judicial dissolution under
§ 18–802 of the LLC Act; (iii) the
resignation, expulsion, bankruptcy or
dissolution of the last remaining
Member, or the occurrence of any other
event which terminates the continued
membership of the last remaining
Member in the Company, unless the
business of the Company is continued
without dissolution in accordance with
the LLC Act; or (iv) the occurrence of
any other event that causes the
dissolution of a limited liability
company under the LLC Act unless the
Company is continued without
dissolution in accordance with the LLC
Act. The dissolution events are
generally the same as those in the BOX
Options LLC Agreement; 26 however, the
Company may also be dissolved by the
affirmative vote of Members holding a
majority of all of the then outstanding
Percentage Interests 27 (excluding any
Percentage Interests held directly or
indirectly by tZERO and its Affiliates
from the numerator and the
denominator for such calculation) taken
within 180 calendar days after the
occurrence of any ‘‘Trigger Event’’ as
such term is defined in the IP License
and Services Agreement entered into by
and between tZERO and the Company
(the ‘‘LSA’’) and described in more
detail below.28 The Exchange believes
25 See
BOX Options LLC Agreement Section 2.3.
BOX Options LLC Agreement Section 8.1.
27 ‘‘Percentage Interests’’ are defined as ‘‘with
respect to a Member, means the ratio of the number
of Unit 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 Section 1.1, LLC
Agreement.
28 The LSA defines a ‘‘Trigger Event’’ as meaning
‘‘any of the following events: (a) A material breach
by tZERO of any of its obligations under this LSA
(being either a single event which is a material
breach or a series of breaches which taken together
are a material breach) which material breach or
26 See
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33261
that the addition of such dissolution
events will promote just and equitable
principles of trade, and, in general,
protect investors and the public interest,
consistent with Section 6(b)(5) of the
Act.29
Upon the occurrence of any of the
events set forth in Section 10.1(a) of the
LLC Agreement, the Company will be
dissolved and terminated in accordance
with the provisions of Article 10 of the
LLC Agreement.
Governance of the Company
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to the governance of
the Company, highlighting areas that
vary in comparison to the BOX Options
LLC Agreement and/or BOX Holdings
LLC Agreement and provides the
statutory basis for such variation.
Section 4.1 of the LLC Agreement
establishes a board of directors of the
Company (the ‘‘Board of Directors’’ or
the ‘‘Board’’) to manage the
development, operations, business and
affairs of the Company without the need
for any approval of the Members or any
other person. Section 4.10 of the LLC
Agreement provides that, except and
only to the extent expressly provided for
in the LLC Agreement and the Related
Agreements and as delegated by the
Board of Directors to committees of the
Board of Directors or to duly appointed
Officers or agents of the Company,
neither a Member nor any other Person
other than the Board of Directors shall
be an agent of the Company or have any
right, power or authority to transact any
business in the name of the Company or
to act for or on behalf of or to bind the
Company. Section 4.12(a) of the LLC
Agreement provides that each of the
Members and the Directors, Officers,
employees and agents of the Company
(a) shall give due regard to the
preservation of the independence of the
self-regulatory function of the Exchange
and to its obligations to investors and
failure is not cured by tZERO within 90 days after
Company gives written notice of such breach or
failure to tZERO hereunder, except for Critical
Functions in which case the cure period shall be
10 days; (b) any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any
bankruptcy or insolvency Law or any non-frivolous
dissolution or liquidation proceedings commenced
by or against tZERO; and if such case or proceeding
is not commenced by tZERO, it is acquiesced by
tZERO in or remains undismissed for 30 days; (c)
tZERO ceasing active operation of its business
without a successor or discontinuing any of the
Base Services; (d) tZERO becomes judicially
declared insolvent or admits in writing its inability
to pay its debts as they become due; or (e) tZERO
applies for or consents to the appointment of a
trustee, receiver or other custodian for tZERO, or
makes a general assignment for the benefit of its
creditors.’’
29 15 U.S.C. 78f(b)(5).
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the general public and shall not take any
actions which would interfere with the
effectuation of decisions by the board of
directors of the Exchange relating to its
regulatory functions (including
disciplinary matters) or which would
interfere with the Exchange’s ability to
carry out its responsibilities under the
Act; (b) comply with the federal
securities laws and the rules and
regulations promulgated thereunder;
and (c) cooperate with the Exchange
pursuant to its regulatory authority and
with the SEC. Section 3.2 of the LLC
Agreement provides that the Exchange
will (a) act as the SEC-approved SRO for
the BSTX Market, (b) have regulatory
responsibility for the activities of the
BSTX Market and provide regulatory
services to the Company pursuant to the
Facility Agreement. These are the same
provisions that are contained in the
BOX Options LLC Agreement.30 These
provisions ensure that the Exchange has
full regulatory control over BSTX,
which is designed to prevent any owner
of BSTX from exercising undue
influence over the regulated activities of
the Company.
Section 4.1 of the LLC Agreement
provides that the Board will consist of
six (6) directors (each a ‘‘Director’’),
comprised of two (2) Directors
appointed by BOX Digital, two (2)
Directors appointed by tZERO (together
with the BOX Digital Directors, each a
‘‘Member Director’’), one (1) Director
(the ‘‘Independent Director’’) appointed
by the unanimous vote of all of the then
serving Member Directors, and one (1)
non-voting Director (the ‘‘Regulatory
Director’’) appointed by the Exchange.
As long as the Company is a facility of
the Exchange pursuant to Section 3(a)(2)
of the Act, the Exchange will have the
right to appoint a Regulatory Director to
serve as a Director. The Regulatory
Director must be a member of the senior
management of the regulation staff of
the Exchange. By comparison, the board
of directors of BOX Options is the same
as BOX Holdings because it is a whollyowned subsidiary of BOX Holdings. The
remaining structure of the Board of
Directors for the Company differs from
that of BOX Holdings because the
ownership of the Company differs from
that of BOX Holdings, which has no
owners with 50% or greater ownership
of its voting class of equity. The
Company has an Independent Director
to avoid either Member from controlling
or creating deadlock on the Board.
However, the presence of a Regulatory
Director selected by the Exchange on the
Board is identical to the longstanding
practice at the Exchange’s other facility,
BOX Options. The Exchange believes
that the proposed board structure, and
in particular, the inclusion of the
proposed Independent Director and
Regulatory Director, will promote just
and equitable principles of trade, 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, protect
investors and the public interest,
consistent with Section 6(b)(5) of the
Act.31 Further, the Exchange believes
that inclusion of the Regulatory Director
on the BSTX Board would also be
consistent with Section 6(b)(1) of the
Act. This is because the Regulatory
Director is required to be someone who
is a member of the senior management
of the regulation staff of the Exchange
and is therefore a person who is
knowledgeable of the rules of the
Exchange and the regulations applicable
to it and, in turn, is someone who
would be well positioned to help ensure
the Exchange, including in the
operation of any facilities, continues to
be so organized and has the capacity to
carry out the purposes of the Act,
including to prevent inequitable and
unfair practices.
Section 4.3 of the LLC Agreement
provides that the Board will meet as
often as it deems necessary, but at least
four (4) times per year.32 Meetings of the
Board or any committee thereof may be
conducted in person or by telephone or
in any other manner agreed to by the
Board or, respectively, by the members
of a committee. Any of the Directors or
the Exchange may call a meeting of the
Board upon fourteen (14) calendar days
prior written notice. In any case where
the convening of a meeting of Directors
is a matter of urgency, notice of the
meeting may be given not less than
forty-eight (48) hours before the meeting
is to be held. No notice of a meeting
shall be necessary when all Directors are
present. The attendance of at least a
majority of all the Directors shall
constitute a quorum for purposes of any
meeting of the Board. Except as may
otherwise be provided by the LLC
Agreement, each of the Directors will be
entitled to one vote on any action to be
taken by the Board, except that the
Regulatory Director shall not vote on
any action to be taken by the Board or
any committee, the CEO (if a Director)
31 15
30 See
BOX Options LLC Agreement Sections 4.1,
4.10, 4.12, and 3.2.
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U.S.C. 78f(b)(5).
Agreement Section 4.3 is based on Section
4.3 of the BOX Options LLC Agreement.
shall not be entitled to vote on matters
relating to the CEO’s powers,
compensation or performance, and a
Director shall not be entitled to vote on
any matter pertaining to that Director’s
removal from office. A Director may
vote the votes allocated to another
Director (or group of Directors) pursuant
to a written proxy. Except as otherwise
provided by the LLC Agreement, any
action to be taken by the Board shall be
considered effective only if approved by
at least a majority of the votes entitled
to be voted on that action. Meetings of
the Board may be attended by other
representatives of the Members, the
Exchange and other persons related to
the Company as the Board may approve.
Any action required or permitted to be
taken at a meeting of the Board or any
committee thereof may be taken without
a meeting if written consents, setting
forth the action so taken, are executed
by the members of the Board or
committee, as the case may be,
representing the minimum number of
votes that would be necessary to
authorize or to take that action at a
meeting at which all members of the
Board or committee, as the case may be,
permitted to vote were present and
voted. The Board will determine
procedures relating to the recording of
minutes of its meetings. The Exchange
believes that the proposed board
structure will promote just and
equitable principles of trade, 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, protect
investors and the public interest,
consistent with Section 6(b)(5) of the
Act.33
Pursuant to Section 4.4 of the LLC
Agreement, no action with respect to
any major action (each a ‘‘Major
Action’’), will be effective unless
approved by the Board, including the
affirmative vote of all then serving
Member Directors, in each case acting at
a meeting. A vacancy on the Board will
not prevent approval of a Major Action.
No other Member votes are required for
a Major Action. For purposes of the LLC
Agreement, ‘‘Major Action’’ means any
of the following: (i) A merger or
consolidation of the Company with any
other entity or the sale by the Company
of any material portion of its assets; (ii)
entry by the Company into any line of
business other than the business
outlined in Article 3 of the LLC
32 LLC
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Agreement; (iii) conversion of the
Company from a Delaware limited
liability company into any other type of
entity; (iv) except as expressly
contemplated by the LLC Agreement
and then existing Related Agreements,
entering into any agreement,
commitment, or transaction with any
Member or any of its Affiliates other
than transactions or agreements upon
commercially reasonable terms that are
no less favorable to the Company than
the Company would obtain in a
comparable arms-length transaction or
agreement with a third party; (v) to the
fullest extent permitted by law, taking
any action (except pursuant to a vote of
the Members pursuant to Section
10.1(a)(ii) of the LLC Agreement to
effect the voluntary, or which would
precipitate an involuntary, dissolution
or winding up of the Company; (vi)
operating the BSTX Market utilizing any
other 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; (vii)
operating the BSTX Market utilizing any
other regulatory services provider other
than the Exchange, except as otherwise
provided in the Facility Agreement 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; (viii)
entering into any partnership, joint
venture or other similar joint business
undertaking; (ix) making any
fundamental change in the market
structure of the Company from that
contemplated by the Members as of the
date of the LLC Agreement, except 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; (x) issuing
any new Units pursuant to Section 7.6
of the LLC Agreement or admitting
additional or substitute Members
pursuant to Section 7.1(b); (xi) altering
the provisions for Board membership
applicable to any Member, except 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; and (xii)
altering the definition of or
requirements for approving a Major
Action, except to the extent otherwise
required by the Exchange to fulfill its
regulatory functions or responsibilities
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or to oversee the BSTX Market as
determined by the board of the
Exchange. The Major Action events are
generally the same as those in the BOX
Options LLC Agreement and BOX
Holdings LLC Agreement 34 with the
exception of deletions to references to
BOX Options affiliates and owners and
to include cross references to other
provisions of the LLC Agreement;
however, the Company’s LLC
Agreement also provides that a Major
Action also includes provisions (viii),
(x), and (xi) as described above. The
Exchange believes that such events
should be deemed Major Actions for
commercial fairness. The Exchange
believes that deeming the above
referenced events as Major Actions will
promote just and equitable principles of
trade, 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, protect investors and the public
interest, consistent with Section 6(b)(5)
of the Act.35
Pursuant to Section 4.1(b) of the LLC
Agreement, a Member Director may be
removed by the Member entitled to
appoint that Member Director, with or
without cause. The Independent
Director may be removed by a majority
vote of the then serving Member
Directors, with or without cause. Any
Member Director or Independent
Director may be removed by the Board
if the Board determines, in good faith,
that the Director has violated any
provision of the LLC Agreement or any
federal or state securities law or that
such action is necessary or appropriate
in the public interest or for the
protection of investors. A Director shall
not participate in any vote regarding
that Director’s removal. The Company
shall promptly notify the Exchange in
writing of the commencement or
cessation of service of a Member
Director or Independent Director. Like
BOX Options, Directors may be removed
by the Board for reasons related to
protection of investors and the owners
with rights to appoint a Member
Director have power to remove and
replace their respective designees. The
removal provisions for the Company’s
Independent Director differ from those
of BOX Options and BOX Holdings
because those entities do not have an
34 See Section 4.4 of the BOX Options LLC
Agreement and Section 4.4 of the BOX Holdings
LLC Agreement.
35 15 U.S.C. 78f(b)(5).
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33263
Independent Director. The Exchange
believes that the proposed removal
provisions will promote just and
equitable principles of trade, 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, protect
investors and the public interest,
consistent with Section 6(b)(5) of the
Act. Further, the Exchange believes that
the ability for Member Directors and
Independent Directors to be removed
from the Board in the circumstances
described above would be consistent
with Section 6(b)(1) of the Act.36 This is
because removal of such Directors who
have violated the LLC Agreement or
federal or state laws would help ensure
that the Exchange, including in its
operation of facilities, is so organized
and has the capacity to be able to carry
out the purposes of the Act, including
the prevention of inequitable and unfair
practices.
Section 4.1(c) of the LLC Agreement
provides that, if a vacancy is created on
the Board as a result of the death,
disability, retirement, resignation or
removal (with or without cause) of a
Member Director or otherwise there
shall exist or occur any vacancy on the
Board, the Member whose designee
created the vacancy will fill that
vacancy by written notice to the
Company. Each Member shall promptly
fill vacancies on the Board, and the
Board shall consider the advisability of
taking further action until the vacancies
are filled. The vacancy provisions are
not in the BOX Options LLC Agreement;
however, the Exchange believes that
providing for contingencies in the event
of a vacancy are important to avoid
business disruption and, therefore, this
proposal will foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities,
consistent with Section 6(b)(5) of the
Act.37 Further, the Exchange believes
that filling Director vacancies, as
described above, would provide a
predetermined and transparent manner
for filling Director vacancies and
therefore help avoid business
disruptions at BSTX. The Exchange
believes that this, in turn, would be
consistent with Section 6(b)(1) of the
36 15
37 15
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Act 38 because it would help ensure that
the Exchange, including in the
operation of facilities, is so organized
and has the capacity to be able carry out
the purposes of the Act, including to
remove impediments to and perfect the
mechanisms of a national market system
for securities.
Section 4.1(d) of the LLC Agreement
provides that the Regulatory Director
may be removed (a) by the Exchange,
with or without cause, (b) by the Board
if the Board determines, in good faith,
that the Regulatory Director has violated
any provision of the LLC Agreement or
any federal or state securities law, or (c)
by the Board if the Board determines, in
good faith, that the Regulatory Director
does not meet the requirements of a
Regulatory Director as set forth in the
LLC Agreement. If the Regulatory
Director ceases to serve for any reason,
the Exchange shall appoint a new
Regulatory Director in accordance with
the requirements in the LLC Agreement.
The removal provisions in the
Company’s LLC Agreement are
substantially the same as those in the
BOX Options LLC Agreement.39
Section 4.12(b) of the LLC Agreement
provides that the Company and its
Members shall comply with the federal
securities laws and the rules and
regulations promulgated thereunder and
shall cooperate with the SEC and the
Exchange pursuant to and to the extent
of their respective regulatory authority.
