Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, in Connection With the Proposed Establishment of the Boston Security Token Exchange LLC as a Facility of the Exchange, 50850-50854 [2020-17968]
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Federal Register / Vol. 85, No. 160 / Tuesday, August 18, 2020 / Notices
a year for a total of 232,448,548
responses. We estimate that the total
annual reporting burden for Rule 173 is
3,881,891 hours (0.0167 hours per
response × 232,448,548 responses).
Written comments are invited on: (a)
Whether this proposed collection of
information is necessary for the
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden imposed by the
collections of information; (c) ways to
enhance the quality, utility, and clarity
of the information collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number.
Please direct your written comment to
David Bottom, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Cynthia
Roscoe, 100 F Street NE, Washington,
DC 20549 or send an email to: PRA_
Mailbox@sec.gov.
Dated: August 13, 2020.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–17996 Filed 8–17–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89537; File No. SR–BOX–
2020–16]
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Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing of
Amendment No. 1 and Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change, as Modified by
Amendment No. 1, in Connection With
the Proposed Establishment of the
Boston Security Token Exchange LLC
as a Facility of the Exchange
August 12, 2020.
On May 12, 2020, BOX Exchange LLC
(‘‘Exchange’’ or ‘‘BOX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
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of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change in
connection with the proposed
commencement of operations of the
Boston Security Token Exchange LLC
(‘‘BSTX’’) as a facility of the Exchange.
The proposed rule change was
published for comment in the Federal
Register on June 1, 2020.3 On July 16,
2020, pursuant to Section 19(b)(2) of the
Act,4 the Commission designated a
longer period within which to approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
On August 3, 2020, the Exchange filed
Amendment No. 1 to the proposed rule
change (‘‘Amendment No. 1’’).6 The
Commission has received no comment
letters on the proposed rule change, as
modified by Amendment No. 1.7
The Commission is publishing this
notice and order to solicit comments on
the proposed rule change, as modified
by Amendment No. 1, from interested
persons and to institute proceedings
pursuant to Section 19(b)(2)(B) of the
Act 8 to determine whether to approve
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 88949
(May 26, 2020), 85 FR 33258 (June 1, 2020)
(‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 89329
(July 16, 2020), 85 FR 44333 (July 22, 2020). The
Commission designated August 30, 2020, as the
date by which the Commission shall approve or
disapprove, or institute proceedings to determine
whether to disapprove, the proposed rule change.
6 The Exchange states that Amendment No. 1
makes the following changes: (1) Where the
proposed rule change used the term ‘‘digital
security token,’’ the Exchange is now proposing to
use the term ‘‘security’’ when referring to the
proposed operation of the ‘‘BSTX Market’’; (2)
provide additional detail and clarification on the
effect of BSTX’s approval as a facility of the
Exchange; and (3) update citations related to two
Exchange rule filings. When the Exchange filed
Amendment No. 1 to SR–BOX–2020–16, it also
submitted a redline, which the Exchange states
reflects the text of the partial amendment compared
to the original filing, as a comment letter to the
filing, and which the Commission made publicly
available at https://www.sec.gov/comments/sr-box2020-16/srbox202016-7525322-222100.pdf.
7 The Commission notes that the proposed rule
change, as modified by Amendment No. 1, is
substantially similar to previously-filed proposed
rule change, SR–BOX–2019–37, which was
published for comment in the Federal Register on
January 3, 2020. See Securities Exchange Act
Release No. 87868 (December 30, 2019), 85 FR 345
(January 3, 2020) (SR–BOX–2019–37) (Notice of
Filing of Proposed Rule Change).
BOX withdrew proposed rule change SR–BOX–
2019–37 on May 12, 2020. See Securities Exchange
Act Release No. 89017 (June 4, 2020), 85 FR 35473
(June 10, 2020) (Notice of Withdrawal of a Proposed
Rule Change).
Comments on SR–BOX–2019–37 can be found at:
https://www.sec.gov/comments/sr-box-2019-37/
srbox201937.htm.
8 15 U.S.C. 78s(b)(2)(B).
2 17
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or disapprove the proposed rule change,
as modified by Amendment No.1.
I. Summary of the Proposal, as
Modified by Amendment No. 1
As described in the Notice, as
modified by Amendment No. 1,9 the
Exchange proposes to establish BSTX as
a facility (as defined in Section 3(a)(2)
of the Act) of the Exchange that will
operate a market for the trading of
securities (the ‘‘BSTX Market’’) and
adopt the Second Amended and
Restated Limited Liability Company
Agreement of BSTX (the ‘‘BSTX LLC
Agreement’’) for BSTX as a facility of
the Exchange.10 The Exchange states
that it has filed trading rules as part of
a separate proposed rule change, and
subject to Commission approval of those
rules, BSTX would operate the BSTX
Market.11 The Exchange states that
without Commission approval of the
trading rules, it would not permit BSTX
to commence operations of the BSTX
Market, and that the Exchange’s
regulatory oversight responsibilities
with respect to BSTX would not be
triggered unless SR–BOX–2020–16 is
approved by the Commission.12
The Exchange states that ownership
interests in BSTX are represented by
two classes of units (‘‘Units’’): Class A
Units, which represent equal units of
limited liability interest in BSTX,
including an interest in the ownership
and profits and losses of BSTX and the
right to receive distributions from BSTX
as set forth in the BSTX LLC Agreement
(‘‘Class A Units’’); and Class B Units,
which are identical to Class A Units,
except that they do not have the right
to vote on any matter related to BSTX
(‘‘Class B Units’’).13 According to the
Exchange: (1) 50% of the voting Class A
Units are owned by BOX Digital, which
is 98% owned by BOX Holdings Group
9 See Notice, supra note 3; Amendment No. 1,
supra note 6.
10 See Amendment No. 1, supra note 6, at 3–4;
Notice, supra note 3, at 33258. The proposed
Boston Security Token Exchange LLC, Second
Amended and Restated Limited Liability Company
Agreement, dated as of December 20, 2019 (‘‘BSTX
LLC Agreement’’) is attached as Exhibit 5A to the
Form 19b-4 for SR–BOX–2020–16 (available on the
Commission’s website at https://www.sec.gov/rules/
sro/box/2020/34-88949-ex5a.pdf).
11 See Amendment No. 1, supra note 6, at 4
(citing Securities Exchange Act Release No. 88946
(May 26, 2020), 85 FR 33454 (June 1, 2020) (SR–
BOX–2020–14), as amended by Amendment No. 1
(filed on July 31, 2020)).
12 See id. at 4.
13 See Notice, supra note 3, 85 FR at 33259,
nn.10–12 and accompanying text. According to the
Exchange, Class B Units will automatically convert
to an equal number of Class A Units upon the sale
or transfer of a majority of the Class A Units or
majority of the assets of BSTX, directly or
indirectly, to any party or group of related parties.
See id. at 33259–60, n.13.
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LLC (‘‘BOX Holdings’’) and 2% owned
by Lisa Fall; 14 and (2) the other 50% of
the voting Class A Units are owned by
tZERO, which is 80.07% owned by
Medici Ventures, Inc. (‘‘Medici’’), a
wholly owned subsidiary of a publicly
held corporation, Overstock.com, Inc.
