Self-Regulatory Organizations; BOX Exchange LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, Related to BOX Exchange LLC and BOX Holdings Group LLC Ownership Transfer Transactions, 72021-72024 [2021-27427]
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72021
Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93778; File No. SR–BOX–
2021–19]
Self-Regulatory Organizations; BOX
Exchange LLC; Order Approving a
Proposed Rule Change, as Modified by
Amendment No. 1, Related to BOX
Exchange LLC and BOX Holdings
Group LLC Ownership Transfer
Transactions
December 14, 2021.
the Commission designated a longer
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.6
On December 13, 2021, the Exchange
filed Amendment No. 1 to the proposed
rule change, which amended and
superseded the Notice in its entirety.7
The Commission is approving the
proposed rule change, as modified by
Amendment No. 1.
I. Introduction
II. Description of the Proposed Rule
Change 8
On August 27, 2021, BOX Exchange
LLC (‘‘BOX Exchange’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change related to the Exchange and BOX
Holdings Group LLC (‘‘BOX Holdings’’)
ownership transfer transactions. The
proposed rule change was published for
comment in the Federal Register on
September 15, 2021.3 The Commission
received one comment on the proposed
rule change.4 On September 28, 2021,
pursuant to Section 19(b)(2) of the Act,5
The Exchange is a limited liability
company, organized under the laws of
the State of Delaware on August 26,
2010. The Exchange’s charter is a
Second Amended and Restated Limited
Liability Company Agreement, dated as
of May 29, 2020, as amended November
30, 2020 (‘‘BOX Exchange LLC
Agreement’’). Citigroup Financial
Products Inc. (‘‘Citi’’), CSFB Next Fund
Inc. (‘‘CSFB’’), and MX US 2, Inc.,
(‘‘MXUS2’’) each became a Member 9 of
the Exchange on May 10, 2012.
Wolverine Holdings, L.P. (‘‘Wolverine’’)
is not currently a Member of the
Exchange.
BOX Holdings is a limited liability
company, organized under the laws of
the State of Delaware on August 26,
2010. BOX Holdings is the sole owner
of BOX Options Market LLC, a facility
of the Exchange (‘‘BOX Options’’). The
BOX Holdings charter is a Second
Amended and Restated Limited
Liability Company Agreement, dated as
of September 13, 2018 (‘‘BOX Holdings
LLC Agreement’’). Citi and CSFB each
became a Member 10 of BOX Holdings
on May 10, 2012.
The Exchange proposes several
transactions related to the ownership of
the Exchange and BOX Holdings. First,
the Exchange would repurchase the
ownership interests in the Exchange
held by Citi and CSFB.11 Second, BOX
Holdings would repurchase the
ownership interests in BOX Holdings
held by Citi and CSFB.12 Finally,
Wolverine would purchase an
ownership interest in the Exchange from
MXUS2.13 The charts below summarize
the ownership and voting percentage
changes in the Exchange and BOX
Holdings that would result from the
proposed transactions:
BOX Exchange
Current
economic
percentage
interest 14
Exchange unit holder
MXUS2 .....................................................................................................................................................................
IB ..............................................................................................................................................................................
Citadel ......................................................................................................................................................................
Citi ............................................................................................................................................................................
UBS ..........................................................................................................................................................................
CSFB .......................................................................................................................................................................
LabMorgan Corp./JPMC ..........................................................................................................................................
Aragon .....................................................................................................................................................................
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 92926
(September 9, 2021), 86 FR 51410 (‘‘Notice’’).
4 See letter from Seymour Johnson, dated
September 10, 2021, available at https://
www.sec.gov/comments/sr-box-2021-19/
srbox202119-9221992-250319.htm. The commenter
is critical of the voting and economic interests of
Citadel Securities Principal Investments LLC
(‘‘Citadel’’) in BOX Holdings Group and believes
that such interests should be reduced.
5 15 U.S.C. 78s(b)(2).
6 See Securities Exchange Act Release No. 93156,
86 FR 54780 (October 4, 2021). The Commission
designated December 14, 2021, as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
7 In Amendment No. 1, the Exchange revised the
proposal to: (1) Provide updated and additional
ownership and voting percentage interests
information; (2) correct a reference from BOX
Holdings to BOX Options Market LLC; (3) specify
that all foreign upstream owners have signed onto
the BOX Exchange LLC Agreement and the BOX
Holdings LLC Agreement. Because Amendment No.
1 is a technical amendment that does not materially
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2 17
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alter the substance of the proposed rule change or
raise unique or novel regulatory issues, it is not
subject to notice and comment. Amendment No. 1
to the proposed rule change is available at https://
www.sec.gov/rules/sro/box.htm.
8 For a more complete description of all the
changes as proposed, see Amendment No. 1, supra
note 7.
9 A ‘‘Member’’ of the Exchange means the current
owners of Economic Units and Voting Units of the
Exchange and includes any person subsequently
admitted to the Exchange as an additional or
substitute Member of the Exchange. See Article 1.