The Directors, Officers, employees and
agents of the Company, by virtue of
their acceptance of such position, shall
comply with the federal securities laws
and the rules and regulations
promulgated thereunder and shall be
deemed to agree to cooperate with the
SEC and the Exchange in respect of the
SEC’s oversight responsibilities
regarding the Exchange, and the
Company shall take reasonable steps
necessary to cause its Directors,
Officers, employees and agents to so
cooperate. These provisions in the LLC
Agreement are the same as those in the
BOX Options LLC Agreement and BOX
Holdings LLC Agreement.40
Section 3.2(a)(ii) of the LLC
Agreement provides that the Exchange
shall receive notice of planned or
proposed changes to the Company (but
not including changes relating solely to
one or more of the following: Marketing,
administrative matters, personnel
matters, social or team building events,
meetings of the Members,
38 15
U.S.C. 78f(b)(1).
Section 4.1(d) of the BOX Options LLC
Agreement.
40 See Section 4.12(b) of the BOX Options LLC
Agreement and Section 4.12(b) of the BOX Holdings
LLC Agreement.
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 (‘‘Non-Market Matters’’)
or the BSTX Market (including, but not
limited to the BSTX trading system)
which will require an affirmative
approval by the Exchange prior to
implementation, not inconsistent with
the LLC Agreement. Planned changes
include, without limitation: (a) Planned
or proposed changes to the BSTX
trading system; (b) the sale by the
Company of any material portion of its
assets; (c) taking any action to effect a
voluntary, or which would precipitate
an involuntary, dissolution or winding
up of the Company; or (d) obtaining
regulatory services from a regulatory
services provider other than the
Exchange. Procedures for requesting and
approving changes shall be established
by the mutual agreement of the
Company and the Exchange. These
provisions in the LLC Agreement are the
same as those in the BOX Options LLC
Agreement.41
Section 3.2(a)(iii) of the LLC
Agreement provides that in the event
that the Exchange, in its sole discretion,
determines that the proposed or
planned changes to the Company or the
BSTX Market (including, but not limited
to, the BSTX trading system) set forth in
Section 3.2(a)(ii) of the LLC Agreement
could cause a Regulatory Deficiency if
implemented, the Exchange may direct
the Company, subject to approval of the
Exchange board of directors, to modify
the proposal as necessary to ensure that
it does not cause a Regulatory
Deficiency. The Company will not
implement the proposed change until it,
and any required modifications, are
approved by the Exchange board of
directors. The costs of modifications
undertaken shall be paid by the
Company. These provisions in the LLC
Agreement are the same as those in the
BOX Options LLC Agreement.42 These
provisions ensure the Exchange
maintains full regulatory control and
authority over BSTX while it operates as
a facility of the Exchange. The Exchange
believes this provision helps guarantee
the Exchange’s ability to fulfill its
regulatory responsibilities and operate
in a manner consistent with the Act, in
particular with Section 6(b)(1), which
requires, in part, an exchange to be so
39 See
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41 See Section 3.2(a)(ii) of the BOX Options LLC
Agreement.
42 See Section 3.2(a)(iii) of the BOX Options LLC
Agreement.
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organized and have the capacity to carry
out the purposes of the Act.43
Section 3.2(a)(iv) of the LLC
Agreement provides that in the event
that the Exchange, in its sole discretion,
determines that a Regulatory Deficiency
exists or is planned, the Exchange may
direct the Company, subject to approval
of the Exchange board of directors, to
undertake such modifications to the
Company (but not to include NonMarket Matters) or the BSTX Market
(including, but not limited to, the BSTX
trading system), as are necessary or
appropriate to eliminate or prevent the
Regulatory Deficiency and allow the
Exchange to perform and fulfill its
regulatory responsibilities under the
Act.44 The costs and modifications
undertaken shall be paid by the
Company. These provisions in the LLC
Agreement are substantially the same as
those in the BOX Options LLC
Agreement, with the exception of a
reference to an agreement that is not
applicable to the Company.45
Regulatory Funds
Pursuant to Section 9 of the Facility
Agreement, the Company will agree that
the Exchange has the right to receive all
fees, fines and disgorgements imposed
upon BSTX Participants with respect to
the Company’s trading system
(‘‘Regulatory Funds’’) and all market
data fees, tape and other revenues
(‘‘Non-regulatory Funds’’). All
Regulatory Funds and Non-regulatory
Funds collected by the Exchange with
respect to the Company may be used by
the Exchange for regulatory purposes,
which will be determined in the sole
discretion of the Exchange. To the
extent the Company incurs costs and
expenses for regulatory purposes, the
Exchange may reimburse the Company
using Regulatory Funds. In the event the
Exchange, at any time, determines that
it does not hold sufficient funds to meet
all regulatory purposes, the Company
will reimburse the Exchange for any
such additional costs and expenses. All
Regulatory Funds collected by the
43 15
U.S.C. 78f(b)(1).
discussed above, the Exchange will appoint
a Regulatory Director who may, among other things,
serve as a Director of any regulatory committee(s).
Such individual will also have insight and access
to important information related to the Company;
for example, while the Regulatory Director may not
serve as a Director on Board committees other than
authorized regulatory committees, the Regulatory
Director nevertheless shall (A) have the right to
attend all meetings of the Board and committees
thereof; (B) receive equivalent notice of meetings as
other Directors; and (C) receive a copy of the
meeting materials provided to other Directors,
including agendas, action items and minutes for all
meetings. (See LLC Agreement § 4.2(c).)
45 See Section 3.2(a)(iv) of the BOX Options LLC
Agreement.
44 As
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Exchange will be retained by the
Exchange and not transferred to the
Company. Non-regulatory funds
collected by the Exchange may be
transferred to the Company after the
Exchange makes adequate provision for
all regulatory purposes. These
provisions ensure that the Exchange has
full control over BSTX with respect to
its regulated functions and is designed
to prevent any owner of BSTX from
exercising undue influence over the
regulated activities of the Company.
Capital Contributions and Distributions
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to capital
contributions and distributions by the
Company, highlighting areas that vary
in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC
Agreement and provides the statutory
basis for such variation.
Pursuant to Section 6.1 of the LLC
Agreement, all capital contributions
contributed to the Company by holders
of Units shall be reflected on the books
and records of the Company. No interest
will be paid on any capital contribution
to the Company. No Member will have
any personal liability for the repayment
of the capital contribution of any
Member, and no Member will have any
obligation to fund any deficit in its
Capital Account. Each Member waived
any right to partition the property of the
Company or to commence an action
seeking dissolution of the Company
under the LLC Act. These provisions are
substantially the same as those in the
BOX Holdings LLC Agreement.46
Under Section 6.2 of the LLC
Agreement, the Board, in its sole
discretion, will determine the capital
needs of the Company. If at any time the
Board determines that additional capital
is required in the interests of the
Company, additional working capital
shall be raised in such manner as
determined by a vote of the Board,
including the affirmative vote of at least
one Member Director appointed by each
Member, but the Board will not have the
power to require the Members to make
any additional capital contributions.
These provisions in the LLC Agreement
are substantially the same as those in
the BOX Options LLC Agreement, with
the exception of the requirement for at
least one Member Director appointed by
each Member to affirmatively vote on
the manner to raise additional working
capital.47 The Exchange believes that
46 See Section 6.1 of the BOX Holdings LLC
Agreement.
47 See Section 6.2 of the BOX Options LLC
Agreement.
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this added provision exists for purposes
of commercial fairness and is necessary
due to the ownership structure of the
Company and that it will foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, consistent with Section
6(b)(5) of the Act.48
Pursuant to Section 8.1 of the LLC
Agreement, if at any time and from time
to time the Board determines that the
Company has cash that is not required
for the operations of the Company, the
payment of liabilities or expenses of the
Company, or the setting aside of
reserves to meet the anticipated cash
needs of the Company (‘‘Distributable
Cash’’), then the Company shall make
cash distributions to its Members in the
following manner and priority: First, the
Company shall make tax distributions
(‘‘Tax Distributions’’) to the Members to
cover each Member’s estimated income
tax for that period (or in the event that
Distributable Cash is less than the total
of all such Tax Amounts, the Company
shall distribute the Distributable Cash in
proportion to such Tax Amounts). All
tax distributions to a Member will be
treated as advances against any
subsequent distributions to be made to
that Member. Subsequent distributions
made to the Member shall be adjusted
so that when aggregated with all prior
distributions to the Member pursuant to
those provisions, and with all prior Tax
Distributions to the Member, the
amount distributed will be equal, as
nearly as possible, to the aggregate
amount that would have been
distributable to that Member pursuant to
the LLC Agreement if the LLC
Agreement contained no provision for
Tax Distributions; second, when, as and
if declared by the Board, the Company
shall make cash distributions to each of
the Members pro rata in accordance
with that Member’s respective
Percentage Interest. Since the Company
does not have the same ownership as
BOX Options, the distribution
provisions in the LLC Agreement differ
from the BOX Options LLC Agreement
and BOX Holdings LLC Agreement.
These provisions relate to tax and
accounting rules to which the Company
is subject, due to its ownership
structure. As such, these provisions are
standard or not novel for a similarly
situated commercial business registered
as a limited liability company under the
laws of the state of Delaware.
Section 8.2 of the LLC Agreement
provides that the Company, and the
Board on behalf of the Company, shall
48 15
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33265
not make a distribution to any Member
on account of its ownership interest in
the Company if, and to the extent, such
distribution would violate the LLC Act
or other applicable law. This provision
in the LLC Agreement is the same as the
provision in the BOX Options LLC
Agreement and BOX Holdings LLC
Agreement.49
Section 9.1 of the LLC Agreement
provides that all profits, losses and
credits of the Company (for both
accounting and tax purposes) for each
fiscal year shall be allocated to the
Members from time to time (but no less
often than once annually and before
making any distribution to the
Members) pro rata among the Members
based on that Member’s respective
Percentage Interest, subject to
limitations, offsets, chargebacks,
deductions and revaluations. Since the
Company does not have the same
ownership as BOX Options, the
allocation of profits and losses
provisions in the LLC Agreement differ
from the BOX Options LLC Agreement.
These provisions relate to tax and
accounting rules to which the Company
is subject, due to its ownership
structure. As such, these provisions are
standard or not novel for a similarly
situated commercial business registered
as a limited liability company under the
laws of the state of Delaware.
Under Section 9.9 of the LLC
Agreement, any profits or losses
resulting from a liquidation, merger or
consolidation of the Company, the sale
of substantially all the assets of the
Company in one or a series of related
transactions, or any similar event (and,
if necessary, specific items of gross
income, gain, loss or deduction incurred
by the Company in the fiscal year of the
transaction(s)) shall be allocated among
the Members so that after those
allocations and the allocations required
pursuant to capital account adjustments,
and immediately before the making of
any liquidating distributions to the
Members, the Members’ Capital
Accounts equal, as nearly as possible,
the amounts of the respective
distributions to which they are entitled
in a winding up. Since the Company
does not have the same ownership as
BOX Options, the termination and
special allocation provisions in the LLC
Agreement differ from the BOX Options
LLC Agreement. These provisions relate
to tax and accounting rules to which the
Company is subject, due to its
ownership structure. As such, these
provisions are standard or not novel for
49 See Section 7.1 of the BOX Options LLC
Agreement and Section 8.2 of the BOX Holdings
LLC Agreement.
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a similarly situated commercial
business registered as a limited liability
company under the laws of the state of
Delaware.
Pursuant to Section 10.2 of the LLC
Agreement, the assets of the Company
in winding up shall be applied or
distributed as follows: First, to creditors
of the Company, including Members
who are creditors, to the extent
otherwise permitted by law, whether by
payment or the making of reasonable
provisions for the payment thereof, and
including any contingent, conditional
and unmatured liabilities of the
Company, taking into account the
relative priorities thereof; second, to the
Members and former Members in
satisfaction of liabilities under the LLC
Act for distributions to those Members
and former Members; and third, to the
Members in proportion to their
respective Percentage Interests. A
reasonable reserve for contingent,
conditional and unmatured liabilities in
connection with the winding up of the
business of the Company shall be
retained by the Company until the
winding up is completed or the reserve
is otherwise deemed no longer
necessary by the liquidator. These
provisions are substantially the same as
those in the BOX Holdings LLC
Agreement, with the exception of
certain provisions that were not
included in the LLC Agreement because
they are inapplicable to the Company’s
structure.50
Intellectual Property
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to intellectual
property of the Company, highlighting
areas that vary in comparison to the
BOX Options LLC Agreement and/or
BOX Holdings LLC Agreement and
provides the statutory basis for such
variation.
Pursuant to Section 3.2(b) of the LLC
Agreement, tZERO will provide to the
Company the intellectual property
license and services necessary to
operate the BSTX trading system as set
forth in the LSA and will make the
necessary arrangements with any
applicable third parties which will
permit the Company to be an authorized
sublicensee of any required third-party
software necessary for Trading on the
BSTX trading system. The intellectual
property provisions in the LLC
Agreement are similar to those in the
BOX Options LLC Agreement, but
contain certain differences reflecting the
license and services of tZERO pursuant
50 See Section 10.2 of the BOX Holdings LLC
Agreement.
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to the LSA rather than the software and
technology provided by MX pursuant to
the TOSA in connection with the BOX
Options LLC Agreement.51
Under the LSA, tZERO will provide
the Company and the Exchange with a
perpetual, fully paid up, royalty-free
license to use its intellectual property
comprising the BSTX trading system. In
addition, the LSA provides that tZERO
will provide services to the Company,
including services related to
implementing, administering,
maintaining, supporting, hosting,
developing, testing and securing the
trading system. These services to be
provided by tZERO relate to the
specialized trading system operated by
BSTX and are separate from any
administrative or office technology
services provided to BSTX by the
Exchange discussed above.
Pursuant to the LSA, tZERO retains its
ownership of the BSTX trading system
and tZERO’s trademarks and service
marks; provided, however, that the
Company will own deliverables,
enhancements and other technology that
are developed or created by tZERO for
the Company, including any related
documentation and intellectual
property.
Non-Competition
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to non-competition,
highlighting areas that vary in
comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC
Agreement and provides the statutory
basis for such variation.
Section 16.1 of the LLC Agreement
provides that, for so long as it holds,
directly or indirectly, a combined
Percentage Interest in the Company of
five percent (5%) or more, a Member
will not hold or invest in more than five
percent (5%) of, or participate in the
creation and/or operation of, any U.S.based market for the secondary trading
of security tokens or in any person
engaged in the creation and/or operation
of any U.S.-based market for the
secondary trading of security tokens.
The non-competition provision is
substantially the same as the noncompetition provision in the BOX
Holdings LLC Agreement.52
Changes in Ownership of the Company
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to changes in
51 See Article 13 of the BOX Options LLC
Agreement.
52 See Section 16.1 of the BOX Holdings LLC
Agreement.
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ownership of the Company, highlighting
areas that vary in comparison to the
BOX Options LLC Agreement and/or
BOX Holdings LLC Agreement and
provides the statutory basis for such
variation.
Section 7.1(a) of the LLC Agreement
provides that no person will directly or
indirectly, whether voluntarily,
involuntarily, by operation of law or
otherwise, dispose of, sell, alienate,
assign, exchange, participate,
subparticipate, encumber, or otherwise
transfer in any manner (each, a
‘‘Transfer’’) its Units unless prior to that
Transfer the transferee is approved by a
vote of the Board. To be eligible for
Board approval, a proposed transferee
must be of high professional and
financial standing, be able to carry out
its duties as a Member hereunder, if
admitted as a Member, and be under no
regulatory or governmental bar or
disqualification. Notwithstanding the
foregoing, registration as a broker-dealer
or self-regulatory organization is not
required to be eligible for Board
approval. However, the following will
not be included in the definition of
‘‘Transfer’’: Transfers among Members,
transfers to any person directly or
indirectly owning, controlling or
holding with power to vote all of the
outstanding voting securities of and
equity or beneficial interests in that
Member, or transfers to any person that
is a wholly owned Affiliate of a
transferring Member. A holder of Units
will provide prior written notice to the
Exchange of any proposed Transfer. Any
Transfer which violates the Transfer
restrictions in the LLC Agreement will
be void and ineffectual and will not
bind or be recognized by the Company.