(‘‘Overstock’’), and 19.93% owned by
individuals and companies.15 BOX
Holdings is (1) 42.63% owned by MX
US 2, Inc., which is 100% owned by MX
US 1, Inc., a wholly owned subsidiary
of Bourse de Montreal, Inc., which in
turn is a wholly owned subsidiary of
TMX Group Limited (‘‘TMX’’); (2)
22.69% owned by IB Exchange Corp.;
and (3) 34.68% owned by seven
separate, unaffiliated owners.16
According to the Exchange, BOX Digital
and tZERO each have over a 45%
economic interest in BSTX, and the
non-voting Class B Units are held by
various employees and directors of
BSTX, each of whom hold less than a
5% economic interest in BSTX.17 The
Exchange also states that BSTX is an
affiliate of the Exchange and, if
approved as an affiliate of the Exchange,
will be subject to regulatory oversight by
the Exchange,18 and that tZERO and
BSTX are affiliates of Overstock.19
The Exchange states that BOX
Holdings wholly owns BOX Options
Market LLC (‘‘BOX Options’’), which is
a facility of the Exchange 20 and the only
facility that the Exchange currently
operates.21 The Exchange notes that the
BSTX LLC Agreement provisions are
generally the same as provisions of the
BOX Options LLC Agreement or the
BOX Holdings LLC Agreement, with
certain exceptions.22 The Exchange
states that it will enter into a facility
agreement with BSTX (‘‘Facility
Agreement’’) pursuant to which the
Exchange will exercise regulatory
14 See id. at 33260. Lisa Fall is the Chief
Executive Officer of BSTX and President of the
Exchange. See BSTX LLC Agreement, supra note
10, Signature Page.
15 See Notice, supra note 3, 85 FR at 33260. One
individual holds 7.53% of the outstanding shares of
tZERO, and Newer Ventures LLC, SpeedRoute
Technologies Inc., Dinosaur Financial, and 28
individuals each own less than 3% of the
outstanding shares of tZERO. See id.
16 See id. The following entities each hold less
than 15% of the outstanding units of BOX Holdings:
Citadel Securities Principal Investments LLC,
Citigroup Financial Products Inc., UBS Americas
Inc., CSFB Next Fund Inc., LabMorgan Corp.,
Wolverine Trading, LLC, and Aragon Solutions Ltd.
See id.
17 See id. at 33260.
18 See id. at 33259; Amendment No. 1, supra note
6, at 4.
19 See Notice, supra note 3, 85 FR at 33260.
20 See id. at 33259.
21 See id. at 33259, n.4; Amendment No. 1, supra
note 6, at 5.
22 See Notice, supra note 3, 85 FR at 33259, n.8
and accompanying text.
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oversight over BSTX.23 Furthermore, the
Exchange has entered into an IP License
and Services Agreement (‘‘LSA’’) with
tZERO,24 under which tZERO will
provide BSTX and the Exchange with a
license to use its intellectual property
that comprises the BSTX trading system
and services related to, among other
things, implementing and maintain the
trading system.25
Holders of Units are referred to as LLC
Members,26 and a record of the LLC
Members will be maintained by the
Secretary of BSTX and updated from
time to time, which shall include the
name and address of each LLC Member
and the number of Units of each class
held by each LLC Member.27 The
Exchange proposes that a person would
become an additional or substitute LLC
Member of BSTX only upon that
person’s execution of a counterpart of
the BSTX LLC Agreement to evidence
that person’s written acceptance of the
terms and provisions of the BSTX LLC
Agreement.28 According to the
Exchange, the Commission would be
notified if an LLC Member’s ownership
interest in BSTX, alone or together with
any related person of that LLC Member,
meets or exceeds 5%, 10%, or 15%, and
the BSTX LLC Agreement provides that
any ‘‘Transfer’’ that results in the
acquisition and holding by any person,
alone or together with its related
persons, of an ownership interest that
meets or crosses 20% or any subsequent
5% increment, would be subject to the
rule filing process pursuant to Section
19 of the Act.29
Pursuant to the BSTX LLC Agreement,
a Controlling Person that establishes a
23 See id. at 33259. The Exchange will also
provide certain business services to BSTX pursuant
to an administrative services agreement. See id.
24 See id. at 33261.
25 See id. at 33266. The Facility Agreement,
administrative services agreement, and LSA were
not provided as exhibits to the proposal.
26 ‘‘LLC Members’’ are duly admitted holders of
BSTX Units and would include any person later
admitted to BSTX as an additional or substitute LLC
Member as provided by the BSTX LLC Agreement.
See id. at 33260; BSTX LLC Agreement, supra note
10, Section 1.1.
27 See Notice, supra note 3, 85 FR at 33260, n.14
and accompanying text; BSTX LLC Agreement,
supra note 10, Section 1.1.
28 See Notice, supra note 3, 85 FR at 33266; BSTX
LLC Agreement, supra note 10, Section 7.1(b).
29 See Notice, supra note 3, 85 FR at 33267; BSTX
LLC Agreement, supra note 10, Section 7.4(e) and
(f). The term ‘‘Transfer’’ is defined in Section 7.1(a)
of the BSTX LLC Agreement, and excludes ‘‘(i)
transfers among [LLC] Members, (ii) transfers to any
Person directly or indirectly owning, controlling or
holding with power to vote all of the outstanding
voting securities of and equity beneficial interests
in such [LLC] Member, or (iii) any Person that is
a wholly owned Affiliate of such [LLC] Member.’’
See BSTX LLC Agreement, supra note 10, Section
7.1(a); Notice, supra note 3, 85 FR at 33266.
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Frm 00055
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50851
Controlling Interest 30 in an LLC
Member that holds equal to or greater
than a 20% ownership interest in BSTX
will be required to become a party to the
BSTX LLC Agreement, by executing an
instrument of accession, and abide by
its provisions to the same extent as if
they were LLC Members.31 The
Exchange also states that these
amendments to the BSTX LLC
Agreement will be subject to the rule
filing process pursuant to Section 19 of
30 ‘‘Controlling Person’’ is defined as ‘‘a Person
who, alone or together with any Related Persons of
such Person, holds a Controlling Interest in [an
LLC] Member.’’ ‘‘Controlling Interest’’ is defined as
‘‘the direct or indirect ownership of 25% or more
of the total voting power of all equity securities of
[an LLC] Member . . . by any Person, alone or
together with any Related Persons of such Person.’’
See BSTX LLC Agreement, supra note 10, Section
7.4(g)(v)(A)–(B). ‘‘Related Person’’ is defined as
‘‘with respect to any Person: (A) any Affiliate of
such Person; (B) any other Person with which such
first Person has any agreement, arrangement or
understanding (whether or not in writing) to act
together for the purpose of acquiring, voting,
holding or disposing of Interests; (C) in the case of
a Person that is a company, corporation or similar
entity, any executive officer (as defined under Rule
3b–7 under the Exchange Act) or director of such
Person and, in the case of a Person that is a
partnership or limited liability company, any
general partner, managing member or manager of
such Person, as applicable; (D) in the case of any
BSTX Participant who is at the same time a brokerdealer, any Person that is associated with the BSTX
Participant (as determined using the definition of
‘person associated with a member’ as defined under
Section 3(a)(21) of the Exchange Act); (E) in the case
of a Person that is a natural person and a BSTX
Participant, any broker or dealer that is also a BSTX
Participant with which such Person is associated;
(F) in the case of a Person that is a natural person,
any relative or spouse of such Person, or any
relative of such spouse who has the same home as
such Person or who is a director or officer of the
Exchange or any of its parents or subsidiaries; (G)
in the case of a Person that is an executive officer
(as defined under Rule 3b–7 under the Exchange
Act) or a director of a company, corporation or
similar entity, such company, corporation or entity,
as applicable; and (H) in the case of a Person that
is a general partner, managing member or manager
of a partnership or limited liability company, such
partnership or limited liability company, as
applicable.’’ See id. Section 1.1. ‘‘Person’’ and
‘‘BSTX Participant’’ are also defined in Section 1.1
of the BSTX LLC Agreement.