1 of the BOX Exchange LLC Agreement. ‘‘Economic
Units’’ refer to equal units of limited liability
company interest in the Exchange collectively
comprising all interests in the profits and losses of
the Exchange and all rights to receive distributions
from the Exchange as set forth in the BOX Exchange
LLC Agreement. See Article 2.5(a) of the BOX
Exchange LLC Agreement. ‘‘Voting Units’’ refer to
equal units of limited liability company interest in
the Exchange collectively comprising all voting
interests of Members with respect to Exchange
matters. See Article 2.5(b) of the BOX Exchange
LLC Agreement.
10 A ‘‘Member’’ of BOX Holdings means the
current owners of BOX Holdings Units and includes
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40.00
20.00
7.68
7.68
7.45
7.30
7.30
2.58
Proposed
economic
percentage
interest
40.00
20.00
12.28
........................
11.92
........................
11.67
4.13
any Person subsequently admitted to BOX Holdings
as an additional or substitute Member of BOX
Holdings. See BOX Holdings LLC Agreement § 1.1.
BOX Holdings ‘‘Units’’ means Class A Membership
Units, Class B Membership Units, and Class C
Membership Units of BOX Holdings. See Article 1.1
of the BOX Holdings LLC Agreement. The current
Members of BOX Holdings are: MXUS2, IB
Exchange Corp. (‘‘IB’’), Citadel, Citi, UBS Americas
Inc. (‘‘UBS’’), CSFB, JPMC Strategic Investments I
Corporation (‘‘JPMC’’), Wolverine, and Aragon
Solutions Ltd (‘‘Aragon’’).
11 See Notice, supra note 3, 86 FR at 51411 and
Amendment No. 1, supra note 7.
12 See id.
13 See Notice, supra note 3, 86 FR at 51411–12
and Amendment No. 1, supra note 7.
14 ‘‘Economic Percentage Interest’’ with respect to
a Member of the Exchange means the ratio of the
number of Economic Units held by the Member,
directly or indirectly, of record or beneficially, to
the total of all of the issued and outstanding
Economic Units held by Members, expressed as a
percentage. See Article 1.1 of the BOX Exchange
LLC Agreement.
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Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Notices
Exchange unit holder
Current
economic
percentage
interest 14
Proposed
economic
percentage
interest
Wolverine .................................................................................................................................................................
........................
Exchange unit holder
Current
voting
percentage
interest 15
Proposed
voting
percentage
interest
MXUS2 .....................................................................................................................................................................
IB ..............................................................................................................................................................................
Citadel ......................................................................................................................................................................
Citi ............................................................................................................................................................................
UBS ..........................................................................................................................................................................
CSFB .......................................................................................................................................................................
LabMorgan Corp./JPMC ..........................................................................................................................................
Aragon .....................................................................................................................................................................
Wolverine .................................................................................................................................................................
20.00
20.00
18.73
10.00
4.99
10.00
9.99
6.30
........................
20.00
20.00
20.00
........................
4.99
........................
9.99
20.00
5.03
Current
percentage
interest 16
Proposed
percentage
interest
<0.01
BOX Holdings
BOX holdings unit holder
MXUS2 .....................................................................................................................................................................
IB ..............................................................................................................................................................................
Citadel ......................................................................................................................................................................
Citi ............................................................................................................................................................................
UBS ..........................................................................................................................................................................
CSFB .......................................................................................................................................................................
LabMorgan Corp./JPMC ..........................................................................................................................................
Aragon .....................................................................................................................................................................
Wolverine .................................................................................................................................................................
BOX holdings unit holder
Current voting power
MXUS2 ........................................................................................
44.10% (Member votes) ............................................................
45.50% (total Board voting power)
20.00% .......................................................................................
14.28% (Member votes) ............................................................
14.73% (total Board voting power)
8.13% (Member votes) ..............................................................
8.38% (total Board voting power)
3.34% (Member votes) ..............................................................
3.45% (total Board voting power)
3.27% (Member votes) ..............................................................
3.37% (total Board voting power)
3.27% (Member votes) ..............................................................
3.37% (total Board voting power)
1.16% (Member votes) ..............................................................
1.19% (total Board voting power)
2.46% (Member votes) ..............................................................
0.00% (total Board voting power because Wolverine does not
have a Board seat)
IB .................................................................................................
Citadel .........................................................................................
Citi ...............................................................................................
UBS .............................................................................................
CSFB ...........................................................................................
LabMorgan Corp./JPMC .............................................................
Aragon .........................................................................................
Wolverine ....................................................................................
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42.62
22.69
13.80
7.85
3.23
3.16
3.16
1.12
2.38
15 ‘‘Voting Percentage Interest’’ with respect to a
Member of the Exchange means the ratio of the
number of Voting Units held by the Member,
directly or indirectly, of record or beneficially, to
the total of all of the issued and outstanding Voting
Units held by Members, expressed as a percentage.