Section 7.1(b) of the LLC Agreement
establishes that a person will be
admitted to the Company as an
additional or substitute Member of the
Company only upon that person’s
execution of a counterpart of the LLC
Agreement to evidence its written
acceptance of the terms and provisions
of the LLC Agreement, and acceptance
thereof by resolution of the Board,
which acceptance may be given or
withheld in the sole discretion of the
Board; if that person is a transferee, its
agreement in writing to its assumption
of the obligations under the LLC
Agreement of its assignor, and
acceptance thereof by resolution of the
Board; if that person is a transferee, a
determination by the Board that the
Transfer was permitted by the LLC
Agreement; and approval of the Board.
Whether or not a transferee who
acquired any Units has accepted in
writing the terms and provisions of the
LLC Agreement and assumed in writing
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the obligations hereunder of its
predecessor in interest, that transferee
will be deemed, by the acquisition of
those Units, to have agreed to be subject
to and bound by all the obligations of
the LLC Agreement with the same effect
and to the same extent as any
predecessor in interest of that transferee.
Notwithstanding the foregoing, any
Person to which the Company issues
new Class B Units shall be
automatically admitted as a Member
upon such Person’s execution of a
counterpart of this Agreement. Pursuant
to Section 7.1(c) of the LLC Agreement,
all costs incurred by the Company in
connection with the admission of a
substituted Member will be paid by the
transferor Member. The transfer
provisions in Section 7.1 of the LLC
Agreement are not contained in the BOX
Options LLC Agreement; however, the
Exchange notes that the provisions of
Section 7.1 are substantially based on
provisions in the BOX Holdings Group
LLC Agreement.53
Pursuant to Section 7.2 of the LLC
Agreement, the Company will have a
right of first refusal if a Member desires
to Transfer its Units, and obtains a bona
fide offer therefor from a third-party
transferee. Further, Section 7.3 of the
LLC Agreement provides that, if the
Company does not elect to exercise its
right of first refusal, the non-transferring
Member(s) next have a right of first
refusal. The provisions in Sections 7.2
and 7.3 of the LLC Agreement are
substantially based on provisions found
in the BOX Holdings LLC Agreement,
with certain variations to account for
differences in corporate and ownership
structure.54 The Exchange believes that
such variations are necessary to ensure
proper application of the LLC
Agreement’s provisions to the Company,
which serve to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, consistent with Section 6(b)(5)
of the Act.55 Further, the Exchange
believes that the variations in Sections
7.2 and 7.3 of the LLC Agreement that
tailor those provisions to the corporate
and ownership structure of BSTX would
help ensure that persons subject to the
Exchange’s jurisdiction are able to
navigate and more readily understand
the LLC Agreement. The Exchange
believes that this, in turn, would be
consistent with Section 6(b)(1) of the
Act 56 because it would help ensure that
53 See Section 7.1 of the BOX Holdings LLC
Agreement.
54 See Sections 7.2 and 7.3 of the BOX Holdings
LLC Agreement.
55 15 U.S.C. 78f(b)(5).
56 15 U.S.C. 78f(b)(1).
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the Exchange, including in its operation
of facilities, is so organized and has the
capacity to be able to carry out the
purposes of the Act.
Pursuant to Section 7.4 of the LLC
Agreement, no Transfer may occur if the
Transfer could cause a termination of
the Company, could cause a termination
of the Company’s status as a partnership
or cause the Company to be treated as
a publicly traded partnership for federal
income tax purposes, is prohibited by
any securities laws, is prohibited by the
LLC Agreement, or is to a minor or
incompetent person.
Section 7.4(e) of the LLC Agreement
requires that a Member will provide the
Company with written notice fourteen
(14) days prior, and the Company will
provide the Commission and the
Exchange with written notice ten (10)
days prior, to the closing date of any
acquisition that results in that Member’s
Percentage Interest, alone or together
with any related person of that Member,
meeting or crossing the threshold level
of 5% or the successive 5% Percentage
Interest levels of 10% and 15%. Any
person that, either alone or together
with its related persons, owns, directly
or indirectly, of record or beneficially,
five percent (5%) or more of the then
outstanding Units will, immediately
upon acquiring knowledge of its
ownership of five percent (5%) or more
of the then outstanding Units, give the
Company written notice of that
ownership. In addition, Section 7.4(f) of
the 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
aggregate Percentage Interest level
which meets or crosses the threshold
level of 20% or any successive 5%
Percentage Interest level (i.e., 25%,
30%, etc.) is also subject to the rule
filing process pursuant to Section 19 of
the Act.
Under Section 7.4(g) of the LLC
Agreement, unless it does not directly or
indirectly hold any interest in a
Member, a Controlling Person (as
defined below) of a Member will be
required to execute an amendment to
the LLC Agreement upon establishing a
Controlling Interest (as defined below)
in any Member that, alone or together
with any related persons of that
Member, holds a Percentage Interest in
the Company equal to or greater than
20%. This amendment will be
substantially in the form of the
instrument of accession attached as
Exhibit 5B hereto [sic] and provide that
the Controlling Person will agree to
become a party to the LLC Agreement
and to abide by all of its provisions, to
the same extent and as if they were
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33267
Members. These amendments to the
LLC Agreement will be subject to the
rule filing process pursuant to Section
19 of the Act. The rights and privileges,
including all voting rights, of the
Member in whom a Controlling Interest
is held, directly or indirectly, under the
LLC Agreement and the LLC Act will be
suspended until the amendment has
become effective pursuant to Section 19
of the Act or the Controlling Person no
longer holds, directly or indirectly, a
Controlling Interest in the Member.57 As
a result, any new Member or other
direct or indirect owner of an equity
interest in BSTX, whether by transfer of
such equity interest from an existing
owner or otherwise, will be subject to
the same requirements as all other
Members, namely that it will be
required to execute an instrument of
accession to the LLC Agreement and be
subject to the rule filing process if the
new Member holds, directly or
indirectly, a Controlling Interest in
BSTX.
In accordance with Section 7.4(h) of
the LLC Agreement, if a Member, or any
related person of that Member, is
approved by the Exchange as a BSTX
Participant pursuant to the Exchange
Rules, and that Member’s Percentage
Interest is greater than 20%, alone or
together with any Related Person of that
Member, the voting rights of the
Member and its appointed Member
Directors will be limited to 20%;
provided, however, that the Member’s
full Percentage Interest will be counted
for quorum purposes and the portion
greater than 20% will be voted by the
person presiding over quorum and vote
matters in the same proportion as the
Units held by the other Members are
voted. The Exchange notes that Section
7.4 of the Company’s LLC Agreement is
identical in substance to provisions of
the BOX Holdings LLC Agreement.58
In addition to the provisions
discussed above, Section 5 of the LLC
Agreement includes provisions that
relate to changes in ownership of the
Company. Because BOX Options is
wholly-owned by BOX Holdings, the
LLC Agreement differs from the BOX
Options LLC Agreement. Under Section
5.5 of the LLC Agreement, a Member
will cease to be a Member of the
Company upon the Bankruptcy or the
involuntary dissolution of that Member.
Further, Section 5.8 of the LLC
Agreement allows the Board, by
unanimous vote and after appropriate
notice and opportunity for hearing, to
suspend or terminate a Member’s voting
57 See
supra note 16.
Section 7.4 of the BOX Holdings LLC
Agreement.
58 See
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privileges or membership in the
Company for three potential reasons: (i)
In the event the Board determines in
good faith that such Member is subject
to a ‘‘statutory disqualification,’’ as
defined in Section 3(a)(39) of the Act;
(ii) in the event the Board determines in
good faith that such Member has
violated a material provision of this
Agreement, or any federal or state
securities law; or (iii) in the event the
Board determines in good faith that
such action is necessary or appropriate
in the public interest or for the
protection of investors. The Exchange
believes that limiting the ability to
participate in the Company for Members
who may act in contravention of legal or
ethical standards may promote just and
equitable principles of trade, and, in
general, protects investors and the
public interest, consistent with Section
6(b)(5) of the Act.59 Further, the
Exchange believes that the ability to
suspend or terminate a Member’s voting
privileges or membership in the
Company as described above would be
consistent with Section 6(b)(1) of the
Act.60 This is because such measures in
respect of Members who act in
contravention of legal or ethical
standards would help ensure that the
Exchange, including in its operation of
facilities, is so organized and has the
capacity to be able to carry out the
purposes of the Act, including the
prevention of inequitable and unfair
practices.
Finally, the Exchange notes that
Section 18.1 of the Company’s LLC
Agreement provides that amendments to
the LLC Agreement must be approved
by the Board, including one Member
Director appointed by each of BOX
Digital and tZERO, and any amendment
of a provision specific to any Class,
Member, or the Exchange requires the
consent of holders of a majority of the
outstanding Units of such Class, or such
Member or the Exchange (as applicable).
In addition, the Company shall provide
prompt notice to the Exchange of any
amendment, modification, waiver or
supplement to the Agreement formally
presented to the Board for approval and
the Exchange shall review each such
amendment, modification, waiver or
supplement and, if such amendment is
required, under Section 19 of the Act
and the rules promulgated thereunder,
to be filed with, or filed with and
approved by, the SEC before such
amendment may be effective, then such
amendment shall not be effective until
filed with, or filed with and approved
59 15
60 15
U.S.C. 78f(b)(5).
U.S.C. 78f(b)(1).
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by, the SEC, as the case may be.61 These
provisions are similar to provisions in
the BOX Holdings LLC Agreement but
differ in details related to the different
ownership structure of the Company.62
Regulation of the Company
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to regulation of the
Company, highlighting areas that vary
in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC
Agreement and provides the statutory
basis for such variation.
Generally, Section 3.2 of the LLC
Agreement, which is identical in
substance to a provision in the BOX
Options LLC Agreement, provides that
the Exchange has authority to act as the
SRO for the Company, will provide the
regulatory framework for the BSTX
Market and will have regulatory
responsibility for the activities of the
BSTX Market.63 In addition, the
Exchange will provide regulatory
services to the Company pursuant to the
Facility Agreement. Nothing in the LLC
Agreement shall be construed to prevent
the Exchange from allowing the
Company to perform activities that
support the regulatory framework for
the BSTX Market, subject to oversight
by the Exchange. This provision ensures
that the Exchange has full regulatory
control over BSTX, which is designed to
prevent any owner of BSTX from
exercising undue influence over the
regulated activities of the Company.
Section 15 of the LLC Agreement
deals with how the Company will
govern the handling of confidential
information, as it relates to the
securities regulations and otherwise. All
of the provisions in Section 15 of the
LLC Agreement are substantively
similar to provisions in the BOX
Options LLC Agreement, except where
noted below.64 Under Sections 15.1 and
15.2(a) of the LLC Agreement, subject to
certain exceptions set forth below, no
Member will make any public
disclosures concerning the LLC
Agreement without the prior approval of
the Company. Each Member and the
Exchange may only use confidential
information of the Company in
connection with the activities
contemplated by the LLC Agreement
and other written agreements and
61 A proposed rule change can also become
effective by operation of law. See 15 U.S.C.
78s(b)(2).
62 See Section 18.1 of the BOX Holdings LLC
Agreement.
63 See Section 3.2 of the BOX Options LLC
Agreement.
64 See Article 12 of the BOX Options LLC
Agreement.
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pursuant to the Act and the rules and
regulations thereunder. Furthermore,
Section 15.4 of the LLC Agreement
provides that representatives of the
parties will meet to institute
confidentiality procedures and discuss
confidentiality and disclosure issues.
Pursuant to Section 15.2(b) of the LLC
Agreement, each of the Members and
the Exchange may disclose confidential
information of the Company only to its
respective directors, officers, employees
and agents who have a reasonable need
to know the information. Also, such
individuals may disclose confidential
information of the Company to the
extent required by applicable securities
or other laws, a court or securities
regulators, including the Commission
and the Exchange.
Section 15.3 of the LLC Agreement
requires that each Member and the
Exchange will hold all non-public
information concerning the other
Members or the Exchange in strict
confidence, unless disclosure to an
applicable regulatory authority is
necessary or appropriate or unless
compelled to disclose by judicial or
administrative process or required by
law. If a Member or the Exchange is
compelled to disclose any Member
Information in connection with any
necessary regulatory approval or by
judicial or administrative process, it
will promptly notify the disclosing
party to allow the disclosing party to
seek a protective order.
Pursuant to Section 15.5 of the LLC
Agreement, nothing in the LLC
Agreement will be interpreted as to
limit or impede the rights of the
Commission, pursuant to the federal
securities laws and rules and
regulations thereunder, and the
Exchange to access and examine
applicable confidential information
pursuant to the federal securities laws
and the rules and regulations
thereunder, or to limit or impede the
ability of any directors, officers,
employees or agents of the Company
and any directors, officers, employees or
agents of the Members to disclose that
confidential information to the
Commission or the Exchange. This is
substantially the same provision that is
contained in the BOX Options LLC
Agreement, except that it also provides
that the SEC can access and examine
Confidential Information, pursuant to
the federal securities laws and rules and
regulations thereunder.65
Under Section 15.6 of the LLC
Agreement, confidential information of
the Company or the Exchange
65 See Section 12.5 of the BOX Options LLC
Agreement.
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pertaining to regulatory matters
(including but not limited to
disciplinary matters, trading data,
trading practices and audit information)
will not be made available to any
persons other than to the Company’s
Directors, officers, employees and
agents that have a reasonable need to
know the contents thereof; will be
retained in confidence by the Company
and the Directors, officers, employees
and agents of the Company; and will not
be used for any non-regulatory purpose.
Nothing in the LLC Agreement will be
interpreted as to limit or impede the
rights of the Commission and the
Exchange to access and examine that
confidential information pursuant to the
federal securities laws and the rules and
regulations thereunder, or to limit or
impede the ability of any Directors,
officers, employees and agents of the
Company to disclose that confidential
information to the Commission or the
Exchange.
Finally, Section 18.8 of the LLC
Agreement establishes that the
Company will not operate as a facility
of the Exchange until this rule filing is
effective. Upon effectiveness, the
Commission and the Exchange will then
have regulatory oversight
responsibilities with respect to the
Company and references in the LLC
Agreement to the Exchange, the
Commission, any regulation or oversight
of the Company by the Commission or
the Exchange, and any participation in
the affairs of the Company by the
Commission or the Exchange, will take
effect. The execution of the LLC
Agreement by the Exchange will not be
required until the approval is obtained,
at which time the Exchange will become
a party to the LLC Agreement. This
provision is not included in the BOX
Options LLC Agreement because it
would not be applicable. By not
operating the Company until this rule
filing is effective, the Exchange believes
it is fostering cooperation and
coordination with persons engaged in
regulating (e.g., the Commission),
clearing, settling, processing
information with respect to, and
facilitating transactions in securities,
consistent with Section 6(b)(5) of the
Act.66
Regulatory Jurisdiction Over Members
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to regulatory
jurisdiction over Members by the
Company, highlighting areas that vary
in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC
66 15
67 See Section 11.1 of the BOX Holdings LLC
Agreement.
U.S.C. 78f(b)(5).
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Agreement and provides the statutory
basis for such variation.
Pursuant to Section 11.1 of the LLC
Agreement, which is similar in
substance to a provision in the BOX
Holdings LLC Agreement, the Board
will cause to be entered in appropriate
books, kept at the Company’s principal
place of business, all transactions of or
relating to the Company.67 Each
Member will have the right to inspect
and copy those books and records,
excluding regulatory and disciplinary
information. The Board will not have
the right to keep confidential from the
Members any information that the Board
would otherwise be permitted to keep
confidential pursuant to § 18–305(c) of
the LLC Act, except for information
required by law or by agreement with
any third party to be kept confidential.
The Company’s independent auditor
will be an independent public
accounting firm selected by the Board.
To the extent related to the operation or
administration of the Exchange or the
BSTX Market, all books and records of
the Company and its Members will be
maintained at a location within the
United States, the books, records,
premises, directors, officers, employees
and agents of the Company and its
Members will be deemed to be the
books, records, premises, directors,
officers, employees and agents of the
Exchange for the purposes of, and
subject to oversight pursuant to, the Act,
and the books and records of the
Company and its Members will be
subject at all times to inspection and
copying by the Commission and the
Exchange.