31 See Notice, supra note 3, 85 FR at 33260,
33267; BSTX LLC Agreement, supra note 10,
Section 7.4(g). The proposed Form of Instrument of
Accession to Boston Security Token Exchange LLC,
Amended and Restated Limited Liability Company
Agreement is attached as Exhibit 5B to the Form
19b–4 for SR–BOX–2020–16 (available on the
Commission’s website at https://www.sec.gov/rules/
sro/box/2020/34-88949-ex5b.pdf). The Exchange
specifically notes that Medici, Overstock, BOX
Digital, BOX Holdings, MX US 1, Inc., MX US 2,
Inc., Bourse de Montreal, Inc., and TMX would be
required to execute an instrument of accession
substantially in the form attached as Exhibit 5B. See
Notice, supra note 3, 85 FR at 33260.
Pursuant to Section 7.4(g)(iii) of the BSTX LLC
Agreement, ‘‘a Person shall not be required to
execute an amendment to [the BSTX LLC
Agreement] . . . if such Person does not, directly
or indirectly, hold any interest in [an LLC]
Member.’’ BSTX LLC Agreement, supra note 10,
Section 7.4(g)(iii).
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the Act.32 The Exchange further
proposes that any BSTX Participant that
directly or indirectly together with its
Related Persons holds more than 20% of
BSTX would have its voting power
capped at 20%.33 According to the
Exchange, this limitation is designed to
prevent a market participant from
exerting undue influence on an
Exchange facility.34
The Exchange states that the BSTX
LLC Agreement includes provisions that
ensure that the Exchange has full
regulatory control over BSTX and these
provisions are designed to prevent any
owner of BSTX from having undue
influence over regulatory actions.35 The
BSTX LLC Agreement provides that
BSTX’s board of directors (‘‘Board’’) will
consist of six directors, comprised of (1)
two directors appointed by each of BOX
Digital and tZERO (the ‘‘Member
Directors’’); (2) one director appointed
by the unanimous vote of the Member
Directors (the ‘‘Independent Director’’);
and (3) one non-voting director
appointed by the Exchange (‘‘the
‘‘Regulatory Director’’).36 The Exchange
states that BSTX will have an
Independent Director to avoid either
BOX Digital or tZERO from controlling
or creating deadlock on the Board.37 The
Exchange also states that BSTX’s Board
structure differs from that of BOX
Options because BOX Options, as a
wholly-owned subsidiary of BOX
Holdings, has the same directors as BOX
Holdings, and BOX Holdings, unlike
BSTX, has no owners with 50% or
greater ownership.38
Generally, actions by the Board will
be considered effective only if approved
by at least a majority of the votes
entitled to vote on that action.39 The
Board must approve, by an affirmative
vote of the Member Directors, any
‘‘major action,’’ which will include,
among other things, changes to
operating the BSTX Market using any
software system other than the BSTX
trading system, except as otherwise
provided in the LSA or to the extent
otherwise required by the Exchange to
fulfill its regulatory functions or
32 See Notice, supra note 3, 85 FR at 36227; BSTX
LLC Agreement, supra note 10, Section 7.4(g)(iv).
33 See Notice, supra note 3, 85 FR at 33260; BSTX
LLC Agreement, supra note 10, Section 7.4(h).
34 See Notice, supra note 3, 85 FR at 33260.
35 See id. at 33259.
36 See id. at 33262; BSTX LLC Agreement, supra
note 10, Section 4.1(a). The Exchange states that the
Regulatory Director must be a member of senior
management of the regulation staff of the Exchange.
See Notice, supra note 3, 85 FR at 33262. See also
BSTX LLC Agreement, supra note 10, Section 1.1.
37 See Notice, supra note 3, 85 FR at 33262.
38 See id.
39 See id.; BSTX LLC Agreement, supra note 10,
Section 4.3.
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responsibilities or to oversee the BSTX
Market as determined by the board of
the Exchange.40 The BSTX LLC
Agreement also provides that the
Exchange shall receive notice of
planned or proposed changes to BSTX,
with the exception of certain changes
not related to the operation of the
market, or to the BSTX Market, and that
such changes will require affirmative
approval by the Exchange before
implementation.41 If the Exchange
determines that planned or proposed
changes could cause a regulatory
deficiency, the Exchange may direct
BSTX, subject to Board approval, to
modify the proposal as necessary.42
The Exchange also proposes how
regulatory funds may be allocated. The
Exchange states that, pursuant to the
Facility Agreement, the Exchange will
have the right to receive all fees, fines,
and disgorgements imposed upon BSTX
Participants with respect to BSTX’s
trading system (‘‘Regulatory Funds’’)
and all other market data fees, tape, and
other revenue (‘‘Non-regulatory
Funds’’), and all Regulatory Funds and
Non-regulatory Funds collected in
respect to BSTX may be used by the
Exchange, at its sole discretion, for
regulatory purposes.43 Furthermore, all
Regulatory Funds collected by the
Exchange will be retained by the
Exchange and not transferred to BSTX;
however, Non-regulatory Funds
collected may be transferred to BSTX
after the Exchange has made adequate
provisions for all regulatory purposes.44
The proposal includes provisions
regarding capital contributions and
distributions. According to the
Exchange, capital contributions will be
reflected on the books and records of
BSTX.45 The BSTX LLC Agreement does
not specify the capital contributions
from BOX Digital and tZERO, or any
other LLC Member. Pursuant to the
proposed BSTX LLC Agreement, BOX
Digital will provide executive
leadership and exclusive rights to the
regulatory services of the Exchange with
40 See Notice, supra note 3, 85 FR at 33262–63;
BSTX LLC Agreement, supra note 10, Section
4.4(a).
41 See Notice, supra note 3, 85 FR at 33264; BSTX
LLC Agreement, supra note 10, Section 3.2(a)(ii).
42 See Notice, supra note 3, 85 FR at 33264; BSTX
LLC Agreement, supra note 10, Section 3.2(a)(iii).
43 See Notice, supra note 3, 85 FR at 33264. If
BSTX incurs costs and expenses for regulatory
purposes, the Exchange may reimburse BSTX using
Regulatory Funds. See id. at 33264. In the event that
the Exchange does not hold sufficient funds to meet
all regulatory purposes, BSTX will reimburse the
Exchange for any such additional costs and
expenses. See id. The BSTX LLC Agreement does
not include provisions regarding Regulatory Funds.
44 See id at 33264–65.
45 See id. at 33266; BSTX LLC Agreement, supra
note 10, Section 6.1.
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Fmt 4703
Sfmt 4703
respect to BSTX Products 46 and tZERO
will provide the license and services set
forth in the LSA and will make the
necessary arrangements with any
applicable third parties which will
permit BSTX to be an authorized
sublicensee of any required third-party
software necessary for trading on
BSTX.47 The BSTX LLC Agreement also
includes provisions regarding
determinations of capital needs by the
Board, including, among others, the
requirement that at least one Member
Director appointed by each LLC Member
affirmatively vote to raise capital; 48
potential cash distributions; 49 and
allocation of profits, losses, and credits
for each fiscal year to LLC Members at
least once annually on a pro rata basis.50
The proposal also includes provisions
regarding the regulation of BSTX and
regulatory jurisdiction over LLC
Members of BSTX.51 Specifically, the
BSTX LLC Agreement provides that the
Exchange has the authority to act as the
self-regulatory organization (‘‘SRO’’) for
BSTX, will provide the regulatory
framework for the BSTX Market, and
will have regulatory responsibility for
the activities of the BSTX Market.52
Additionally, the BSTX LLC Agreement
includes provisions, which the
Exchange states are substantively
similar to provisions in the BOX
Options LLC Agreement, that address
the handling of confidential
information, both pertaining to
regulatory matters and otherwise.53 The
BSTX LLC Agreement also contains
provisions, which the Exchange states
46 See BSTX LLC Agreement, supra note 10,
Section 3.2(c).