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Voting Units held by a Member of the Exchange that
are ineligible to vote shall not be counted in the
numerator or the denominator when determining
such ratio. See id.
16 ‘‘Percentage Interest’’ with respect to a Member
of BOX Holdings means the ratio of the number of
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47.89
25.50
15.50
........................
3.63
........................
3.55
1.26
2.67
Proposed
voting power
51.43
20.00
16.65
........................
3.90
........................
3.82
1.35
2.87
Units held by the Member to the total of all of the
issued Units, expressed as a percentage and
determined with respect to each class of Units,
whenever applicable. See id.
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In addition to the transactions, the
Exchange proposes to update the name
of one of its Members in the BOX
Exchange LLC Agreement. LabMorgan
Corp., a Member of the Exchange, has
changed its legal name to ‘‘JPMC
Strategic Investments I Corporation.’’ 17
III. Discussion and Commission
Findings
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After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.18 In particular, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with Section 6(b)(5)
of the Act,19 which requires, among
other things, that the rules of a national
securities exchange be designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Commission also
finds that these proposed rule changes,
as modified by Amendment No. 1, are
consistent with Section 6(b)(1) of the
Act, which requires, among other
things, that a national securities
exchange be so organized and have the
capacity to carry out the purposes of the
Act, and to comply and enforce
compliance by its members and persons
associated with its members, with the
provisions of the Act, the rules and
regulations thereunder, and the rules of
the exchange.
Both the BOX Exchange LLC
Agreement and the BOX Holdings LLC
Agreement contain provisions relating
to limitations on ownership and voting
power. In particular, the BOX Exchange
LLC Agreement provides that no
Person,20 either alone or together with
any Related Persons 21 may own,
directly or indirectly, of record or
17 See Notice, supra note 3, 86 FR at 51413, and
Amendment No. 1, supra note 7.
18 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
19 15 U.S.C. 78f(b)(5).
20 ‘‘Person’’ means any individual, partnership,
corporation, association, trust, limited liability
company, joint venture, unincorporated
organization and any government, governmental
department or agency or political subdivision
thereof. See Article 1.1 of the BOX Exchange LLC
Agreement.
21 The term ‘‘Related Person’’ is defined in Article
1.1 of the BOX Exchange LLC Agreement.
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beneficially, an aggregate Economic
Percentage Interest greater than 40%.22
Exchange Facility Participants,23 alone
or together with any Related Persons
may not own, directly or indirectly, of
record or beneficially, an Economic
Percentage Interest greater than 20%.24
In addition, no Person, either alone or
together with any Related Persons, may
own, directly or indirectly, of record or
beneficially, an aggregate Voting
Percentage Interest greater than 20%.25
Moreover, any Member 26 of the
Exchange involved in a transaction that
would result in a Member having a
Voting Percentage Interest or Economic
Percentage Interest, alone or together
with any Related Person, of record or
beneficially, of 5% or more will be
required to provide written notice to
BOX Exchange 14 days before the
transaction that would exceed the 5%
limit.27 BOX Exchange will then be
required to provide written notice to the
Commission 10 days before the
transaction.28
In addition, the BOX Holdings LLC
Agreement provides that if a Member 29
of BOX Holdings or any of its Related
Persons 30 is approved by the Exchange
as a BOX Options Participant,31 and if
such Member, alone or together with the
Related Persons, own more than 20% of
BOX Holdings Units,32 then such
Member and any director of BOX
Holdings designated by such Member
will not have any voting rights with
respect to any Units owned in excess of
20%.33 The BOX Holdings LLC
Agreement further provides that any
Member of BOX Holdings involved in a
transaction in which the Member’s
Percentage Interest 34 in BOX Holdings,
22 See
Article 7.3(f) of the BOX Exchange LLC
Agreement.
23 ‘‘Exchange Facility Participant’’ means a firm
or organization that is registered with the Exchange
pursuant to the Exchange Rules for purposes of
participant in trading on any Exchange Facility. See
Article 1.1 of the BOX Exchange LLC Agreement.
‘‘Exchange Facility’’ means any facility of the
Exchange as the term ‘‘facility’’ is defined in
Section 3 of the Act. See id.
24 Id.
25 See Article 7.3(g)(i) of the BOX Exchange LLC
Agreement.
26 See supra note 9.
27 See Article 7.3(e) of the BOX Exchange LLC
Agreement.
28 Id.
29 See supra note 10.
30 The term ‘‘Related Person’’ is defined in Article
1.1 of the BOX Holdings LLC Agreement.
31 ‘‘Options Participant’’ means a firm, or
organization that is registered with the Exchange
pursuant to the Rule 2000 Series for purposes of
participating in trading on a facility of the
Exchange. See BOX Rule 100(a)(41).
32 See supra note 10.
33 See Article 7.4(h) of the BOX Holdings LLC
Agreement.