Under Section 18.6(a) of the LLC
Agreement, to the extent they are related
to Company activities, the books,
records, premises, officers, directors,
agents, and employees of the Member
will be deemed to be the books, records,
premises, officers, directors, agents, and
employees of the Exchange for the
purpose of and subject to oversight
pursuant to the Act. Further, pursuant
to Section 18.6(b) of the LLC Agreement,
the Company, the Members and the
officers, directors, employees and agents
of each, by virtue of their acceptance of
those positions, will be deemed to
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, the rules or
regulations thereunder, arising out of, or
relating to, activities of the Exchange
and the Company, and Delaware state
courts for any matter relating to the
Jkt 250001
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Frm 00191
Fmt 4703
Sfmt 4703
33269
organization or internal affairs of the
Company, and will be deemed to waive,
and agree not to assert by way of
motion, as a defense or otherwise in any
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 or that the venue of
the suit, action or proceeding is
improper, or that the subject matter
hereof may not be enforced in or by
those courts or agencies. The Company,
the Members and the officers, directors,
employees and agents of each, by virtue
of their acceptance of those positions,
also agree that they will maintain an
agent in the United States for the service
of process of a claim arising out of, or
relating to, the activities of the Exchange
and the Company. These provisions are
substantially similar to provisions of the
BOX Options LLC Agreement.68
Pursuant to Section 18.6(c) of the LLC
Agreement, with respect to obligations
under the LLC Agreement related to
confidentiality regulation, jurisdiction
and books and records, the Company,
the Exchange, and each Member will
ensure that directors, officers and
employees of the Company, the
Exchange, and each Member consent in
writing to the applicability of the
applicable provisions to the extent
related to the operation or
administration of the Exchange or the
BSTX Market. This provision is
substantially the same as the provision
contained in the BOX Options LLC
Agreement, with the exception of the
deletion of a reference to privacy rules
in Canada, which are not applicable to
the current Members of the Company.69
The Exchange believes that allowing
only applicable laws to be referenced in
the LLC Agreement helps to ensure that
proper legal standards apply to the
Company, which may foster cooperation
and coordination with persons engaged
in regulating transactions in securities,
consistent with Section 6(b)(5) of the
Act.70 Further, the Exchange believes
that basing the provisions described
above on the BOX Options LLC
Agreement but omitting terms that are
not applicable would help ensure that
persons subject to the Exchange’s
jurisdiction are able to navigate and
more readily understand the LLC
Agreement. The Exchange believes that
this, in turn, would be consistent with
68 See Section 14.6 of the BOX Options LLC
Agreement.
69 See Section 14.6(c) of the BOX Options LLC
Agreement.
70 15 U.S.C. 78f(b)(5).
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33270
Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
Section 6(b)(1) of the Act 71 because it
would help ensure that the Exchange,
including in its operation of facilities, is
so organized and has the capacity to be
able to carry out the purposes of the Act.
jbell on DSKJLSW7X2PROD with NOTICES
Amendments to LLC Agreement
In the discussion below, the Exchange
describes provisions in the LLC
Agreement related to amendments to the
LLC Agreement, highlighting areas that
vary in comparison to the BOX Options
LLC Agreement and/or BOX Holdings
LLC Agreement and provides the
statutory basis for such variation.
Section 18.1 of the LLC Agreement,
which is substantially similar to a
provision in the BOX Holdings LLC
Agreement,72 provides that the LLC
Agreement may only be amended by an
agreement in writing approved by the
Board, including at least one Member
Director appointed by each Member,
without the consent of any Member or
other person. In addition, any terms
specific to any Class, or Member or to
the Exchange may not be altered or
adversely affect that Member or the
Exchange without the prior written
consent of holders of a majority of the
outstanding Units of such Class, or such
Member or the Exchange as applicable.
The Company will provide prompt
notice to the Exchange of any
amendment, modification, waiver or
supplement to the LLC Agreement
formally presented to the Board for
approval and the Exchange will review
each amendment, modification, waiver
or supplement and, if that amendment
is required, under Section 19 of the Act
and the rules promulgated thereunder,
to be filed with, or filed with and
approved by, the Commission before
that amendment may be effective, then
that amendment will not be effective
until filed with, or filed with and
approved by, the Commission, as the
case may be. If the Exchange ceases to
be the SRO authority of the Company,
the Exchange will no longer be a party
to the LLC Agreement and thereafter the
provisions of the LLC Agreement will
not apply to the Exchange except for the
provisions referenced in Section 18.12,
which will survive.
Additional Provisions
As previously mentioned, BSTX is a
Delaware limited liability company. As
such, the LLC Agreement contains
numerous provisions that are standard
or not novel for a similarly situated
commercial business registered as a
limited liability company under the
71 15
U.S.C. 78f(b)(1).
Section 18.1 of the BOX Holdings LLC
Agreement.
72 See
VerDate Sep<11>2014
19:40 May 29, 2020
Jkt 250001
laws of the state of Delaware.73 The
Exchange believes that these provisions
are consistent with Section 6(b)(1) of the
Act 74 because they are consistent with
corporate governance practices,
generally, and they would help ensure
that the Exchange, including in its
operation of facilities, is so organized
and has the capacity to be able to carry
out the purposes of the Act.
C . Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
2. Statutory Basis
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
In addition to the sections above that
discuss variations from the BOX
Options LLC Agreement and/or BOX
Holdings LLC Agreement and their
associated statutory bases, the Exchange
believes that the proposal is consistent
with the requirements of Section 6(b) of
the Act,75 in general, and furthers the
objectives of Section 6(b)(1),76 in
particular, in that it enables the
Exchange to be so organized so as to
have the capacity to be able to carry out
the purposes of the Act and to comply,
and to enforce compliance by its
exchange members and persons
associated with its exchange members,
with the provisions of the Act, the rules
and regulations thereunder, and the
rules of the Exchange. The Exchange
also believes that this filing furthers the
objectives of Section 6(b)(5) of the Act 77
in that it is designed to facilitate
transactions in securities, 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.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the Proposed Rule Change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
73 See LLC Agreement Sections 2.1, 2.2, 2.4, 2.5,
2.6, 2.7, 3.1, 4.2, 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 5.1, 5.2,
5.3, 5.4, 5.6, 5.7, 6.3, 6.4, 6.5, 7.5, 7.6, 7.7, 8.3, 9.2,
9.3, 9.4, 9.5, 9.6, 9.7, 9.8, 10.3, 10.4, 11.2, 11.3, 11.4,
11.5, 11.6, 12, 13.1, 14, 16.2, 17, 18.2, 18.3, 18.4,
18.5, 18.7, 18.9, 18.10, 18.11, and 18.12.
74 15 U.S.C. 78f(b)(1).
75 15 U.S.C. 78f(b).
76 15 U.S.C. 78f(b)(5).
77 15 U.S.C. 78f(b)(5).
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Fmt 4703
Sfmt 4703
The Exchange has neither solicited
nor received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BOX–2020–16 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BOX–2020–16. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://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
E:\FR\FM\01JNN1.SGM
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BOX–2020–16 and should
be submitted on or beforeJune 22, 2020.
the Universal Postal Union to a broader
membership, and remuneration issues.
Each individual providing oral input is
requested to limit his or her comments
to five minutes. Requests to be added to
the speakers list, or requesting
reasonable accommodation should be
made through the above listed methods
for comments. Any requests received
after June 9, 2020, may be considered
and will be granted as reasonably
possible.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.78
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 4710–19–P
[FR Doc. 2020–11653 Filed 5–29–20; 8:45 am]
Please contact Ms. Shereece Robinson of
the Office of Specialized and Technical
Agencies (IO/STA), at (202) 663–2649.
Zachary A, Parker,
Director, Office of Directives Management,
Department of State.
[FR Doc. 2020–11678 Filed 5–29–20; 8:45 am]
DEPARTMENT OF STATE
Department of State.
Notice.
AGENCY:
DEPARTMENT OF STATE
ACTION:
[Public Notice 11129]
Notice of Public Meeting; Request for
Comments
As required by the Federal
Advisory Committee Act, the
Department of State gives notice of a
virtual meeting of the Advisory
Committee on International Postal and
Delivery Services.
DATES: Comments due by June 9, 2020.
Virtual meeting on June 16, 2020 from
1:00 p.m. to 5:00 p.m., Eastern Time via
Webex at the following link: https://
statedept.webex.com/statedept/
j.php?MTID=meeb8ecb9729bbd2ab
b0c92b280e1dd6fMeeting number: 906
036 756
Password: PUBLIC159357 (78254215
from phones and video systems).
ADDRESSES: Send comments to Shereece
Robinson by any of the following
methods:
• Mail: IO/STA, Suite L–409 SA–1,
U.S. Department of State, Washington,
DC 20522
• Email: RobinsonSA2@state.gov.
• Telephone: (202) 663–2649.
SUPPLEMENTARY INFORMATION:
The agenda of the meeting will
include a discussion of the state of
planning for the Universal Postal
Congress, issues surrounding opening
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
20:41 May 29, 2020
The Department of State
announces the renewal of the Charter
for the Defense Trade Advisory Group
(DTAG) for another two years. The
DTAG advises the Department on its
support for and regulation of defense
trade to help ensure the foreign policy
and national security of the United
States continue to be protected and
advanced, while helping to reduce
unnecessary impediments to legitimate
exports in order to support the defense
requirements of U.S. friends and allies.
It is the only Department of State
advisory committee that addresses
defense trade related topics. The DTAG
will remain in existence for two years
after the filing date of the Charter unless
terminated sooner. The DTAG is
authorized by the Federal Advisory
Committee Act.
FOR FURTHER INFORMATION CONTACT:
Please contact Neal Kringel, Alternate
Designated Federal Officer, Defense
Trade Advisory Group, and
Management Director, Directorate of
Defense Trade Controls, Department of
State, Washington, DC 20520,
telephone: (202) 663–2836.
SUMMARY:
Neal F. Kringel,
Alternate Designated Federal Officer, Defense
Trade Advisory Group, Department of State.
BILLING CODE 4710–25–P
Jkt 250001
The Surface Transportation Board has
received a request from the Association
of American Railroads (WB20–22—4/3/
20) for permission to use data from the
Board’s 2018 Masked Carload Waybill
Sample along with continued access to
previously received datasets. A copy of
this request may be obtained from the
Board’s website under docket no.
WB20–22.
The waybill sample contains
confidential railroad and shipper data;
therefore, if any parties object to these
requests, they should file their
objections with the Director of the
Board’s Office of Economics within 14
calendar days of the date of this notice.
The rules for release of waybill data are
codified at 49 CFR 1244.9.
Contact: Alexander Dusenberry, (202)
245–0319.
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BILLING CODE 4915–01–P
DEPARTMENT OF TRANSPORTATION
[FR Doc. 2020–11675 Filed 5–29–20; 8:45 am]
78 17
Release of Waybill Data
Aretha Laws-Byrum,
Clearance Clerk.
[Public Notice 11130]
Renewal of Defense Trade Advisory
Group Charter
SUMMARY:
SURFACE TRANSPORTATION BOARD
[FR Doc. 2020–11711 Filed 5–29–20; 8:45 am]
BILLING CODE 8011–01–P
jbell on DSKJLSW7X2PROD with NOTICES
FOR FURTHER INFORMATION CONTACT:
33271
Federal Highway Administration
Notice To Rescind Notice of Intent To
Prepare Environmental Impact
Statement in California
Federal Highway
Administration (FHWA), Department of
Transportation (DOT).
ACTION: Notice to Rescind Notice of
Intent to Prepare an Environmental
Impact Statement (EIS).
AGENCY:
The FHWA, on behalf of the
California Department of Transportation
(Caltrans), is issuing this notice to
advise the public that it is rescinding its
Notice of Intent (NOI), originally
published in the Federal Register on
November 7, 2019, to prepare a Draft
Environmental Impact Statement for the
South County Traffic Relief Effort
project, located in Orange and San
Diego Counties, California.
FOR FURTHER INFORMATION CONTACT: For
Caltrans: Smita Deshpande, Senior
Environmental Planner, Caltrans District
12, 1750 East Fourth Street, Suite 100,
Santa Ana, California 92705, weekdays
8:00 a.m. to 5:00 p.m., telephone (657)
328–6151, email smita.desphande@
dot.ca.gov. For FHWA: David Tedrick at
(916) 498–5024 or email david.tedrick@
dot.gov.
SUPPLEMENTARY INFORMATION: Effective
July 1, 2007, the FHWA assigned, and
SUMMARY:
E:\FR\FM\01JNN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 105 (Monday, June 1, 2020)]
[Notices]
[Pages 33258-33271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11653]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88949; File No. SR-BOX-2020-16]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Proposed Rule Change in Connection With the Proposed Commencement of
Operations of Boston Security Token Exchange LLC (``BSTX'') as a
Facility of the Exchange
May 26, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 12, 2020, BOX Exchange LLC (the ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is submitting this Proposed Rule Change to the
Commission in connection with the proposed commencement of operations
of BSTX. In this Proposed Rule Change, the proposed Amended and
Restated Limited Liability Company Agreement of the Company dated
December 24, 2019 (the ``LLC Agreement''), is attached as Exhibit 5A
hereto [sic]. The text of the proposed rule change is available from
the principal office of the Exchange, at the Commission's Public
Reference Room and also on the Exchange's internet website at https://boxoptions.com.
[[Page 33259]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is submitting this Proposed Rule Change to the
Commission in connection with the proposed commencement of operations
of BSTX. The Exchange proposes to establish BSTX as a facility, as that
term is defined in Section 3(a)(2) of the Act,\3\ of the Exchange.\4\
BSTX would be a facility of the Exchange that will operate a market for
the trading of digital security tokens. BSTX would operate a fully
automated, price/time priority execution system for the trading of
``security tokens,'' which would be equity securities that meet BSTX
listing standards and for which ancillary records of ownership would be
able to be created and maintained using distributed ledger (or
``blockchain'') technology. The security tokens would qualify as NMS
stocks pursuant to Regulation NMS.\5\ All transactions in security
tokens would clear and settle in accordance with the rules, policies
and procedures of registered clearing agencies.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78c(a)(2).
\4\ Approval for the BSTX facility will be sought by the
Exchange through a separate proposed rule change with the
Commission. (``BSTX Rulebook Proposal''). The Exchange has also
separately proposed certain other rule changes with the Commission
designed to provide sufficient flexibility for there to be multiple
facilities under the Exchange's regulatory authority. Currently,
there is only one facility of the Exchange, BOX Options Market LLC.
See Securities Exchange Act Release No. 88236 February 19, 2020, 85
FR 10765 February 25, 2020.
\5\ 17 CFR 242.600 through 613.
---------------------------------------------------------------------------
BSTX is controlled jointly by BOX Digital, a Delaware limited
liability company and a subsidiary of BOX Holdings Group LLC, and tZERO
Group, Inc., a Delaware corporation and an affiliate of Overstock.com,
Inc. BSTX is an affiliate of the Exchange and, when it commences
trading operations, will be subject to regulatory oversight by the
Exchange. In addition, the Exchange will enter into a facility
agreement with BSTX (the ``Facility Agreement'') pursuant to which the
Exchange will regulate the Company as a facility of the Exchange. The
Exchange's powers and authority under the Facility Agreement ensure
that the Exchange has full regulatory control over BSTX, which is
designed to prevent any owner of BSTX from exercising undue influence
over the regulated activities of the Company. The Exchange will also
provide certain business services to the Company such as providing
human resources and office technology support pursuant to an
administrative services agreement between the Exchange and BSTX.
The LLC Agreement is the source of governance and operating
authority for the Company and, therefore, functions in a similar manner
as articles of incorporation and bylaws would function for a
corporation. The Exchange is submitting a separate filing to establish
rules relating to trading on BSTX.\6\ The Exchange also submitted a
separate filing to introduce structural changes to the Exchange to
accommodate regulation of BSTX in addition to the Exchange's existing
facility. With the addition of BSTX as an Exchange facility, BSTX
Participants \7\ will have the same representation, rights and
responsibilities as Participants on the Exchange's other facility.
---------------------------------------------------------------------------
\6\ See BSTX Rulebook Proposal.