47 See id. Section 3.2(b); Notice, supra note 3, 85
FR at 33266.
48 See Notice, supra note 3, 85 FR at 33265; BSTX
LLC Agreement, supra note 10, Section 6.2. The
Exchange states that the requirement concerning the
affirmative vote of one Member Director appointed
by each LLC Member is not present in the BOX
Options LLC Agreement, but that the Exchange
believes that this provision promotes commercial
fairness and is necessary due to the differing
ownership structure of BSTX. See Notice, supra
note 3, 85 FR at 33265.
49 See BSTX LLC Agreement, supra note 10,
Section 8.1.
50 See id. Section 9.1.
51 See Notice, supra note 3, 85 FR at 33268–70.
52 See id. at 33268; BSTX LLC Agreement, supra
note 10, Section 3.2. The Exchange states that
Section 3.2 of the BSTX LLC Agreement ensures
that the Exchange has full regulatory control over
BSTX and is designed to prevent any owner of
BSTX from exercising undue influence over the
regulated activities of BSTX. See Notice, supra note
3, 85 FR at 33265.
53 See Notice, supra note 3, 85 FR at 33268–69;
BSTX LLC Agreement, supra note 10, Article 15.
The BSTX LLC Agreement contains additional
language to make it clear that the Commission can
access and examine confidential information
pursuant to federal securities laws and rules. See
Notice, supra note 3, 85 FR at 33268; BSTX LLC
Agreement, supra note 10, Section 15.5.
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are substantially similar to those of the
BOX Options LLC Agreement, related to
regulatory jurisdiction over LLC
Members; 54 the maintenance of books
and records; 55 and the independence of
the self-regulatory function of the
Exchange and compliance with federal
securities laws.56
The Exchange also states that it
submitted a separate filing to introduce
structural changes to the Exchange to
accommodate regulation of BSTX as
well as BOX Options, which was
approved by the Commission.57
According to the Exchange, BSTX
Participants will have the same
representation, rights, and
responsibilities as BOX Options
Participants.58
II. Proceedings To Determine Whether
To Approve or Disapprove SR–BOX–
2020–16, as Modified by Amendment
No. 1, and Grounds for Disapproval
Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 59 to determine
whether the proposed rule change, as
modified by Amendment No. 1, should
be approved or disapproved. Institution
of such proceedings is appropriate at
this time in view of the legal and policy
issues raised by the proposed rule
change. Institution of proceedings does
not indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, as
described below, the Commission seeks
and encourages interested persons to
provide additional comment on the
proposed rule change to inform the
Commission’s analysis of whether to
approve or disapprove the proposed
rule change.
Pursuant to Section 19(b)(2)(B) of the
Act,60 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(1) of the Act, which requires that a
national securities exchange be so
organized and have the capacity to be
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54 See
Notice, supra note 3, 85 FR at 33269; BSTX
LLC Agreement, supra note 10, Sections 11.1,
18.6(a), 18.6(c).
55 See Notice, supra note 3, 85 FR at 33269; BSTX
LLC Agreement, supra note 10, Section 11.1.
56 See Notice, supra note 3, 85 FR at 33261–62,
33264; BSTX LLC Agreement, supra note 10,
Section 4.12.
57 See Notice, supra note 3, 85 FR at 33259;
Amendment No. 1, supra note 6, at 5 (citing
Securities Exchange Act Release No. 88934 (May
22, 2020), 85 FR 32085 (May 28, 2020)).
58 See Notice, supra note 3, 85 FR at 33259.
59 15 U.S.C. 78s(b)(2)(B).
60 Id.
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able to carry out the purposes of the Act
and to comply, and enforce compliance
by its members and persons associated
with its members, with the provisions of
the Act, the rules and regulations
thereunder, and the rules of the
exchange.61 In addition, the
Commission is instituting proceedings
to allow for additional analysis of the
proposed rule change’s consistency with
Section 6(b)(3) of the Act, which
requires that the rules of a national
securities exchange assure a fair
representation of its members in the
selection of its directors and
administration of its affairs and provide
that one or more directors shall be
representative of issuers and investors
and not be associated with a member of
the exchange, broker, or dealer; 62 and
Section 6(b)(5) of the Act, which
requires, among other things, that the
rules of a national securities exchange
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and to
protect investors and the public interest,
and not be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.63
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the Exchange Act and
the rules and regulations issued
thereunder . . . is on the [SRO] that
proposed the rule change.’’ 64 The
description of a proposed rule change,
its purpose and operation, its effect, and
a legal analysis of its consistency with
applicable requirements must all be
sufficiently detailed and specific to
support an affirmative Commission
finding,65 and any failure of an SRO to
provide this information may result in
the Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Act and the applicable rules
and regulations.66
The Commission is instituting
proceedings to allow for additional
consideration and comment on the
issues raised herein, including as to
61 15
U.S.C. 78f(b)(1).
U.S.C. 78f(b)(3).
63 15 U.S.C. 78f(b)(5).
64 17 CFR 201.700(b)(3).
65 See id.
66 See id.
62 15
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Sfmt 4703
50853
whether the proposal, as modified by
Amendment No. 1, is consistent with
the Act.
III. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal, as modified by Amendment
No. 1, is consistent with Sections
6(b)(1),67 6(b)(3),68 and 6(b)(5) 69 of the
Act or any other provision of the Act,
or the rules and regulations thereunder.
Although there do not appear to be any
issues relevant to approval or
disapproval that would be facilitated by
an oral presentation of views, data, and
arguments, the Commission will
consider, pursuant to Rule 19b–4 under
the Act,70 any request for an
opportunity to make an oral
presentation.71
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal, as modified by Amendment
No. 1, should be approved or
disapproved by September 8, 2020. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by September 22, 2020. The
Commission asks that commenters
address the sufficiency of the
Exchange’s statements in support of the
proposal, which are set forth in the
Notice,72 as modified by Amendment
No. 1,73 in addition to any other
comments they may wish to submit
about the proposed rule change.
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
67 15
U.S.C. 78f(b)(1).
U.S.C. 78f(b)(3).
69 15 U.S.C. 78f(b)(5).
70 17 CFR 240.19b–4.
71 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Pub. L. 94–29
(June 4, 1975), grants the Commission flexibility to
determine what type of proceeding—either oral or
notice and opportunity for written comments—is
appropriate for consideration of a particular
proposal by a self-regulatory organization. See
Securities Act Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
72 See Notice, supra note 3.
73 See Amendment No. 1, supra note 6.
68 15
E:\FR\FM\18AUN1.SGM
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50854
Federal Register / Vol. 85, No. 160 / Tuesday, August 18, 2020 / Notices
• 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
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BOX–2020–16 and should
be submitted by September 8, 2020.
Rebuttal comments should be submitted
by September 22, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.74
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–17968 Filed 8–17–20; 8:45 am]
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BILLING CODE 8011–01–P
74 17
CFR 200.30–3(a)(57).
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SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–824; OMB Control No.
3235–0555]
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension: Rule 608
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 608 (17 CFR
242.608) under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.). The
Commission plans to submit this
existing collection of information to the
Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Rule 608 specifies procedures for
filing or amending national market
system plans (‘‘NMS Plans’’). Selfregulatory organizations (‘‘SROs’’) filing
a new NMS Plan must submit the text
of the NMS Plan to the Commission,
along with a statement of purpose, and,
if applicable, specified supporting
materials that may include: (1) A copy
of all governing or constituent
documents, (2) a description of the
manner in which the NMS Plan, and
any facility or procedure contemplated
by the NMS Plan, will be implemented,
(3) a listing of all significant phases of
development and implementation
contemplated by the NMS Plan,
including a projected completion date
for each phase, (4) an analysis of the
competitive impact of implementing the
NMS Plan, (5) a description of any
written agreements or understandings
between or among plan participants or
sponsors relating to interpretations of
the NMS Plan or conditions for
becoming a plan participant or sponsor,
and (6) a description of the manner in
which any facility contemplated by the
NMS Plan shall be operated.