34 See supra note 16.
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72023
either alone or together with any
Related Person, will meet or cross the
threshold level of 5% or the successive
5% percentage levels of 10% and 15%
will be required to provide written
notice to BOX Holdings 14 days before
the transaction.35 BOX Holdings will
then be required to provide written
notice to BOX Exchange and the
Commission 10 days before the
transaction.36 In addition to these
notices, any transaction of Units that
results in the acquisition and holding by
any Person,37 alone or with its Related
Persons, of a Percentage Interest that
meets or crosses the threshold level of
20% or any successive 5% percentage
interest will be subject to the rule filing
process of Section 19 of the Act.38
Further, any transaction that is in
contravention of the notification and
filing provisions shall be void.39
The ownership and voting limitations
are designed to help ensure that BOX
Exchange is able to effectively carry out
its regulatory obligations under the Act.
In addition, the limitations are designed
to address the conflicts of interests that
might result from a member of a
national securities exchange owning
interests in the exchange. The
Commission believes that the Exchange
has followed the required notice
procedures set forth in the BOX
Exchange LLC Agreement and BOX
Holdings LLC Agreement and that the
proposed transactions are in compliance
with the ownership and voting
limitations in the governance
documents.40 The Commission also
notes that the BOX Exchange LLC
Agreement 41 and BOX Holdings LLC
35 See Article 7.4(e) of the BOX Holdings LLC
Agreement.
36 Id.
37 ‘‘Person’’ means any individual, partnership,
corporation, association, trust, limited liability
company, joint venture, unincorporated
organization and any government, governmental
department or agency or political subdivision
thereof. See Article 1.1 of the BOX Holdings LLC
Agreement.
38 See Article 7.4(f) of the BOX Holdings LLC
Agreement.
39 See Article 7.4(d) of the BOX Holdings LLC
Agreement.
40 Although a commenter objects to Citadel’s
ownership and voting percentages in BOX Holdings
increasing because of the contemplated transaction,
the increase is consistent with the ownership and
voting limitations set forth in BOX Holdings
governing documents as previously approved by the
Commission. See Securities Exchange Act Release
No. 66871 (April 27, 2012), 77 FR 26323 (May 3,
2012).
41 See, e.g., Article 4.6(b) of the BOX Exchange
LLC Agreement (requiring the Exchange and its
Members to cooperate with BOX Exchange and the
Commission and to comply with federal securities
laws); and Article 18.6(b) of the BOX Holdings LLC
Agreement (deeming the Exchange, its Members
and officers, directors, employees and agents of
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Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Notices
Agreement 42 contain certain provisions
designed to help maintain the
independence of the regulatory
functions of BOX Exchange. The
Commission believes that the potential
for conflicts of interest or unfair
competition is mitigated by these
provisions.
With respect to the ownership of BOX
Exchange, the Commission notes that no
BOX Exchange Member will own in
excess of 40% of the Exchange’s
Economic Units (20% if an Exchange
Facility Participant) and 20% of the
Exchange’s Voting Units. The board
composition of the Exchange will not
change. And although BOX Holdings is
not independently responsible for
regulation of BOX Options, its activities
with respect to the operation of BOX
Options must be consistent with, and
not interfere with, the self-regulatory
obligations of BOX Exchange. Pursuant
to the transaction, with respect to the
ownership of BOX Holdings, the voting
power of IB, a BOX Options Participant,
would remain at 20.00%. Further, while
MXUS2’s voting power in BOX
Holdings would increase, MXUS2’s
power to appoint directors would
remain unchanged.43 The Commission
accordingly believes that the proposed
transfers are in compliance with
requirements in the BOX Exchange LLC
Agreement and the BOX Holdings LLC
Agreement and provisions designed to
help maintain BOX Exchange’s
regulatory function.
IV. Conclusion
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It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,44 that the
proposed rule change (SR–BOX–2021–
19), as modified by Amendment No. 1,
be, and hereby is, approved.
each to submit to the jurisdiction of the US federal
courts and the Commission).
42 See, e.g., Article 4.12(b) of the BOX Holdings
LLC Agreement (requiring BOX Holdings and its
Members to cooperate with BOX Exchange and the
Commission and to comply with federal securities
laws); Article 11.1 of the BOX Holdings LLC
Agreement (requiring the books and records of BOX
Holdings and its Members to be subject to
inspection and copying by the Exchange and the
Commission at all times); and Article 18.6(b) of the
BOX Holdings LLC Agreement (deeming BOX
Holdings, its Members and officers, directors,
employees and agents of each to submit to the
jurisdiction of the US federal courts, the
Commission, and BOX Exchange).
43 MXUS2 (through MXUS1) is a wholly-owned
subsidiary of the Bourse de Montreal (‘‘Bourse’’)
and the Bourse is a wholly-owned subsidiary of
TMX Group Limited. Each of MXUS1, Bourse, and
TMX Group Limited is a party to the BOX Exchange
LLC Agreement and BOX Holdings LLC Agreement
and has all the rights and responsibilities of the
Members of BOX Exchange and BOX Holdings. See
Amendment No 1, supra note 7.