\7\ A BSTX Participant is a firm or organization that is
registered with the Exchange pursuant to Exchange Rules for the
purposes of participating on the BSTX Market as an order flow
provider or market maker. See Section 1.1, LLC Agreement.
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The Exchange currently operates BOX Options Market LLC (``BOX
Options''), which is a facility of the Exchange, as that term is
defined in Section 3(a)(2) of the Act. The proposed LLC Agreement
provisions are generally the same as the provisions of the BOX Options
LLC Agreement or, where indicated herein, are the same as provisions of
the BOX Holdings LLC Agreement.\8\ Currently, BOX Holdings has nine
separate, unaffiliated owners. BOX Holdings owns 100% of BOX Options so
BOX Holdings is essentially the alter ego of BOX Options. By contrast,
the Company has two separate, unaffiliated voting owners, BOX Digital
and tZERO, each of which owns 50% of the voting class of equity of the
Company. Ownership diverges for BOX Options directly above BOX Holdings
in its ownership structure and ownership diverges for the Company
directly above the Company in its ownership structure. Therefore, as
discussed below, when comparing various provisions in the LLC
Agreement, some provisions are more appropriately compared with the BOX
Holdings LLC Agreement, particularly with respect to ownership issues.
The Exchange believes that governance consistent with established
provisions that have already received Commission approval harmonizes
rules and practices across the Exchange's facilities, which may foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, consistent with Section
6(b)(5) of the Act.\9\
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\8\ The Exchange notes, as further described in the Proposed
Rule Change, that certain provisions of the BOX Holdings LLC and BOX
Options LLC Agreements are not included in the LLC Agreement because
they are not applicable. For example, certain provisions in the BOX
Holdings LLC Agreement that are related to different voting classes
of ownership are not present in the LLC Agreement because BSTX has
only one voting class of ownership. See, e.g., Sections 4.1, 4.4,
4.13 and 7 of the BOX Holdings LLC Agreement.
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Structure of the Company
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to the structure of the Company, highlighting
areas that vary in comparison to the BOX Options LLC Agreement and/or
BOX Holdings LLC Agreement and provides the statutory basis for such
variation.
Ownership interests of the Company are represented by Units.\10\
The Company has two classes of Units: Class A Units \11\ and Class B
Units.\12\ Except as otherwise provided in the LLC Agreement, all Units
are identical to each other and accord the holders thereof the same
obligations, rights, and privileges as accorded to each other holder
thereof.\13\ The duly admitted
[[Page 33260]]
holders of Units are referred to as the members of the Company
(``Members''). The Units represent equity interests in the Company and
entitle the duly admitted holders thereof to participate in the
Company's allocations and distributions. Voting Class A Units are held
50/50 by BOX Digital and tZERO with each having an economic interest of
over 45% in the Company. Non-voting Class B Units are held by various
employees and directors of the Company, each of whom holds less than 5%
economic interest in the Company. Pursuant to Section 1.1 of the LLC
Agreement, a record of the Members is maintained by the Secretary of
the Company and updated from time to time as necessary and as provided
in the LLC Agreement (``Membership Record'').\14\ These provisions are
substantially the same as those in the BOX Holdings LLC Agreement.\15\
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\10\ ``Units'' mean Class A Units and Class B Units. For the
avoidance of doubt, the ownership or possession of Units shall not
in and of itself entitle the owner or holder thereof to vote or
consent to any action with respect to the Company (which rights
shall be vested only in duly admitted Members of the Company), or to
exercise any right of a Member of the Company under the LLC
Agreement, the LLC Act, or other applicable law. See Section 1.1,
LLC Agreement.
\11\ ``Class A Units'' shall mean equal units of limited
liability company interest in the Company, including an interest in
the ownership and profits and losses of the Company and the right to
receive distributions from the Company as set forth in the LLC
Agreement. See Section 1.1, LLC Agreement.
\12\ ``Class B Units'' shall be identical to Class A Units
except that Class B Members shall not have the right to vote on any
matter related to the Company as a result of holding Class B Units.
See Section 1.1, LLC Agreement.
\13\ Pursuant to Section 2.5(b) of the LLC Agreement, upon the
consummation of any sale or transfer of a majority of the Class A
Units or a majority of the assets of the Company, directly or
indirectly, to any party or group of related parties, including
through a series of transactions, all then outstanding Class B Units
shall automatically convert into an equal number of Class A units
without the need of any action by any person. For the avoidance of
doubt, a Class B Member's Capital Account does not change as a
result of the conversion of the Class B Units.
\14\ The Membership Record shall include the name and address of
each Member and the number of Units of each class held by each
Member.
\15\ See BOX Holdings LLC Agreement Sections 1.1 and 2.5.
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BOX Digital is a subsidiary of BOX Holdings and an affiliate of the
Exchange and, therefore, the Company will 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. The existing facility--BOX Options--
operates a market for trading option contracts on U.S. equities. BOX
Holdings is the parent company for both BOX Digital and BOX Options.
BOX Holdings has nine separate, unaffiliated owners, including MX US 2,
Inc., a wholly owned, indirect subsidiary of TMX Group Limited
(``TMX''), which holds 42.62% of the outstanding units of BOX Holdings,
and IB Exchange Corp., which holds 22.69% of the outstanding units of
BOX Holdings. The other seven owners 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, each hold less than
15% of the outstanding units of BOX Holdings.
Medici Ventures, Inc. (``Medici''), a Delaware corporation, owns
80.07% of the outstanding shares of tZERO, Joseph Cammarata holds
7.53%, and each of the following owns 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. Overstock.com, Inc. (``Overstock''), a
publicly held corporation organized under the laws of the state of
Delaware, owns 100% of the outstanding shares of Medici. Therefore,
both tZERO and the Company are affiliates of Overstock.
Pursuant to Section 7.4(g)(ii) of the LLC Agreement, any
Controlling Person \16\ is required to become a party to the LLC
Agreement and abide by its provisions, to the same extent and as if
they were Members. 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 Company owner because they will not
have the ability to exert any control over the Company. BOX Holdings,
Medici, and Overstock are indirect owners of the Company. Overstock
owns 100% of Medici Ventures, Inc., which owns more than 80% of tZERO
Group, Inc., which owns 50% of the voting class of equity of BSTX.
Medici and Overstock will be required to become parties to the
Company's LLC Agreement by executing an instrument of accession
substantially in the form attached hereto as Exhibit 5B [sic] and abide
by its provisions, to the same extent and as if they were Members,
because they are Controlling Persons of the Company. Similarly, BOX
Digital, BOX Holdings, MX US 2, Inc., MX US 1, Inc., Bourse de Montreal
Inc., and TMX Group Limited will also 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 the Company. TMX Group
Limited owns 100% of Bourse de Montreal Inc., which owns 100% of MX US
1, Inc., which owns 100% of MX US 2, Inc., which owns more than 40% of
BOX Holdings. BOX Holdings owns 98% of BOX Digital, which owns 50% of
the voting class of equity of BSTX.
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\16\ A ``Controlling Person'' is defined as ``a Person who,
alone or together with any Related Persons of such Person, holds a
Controlling Interest in a Member.'' See Section 7.4(g)(v)(B), LLC
Agreement. A ``Controlling Interest'' is defined as ``the 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 Section
7.4(g)(v)(A), LLC Agreement. A ``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 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 [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
[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 [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.''
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Any BSTX Participant that holds, directly or indirectly, more than
20% of the Company will have its voting power capped at 20% pursuant to
Section 7.4(h) of the LLC Agreement, a limitation designed to prevent a
market participant from exerting undue influence on an Exchange
facility.\17\ Related Persons will be grouped together when applying
these limits. The Exchange believes the proposed voting cap provision
is consistent with the 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 Act.\18\ In particular, the voting cap is
designed to minimize the ability of a BSTX Participant to improperly
interfere with or restrict the ability of the Exchange to effectively
carry out its regulatory oversight responsibilities under the Act.
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\17\ LLC Agreement Section 7.4(h) is based on Section 7.4(h) of
the BOX Holdings LLC Agreement.
\18\ 15 U.S.C. 78f(b)(1).
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The SEC will be required to be notified if an owner exceeds 5%, 10%
or 15% ownership in the Company pursuant to Section 7.4(e) of the LLC
[[Page 33261]]
Agreement.\19\ Further, rule filings are required when an owner crosses
above 20% or any subsequent 5% increment, pursuant to Section 7.4(f) of
the LLC Agreement.\20\ Related Persons are grouped together when
applying these limits. These are the same provisions as are contained
in the BOX Holdings LLC Agreement. The Exchange believes the proposed
notification provisions are consistent with the 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 Act.\21\ In
particular, SEC notification of ownership interests exceeding certain
percentage thresholds can help improve the Commission's ability to
effectively monitor and surveil for potential undue influence and
control over the operation of the Exchange.
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\19\ LLC Agreement Section 7.4(e) is based on Section 7.4(e) of
the BOX Holdings LLC Agreement.
\20\ LLC Agreement Section 7.4(f) is based on Section 7.4(f) of
the BOX Holdings LLC Agreement.
\21\ 15 U.S.C. 78f(b)(1).
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The Exchange notes that existing ownership limits applicable to
owners of the Exchange, the entity that will have regulatory oversight
of BSTX, are not changing.\22\ The Exchange believes the existing
ownership limits will help to 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 the Act, and are appropriate and consistent with the
requirements of the Act, particularly with Section 6(b)(1), which
requires, in part, an exchange be so organized and have the capacity to
carry out the purposes of the Act.\23\
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\22\ See Securities Exchange Act Release No. 34-66871 (April 27,
2012) 77 FR 26323 (May 3, 2012) (Order granting approval of BOX
Exchange).
\23\ 15 U.S.C. 78f(b)(1).
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The Company does not have the same ownership as BOX Options or BOX
Holdings; therefore, the Members of the Company differ from those of
BOX Options and BOX Holdings. The Exchange believes that the structure
of the Company will promote just and equitable principles of trade,
and, in general, protect investors and the public interest, consistent
with Section 6(b)(5) of the Act.\24\
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\24\ 15 U.S.C. 78f(b)(5).
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Term and Termination
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to the term and termination of the Company,
highlighting areas that vary in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC Agreement and provides the statutory
basis for such variation.
Pursuant to Section 2.3 of the LLC Agreement, the Company will have
a perpetual legal existence unless it is sooner dissolved as a result
of an event specified in the Delaware Limited Liability Company Act, as
amended and in effect from time to time, and any successor statute (the
``LLC Act'') or by agreement of the Members. The term is the same as
the provision in the BOX Options LLC Agreement,\25\ but also provides
that the Company can be dissolved by agreement of the Members. In
addition, Section 10.1 of the LLC Agreement provides that the Company
shall be dissolved upon (i) the election to dissolve the Company made
by the Board pursuant to Section 4.4(b)(v) of the LLC Agreement; (ii)
the entry of a decree of judicial dissolution under Sec. 18-802 of the
LLC Act; (iii) the resignation, expulsion, bankruptcy or dissolution of
the last remaining Member, or the occurrence of any other event which
terminates the continued membership of the last remaining Member in the
Company, unless the business of the Company is continued without
dissolution in accordance with the LLC Act; or (iv) the occurrence of
any other event that causes the dissolution of a limited liability
company under the LLC Act unless the Company is continued without
dissolution in accordance with the LLC Act. The dissolution events are
generally the same as those in the BOX Options LLC Agreement; \26\
however, the Company may also be dissolved by the affirmative vote of
Members holding a majority of all of the then outstanding Percentage
Interests \27\ (excluding any Percentage Interests held directly or
indirectly by tZERO and its Affiliates from the numerator and the
denominator for such calculation) taken within 180 calendar days after
the occurrence of any ``Trigger Event'' as such term is defined in the
IP License and Services Agreement entered into by and between tZERO and
the Company (the ``LSA'') and described in more detail below.\28\ The
Exchange believes that the addition of such dissolution events will
promote just and equitable principles of trade, and, in general,
protect investors and the public interest, consistent with Section
6(b)(5) of the Act.\29\
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\25\ See BOX Options LLC Agreement Section 2.3.
\26\ See BOX Options LLC Agreement Section 8.1.
\27\ ``Percentage Interests'' are defined as ``with respect to a
Member, means the ratio of the number of Unit 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 Section 1.1, LLC Agreement.
\28\ The LSA defines a ``Trigger Event'' as meaning ``any of the
following events: (a) A material breach by tZERO of any of its
obligations under this LSA (being either a single event which is a
material breach or a series of breaches which taken together are a
material breach) which material breach or failure is not cured by
tZERO within 90 days after Company gives written notice of such
breach or failure to tZERO hereunder, except for Critical Functions
in which case the cure period shall be 10 days; (b) any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under
any bankruptcy or insolvency Law or any non-frivolous dissolution or
liquidation proceedings commenced by or against tZERO; and if such
case or proceeding is not commenced by tZERO, it is acquiesced by
tZERO in or remains undismissed for 30 days; (c) tZERO ceasing
active operation of its business without a successor or
discontinuing any of the Base Services; (d) tZERO becomes judicially
declared insolvent or admits in writing its inability to pay its
debts as they become due; or (e) tZERO applies for or consents to
the appointment of a trustee, receiver or other custodian for tZERO,
or makes a general assignment for the benefit of its creditors.''
\29\ 15 U.S.C. 78f(b)(5).
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Upon the occurrence of any of the events set forth in Section
10.1(a) of the LLC Agreement, the Company will be dissolved and
terminated in accordance with the provisions of Article 10 of the LLC
Agreement.
Governance of the Company
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to the governance of the Company, highlighting
areas that vary in comparison to the BOX Options LLC Agreement and/or
BOX Holdings LLC Agreement and provides the statutory basis for such
variation.
Section 4.1 of the LLC Agreement establishes a board of directors
of the Company (the ``Board of Directors'' or the ``Board'') to manage
the development, operations, business and affairs of the Company
without the need for any approval of the Members or any other person.
Section 4.10 of the LLC Agreement provides that, except and only to the
extent expressly provided for in the LLC Agreement and the Related
Agreements and as delegated by the Board of Directors to committees of
the Board of Directors or to duly appointed Officers or agents of the
Company, neither a Member nor any other Person other than the Board of
Directors shall be an agent of the Company or have any right, power or
authority to transact any business in the name of the Company or to act
for or on behalf of or to bind the Company. Section 4.12(a) of the LLC
Agreement provides that each of the Members and the Directors,
Officers, employees and agents of the Company (a) shall give due regard
to the preservation of the independence of the self-regulatory function
of the Exchange and to its obligations to investors and
[[Page 33262]]
the general public and shall not take any actions which would interfere
with the effectuation of decisions by the board of directors of the
Exchange relating to its regulatory functions (including disciplinary
matters) or which would interfere with the Exchange's ability to carry
out its responsibilities under the Act; (b) comply with the federal
securities laws and the rules and regulations promulgated thereunder;
and (c) cooperate with the Exchange pursuant to its regulatory
authority and with the SEC. Section 3.2 of the LLC Agreement provides
that the Exchange will (a) act as the SEC-approved SRO for the BSTX
Market, (b) have regulatory responsibility for the activities of the
BSTX Market and provide regulatory services to the Company pursuant to
the Facility Agreement. These are the same provisions that are
contained in the BOX Options LLC Agreement.\30\ These provisions ensure
that the Exchange has full regulatory control over BSTX, which is
designed to prevent any owner of BSTX from exercising undue influence
over the regulated activities of the Company.
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\30\ See BOX Options LLC Agreement Sections 4.1, 4.10, 4.12, and
3.2.
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Section 4.1 of the LLC Agreement provides that the Board will
consist of six (6) directors (each a ``Director''), comprised of two
(2) Directors appointed by BOX Digital, two (2) Directors appointed by
tZERO (together with the BOX Digital Directors, each a ``Member
Director''), one (1) Director (the ``Independent Director'') appointed
by the unanimous vote of all of the then serving Member Directors, and
one (1) non-voting Director (the ``Regulatory Director'') appointed by
the Exchange. As long as the Company is a facility of the Exchange
pursuant to Section 3(a)(2) of the Act, the Exchange will have the
right to appoint a Regulatory Director to serve as a Director. The
Regulatory Director must be a member of the senior management of the
regulation staff of the Exchange. By comparison, the board of directors
of BOX Options is the same as BOX Holdings because it is a wholly-owned
subsidiary of BOX Holdings. The remaining structure of the Board of
Directors for the Company differs from that of BOX Holdings because the
ownership of the Company differs from that of BOX Holdings, which has
no owners with 50% or greater ownership of its voting class of equity.