Participants or sponsors to the NMS
Plan must ensure that a current and
complete version of the NMS Plan is
posted on a designated website or a plan
website after being notified by the
Commission that the NMS Plan is
effective. Each plan participant or
sponsor must also provide a link on its
own website to the current website to
the current version of the NMS Plan.
The Commission estimates that the
creation and submission of a new NMS
PO 00000
Frm 00058
Fmt 4703
Sfmt 4703
Plan and any related materials would
result in an average aggregate burden of
approximately 850 hours per year (25
SROs × 34 hours = 850 hours). The
Commission further estimates an
average aggregate burden of
approximately 125 hours per year (25
SROs × 5 hours = 125 hours), for each
of the SROs to keep a current and
complete version of the NMS Plan
posted on a designated website or a plan
website, and to provide a link to the
current version of the NMS Plan on its
own website. In addition, the
Commission estimates that the creation
of a new NMS Plan and any related
materials would result in an average
aggregate cost of approximately
$150,000 per year (25 SROs × $6,000 =
$150,000).
SROs proposing to amend an existing
NMS Plan must submit the text of the
amendment to the Commission, along
with a statement of purpose, and, if
applicable, the supporting materials
described above, as well as a statement
that the amendment has been approved
by the plan participants or sponsors in
accordance with the terms of the NMS
Plan. Participants or sponsors to the
NMS Plan must ensure that any
proposed amendments are posted to a
designated website or a plan website
after filing the amendments with the
Commission and that those websites are
updated to reflect the current status of
the amendment and the NMS Plan. Each
plan participant or sponsor must also
provide a link on its own website to the
current version of the NMS Plan. The
Commission estimates that the creation
and submission of NMS Plan
amendments and any related materials
would result in an average aggregate
burden of approximately 11,050 hours
per year (25 SROs × 442 hours = 11,050
hours). The Commission further
estimates an average aggregate burden of
approximately 124 hours per year (25
SROs × 4.94 hours = 123.5 hours
rounded up to 124) for SROs to post any
pending NMS Plan amendments to a
designated website or a plan website
and to update such websites to reflect
the current status of the amendment and
the NMS Plan. In addition, the
Commission estimates that the creation
of a NMS Plan amendment and any
related materials would result in an
average aggregate cost of approximately
$325,000 per year (25 SROs × $13,000
= $325,000).
Finally, to the extent that a plan
processor is required for any facility
contemplated by a NMS Plan, the plan
participants or sponsors must file with
the Commission a statement identifying
the plan processor selected, describing
the material terms under which the plan
E:\FR\FM\18AUN1.SGM
18AUN1
]]>Agencies
[Federal Register Volume 85, Number 160 (Tuesday, August 18, 2020)]
[Notices]
[Pages 50850-50854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17968]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89537; File No. SR-BOX-2020-16]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Amendment No. 1 and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 1, in Connection With the Proposed Establishment of the
Boston Security Token Exchange LLC as a Facility of the Exchange
August 12, 2020.
On May 12, 2020, BOX Exchange LLC (``Exchange'' or ``BOX'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change in connection
with the proposed commencement of operations of the Boston Security
Token Exchange LLC (``BSTX'') as a facility of the Exchange. The
proposed rule change was published for comment in the Federal Register
on June 1, 2020.\3\ On July 16, 2020, pursuant to Section 19(b)(2) of
the Act,\4\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ On August 3, 2020, the Exchange filed
Amendment No. 1 to the proposed rule change (``Amendment No. 1'').\6\
The Commission has received no comment letters on the proposed rule
change, as modified by Amendment No. 1.\7\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 88949 (May 26,
2020), 85 FR 33258 (June 1, 2020) (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 89329 (July 16,
2020), 85 FR 44333 (July 22, 2020). The Commission designated August
30, 2020, as the date by which the Commission shall approve or
disapprove, or institute proceedings to determine whether to
disapprove, the proposed rule change.
\6\ The Exchange states that Amendment No. 1 makes the following
changes: (1) Where the proposed rule change used the term ``digital
security token,'' the Exchange is now proposing to use the term
``security'' when referring to the proposed operation of the ``BSTX
Market''; (2) provide additional detail and clarification on the
effect of BSTX's approval as a facility of the Exchange; and (3)
update citations related to two Exchange rule filings. When the
Exchange filed Amendment No. 1 to SR-BOX-2020-16, it also submitted
a redline, which the Exchange states reflects the text of the
partial amendment compared to the original filing, as a comment
letter to the filing, and which the Commission made publicly
available at https://www.sec.gov/comments/sr-box-2020-16/srbox202016-7525322-222100.pdf.
\7\ The Commission notes that the proposed rule change, as
modified by Amendment No. 1, is substantially similar to previously-
filed proposed rule change, SR-BOX-2019-37, which was published for
comment in the Federal Register on January 3, 2020. See Securities
Exchange Act Release No. 87868 (December 30, 2019), 85 FR 345
(January 3, 2020) (SR-BOX-2019-37) (Notice of Filing of Proposed
Rule Change).
BOX withdrew proposed rule change SR-BOX-2019-37 on May 12,
2020. See Securities Exchange Act Release No. 89017 (June 4, 2020),
85 FR 35473 (June 10, 2020) (Notice of Withdrawal of a Proposed Rule
Change).
Comments on SR-BOX-2019-37 can be found at: https://www.sec.gov/comments/sr-box-2019-37/srbox201937.htm.
---------------------------------------------------------------------------
The Commission is publishing this notice and order to solicit
comments on the proposed rule change, as modified by Amendment No. 1,
from interested persons and to institute proceedings pursuant to
Section 19(b)(2)(B) of the Act \8\ to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No.1.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
I. Summary of the Proposal, as Modified by Amendment No. 1
As described in the Notice, as modified by Amendment No. 1,\9\ the
Exchange proposes to establish BSTX as a facility (as defined in
Section 3(a)(2) of the Act) of the Exchange that will operate a market
for the trading of securities (the ``BSTX Market'') and adopt the
Second Amended and Restated Limited Liability Company Agreement of BSTX
(the ``BSTX LLC Agreement'') for BSTX as a facility of the
Exchange.\10\ The Exchange states that it has filed trading rules as
part of a separate proposed rule change, and subject to Commission
approval of those rules, BSTX would operate the BSTX Market.\11\ The
Exchange states that without Commission approval of the trading rules,
it would not permit BSTX to commence operations of the BSTX Market, and
that the Exchange's regulatory oversight responsibilities with respect
to BSTX would not be triggered unless SR-BOX-2020-16 is approved by the
Commission.\12\
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\9\ See Notice, supra note 3; Amendment No. 1, supra note 6.
\10\ See Amendment No. 1, supra note 6, at 3-4; Notice, supra
note 3, at 33258. The proposed Boston Security Token Exchange LLC,
Second Amended and Restated Limited Liability Company Agreement,
dated as of December 20, 2019 (``BSTX LLC Agreement'') is attached
as Exhibit 5A to the Form 19b-4 for SR-BOX-2020-16 (available on the
Commission's website at https://www.sec.gov/rules/sro/box/2020/34-88949-ex5a.pdf).