44 Id.
45 17 CFR 200.30–3(a)(12).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27427 Filed 12–17–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–232, OMB Control No.
3235–0225]
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 17f–4
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 350l-3520) (the ‘‘Paperwork
Reduction Act’’), the Securities and
Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Section 17(f) (15 U.S.C. 80a–17(f))
under the Investment Company Act of
1940 (the ‘‘Act’’) 1 permits registered
management investment companies and
their custodians to deposit the securities
they own in a system for the central
handling of securities (‘‘securities
depositories’’), subject to rules adopted
by the Commission.
Rule 17f–4 (17 CFR 270.17f–4) under
the Act specifies the conditions for the
use of securities depositories by funds 2
and their custodians.
The Commission staff estimates that
794 respondents (including an
estimated 768 funds that may deal
directly with a securities depository, an
estimated 13 custodians, including 7
sub-custodians and 13 possible
securities depositories) 3 are subject to
1 15
U.S.C. 80a.
amended in 2003, rule 17f–4 permits any
registered investment company, including a unit
investment trust or a face-amount certificate
company, to use a security depository. See Custody
of Investment Company Assets With a Securities
Depository, Investment Company Act Release No.
25934 (Feb. 13, 2003) (68 FR 8438 (Feb. 20, 2003)).
The terms ‘‘fund’’ or ‘‘fund series’’ are used in this
Notice to mean a registered investment company.
3 The Commission estimates that, as permitted by
the rule, an estimated 4% of all funds may deal
directly with a securities depository. The
Commission estimates that, as permitted by the
2 As
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Sfmt 4703
the requirements in rule 17f–4. To the
extent that Rule 17f–4(c)(4) provides
that a sub-custodian can be qualified as
a custodian for purposes of Rule 17f–4,
sub-custodians are included as
‘‘custodians’’ in the estimates of burden
hours and costs. While the rule is
elective, most, if not all, funds use
depository custody arrangements.4
Rule 17f–4 contains two general
conditions. First, a fund’s custodian
must be obligated, at a minimum, to
exercise due care in accordance with
reasonable commercial standards in
discharging its duty as a securities
intermediary to obtain and thereafter
maintain financial assets. If the fund
deals directly with a depository, the
depository’s contract or written rules for
its participants must provide that the
depository will meet similar obligations.
All funds that deal directly with
securities depositories in reliance on
rule 17f–4 should have either modified
their contracts with the relevant
securities depository, or negotiated a
modification in the securities
depository’s written rules when the rule
was amended. Therefore, we estimate
there is no ongoing burden associated
with this collection of information.5
Second, the custodian must provide,
promptly upon request by the fund,
such reports as are available about the
internal accounting controls and
financial strength of the custodian. If a
fund deals directly with a depository,
the depository’s contract with or written
rules for its participants must provide
that the depository will provide similar
financial reports. Custodians and
depositories usually transmit financial
reports to funds twice each year.6 The
rule, an estimated 4% of all funds may deal directly
with a securities depository. The number of
custodians, including the number of sub-custodians
is estimated from information collected from Form
N–CENs filed with the Commission as of October
15, 2021. In addition, the Commission staff
estimates the number of possible securities
depositories by adding the 12 Federal Reserve
Banks and one active registered clearing agency.
The Commission staff recognizes that not all of
these entities may currently be acting as a securities
depository for fund securities.
4 Based on responses to Item C.12 of Form N–CEN
(17 CFR 274.101), approximately 96 percent of
funds’ custodians maintain some or all fund
securities in a securities depository pursuant to rule
17f–4.
5 The Commission staff assumes that new funds
relying on 17f–4 would choose to use a custodian
instead of directly dealing with a securities
depository because of the high costs associated with
maintaining an account with a securities
depository. Thus, new funds would not be subject
to this condition.
6 The estimated 13 custodians would handle
requests for reports from 9,984 fund clients
(approximately 768 fund clients per custodian) and
the depositories from the remaining 768 funds that
choose to deal directly with a depository. It is our
understanding based on staff conversations with
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]]>Agencies
[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 72021-72024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27427]
[[Page 72021]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93778; File No. SR-BOX-2021-19]
Self-Regulatory Organizations; BOX Exchange LLC; Order Approving
a Proposed Rule Change, as Modified by Amendment No. 1, Related to BOX
Exchange LLC and BOX Holdings Group LLC Ownership Transfer Transactions
December 14, 2021.