The Company has an Independent Director to avoid either Member from
controlling or creating deadlock on the Board. However, the presence of
a Regulatory Director selected by the Exchange on the Board is
identical to the longstanding practice at the Exchange's other
facility, BOX Options. The Exchange believes that the proposed board
structure, and in particular, the inclusion of the proposed Independent
Director and Regulatory Director, will promote just and equitable
principles of trade, 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, protect investors and the
public interest, consistent with Section 6(b)(5) of the Act.\31\
Further, the Exchange believes that inclusion of the Regulatory
Director on the BSTX Board would also be consistent with Section
6(b)(1) of the Act. This is because the Regulatory Director is required
to be someone who is a member of the senior management of the
regulation staff of the Exchange and is therefore a person who is
knowledgeable of the rules of the Exchange and the regulations
applicable to it and, in turn, is someone who would be well positioned
to help ensure the Exchange, including in the operation of any
facilities, continues to be so organized and has the capacity to carry
out the purposes of the Act, including to prevent inequitable and
unfair practices.
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\31\ 15 U.S.C. 78f(b)(5).
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Section 4.3 of the LLC Agreement provides that the Board will meet
as often as it deems necessary, but at least four (4) times per
year.\32\ Meetings of the Board or any committee thereof may be
conducted in person or by telephone or in any other manner agreed to by
the Board or, respectively, by the members of a committee. Any of the
Directors or the Exchange may call a meeting of the Board upon fourteen
(14) calendar days prior written notice. In any case where the
convening of a meeting of Directors is a matter of urgency, notice of
the meeting may be given not less than forty-eight (48) hours before
the meeting is to be held. No notice of a meeting shall be necessary
when all Directors are present. The attendance of at least a majority
of all the Directors shall constitute a quorum for purposes of any
meeting of the Board. Except as may otherwise be provided by the LLC
Agreement, each of the Directors will be entitled to one vote on any
action to be taken by the Board, except that the Regulatory Director
shall not vote on any action to be taken by the Board or any committee,
the CEO (if a Director) shall not be entitled to vote on matters
relating to the CEO's powers, compensation or performance, and a
Director shall not be entitled to vote on any matter pertaining to that
Director's removal from office. A Director may vote the votes allocated
to another Director (or group of Directors) pursuant to a written
proxy. Except as otherwise provided by the LLC Agreement, any action to
be taken by the Board shall be considered effective only if approved by
at least a majority of the votes entitled to be voted on that action.
Meetings of the Board may be attended by other representatives of the
Members, the Exchange and other persons related to the Company as the
Board may approve. Any action required or permitted to be taken at a
meeting of the Board or any committee thereof may be taken without a
meeting if written consents, setting forth the action so taken, are
executed by the members of the Board or committee, as the case may be,
representing the minimum number of votes that would be necessary to
authorize or to take that action at a meeting at which all members of
the Board or committee, as the case may be, permitted to vote were
present and voted. The Board will determine procedures relating to the
recording of minutes of its meetings. The Exchange believes that the
proposed board structure will promote just and equitable principles of
trade, 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, protect investors and the public
interest, consistent with Section 6(b)(5) of the Act.\33\
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\32\ LLC Agreement Section 4.3 is based on Section 4.3 of the
BOX Options LLC Agreement.
\33\ 15 U.S.C. 78f(b)(5).
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Pursuant to Section 4.4 of the LLC Agreement, no action with
respect to any major action (each a ``Major Action''), will be
effective unless approved by the Board, including the affirmative vote
of all then serving Member Directors, in each case acting at a meeting.
A vacancy on the Board will not prevent approval of a Major Action. No
other Member votes are required for a Major Action. For purposes of the
LLC Agreement, ``Major Action'' means any of the following: (i) A
merger or consolidation of the Company with any other entity or the
sale by the Company of any material portion of its assets; (ii) entry
by the Company into any line of business other than the business
outlined in Article 3 of the LLC
[[Page 33263]]
Agreement; (iii) conversion of the Company from a Delaware limited
liability company into any other type of entity; (iv) except as
expressly contemplated by the LLC Agreement and then existing Related
Agreements, entering into any agreement, commitment, or transaction
with any Member or any of its Affiliates other than transactions or
agreements upon commercially reasonable terms that are no less
favorable to the Company than the Company would obtain in a comparable
arms-length transaction or agreement with a third party; (v) to the
fullest extent permitted by law, taking any action (except pursuant to
a vote of the Members pursuant to Section 10.1(a)(ii) of the LLC
Agreement to effect the voluntary, or which would precipitate an
involuntary, dissolution or winding up of the Company; (vi) operating
the BSTX Market utilizing any other 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; (vii) operating the BSTX
Market utilizing any other regulatory services provider other than the
Exchange, except as otherwise provided in the Facility Agreement 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; (viii) entering into any
partnership, joint venture or other similar joint business undertaking;
(ix) making any fundamental change in the market structure of the
Company from that contemplated by the Members as of the date of the LLC
Agreement, except 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; (x) issuing any
new Units pursuant to Section 7.6 of the LLC Agreement or admitting
additional or substitute Members pursuant to Section 7.1(b); (xi)
altering the provisions for Board membership applicable to any Member,
except 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; and (xii) altering the
definition of or requirements for approving a Major Action, except 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. The Major Action events are
generally the same as those in the BOX Options LLC Agreement and BOX
Holdings LLC Agreement \34\ with the exception of deletions to
references to BOX Options affiliates and owners and to include cross
references to other provisions of the LLC Agreement; however, the
Company's LLC Agreement also provides that a Major Action also includes
provisions (viii), (x), and (xi) as described above. The Exchange
believes that such events should be deemed Major Actions for commercial
fairness. The Exchange believes that deeming the above referenced
events as Major Actions will promote just and equitable principles of
trade, 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, protect investors and the public
interest, consistent with Section 6(b)(5) of the Act.\35\
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\34\ See Section 4.4 of the BOX Options LLC Agreement and
Section 4.4 of the BOX Holdings LLC Agreement.
\35\ 15 U.S.C. 78f(b)(5).
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Pursuant to Section 4.1(b) of the LLC Agreement, a Member Director
may be removed by the Member entitled to appoint that Member Director,
with or without cause. The Independent Director may be removed by a
majority vote of the then serving Member Directors, with or without
cause. Any Member Director or Independent Director may be removed by
the Board if the Board determines, in good faith, that the Director has
violated any provision of the LLC Agreement or any federal or state
securities law or that such action is necessary or appropriate in the
public interest or for the protection of investors. A Director shall
not participate in any vote regarding that Director's removal. The
Company shall promptly notify the Exchange in writing of the
commencement or cessation of service of a Member Director or
Independent Director. Like BOX Options, Directors may be removed by the
Board for reasons related to protection of investors and the owners
with rights to appoint a Member Director have power to remove and
replace their respective designees. The removal provisions for the
Company's Independent Director differ from those of BOX Options and BOX
Holdings because those entities do not have an Independent Director.
The Exchange believes that the proposed removal provisions will promote
just and equitable principles of trade, 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,
protect investors and the public interest, consistent with Section
6(b)(5) of the Act. Further, the Exchange believes that the ability for
Member Directors and Independent Directors to be removed from the Board
in the circumstances described above would be consistent with Section
6(b)(1) of the Act.\36\ This is because removal of such Directors who
have violated the LLC Agreement or federal or state laws would help
ensure that the Exchange, including in its operation of facilities, is
so organized and has the capacity to be able to carry out the purposes
of the Act, including the prevention of inequitable and unfair
practices.
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\36\ 15 U.S.C. 78f(b)(1).
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Section 4.1(c) of the LLC Agreement provides that, if a vacancy is
created on the Board as a result of the death, disability, retirement,
resignation or removal (with or without cause) of a Member Director or
otherwise there shall exist or occur any vacancy on the Board, the
Member whose designee created the vacancy will fill that vacancy by
written notice to the Company. Each Member shall promptly fill
vacancies on the Board, and the Board shall consider the advisability
of taking further action until the vacancies are filled. The vacancy
provisions are not in the BOX Options LLC Agreement; however, the
Exchange believes that providing for contingencies in the event of a
vacancy are important to avoid business disruption and, therefore, this
proposal will foster cooperation and coordination with persons engaged
in regulating, clearing, settling, processing information with respect
to, and facilitating transactions in securities, consistent with
Section 6(b)(5) of the Act.\37\ Further, the Exchange believes that
filling Director vacancies, as described above, would provide a
predetermined and transparent manner for filling Director vacancies and
therefore help avoid business disruptions at BSTX. The Exchange
believes that this, in turn, would be consistent with Section 6(b)(1)
of the
[[Page 33264]]
Act \38\ because it would help ensure that the Exchange, including in
the operation of facilities, is so organized and has the capacity to be
able carry out the purposes of the Act, including to remove impediments
to and perfect the mechanisms of a national market system for
securities.
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\37\ 15 U.S.C. 78f(b)(5).
\38\ 15 U.S.C. 78f(b)(1).
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Section 4.1(d) of the LLC Agreement provides that the Regulatory
Director may be removed (a) by the Exchange, with or without cause, (b)
by the Board if the Board determines, in good faith, that the
Regulatory Director has violated any provision of the LLC Agreement or
any federal or state securities law, or (c) by the Board if the Board
determines, in good faith, that the Regulatory Director does not meet
the requirements of a Regulatory Director as set forth in the LLC
Agreement. If the Regulatory Director ceases to serve for any reason,
the Exchange shall appoint a new Regulatory Director in accordance with
the requirements in the LLC Agreement. The removal provisions in the
Company's LLC Agreement are substantially the same as those in the BOX
Options LLC Agreement.\39\
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\39\ See Section 4.1(d) of the BOX Options LLC Agreement.
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Section 4.12(b) of the LLC Agreement provides that the Company and
its Members shall comply with the federal securities laws and the rules
and regulations promulgated thereunder and shall cooperate with the SEC
and the Exchange pursuant to and to the extent of their respective
regulatory authority. The Directors, Officers, employees and agents of
the Company, by virtue of their acceptance of such position, shall
comply with the federal securities laws and the rules and regulations
promulgated thereunder and shall be deemed to agree to cooperate with
the SEC and the Exchange in respect of the SEC's oversight
responsibilities regarding the Exchange, and the Company shall take
reasonable steps necessary to cause its Directors, Officers, employees
and agents to so cooperate. These provisions in the LLC Agreement are
the same as those in the BOX Options LLC Agreement and BOX Holdings LLC
Agreement.\40\
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\40\ See Section 4.12(b) of the BOX Options LLC Agreement and
Section 4.12(b) of the BOX Holdings LLC Agreement.
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Section 3.2(a)(ii) of the LLC Agreement provides that the Exchange
shall receive notice of planned or proposed changes to the Company (but
not including 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 (``Non-Market Matters'') or the
BSTX Market (including, but not limited to the BSTX trading system)
which will require an affirmative approval by the Exchange prior to
implementation, not inconsistent with the LLC Agreement. Planned
changes include, without limitation: (a) Planned or proposed changes to
the BSTX trading system; (b) the sale by the Company of any material
portion of its assets; (c) taking any action to effect a voluntary, or
which would precipitate an involuntary, dissolution or winding up of
the Company; or (d) obtaining regulatory services from a regulatory
services provider other than the Exchange. Procedures for requesting
and approving changes shall be established by the mutual agreement of
the Company and the Exchange. These provisions in the LLC Agreement are
the same as those in the BOX Options LLC Agreement.\41\
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\41\ See Section 3.2(a)(ii) of the BOX Options LLC Agreement.
---------------------------------------------------------------------------
Section 3.2(a)(iii) of the LLC Agreement provides that in the event
that the Exchange, in its sole discretion, determines that the proposed
or planned changes to the Company or the BSTX Market (including, but
not limited to, the BSTX trading system) set forth in Section
3.2(a)(ii) of the LLC Agreement could cause a Regulatory Deficiency if
implemented, the Exchange may direct the Company, subject to approval
of the Exchange board of directors, to modify the proposal as necessary
to ensure that it does not cause a Regulatory Deficiency. The Company
will not implement the proposed change until it, and any required
modifications, are approved by the Exchange board of directors. The
costs of modifications undertaken shall be paid by the Company. These
provisions in the LLC Agreement are the same as those in the BOX
Options LLC Agreement.\42\ These provisions ensure the Exchange
maintains full regulatory control and authority over BSTX while it
operates as a facility of the Exchange. The Exchange believes this
provision helps guarantee the Exchange's ability to fulfill its
regulatory responsibilities and operate in a manner consistent with the
Act, in particular 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 Act.\43\
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\42\ See Section 3.2(a)(iii) of the BOX Options LLC Agreement.
\43\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
Section 3.2(a)(iv) of the LLC Agreement provides that in the event
that the Exchange, in its sole discretion, determines that a Regulatory
Deficiency exists or is planned, the Exchange may direct the Company,
subject to approval of the Exchange board of directors, to undertake
such modifications to the Company (but not to include Non-Market
Matters) or the BSTX Market (including, but not limited to, the BSTX
trading system), as are necessary or appropriate to eliminate or
prevent the Regulatory Deficiency and allow the Exchange to perform and
fulfill its regulatory responsibilities under the Act.\44\ The costs
and modifications undertaken shall be paid by the Company. These
provisions in the LLC Agreement are substantially the same as those in
the BOX Options LLC Agreement, with the exception of a reference to an
agreement that is not applicable to the Company.\45\
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\44\ As discussed above, the Exchange will appoint a Regulatory
Director who may, among other things, serve as a Director of any
regulatory committee(s). Such individual will also have insight and
access to important information related to the Company; for example,
while the Regulatory Director may not serve as a Director on Board
committees other than authorized regulatory committees, the
Regulatory Director nevertheless shall (A) have the right to attend
all meetings of the Board and committees thereof; (B) receive
equivalent notice of meetings as other Directors; and (C) receive a
copy of the meeting materials provided to other Directors, including
agendas, action items and minutes for all meetings. (See LLC
Agreement Sec. 4.2(c).)
\45\ See Section 3.2(a)(iv) of the BOX Options LLC Agreement.
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Regulatory Funds
Pursuant to Section 9 of the Facility Agreement, the Company will
agree that the Exchange has the right to receive all fees, fines and
disgorgements imposed upon BSTX Participants with respect to the
Company's trading system (``Regulatory Funds'') and all market data
fees, tape and other revenues (``Non-regulatory Funds''). All
Regulatory Funds and Non-regulatory Funds collected by the Exchange
with respect to the Company may be used by the Exchange for regulatory
purposes, which will be determined in the sole discretion of the
Exchange. To the extent the Company incurs costs and expenses for
regulatory purposes, the Exchange may reimburse the Company using
Regulatory Funds. In the event the Exchange, at any time, determines
that it does not hold sufficient funds to meet all regulatory purposes,
the Company will reimburse the Exchange for any such additional costs
and expenses. All Regulatory Funds collected by the
[[Page 33265]]
Exchange will be retained by the Exchange and not transferred to the
Company. Non-regulatory funds collected by the Exchange may be
transferred to the Company after the Exchange makes adequate provision
for all regulatory purposes. These provisions ensure that the Exchange
has full control over BSTX with respect to its regulated functions and
is designed to prevent any owner of BSTX from exercising undue
influence over the regulated activities of the Company.
Capital Contributions and Distributions
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to capital contributions and distributions by the
Company, highlighting areas that vary in comparison to the BOX Options
LLC Agreement and/or BOX Holdings LLC Agreement and provides the
statutory basis for such variation.