\11\ See Amendment No. 1, supra note 6, at 4 (citing Securities
Exchange Act Release No. 88946 (May 26, 2020), 85 FR 33454 (June 1,
2020) (SR-BOX-2020-14), as amended by Amendment No. 1 (filed on July
31, 2020)).
\12\ See id. at 4.
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The Exchange states that ownership interests in BSTX are
represented by two classes of units (``Units''): Class A Units, which
represent equal units of limited liability interest in BSTX, including
an interest in the ownership and profits and losses of BSTX and the
right to receive distributions from BSTX as set forth in the BSTX LLC
Agreement (``Class A Units''); and Class B Units, which are identical
to Class A Units, except that they do not have the right to vote on any
matter related to BSTX (``Class B Units'').\13\ According to the
Exchange: (1) 50% of the voting Class A Units are owned by BOX Digital,
which is 98% owned by BOX Holdings Group
[[Page 50851]]
LLC (``BOX Holdings'') and 2% owned by Lisa Fall; \14\ and (2) the
other 50% of the voting Class A Units are owned by tZERO, which is
80.07% owned by Medici Ventures, Inc. (``Medici''), a wholly owned
subsidiary of a publicly held corporation, Overstock.com, Inc.
(``Overstock''), and 19.93% owned by individuals and companies.\15\ BOX
Holdings is (1) 42.63% owned by MX US 2, Inc., which is 100% owned by
MX US 1, Inc., a wholly owned subsidiary of Bourse de Montreal, Inc.,
which in turn is a wholly owned subsidiary of TMX Group Limited
(``TMX''); (2) 22.69% owned by IB Exchange Corp.; and (3) 34.68% owned
by seven separate, unaffiliated owners.\16\ According to the Exchange,
BOX Digital and tZERO each have over a 45% economic interest in BSTX,
and the non-voting Class B Units are held by various employees and
directors of BSTX, each of whom hold less than a 5% economic interest
in BSTX.\17\ The Exchange also states that BSTX is an affiliate of the
Exchange and, if approved as an affiliate of the Exchange, will be
subject to regulatory oversight by the Exchange,\18\ and that tZERO and
BSTX are affiliates of Overstock.\19\
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\13\ See Notice, supra note 3, 85 FR at 33259, nn.10-12 and
accompanying text. According to the Exchange, Class B Units will
automatically convert to an equal number of Class A Units upon the
sale or transfer of a majority of the Class A Units or majority of
the assets of BSTX, directly or indirectly, to any party or group of
related parties. See id. at 33259-60, n.13.
\14\ See id. at 33260. Lisa Fall is the Chief Executive Officer
of BSTX and President of the Exchange. See BSTX LLC Agreement, supra
note 10, Signature Page.
\15\ See Notice, supra note 3, 85 FR at 33260. One individual
holds 7.53% of the outstanding shares of tZERO, and Newer Ventures
LLC, SpeedRoute Technologies Inc., Dinosaur Financial, and 28
individuals each own less than 3% of the outstanding shares of
tZERO. See id.
\16\ See id. The following entities each hold less than 15% of
the outstanding units of BOX Holdings: Citadel Securities Principal
Investments LLC, Citigroup Financial Products Inc., UBS Americas
Inc., CSFB Next Fund Inc., LabMorgan Corp., Wolverine Trading, LLC,
and Aragon Solutions Ltd. See id.
\17\ See id. at 33260.
\18\ See id. at 33259; Amendment No. 1, supra note 6, at 4.
\19\ See Notice, supra note 3, 85 FR at 33260.
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The Exchange states that BOX Holdings wholly owns BOX Options
Market LLC (``BOX Options''), which is a facility of the Exchange \20\
and the only facility that the Exchange currently operates.\21\ The
Exchange notes that the BSTX LLC Agreement provisions are generally the
same as provisions of the BOX Options LLC Agreement or the BOX Holdings
LLC Agreement, with certain exceptions.\22\ The Exchange states that it
will enter into a facility agreement with BSTX (``Facility Agreement'')
pursuant to which the Exchange will exercise regulatory oversight over
BSTX.\23\ Furthermore, the Exchange has entered into an IP License and
Services Agreement (``LSA'') with tZERO,\24\ under which tZERO will
provide BSTX and the Exchange with a license to use its intellectual
property that comprises the BSTX trading system and services related
to, among other things, implementing and maintain the trading
system.\25\
---------------------------------------------------------------------------
\20\ See id. at 33259.
\21\ See id. at 33259, n.4; Amendment No. 1, supra note 6, at 5.
\22\ See Notice, supra note 3, 85 FR at 33259, n.8 and
accompanying text.
\23\ See id. at 33259. The Exchange will also provide certain
business services to BSTX pursuant to an administrative services
agreement. See id.
\24\ See id. at 33261.
\25\ See id. at 33266. The Facility Agreement, administrative
services agreement, and LSA were not provided as exhibits to the
proposal.
---------------------------------------------------------------------------
Holders of Units are referred to as LLC Members,\26\ and a record
of the LLC Members will be maintained by the Secretary of BSTX and
updated from time to time, which shall include the name and address of
each LLC Member and the number of Units of each class held by each LLC
Member.\27\ The Exchange proposes that a person would become an
additional or substitute LLC Member of BSTX only upon that person's
execution of a counterpart of the BSTX LLC Agreement to evidence that
person's written acceptance of the terms and provisions of the BSTX LLC
Agreement.\28\ According to the Exchange, the Commission would be
notified if an LLC Member's ownership interest in BSTX, alone or
together with any related person of that LLC Member, meets or exceeds
5%, 10%, or 15%, and the BSTX LLC Agreement provides that any
``Transfer'' that results in the acquisition and holding by any person,
alone or together with its related persons, of an ownership interest
that meets or crosses 20% or any subsequent 5% increment, would be
subject to the rule filing process pursuant to Section 19 of the
Act.\29\
---------------------------------------------------------------------------
\26\ ``LLC Members'' are duly admitted holders of BSTX Units and
would include any person later admitted to BSTX as an additional or
substitute LLC Member as provided by the BSTX LLC Agreement. See id.
at 33260; BSTX LLC Agreement, supra note 10, Section 1.1.
\27\ See Notice, supra note 3, 85 FR at 33260, n.14 and
accompanying text; BSTX LLC Agreement, supra note 10, Section 1.1.
\28\ See Notice, supra note 3, 85 FR at 33266; BSTX LLC
Agreement, supra note 10, Section 7.1(b).
\29\ See Notice, supra note 3, 85 FR at 33267; BSTX LLC
Agreement, supra note 10, Section 7.4(e) and (f). The term
``Transfer'' is defined in Section 7.1(a) of the BSTX LLC Agreement,
and excludes ``(i) transfers among [LLC] Members, (ii) transfers to
any Person directly or indirectly owning, controlling or holding
with power to vote all of the outstanding voting securities of and
equity beneficial interests in such [LLC] Member, or (iii) any
Person that is a wholly owned Affiliate of such [LLC] Member.'' See
BSTX LLC Agreement, supra note 10, Section 7.1(a); Notice, supra
note 3, 85 FR at 33266.
---------------------------------------------------------------------------
Pursuant to the BSTX LLC Agreement, a Controlling Person that
establishes a Controlling Interest \30\ in an LLC Member that holds
equal to or greater than a 20% ownership interest in BSTX will be
required to become a party to the BSTX LLC Agreement, by executing an
instrument of accession, and abide by its provisions to the same extent
as if they were LLC Members.\31\ The Exchange also states that these
amendments to the BSTX LLC Agreement will be subject to the rule filing
process pursuant to Section 19 of
[[Page 50852]]
the Act.\32\ The Exchange further proposes that any BSTX Participant
that directly or indirectly together with its Related Persons holds
more than 20% of BSTX would have its voting power capped at 20%.\33\
According to the Exchange, this limitation is designed to prevent a
market participant from exerting undue influence on an Exchange
facility.\34\
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\30\ ``Controlling Person'' is defined as ``a Person who, alone
or together with any Related Persons of such Person, holds a
Controlling Interest in [an LLC] Member.'' ``Controlling Interest''
is defined as ``the direct or indirect ownership of 25% or more of
the total voting power of all equity securities of [an LLC] Member .