I. Introduction
On August 27, 2021, BOX Exchange LLC (``BOX Exchange'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change related to the Exchange and BOX Holdings Group LLC
(``BOX Holdings'') ownership transfer transactions. The proposed rule
change was published for comment in the Federal Register on September
15, 2021.\3\ The Commission received one comment on the proposed rule
change.\4\ On September 28, 2021, pursuant to Section 19(b)(2) of the
Act,\5\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\6\ On December 13, 2021, the Exchange filed
Amendment No. 1 to the proposed rule change, which amended and
superseded the Notice in its entirety.\7\ The Commission is approving
the proposed rule change, as modified by Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 92926 (September 9,
2021), 86 FR 51410 (``Notice'').
\4\ See letter from Seymour Johnson, dated September 10, 2021,
available at https://www.sec.gov/comments/sr-box-2021-19/srbox202119-9221992-250319.htm. The commenter is critical of the
voting and economic interests of Citadel Securities Principal
Investments LLC (``Citadel'') in BOX Holdings Group and believes
that such interests should be reduced.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 93156, 86 FR 54780
(October 4, 2021). The Commission designated December 14, 2021, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\7\ In Amendment No. 1, the Exchange revised the proposal to:
(1) Provide updated and additional ownership and voting percentage
interests information; (2) correct a reference from BOX Holdings to
BOX Options Market LLC; (3) specify that all foreign upstream owners
have signed onto the BOX Exchange LLC Agreement and the BOX Holdings
LLC Agreement. Because Amendment No. 1 is a technical amendment that
does not materially alter the substance of the proposed rule change
or raise unique or novel regulatory issues, it is not subject to
notice and comment. Amendment No. 1 to the proposed rule change is
available at https://www.sec.gov/rules/sro/box.htm.
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II. Description of the Proposed Rule Change 8
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\8\ For a more complete description of all the changes as
proposed, see Amendment No. 1, supra note 7.
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The Exchange is a limited liability company, organized under the
laws of the State of Delaware on August 26, 2010. The Exchange's
charter is a Second Amended and Restated Limited Liability Company
Agreement, dated as of May 29, 2020, as amended November 30, 2020
(``BOX Exchange LLC Agreement''). Citigroup Financial Products Inc.
(``Citi''), CSFB Next Fund Inc. (``CSFB''), and MX US 2, Inc.,
(``MXUS2'') each became a Member \9\ of the Exchange on May 10, 2012.
Wolverine Holdings, L.P. (``Wolverine'') is not currently a Member of
the Exchange.
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\9\ A ``Member'' of the Exchange means the current owners of
Economic Units and Voting Units of the Exchange and includes any
person subsequently admitted to the Exchange as an additional or
substitute Member of the Exchange. See Article 1. 1 of the BOX
Exchange LLC Agreement. ``Economic Units'' refer to equal units of
limited liability company interest in the Exchange collectively
comprising all interests in the profits and losses of the Exchange
and all rights to receive distributions from the Exchange as set
forth in the BOX Exchange LLC Agreement. See Article 2.5(a) of the
BOX Exchange LLC Agreement. ``Voting Units'' refer to equal units of
limited liability company interest in the Exchange collectively
comprising all voting interests of Members with respect to Exchange
matters. See Article 2.5(b) of the BOX Exchange LLC Agreement.
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BOX Holdings is a limited liability company, organized under the
laws of the State of Delaware on August 26, 2010. BOX Holdings is the
sole owner of BOX Options Market LLC, a facility of the Exchange (``BOX
Options''). The BOX Holdings charter is a Second Amended and Restated
Limited Liability Company Agreement, dated as of September 13, 2018
(``BOX Holdings LLC Agreement''). Citi and CSFB each became a Member
\10\ of BOX Holdings on May 10, 2012.
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\10\ A ``Member'' of BOX Holdings means the current owners of
BOX Holdings Units and includes any Person subsequently admitted to
BOX Holdings as an additional or substitute Member of BOX Holdings.
See BOX Holdings LLC Agreement Sec. 1.1. BOX Holdings ``Units''
means Class A Membership Units, Class B Membership Units, and Class
C Membership Units of BOX Holdings. See Article 1.1 of the BOX
Holdings LLC Agreement. The current Members of BOX Holdings are:
MXUS2, IB Exchange Corp. (``IB''), Citadel, Citi, UBS Americas Inc.
(``UBS''), CSFB, JPMC Strategic Investments I Corporation
(``JPMC''), Wolverine, and Aragon Solutions Ltd (``Aragon'').
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The Exchange proposes several transactions related to the ownership
of the Exchange and BOX Holdings. First, the Exchange would repurchase
the ownership interests in the Exchange held by Citi and CSFB.\11\
Second, BOX Holdings would repurchase the ownership interests in BOX
Holdings held by Citi and CSFB.\12\ Finally, Wolverine would purchase
an ownership interest in the Exchange from MXUS2.\13\ The charts below
summarize the ownership and voting percentage changes in the Exchange
and BOX Holdings that would result from the proposed transactions:
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\11\ See Notice, supra note 3, 86 FR at 51411 and Amendment No.
1, supra note 7.
\12\ See id.
\13\ See Notice, supra note 3, 86 FR at 51411-12 and Amendment
No. 1, supra note 7.