Pursuant to Section 6.1 of the LLC Agreement, all capital
contributions contributed to the Company by holders of Units shall be
reflected on the books and records of the Company. No interest will be
paid on any capital contribution to the Company. No Member will have
any personal liability for the repayment of the capital contribution of
any Member, and no Member will have any obligation to fund any deficit
in its Capital Account. Each Member waived any right to partition the
property of the Company or to commence an action seeking dissolution of
the Company under the LLC Act. These provisions are substantially the
same as those in the BOX Holdings LLC Agreement.\46\
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\46\ See Section 6.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Under Section 6.2 of the LLC Agreement, the Board, in its sole
discretion, will determine the capital needs of the Company. If at any
time the Board determines that additional capital is required in the
interests of the Company, additional working capital shall be raised in
such manner as determined by a vote of the Board, including the
affirmative vote of at least one Member Director appointed by each
Member, but the Board will not have the power to require the Members to
make any additional capital contributions. These provisions in the LLC
Agreement are substantially the same as those in the BOX Options LLC
Agreement, with the exception of the requirement for at least one
Member Director appointed by each Member to affirmatively vote on the
manner to raise additional working capital.\47\ The Exchange believes
that this added provision exists for purposes of commercial fairness
and is necessary due to the ownership structure of the Company and that
it will foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, consistent with Section
6(b)(5) of the Act.\48\
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\47\ See Section 6.2 of the BOX Options LLC Agreement.
\48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Pursuant to Section 8.1 of the LLC Agreement, if at any time and
from time to time the Board determines that the Company has cash that
is not required for the operations of the Company, the payment of
liabilities or expenses of the Company, or the setting aside of
reserves to meet the anticipated cash needs of the Company
(``Distributable Cash''), then the Company shall make cash
distributions to its Members in the following manner and priority:
First, the Company shall make tax distributions (``Tax Distributions'')
to the Members to cover each Member's estimated income tax for that
period (or in the event that Distributable Cash is less than the total
of all such Tax Amounts, the Company shall distribute the Distributable
Cash in proportion to such Tax Amounts). All tax distributions to a
Member will be treated as advances against any subsequent distributions
to be made to that Member. Subsequent distributions made to the Member
shall be adjusted so that when aggregated with all prior distributions
to the Member pursuant to those provisions, and with all prior Tax
Distributions to the Member, the amount distributed will be equal, as
nearly as possible, to the aggregate amount that would have been
distributable to that Member pursuant to the LLC Agreement if the LLC
Agreement contained no provision for Tax Distributions; second, when,
as and if declared by the Board, the Company shall make cash
distributions to each of the Members pro rata in accordance with that
Member's respective Percentage Interest. Since the Company does not
have the same ownership as BOX Options, the distribution provisions in
the LLC Agreement differ from the BOX Options LLC Agreement and BOX
Holdings LLC Agreement. These provisions relate to tax and accounting
rules to which the Company is subject, due to its ownership structure.
As such, these provisions are standard or not novel for a similarly
situated commercial business registered as a limited liability company
under the laws of the state of Delaware.
Section 8.2 of the LLC Agreement provides that the Company, and the
Board on behalf of the Company, shall not make a distribution to any
Member on account of its ownership interest in the Company if, and to
the extent, such distribution would violate the LLC Act or other
applicable law. This provision in the LLC Agreement is the same as the
provision in the BOX Options LLC Agreement and BOX Holdings LLC
Agreement.\49\
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\49\ See Section 7.1 of the BOX Options LLC Agreement and
Section 8.2 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Section 9.1 of the LLC Agreement provides that all profits, losses
and credits of the Company (for both accounting and tax purposes) for
each fiscal year shall be allocated to the Members from time to time
(but no less often than once annually and before making any
distribution to the Members) pro rata among the Members based on that
Member's respective Percentage Interest, subject to limitations,
offsets, chargebacks, deductions and revaluations. Since the Company
does not have the same ownership as BOX Options, the allocation of
profits and losses provisions in the LLC Agreement differ from the BOX
Options LLC Agreement. These provisions relate to tax and accounting
rules to which the Company is subject, due to its ownership structure.
As such, these provisions are standard or not novel for a similarly
situated commercial business registered as a limited liability company
under the laws of the state of Delaware.
Under Section 9.9 of the LLC Agreement, any profits or losses
resulting from a liquidation, merger or consolidation of the Company,
the sale of substantially all the assets of the Company in one or a
series of related transactions, or any similar event (and, if
necessary, specific items of gross income, gain, loss or deduction
incurred by the Company in the fiscal year of the transaction(s)) shall
be allocated among the Members so that after those allocations and the
allocations required pursuant to capital account adjustments, and
immediately before the making of any liquidating distributions to the
Members, the Members' Capital Accounts equal, as nearly as possible,
the amounts of the respective distributions to which they are entitled
in a winding up. Since the Company does not have the same ownership as
BOX Options, the termination and special allocation provisions in the
LLC Agreement differ from the BOX Options LLC Agreement. These
provisions relate to tax and accounting rules to which the Company is
subject, due to its ownership structure. As such, these provisions are
standard or not novel for
[[Page 33266]]
a similarly situated commercial business registered as a limited
liability company under the laws of the state of Delaware.
Pursuant to Section 10.2 of the LLC Agreement, the assets of the
Company in winding up shall be applied or distributed as follows:
First, to creditors of the Company, including Members who are
creditors, to the extent otherwise permitted by law, whether by payment
or the making of reasonable provisions for the payment thereof, and
including any contingent, conditional and unmatured liabilities of the
Company, taking into account the relative priorities thereof; second,
to the Members and former Members in satisfaction of liabilities under
the LLC Act for distributions to those Members and former Members; and
third, to the Members in proportion to their respective Percentage
Interests. A reasonable reserve for contingent, conditional and
unmatured liabilities in connection with the winding up of the business
of the Company shall be retained by the Company until the winding up is
completed or the reserve is otherwise deemed no longer necessary by the
liquidator. These provisions are substantially the same as those in the
BOX Holdings LLC Agreement, with the exception of certain provisions
that were not included in the LLC Agreement because they are
inapplicable to the Company's structure.\50\
---------------------------------------------------------------------------
\50\ See Section 10.2 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Intellectual Property
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to intellectual property of the Company,
highlighting areas that vary in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC Agreement and provides the statutory
basis for such variation.
Pursuant to Section 3.2(b) of the LLC Agreement, tZERO will provide
to the Company the intellectual property license and services necessary
to operate the BSTX trading system as set forth in the LSA and will
make the necessary arrangements with any applicable third parties which
will permit the Company to be an authorized sublicensee of any required
third-party software necessary for Trading on the BSTX trading system.
The intellectual property provisions in the LLC Agreement are similar
to those in the BOX Options LLC Agreement, but contain certain
differences reflecting the license and services of tZERO pursuant to
the LSA rather than the software and technology provided by MX pursuant
to the TOSA in connection with the BOX Options LLC Agreement.\51\
---------------------------------------------------------------------------
\51\ See Article 13 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------
Under the LSA, tZERO will provide the Company and the Exchange with
a perpetual, fully paid up, royalty-free license to use its
intellectual property comprising the BSTX trading system. In addition,
the LSA provides that tZERO will provide services to the Company,
including services related to implementing, administering, maintaining,
supporting, hosting, developing, testing and securing the trading
system. These services to be provided by tZERO relate to the
specialized trading system operated by BSTX and are separate from any
administrative or office technology services provided to BSTX by the
Exchange discussed above.
Pursuant to the LSA, tZERO retains its ownership of the BSTX
trading system and tZERO's trademarks and service marks; provided,
however, that the Company will own deliverables, enhancements and other
technology that are developed or created by tZERO for the Company,
including any related documentation and intellectual property.
Non-Competition
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to non-competition, highlighting areas that vary
in comparison to the BOX Options LLC Agreement and/or BOX Holdings LLC
Agreement and provides the statutory basis for such variation.
Section 16.1 of the LLC Agreement provides that, for so long as it
holds, directly or indirectly, a combined Percentage Interest in the
Company of five percent (5%) or more, a Member will not hold or invest
in more than five percent (5%) of, or participate in the creation and/
or operation of, any U.S.-based market for the secondary trading of
security tokens or in any person engaged in the creation and/or
operation of any U.S.-based market for the secondary trading of
security tokens. The non-competition provision is substantially the
same as the non-competition provision in the BOX Holdings LLC
Agreement.\52\
---------------------------------------------------------------------------
\52\ See Section 16.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Changes in Ownership of the Company
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to changes in ownership of the Company,
highlighting areas that vary in comparison to the BOX Options LLC
Agreement and/or BOX Holdings LLC Agreement and provides the statutory
basis for such variation.
Section 7.1(a) of the LLC Agreement provides that no person will
directly or indirectly, whether voluntarily, involuntarily, by
operation of law or otherwise, dispose of, sell, alienate, assign,
exchange, participate, subparticipate, encumber, or otherwise transfer
in any manner (each, a ``Transfer'') its Units unless prior to that
Transfer the transferee is approved by a vote of the Board. To be
eligible for Board approval, a proposed transferee must be of high
professional and financial standing, be able to carry out its duties as
a Member hereunder, if admitted as a Member, and be under no regulatory
or governmental bar or disqualification. Notwithstanding the foregoing,
registration as a broker-dealer or self-regulatory organization is not
required to be eligible for Board approval. However, the following will
not be included in the definition of ``Transfer'': Transfers among
Members, transfers to any person directly or indirectly owning,
controlling or holding with power to vote all of the outstanding voting
securities of and equity or beneficial interests in that Member, or
transfers to any person that is a wholly owned Affiliate of a
transferring Member. A holder of Units will provide prior written
notice to the Exchange of any proposed Transfer. Any Transfer which
violates the Transfer restrictions in the LLC Agreement will be void
and ineffectual and will not bind or be recognized by the Company.
Section 7.1(b) of the LLC Agreement establishes that a person will
be admitted to the Company as an additional or substitute Member of the
Company only upon that person's execution of a counterpart of the LLC
Agreement to evidence its written acceptance of the terms and
provisions of the LLC Agreement, and acceptance thereof by resolution
of the Board, which acceptance may be given or withheld in the sole
discretion of the Board; if that person is a transferee, its agreement
in writing to its assumption of the obligations under the LLC Agreement
of its assignor, and acceptance thereof by resolution of the Board; if
that person is a transferee, a determination by the Board that the
Transfer was permitted by the LLC Agreement; and approval of the Board.
Whether or not a transferee who acquired any Units has accepted in
writing the terms and provisions of the LLC Agreement and assumed in
writing
[[Page 33267]]
the obligations hereunder of its predecessor in interest, that
transferee will be deemed, by the acquisition of those Units, to have
agreed to be subject to and bound by all the obligations of the LLC
Agreement with the same effect and to the same extent as any
predecessor in interest of that transferee. Notwithstanding the
foregoing, any Person to which the Company issues new Class B Units
shall be automatically admitted as a Member upon such Person's
execution of a counterpart of this Agreement. Pursuant to Section
7.1(c) of the LLC Agreement, all costs incurred by the Company in
connection with the admission of a substituted Member will be paid by
the transferor Member. The transfer provisions in Section 7.1 of the
LLC Agreement are not contained in the BOX Options LLC Agreement;
however, the Exchange notes that the provisions of Section 7.1 are
substantially based on provisions in the BOX Holdings Group LLC
Agreement.\53\
---------------------------------------------------------------------------
\53\ See Section 7.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Pursuant to Section 7.2 of the LLC Agreement, the Company will have
a right of first refusal if a Member desires to Transfer its Units, and
obtains a bona fide offer therefor from a third-party transferee.
Further, Section 7.3 of the LLC Agreement provides that, if the Company
does not elect to exercise its right of first refusal, the non-
transferring Member(s) next have a right of first refusal. The
provisions in Sections 7.2 and 7.3 of the LLC Agreement are
substantially based on provisions found in the BOX Holdings LLC
Agreement, with certain variations to account for differences in
corporate and ownership structure.\54\ The Exchange believes that such
variations are necessary to ensure proper application of the LLC
Agreement's provisions to the Company, which serve to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, consistent with Section 6(b)(5) of the
Act.\55\ Further, the Exchange believes that the variations in Sections
7.2 and 7.3 of the LLC Agreement that tailor those provisions to the
corporate and ownership structure of BSTX would help ensure that
persons subject to the Exchange's jurisdiction are able to navigate and
more readily understand the LLC Agreement. The Exchange believes that
this, in turn, would be consistent with Section 6(b)(1) of the Act \56\
because it would help ensure that the Exchange, including in its
operation of facilities, is so organized and has the capacity to be
able to carry out the purposes of the Act.
---------------------------------------------------------------------------
\54\ See Sections 7.2 and 7.3 of the BOX Holdings LLC Agreement.
\55\ 15 U.S.C. 78f(b)(5).
\56\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
Pursuant to Section 7.4 of the LLC Agreement, no Transfer may occur
if the Transfer could cause a termination of the Company, could cause a
termination of the Company's status as a partnership or cause the
Company to be treated as a publicly traded partnership for federal
income tax purposes, is prohibited by any securities laws, is
prohibited by the LLC Agreement, or is to a minor or incompetent
person.
Section 7.4(e) of the LLC Agreement requires that a Member will
provide the Company with written notice fourteen (14) days prior, and
the Company will provide the Commission and the Exchange with written
notice ten (10) days prior, to the closing date of any acquisition that
results in that Member's Percentage Interest, alone or together with
any related person of that Member, meeting or crossing the threshold
level of 5% or the successive 5% Percentage Interest levels of 10% and
15%. Any person that, either alone or together with its related
persons, owns, directly or indirectly, of record or beneficially, five
percent (5%) or more of the then outstanding Units will, immediately
upon acquiring knowledge of its ownership of five percent (5%) or more
of the then outstanding Units, give the Company written notice of that
ownership. In addition, Section 7.4(f) of the 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 aggregate
Percentage Interest level which meets or crosses the threshold level of
20% or any successive 5% Percentage Interest level (i.e., 25%, 30%,
etc.) is also subject to the rule filing process pursuant to Section 19
of the Act.
Under Section 7.4(g) of the LLC Agreement, unless it does not
directly or indirectly hold any interest in a Member, a Controlling
Person (as defined below) of a Member will be required to execute an
amendment to the LLC Agreement upon establishing a Controlling Interest
(as defined below) in any Member that, alone or together with any
related persons of that Member, holds a Percentage Interest in the
Company equal to or greater than 20%. This amendment will be
substantially in the form of the instrument of accession attached as
Exhibit 5B hereto [sic] and provide that the Controlling Person will
agree to become a party to the LLC Agreement and to abide by all of its
provisions, to the same extent and as if they were Members. These
amendments to the LLC Agreement will be subject to the rule filing
process pursuant to Section 19 of the Act. The rights and privileges,
including all voting rights, of the Member in whom a Controlling
Interest is held, directly or indirectly, under the LLC Agreement and
the LLC Act will be suspended until the amendment has become effective
pursuant to Section 19 of the Act or the Controlling Person no longer
holds, directly or indirectly, a Controlling Interest in the
Member.\57\ As a result, any new Member or other direct or indirect
owner of an equity interest in BSTX, whether by transfer of such equity
interest from an existing owner or otherwise, will be subject to the
same requirements as all other Members, namely that it will be required
to execute an instrument of accession to the LLC Agreement and be
subject to the rule filing process if the new Member holds, directly or
indirectly, a Controlling Interest in BSTX.
---------------------------------------------------------------------------
\57\ See supra note 16.