. . by any Person, alone or together with any Related Persons of
such Person.'' See BSTX LLC Agreement, supra note 10, Section
7.4(g)(v)(A)-(B). ``Related Person'' is defined as ``with respect to
any Person: (A) any Affiliate of such Person; (B) any other Person
with which such first Person has any agreement, arrangement or
understanding (whether or not in writing) to act together for the
purpose of acquiring, voting, holding or disposing of Interests; (C)
in the case of a Person that is a company, corporation or similar
entity, any executive officer (as defined under Rule 3b-7 under the
Exchange Act) or director of such Person and, in the case of a
Person that is a partnership or limited liability company, any
general partner, managing member or manager of such Person, as
applicable; (D) in the case of any BSTX Participant who is at the
same time a broker-dealer, any Person that is associated with the
BSTX Participant (as determined using the definition of `person
associated with a member' as defined under Section 3(a)(21) of the
Exchange Act); (E) in the case of a Person that is a natural person
and a BSTX Participant, any broker or dealer that is also a BSTX
Participant with which such Person is associated; (F) in the case of
a Person that is a natural person, any relative or spouse of such
Person, or any relative of such spouse who has the same home as such
Person or who is a director or officer of the Exchange or any of its
parents or subsidiaries; (G) in the case of a Person that is an
executive officer (as defined under Rule 3b-7 under the Exchange
Act) or a director of a company, corporation or similar entity, such
company, corporation or entity, as applicable; and (H) in the case
of a Person that is a general partner, managing member or manager of
a partnership or limited liability company, such partnership or
limited liability company, as applicable.'' See id. Section 1.1.
``Person'' and ``BSTX Participant'' are also defined in Section 1.1
of the BSTX LLC Agreement.
\31\ See Notice, supra note 3, 85 FR at 33260, 33267; BSTX LLC
Agreement, supra note 10, Section 7.4(g). The proposed Form of
Instrument of Accession to Boston Security Token Exchange LLC,
Amended and Restated Limited Liability Company Agreement is attached
as Exhibit 5B to the Form 19b-4 for SR-BOX-2020-16 (available on the
Commission's website at https://www.sec.gov/rules/sro/box/2020/34-88949-ex5b.pdf). The Exchange specifically notes that Medici,
Overstock, BOX Digital, BOX Holdings, MX US 1, Inc., MX US 2, Inc.,
Bourse de Montreal, Inc., and TMX would be required to execute an
instrument of accession substantially in the form attached as
Exhibit 5B. See Notice, supra note 3, 85 FR at 33260.
Pursuant to Section 7.4(g)(iii) of the BSTX LLC Agreement, ``a
Person shall not be required to execute an amendment to [the BSTX
LLC Agreement] . . . if such Person does not, directly or
indirectly, hold any interest in [an LLC] Member.'' BSTX LLC
Agreement, supra note 10, Section 7.4(g)(iii).
\32\ See Notice, supra note 3, 85 FR at 36227; BSTX LLC
Agreement, supra note 10, Section 7.4(g)(iv).
\33\ See Notice, supra note 3, 85 FR at 33260; BSTX LLC
Agreement, supra note 10, Section 7.4(h).
\34\ See Notice, supra note 3, 85 FR at 33260.
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The Exchange states that the BSTX LLC Agreement includes provisions
that ensure that the Exchange has full regulatory control over BSTX and
these provisions are designed to prevent any owner of BSTX from having
undue influence over regulatory actions.\35\ The BSTX LLC Agreement
provides that BSTX's board of directors (``Board'') will consist of six
directors, comprised of (1) two directors appointed by each of BOX
Digital and tZERO (the ``Member Directors''); (2) one director
appointed by the unanimous vote of the Member Directors (the
``Independent Director''); and (3) one non-voting director appointed by
the Exchange (``the ``Regulatory Director'').\36\ The Exchange states
that BSTX will have an Independent Director to avoid either BOX Digital
or tZERO from controlling or creating deadlock on the Board.\37\ The
Exchange also states that BSTX's Board structure differs from that of
BOX Options because BOX Options, as a wholly-owned subsidiary of BOX
Holdings, has the same directors as BOX Holdings, and BOX Holdings,
unlike BSTX, has no owners with 50% or greater ownership.\38\
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\35\ See id. at 33259.
\36\ See id. at 33262; BSTX LLC Agreement, supra note 10,
Section 4.1(a). The Exchange states that the Regulatory Director
must be a member of senior management of the regulation staff of the
Exchange. See Notice, supra note 3, 85 FR at 33262. See also BSTX
LLC Agreement, supra note 10, Section 1.1.
\37\ See Notice, supra note 3, 85 FR at 33262.
\38\ See id.
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Generally, actions by the Board will be considered effective only
if approved by at least a majority of the votes entitled to vote on
that action.\39\ The Board must approve, by an affirmative vote of the
Member Directors, any ``major action,'' which will include, among other
things, changes to operating the BSTX Market using any software system
other than the BSTX trading system, except as otherwise provided in the
LSA or to the extent otherwise required by the Exchange to fulfill its
regulatory functions or responsibilities or to oversee the BSTX Market
as determined by the board of the Exchange.\40\ The BSTX LLC Agreement
also provides that the Exchange shall receive notice of planned or
proposed changes to BSTX, with the exception of certain changes not
related to the operation of the market, or to the BSTX Market, and that
such changes will require affirmative approval by the Exchange before
implementation.\41\ If the Exchange determines that planned or proposed
changes could cause a regulatory deficiency, the Exchange may direct
BSTX, subject to Board approval, to modify the proposal as
necessary.\42\
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\39\ See id.; BSTX LLC Agreement, supra note 10, Section 4.3.
\40\ See Notice, supra note 3, 85 FR at 33262-63; BSTX LLC
Agreement, supra note 10, Section 4.4(a).
\41\ See Notice, supra note 3, 85 FR at 33264; BSTX LLC
Agreement, supra note 10, Section 3.2(a)(ii).
\42\ See Notice, supra note 3, 85 FR at 33264; BSTX LLC
Agreement, supra note 10, Section 3.2(a)(iii).
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The Exchange also proposes how regulatory funds may be allocated.
The Exchange states that, pursuant to the Facility Agreement, the
Exchange will have the right to receive all fees, fines, and
disgorgements imposed upon BSTX Participants with respect to BSTX's
trading system (``Regulatory Funds'') and all other market data fees,
tape, and other revenue (``Non-regulatory Funds''), and all Regulatory
Funds and Non-regulatory Funds collected in respect to BSTX may be used
by the Exchange, at its sole discretion, for regulatory purposes.\43\
Furthermore, all Regulatory Funds collected by the Exchange will be
retained by the Exchange and not transferred to BSTX; however, Non-
regulatory Funds collected may be transferred to BSTX after the
Exchange has made adequate provisions for all regulatory purposes.\44\
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\43\ See Notice, supra note 3, 85 FR at 33264. If BSTX incurs
costs and expenses for regulatory purposes, the Exchange may
reimburse BSTX using Regulatory Funds. See id. at 33264. In the
event that the Exchange does not hold sufficient funds to meet all
regulatory purposes, BSTX will reimburse the Exchange for any such
additional costs and expenses. See id. The BSTX LLC Agreement does
not include provisions regarding Regulatory Funds.