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BOX Exchange
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\14\ ``Economic Percentage Interest'' with respect to a Member
of the Exchange means the ratio of the number of Economic Units held
by the Member, directly or indirectly, of record or beneficially, to
the total of all of the issued and outstanding Economic Units held
by Members, expressed as a percentage. See Article 1.1 of the BOX
Exchange LLC Agreement.
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Current Proposed
economic economic
Exchange unit holder percentage percentage
interest \14\ interest
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MXUS2................................... 40.00 40.00
IB...................................... 20.00 20.00
Citadel................................. 7.68 12.28
Citi.................................... 7.68 ..............
UBS..................................... 7.45 11.92
CSFB.................................... 7.30 ..............
LabMorgan Corp./JPMC.................... 7.30 11.67
Aragon.................................. 2.58 4.13
[[Page 72022]]
Wolverine............................... .............. <0.01
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\15\ ``Voting Percentage Interest'' with respect to a Member of
the Exchange means the ratio of the number of Voting Units held by
the Member, directly or indirectly, of record or beneficially, to
the total of all of the issued and outstanding Voting Units held by
Members, expressed as a percentage. Voting Units held by a Member of
the Exchange that are ineligible to vote shall not be counted in the
numerator or the denominator when determining such ratio. See id.
\16\ ``Percentage Interest'' with respect to a Member of BOX
Holdings means the ratio of the number of Units held by the Member
to the total of all of the issued Units, expressed as a percentage
and determined with respect to each class of Units, whenever
applicable. See id.
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Proposed
Current voting voting
Exchange unit holder percentage percentage
interest \15\ interest
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MXUS2................................... 20.00 20.00
IB...................................... 20.00 20.00
Citadel................................. 18.73 20.00
Citi.................................... 10.00 ..............
UBS..................................... 4.99 4.99
CSFB.................................... 10.00 ..............
LabMorgan Corp./JPMC.................... 9.99 9.99
Aragon.................................. 6.30 20.00
Wolverine............................... .............. 5.03
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BOX Holdings
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Current Proposed
BOX holdings unit holder percentage percentage
interest \16\ interest
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MXUS2................................... 42.62 47.89
IB...................................... 22.69 25.50
Citadel................................. 13.80 15.50
Citi.................................... 7.85 ..............
UBS..................................... 3.23 3.63
CSFB.................................... 3.16 ..............
LabMorgan Corp./JPMC.................... 3.16 3.55
Aragon.................................. 1.12 1.26
Wolverine............................... 2.38 2.67
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Proposed
BOX holdings unit holder Current voting power voting power
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MXUS2.......................... 44.10% (Member votes).. 51.43
45.50% (total Board
voting power).
IB............................. 20.00%................. 20.00
Citadel........................ 14.28% (Member votes).. 16.65
14.73% (total Board
voting power).
Citi........................... 8.13% (Member votes)... ..............
8.38% (total Board
voting power).
UBS............................ 3.34% (Member votes)... 3.90
3.45% (total Board
voting power).
CSFB........................... 3.27% (Member votes)... ..............
3.37% (total Board
voting power).
LabMorgan Corp./JPMC........... 3.27% (Member votes)... 3.82
3.37% (total Board
voting power).
Aragon......................... 1.16% (Member votes)... 1.35
1.19% (total Board
voting power).
Wolverine...................... 2.46% (Member votes)... 2.87
0.00% (total Board
voting power because
Wolverine does not
have a Board seat).
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In addition to the transactions, the Exchange proposes to update
the name of one of its Members in the BOX Exchange LLC Agreement.
LabMorgan Corp., a Member of the Exchange, has changed its legal name
to ``JPMC Strategic Investments I Corporation.'' \17\
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\17\ See Notice, supra note 3, 86 FR at 51413, and Amendment No.
1, supra note 7.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\18\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\19\
which requires, among other things, that the rules of a national
securities exchange be designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. The Commission also finds that these proposed rule
changes, as modified by Amendment No. 1, are consistent with Section
6(b)(1) of the Act, which requires, among other things, that a national
securities exchange be so organized and have the capacity to carry out
the purposes of the Act, and to comply and enforce compliance by its
members and persons associated with its members, with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
exchange.
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\18\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\19\ 15 U.S.C. 78f(b)(5).