---------------------------------------------------------------------------
In accordance with Section 7.4(h) of the LLC Agreement, if a
Member, or any related person of that Member, is approved by the
Exchange as a BSTX Participant pursuant to the Exchange Rules, and that
Member's Percentage Interest is greater than 20%, alone or together
with any Related Person of that Member, the voting rights of the Member
and its appointed Member Directors will be limited to 20%; provided,
however, that the Member's full Percentage Interest will be counted for
quorum purposes and the portion greater than 20% will be voted by the
person presiding over quorum and vote matters in the same proportion as
the Units held by the other Members are voted. The Exchange notes that
Section 7.4 of the Company's LLC Agreement is identical in substance to
provisions of the BOX Holdings LLC Agreement.\58\
---------------------------------------------------------------------------
\58\ See Section 7.4 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
In addition to the provisions discussed above, Section 5 of the LLC
Agreement includes provisions that relate to changes in ownership of
the Company. Because BOX Options is wholly-owned by BOX Holdings, the
LLC Agreement differs from the BOX Options LLC Agreement. Under Section
5.5 of the LLC Agreement, a Member will cease to be a Member of the
Company upon the Bankruptcy or the involuntary dissolution of that
Member. Further, Section 5.8 of the LLC Agreement allows the Board, by
unanimous vote and after appropriate notice and opportunity for
hearing, to suspend or terminate a Member's voting
[[Page 33268]]
privileges or membership in the Company for three potential reasons:
(i) In the event the Board determines in good faith that such Member is
subject to a ``statutory disqualification,'' as defined in Section
3(a)(39) of the Act; (ii) in the event the Board determines in good
faith that such Member has violated a material provision of this
Agreement, or any federal or state securities law; or (iii) in the
event the Board determines in good faith that such action is necessary
or appropriate in the public interest or for the protection of
investors. The Exchange believes that limiting the ability to
participate in the Company for Members who may act in contravention of
legal or ethical standards may promote just and equitable principles of
trade, and, in general, protects investors and the public interest,
consistent with Section 6(b)(5) of the Act.\59\ Further, the Exchange
believes that the ability to suspend or terminate a Member's voting
privileges or membership in the Company as described above would be
consistent with Section 6(b)(1) of the Act.\60\ This is because such
measures in respect of Members who act in contravention of legal or
ethical standards would help ensure that the Exchange, including in its
operation of facilities, is so organized and has the capacity to be
able to carry out the purposes of the Act, including the prevention of
inequitable and unfair practices.
---------------------------------------------------------------------------
\59\ 15 U.S.C. 78f(b)(5).
\60\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
Finally, the Exchange notes that Section 18.1 of the Company's LLC
Agreement provides that amendments to the LLC Agreement must be
approved by the Board, including one Member Director appointed by each
of BOX Digital and tZERO, and any amendment of a provision specific to
any Class, Member, or the Exchange requires the consent of holders of a
majority of the outstanding Units of such Class, or such Member or the
Exchange (as applicable). In addition, the Company shall provide prompt
notice to the Exchange of any amendment, modification, waiver or
supplement to the Agreement formally presented to the Board for
approval and the Exchange shall review each such amendment,
modification, waiver or supplement and, if such amendment is required,
under Section 19 of the Act and the rules promulgated thereunder, to be
filed with, or filed with and approved by, the SEC before such
amendment may be effective, then such amendment shall not be effective
until filed with, or filed with and approved by, the SEC, as the case
may be.\61\ These provisions are similar to provisions in the BOX
Holdings LLC Agreement but differ in details related to the different
ownership structure of the Company.\62\
---------------------------------------------------------------------------
\61\ A proposed rule change can also become effective by
operation of law. See 15 U.S.C. 78s(b)(2).
\62\ See Section 18.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------
Regulation of the Company
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to regulation of the Company, highlighting areas
that vary in comparison to the BOX Options LLC Agreement and/or BOX
Holdings LLC Agreement and provides the statutory basis for such
variation.
Generally, Section 3.2 of the LLC Agreement, which is identical in
substance to a provision in the BOX Options LLC Agreement, provides
that the Exchange has authority to act as the SRO for the Company, will
provide the regulatory framework for the BSTX Market and will have
regulatory responsibility for the activities of the BSTX Market.\63\ In
addition, the Exchange will provide regulatory services to the Company
pursuant to the Facility Agreement. Nothing in the LLC Agreement shall
be construed to prevent the Exchange from allowing the Company to
perform activities that support the regulatory framework for the BSTX
Market, subject to oversight by the Exchange. This provision ensures
that the Exchange has full regulatory control over BSTX, which is
designed to prevent any owner of BSTX from exercising undue influence
over the regulated activities of the Company.
---------------------------------------------------------------------------
\63\ See Section 3.2 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------
Section 15 of the LLC Agreement deals with how the Company will
govern the handling of confidential information, as it relates to the
securities regulations and otherwise. All of the provisions in Section
15 of the LLC Agreement are substantively similar to provisions in the
BOX Options LLC Agreement, except where noted below.\64\ Under Sections
15.1 and 15.2(a) of the LLC Agreement, subject to certain exceptions
set forth below, no Member will make any public disclosures concerning
the LLC Agreement without the prior approval of the Company. Each
Member and the Exchange may only use confidential information of the
Company in connection with the activities contemplated by the LLC
Agreement and other written agreements and pursuant to the Act and the
rules and regulations thereunder. Furthermore, Section 15.4 of the LLC
Agreement provides that representatives of the parties will meet to
institute confidentiality procedures and discuss confidentiality and
disclosure issues.
---------------------------------------------------------------------------
\64\ See Article 12 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------
Pursuant to Section 15.2(b) of the LLC Agreement, each of the
Members and the Exchange may disclose confidential information of the
Company only to its respective directors, officers, employees and
agents who have a reasonable need to know the information. Also, such
individuals may disclose confidential information of the Company to the
extent required by applicable securities or other laws, a court or
securities regulators, including the Commission and the Exchange.
Section 15.3 of the LLC Agreement requires that each Member and the
Exchange will hold all non-public information concerning the other
Members or the Exchange in strict confidence, unless disclosure to an
applicable regulatory authority is necessary or appropriate or unless
compelled to disclose by judicial or administrative process or required
by law. If a Member or the Exchange is compelled to disclose any Member
Information in connection with any necessary regulatory approval or by
judicial or administrative process, it will promptly notify the
disclosing party to allow the disclosing party to seek a protective
order.
Pursuant to Section 15.5 of the LLC Agreement, nothing in the LLC
Agreement will be interpreted as to limit or impede the rights of the
Commission, pursuant to the federal securities laws and rules and
regulations thereunder, and the Exchange to access and examine
applicable confidential information pursuant to the federal securities
laws and the rules and regulations thereunder, or to limit or impede
the ability of any directors, officers, employees or agents of the
Company and any directors, officers, employees or agents of the Members
to disclose that confidential information to the Commission or the
Exchange. This is substantially the same provision that is contained in
the BOX Options LLC Agreement, except that it also provides that the
SEC can access and examine Confidential Information, pursuant to the
federal securities laws and rules and regulations thereunder.\65\
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\65\ See Section 12.5 of the BOX Options LLC Agreement.
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Under Section 15.6 of the LLC Agreement, confidential information
of the Company or the Exchange
[[Page 33269]]
pertaining to regulatory matters (including but not limited to
disciplinary matters, trading data, trading practices and audit
information) will not be made available to any persons other than to
the Company's Directors, officers, employees and agents that have a
reasonable need to know the contents thereof; will be retained in
confidence by the Company and the Directors, officers, employees and
agents of the Company; and will not be used for any non-regulatory
purpose. Nothing in the LLC Agreement will be interpreted as to limit
or impede the rights of the Commission and the Exchange to access and
examine that confidential information pursuant to the federal
securities laws and the rules and regulations thereunder, or to limit
or impede the ability of any Directors, officers, employees and agents
of the Company to disclose that confidential information to the
Commission or the Exchange.
Finally, Section 18.8 of the LLC Agreement establishes that the
Company will not operate as a facility of the Exchange until this rule
filing is effective. Upon effectiveness, the Commission and the
Exchange will then have regulatory oversight responsibilities with
respect to the Company and references in the LLC Agreement to the
Exchange, the Commission, any regulation or oversight of the Company by
the Commission or the Exchange, and any participation in the affairs of
the Company by the Commission or the Exchange, will take effect. The
execution of the LLC Agreement by the Exchange will not be required
until the approval is obtained, at which time the Exchange will become
a party to the LLC Agreement. This provision is not included in the BOX
Options LLC Agreement because it would not be applicable. By not
operating the Company until this rule filing is effective, the Exchange
believes it is fostering cooperation and coordination with persons
engaged in regulating (e.g., the Commission), clearing, settling,
processing information with respect to, and facilitating transactions
in securities, consistent with Section 6(b)(5) of the Act.\66\
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\66\ 15 U.S.C. 78f(b)(5).
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Regulatory Jurisdiction Over Members
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to regulatory jurisdiction over Members by the
Company, highlighting areas that vary in comparison to the BOX Options
LLC Agreement and/or BOX Holdings LLC Agreement and provides the
statutory basis for such variation.
Pursuant to Section 11.1 of the LLC Agreement, which is similar in
substance to a provision in the BOX Holdings LLC Agreement, the Board
will cause to be entered in appropriate books, kept at the Company's
principal place of business, all transactions of or relating to the
Company.\67\ Each Member will have the right to inspect and copy those
books and records, excluding regulatory and disciplinary information.
The Board will not have the right to keep confidential from the Members
any information that the Board would otherwise be permitted to keep
confidential pursuant to Sec. 18-305(c) of the LLC Act, except for
information required by law or by agreement with any third party to be
kept confidential. The Company's independent auditor will be an
independent public accounting firm selected by the Board. To the extent
related to the operation or administration of the Exchange or the BSTX
Market, all books and records of the Company and its Members will be
maintained at a location within the United States, the books, records,
premises, directors, officers, employees and agents of the Company and
its Members will be deemed to be the books, records, premises,
directors, officers, employees and agents of the Exchange for the
purposes of, and subject to oversight pursuant to, the Act, and the
books and records of the Company and its Members will be subject at all
times to inspection and copying by the Commission and the Exchange.
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\67\ See Section 11.1 of the BOX Holdings LLC Agreement.
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Under Section 18.6(a) of the LLC Agreement, to the extent they are
related to Company activities, the books, records, premises, officers,
directors, agents, and employees of the Member will be deemed to be the
books, records, premises, officers, directors, agents, and employees of
the Exchange for the purpose of and subject to oversight pursuant to
the Act. Further, pursuant to Section 18.6(b) of the LLC Agreement, the
Company, the Members and the officers, directors, employees and agents
of each, by virtue of their acceptance of those positions, will be
deemed to 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, the
rules or regulations thereunder, arising out of, or relating to,
activities of the Exchange and the Company, and Delaware state courts
for any matter relating to the organization or internal affairs of the
Company, and will be deemed to waive, and agree not to assert by way of
motion, as a defense or otherwise in any 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 or that the venue of the suit, action or proceeding
is improper, or that the subject matter hereof may not be enforced in
or by those courts or agencies. The Company, the Members and the
officers, directors, employees and agents of each, by virtue of their
acceptance of those positions, also agree that they will maintain an
agent in the United States for the service of process of a claim
arising out of, or relating to, the activities of the Exchange and the
Company. These provisions are substantially similar to provisions of
the BOX Options LLC Agreement.\68\
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\68\ See Section 14.6 of the BOX Options LLC Agreement.
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Pursuant to Section 18.6(c) of the LLC Agreement, with respect to
obligations under the LLC Agreement related to confidentiality
regulation, jurisdiction and books and records, the Company, the
Exchange, and each Member will ensure that directors, officers and
employees of the Company, the Exchange, and each Member consent in
writing to the applicability of the applicable provisions to the extent
related to the operation or administration of the Exchange or the BSTX
Market. This provision is substantially the same as the provision
contained in the BOX Options LLC Agreement, with the exception of the
deletion of a reference to privacy rules in Canada, which are not
applicable to the current Members of the Company.\69\ The Exchange
believes that allowing only applicable laws to be referenced in the LLC
Agreement helps to ensure that proper legal standards apply to the
Company, which may foster cooperation and coordination with persons
engaged in regulating transactions in securities, consistent with
Section 6(b)(5) of the Act.\70\ Further, the Exchange believes that
basing the provisions described above on the BOX Options LLC Agreement
but omitting terms that are not applicable would help ensure that
persons subject to the Exchange's jurisdiction are able to navigate and
more readily understand the LLC Agreement. The Exchange believes that
this, in turn, would be consistent with
[[Page 33270]]
Section 6(b)(1) of the Act \71\ because it would help ensure that the
Exchange, including in its operation of facilities, is so organized and
has the capacity to be able to carry out the purposes of the Act.
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\69\ See Section 14.6(c) of the BOX Options LLC Agreement.
\70\ 15 U.S.C. 78f(b)(5).
\71\ 15 U.S.C. 78f(b)(1).
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Amendments to LLC Agreement
In the discussion below, the Exchange describes provisions in the
LLC Agreement related to amendments to the LLC Agreement, highlighting
areas that vary in comparison to the BOX Options LLC Agreement and/or
BOX Holdings LLC Agreement and provides the statutory basis for such
variation.
Section 18.1 of the LLC Agreement, which is substantially similar
to a provision in the BOX Holdings LLC Agreement,\72\ provides that the
LLC Agreement may only be amended by an agreement in writing approved
by the Board, including at least one Member Director appointed by each
Member, without the consent of any Member or other person. In addition,
any terms specific to any Class, or Member or to the Exchange may not
be altered or adversely affect that Member or the Exchange without the
prior written consent of holders of a majority of the outstanding Units
of such Class, or such Member or the Exchange as applicable. The
Company will provide prompt notice to the Exchange of any amendment,
modification, waiver or supplement to the LLC Agreement formally
presented to the Board for approval and the Exchange will review each
amendment, modification, waiver or supplement and, if that amendment is
required, under Section 19 of the Act and the rules promulgated
thereunder, to be filed with, or filed with and approved by, the
Commission before that amendment may be effective, then that amendment
will not be effective until filed with, or filed with and approved by,
the Commission, as the case may be. If the Exchange ceases to be the
SRO authority of the Company, the Exchange will no longer be a party to
the LLC Agreement and thereafter the provisions of the LLC Agreement
will not apply to the Exchange except for the provisions referenced in
Section 18.12, which will survive.
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\72\ See Section 18.1 of the BOX Holdings LLC Agreement.
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Additional Provisions
As previously mentioned, BSTX is a Delaware limited liability
company. As such, the LLC Agreement contains numerous provisions that
are standard or not novel for a similarly situated commercial business
registered as a limited liability company under the laws of the state
of Delaware.\73\ The Exchange believes that these provisions are
consistent with Section 6(b)(1) of the Act \74\ because they are
consistent with corporate governance practices, generally, and they
would help ensure that the Exchange, including in its operation of
facilities, is so organized and has the capacity to be able to carry
out the purposes of the Act.
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\73\ See LLC Agreement Sections 2.1, 2.2, 2.4, 2.5, 2.6, 2.7,
3.1, 4.2, 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 5.1, 5.2, 5.3, 5.4, 5.6,
5.7, 6.3, 6.4, 6.5, 7.5, 7.6, 7.7, 8.3, 9.2, 9.3, 9.4, 9.5, 9.6,
9.7, 9.8, 10.3, 10.4, 11.2, 11.3, 11.4, 11.5, 11.6, 12, 13.1, 14,
16.2, 17, 18.2, 18.3, 18.4, 18.5, 18.7, 18.9, 18.10, 18.11, and
18.12.
\74\ 15 U.S.C. 78f(b)(1).
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2. Statutory Basis
In addition to the sections above that discuss variations from the
BOX Options LLC Agreement and/or BOX Holdings LLC Agreement and their
associated statutory bases, the Exchange believes that the proposal is
consistent with the requirements of Section 6(b) of the Act,\75\ in
general, and furthers the objectives of Section 6(b)(1),\76\ in
particular, in that it enables the Exchange to be so organized so as to
have the capacity to be able to carry out the purposes of the Act and
to comply, and to enforce compliance by its exchange members and
persons associated with its exchange members, with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
Exchange. The Exchange also believes that this filing furthers the
objectives of Section 6(b)(5) of the Act \77\ in that it is designed to
facilitate transactions in securities, 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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\75\ 15 U.S.C. 78f(b).
\76\ 15 U.S.C. 78f(b)(5).
\77\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the Proposed Rule Change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C . Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BOX-2020-16 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2020-16. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://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
[[Page 33271]]
public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-BOX-
2020-16 and should be submitted on or before June 22, 2020.
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\78\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\78\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11653 Filed 5-29-20; 8:45 am]
BILLING CODE 8011-01-P