\44\ See id at 33264-65.
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The proposal includes provisions regarding capital contributions
and distributions. According to the Exchange, capital contributions
will be reflected on the books and records of BSTX.\45\ The BSTX LLC
Agreement does not specify the capital contributions from BOX Digital
and tZERO, or any other LLC Member. Pursuant to the proposed BSTX LLC
Agreement, BOX Digital will provide executive leadership and exclusive
rights to the regulatory services of the Exchange with respect to BSTX
Products \46\ and tZERO will provide the license and services set forth
in the LSA and will make the necessary arrangements with any applicable
third parties which will permit BSTX to be an authorized sublicensee of
any required third-party software necessary for trading on BSTX.\47\
The BSTX LLC Agreement also includes provisions regarding
determinations of capital needs by the Board, including, among others,
the requirement that at least one Member Director appointed by each LLC
Member affirmatively vote to raise capital; \48\ potential cash
distributions; \49\ and allocation of profits, losses, and credits for
each fiscal year to LLC Members at least once annually on a pro rata
basis.\50\
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\45\ See id. at 33266; BSTX LLC Agreement, supra note 10,
Section 6.1.
\46\ See BSTX LLC Agreement, supra note 10, Section 3.2(c).
\47\ See id. Section 3.2(b); Notice, supra note 3, 85 FR at
33266.
\48\ See Notice, supra note 3, 85 FR at 33265; BSTX LLC
Agreement, supra note 10, Section 6.2. The Exchange states that the
requirement concerning the affirmative vote of one Member Director
appointed by each LLC Member is not present in the BOX Options LLC
Agreement, but that the Exchange believes that this provision
promotes commercial fairness and is necessary due to the differing
ownership structure of BSTX. See Notice, supra note 3, 85 FR at
33265.
\49\ See BSTX LLC Agreement, supra note 10, Section 8.1.
\50\ See id. Section 9.1.
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The proposal also includes provisions regarding the regulation of
BSTX and regulatory jurisdiction over LLC Members of BSTX.\51\
Specifically, the BSTX LLC Agreement provides that the Exchange has the
authority to act as the self-regulatory organization (``SRO'') for
BSTX, will provide the regulatory framework for the BSTX Market, and
will have regulatory responsibility for the activities of the BSTX
Market.\52\ Additionally, the BSTX LLC Agreement includes provisions,
which the Exchange states are substantively similar to provisions in
the BOX Options LLC Agreement, that address the handling of
confidential information, both pertaining to regulatory matters and
otherwise.\53\ The BSTX LLC Agreement also contains provisions, which
the Exchange states
[[Page 50853]]
are substantially similar to those of the BOX Options LLC Agreement,
related to regulatory jurisdiction over LLC Members; \54\ the
maintenance of books and records; \55\ and the independence of the
self-regulatory function of the Exchange and compliance with federal
securities laws.\56\
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\51\ See Notice, supra note 3, 85 FR at 33268-70.
\52\ See id. at 33268; BSTX LLC Agreement, supra note 10,
Section 3.2. The Exchange states that Section 3.2 of the BSTX LLC
Agreement ensures that the Exchange has full regulatory control over
BSTX and is designed to prevent any owner of BSTX from exercising
undue influence over the regulated activities of BSTX. See Notice,
supra note 3, 85 FR at 33265.
\53\ See Notice, supra note 3, 85 FR at 33268-69; BSTX LLC
Agreement, supra note 10, Article 15. The BSTX LLC Agreement
contains additional language to make it clear that the Commission
can access and examine confidential information pursuant to federal
securities laws and rules. See Notice, supra note 3, 85 FR at 33268;
BSTX LLC Agreement, supra note 10, Section 15.5.
\54\ See Notice, supra note 3, 85 FR at 33269; BSTX LLC
Agreement, supra note 10, Sections 11.1, 18.6(a), 18.6(c).
\55\ See Notice, supra note 3, 85 FR at 33269; BSTX LLC
Agreement, supra note 10, Section 11.1.
\56\ See Notice, supra note 3, 85 FR at 33261-62, 33264; BSTX
LLC Agreement, supra note 10, Section 4.12.
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The Exchange also states that it submitted a separate filing to
introduce structural changes to the Exchange to accommodate regulation
of BSTX as well as BOX Options, which was approved by the
Commission.\57\ According to the Exchange, BSTX Participants will have
the same representation, rights, and responsibilities as BOX Options
Participants.\58\
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\57\ See Notice, supra note 3, 85 FR at 33259; Amendment No. 1,
supra note 6, at 5 (citing Securities Exchange Act Release No. 88934
(May 22, 2020), 85 FR 32085 (May 28, 2020)).
\58\ See Notice, supra note 3, 85 FR at 33259.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-BOX-
2020-16, as Modified by Amendment No. 1, and Grounds for Disapproval
Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \59\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy issues raised by the proposed rule
change. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change to inform the Commission's analysis of whether to
approve or disapprove the proposed rule change.
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\59\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\60\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(1)
of the Act, which requires that a national securities exchange be so
organized and have the capacity to be able to carry out the purposes of
the Act and to comply, and enforce compliance by its members and
persons associated with its members, with the provisions of the Act,
the rules and regulations thereunder, and the rules of the
exchange.\61\ In addition, the Commission is instituting proceedings to
allow for additional analysis of the proposed rule change's consistency
with Section 6(b)(3) of the Act, which requires that the rules of a
national securities exchange assure a fair representation of its
members in the selection of its directors and administration of its
affairs and provide that one or more directors shall be representative
of issuers and investors and not be associated with a member of the
exchange, broker, or dealer; \62\ and Section 6(b)(5) of the Act, which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and to protect investors and the public interest, and not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.\63\
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\60\ Id.
\61\ 15 U.S.C. 78f(b)(1).
\62\ 15 U.S.C. 78f(b)(3).
\63\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
[SRO] that proposed the rule change.'' \64\ The description of a
proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding,\65\ and any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Act and the applicable rules and regulations.\66\
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\64\ 17 CFR 201.700(b)(3).
\65\ See id.
\66\ See id.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposal, as modified by Amendment No. 1, is consistent
with the Act.
III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal, as
modified by Amendment No. 1, is consistent with Sections 6(b)(1),\67\
6(b)(3),\68\ and 6(b)(5) \69\ of the Act or any other provision of the
Act, or the rules and regulations thereunder. Although there do not
appear to be any issues relevant to approval or disapproval that would
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4 under the Act,\70\
any request for an opportunity to make an oral presentation.\71\
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\67\ 15 U.S.C. 78f(b)(1).
\68\ 15 U.S.C. 78f(b)(3).
\69\ 15 U.S.C. 78f(b)(5).
\70\ 17 CFR 240.19b-4.
\71\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal, as modified by Amendment No.
1, should be approved or disapproved by September 8, 2020. Any person
who wishes to file a rebuttal to any other person's submission must
file that rebuttal by September 22, 2020. The Commission asks that
commenters address the sufficiency of the Exchange's statements in
support of the proposal, which are set forth in the Notice,\72\ as
modified by Amendment No. 1,\73\ in addition to any other comments they
may wish to submit about the proposed rule change.
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\72\ See Notice, supra note 3.
\73\ See Amendment No. 1, supra note 6.
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Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
[[Page 50854]]
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 public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-BOX-2020-16 and should be submitted by
September 8, 2020. Rebuttal comments should be submitted by September
22, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\74\
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\74\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17968 Filed 8-17-20; 8:45 am]
BILLING CODE 8011-01-P