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Both the BOX Exchange LLC Agreement and the BOX Holdings LLC
Agreement contain provisions relating to limitations on ownership and
voting power. In particular, the BOX Exchange LLC Agreement provides
that no Person,\20\ either alone or together with any Related Persons
\21\ may own, directly or indirectly, of record or beneficially, an
aggregate Economic Percentage Interest greater than 40%.\22\ Exchange
Facility Participants,\23\ alone or together with any Related Persons
may not own, directly or indirectly, of record or beneficially, an
Economic Percentage Interest greater than 20%.\24\ In addition, no
Person, either alone or together with any Related Persons, may own,
directly or indirectly, of record or beneficially, an aggregate Voting
Percentage Interest greater than 20%.\25\ Moreover, any Member \26\ of
the Exchange involved in a transaction that would result in a Member
having a Voting Percentage Interest or Economic Percentage Interest,
alone or together with any Related Person, of record or beneficially,
of 5% or more will be required to provide written notice to BOX
Exchange 14 days before the transaction that would exceed the 5%
limit.\27\ BOX Exchange will then be required to provide written notice
to the Commission 10 days before the transaction.\28\
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\20\ ``Person'' means any individual, partnership, corporation,
association, trust, limited liability company, joint venture,
unincorporated organization and any government, governmental
department or agency or political subdivision thereof. See Article
1.1 of the BOX Exchange LLC Agreement.
\21\ The term ``Related Person'' is defined in Article 1.1 of
the BOX Exchange LLC Agreement.
\22\ See Article 7.3(f) of the BOX Exchange LLC Agreement.
\23\ ``Exchange Facility Participant'' means a firm or
organization that is registered with the Exchange pursuant to the
Exchange Rules for purposes of participant in trading on any
Exchange Facility. See Article 1.1 of the BOX Exchange LLC
Agreement. ``Exchange Facility'' means any facility of the Exchange
as the term ``facility'' is defined in Section 3 of the Act. See id.
\24\ Id.
\25\ See Article 7.3(g)(i) of the BOX Exchange LLC Agreement.
\26\ See supra note 9.
\27\ See Article 7.3(e) of the BOX Exchange LLC Agreement.
\28\ Id.
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In addition, the BOX Holdings LLC Agreement provides that if a
Member \29\ of BOX Holdings or any of its Related Persons \30\ is
approved by the Exchange as a BOX Options Participant,\31\ and if such
Member, alone or together with the Related Persons, own more than 20%
of BOX Holdings Units,\32\ then such Member and any director of BOX
Holdings designated by such Member will not have any voting rights with
respect to any Units owned in excess of 20%.\33\ The BOX Holdings LLC
Agreement further provides that any Member of BOX Holdings involved in
a transaction in which the Member's Percentage Interest \34\ in BOX
Holdings, either alone or together with any Related Person, will meet
or cross the threshold level of 5% or the successive 5% percentage
levels of 10% and 15% will be required to provide written notice to BOX
Holdings 14 days before the transaction.\35\ BOX Holdings will then be
required to provide written notice to BOX Exchange and the Commission
10 days before the transaction.\36\ In addition to these notices, any
transaction of Units that results in the acquisition and holding by any
Person,\37\ alone or with its Related Persons, of a Percentage Interest
that meets or crosses the threshold level of 20% or any successive 5%
percentage interest will be subject to the rule filing process of
Section 19 of the Act.\38\ Further, any transaction that is in
contravention of the notification and filing provisions shall be
void.\39\
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\29\ See supra note 10.
\30\ The term ``Related Person'' is defined in Article 1.1 of
the BOX Holdings LLC Agreement.
\31\ ``Options Participant'' means a firm, or organization that
is registered with the Exchange pursuant to the Rule 2000 Series for
purposes of participating in trading on a facility of the Exchange.
See BOX Rule 100(a)(41).
\32\ See supra note 10.
\33\ See Article 7.4(h) of the BOX Holdings LLC Agreement.
\34\ See supra note 16.
\35\ See Article 7.4(e) of the BOX Holdings LLC Agreement.
\36\ Id.
\37\ ``Person'' means any individual, partnership, corporation,
association, trust, limited liability company, joint venture,
unincorporated organization and any government, governmental
department or agency or political subdivision thereof. See Article
1.1 of the BOX Holdings LLC Agreement.
\38\ See Article 7.4(f) of the BOX Holdings LLC Agreement.
\39\ See Article 7.4(d) of the BOX Holdings LLC Agreement.
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The ownership and voting limitations are designed to help ensure
that BOX Exchange is able to effectively carry out its regulatory
obligations under the Act. In addition, the limitations are designed to
address the conflicts of interests that might result from a member of a
national securities exchange owning interests in the exchange. The
Commission believes that the Exchange has followed the required notice
procedures set forth in the BOX Exchange LLC Agreement and BOX Holdings
LLC Agreement and that the proposed transactions are in compliance with
the ownership and voting limitations in the governance documents.\40\
The Commission also notes that the BOX Exchange LLC Agreement \41\ and
BOX Holdings LLC
[[Page 72024]]
Agreement \42\ contain certain provisions designed to help maintain the
independence of the regulatory functions of BOX Exchange. The
Commission believes that the potential for conflicts of interest or
unfair competition is mitigated by these provisions.
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\40\ Although a commenter objects to Citadel's ownership and
voting percentages in BOX Holdings increasing because of the
contemplated transaction, the increase is consistent with the
ownership and voting limitations set forth in BOX Holdings governing
documents as previously approved by the Commission. See Securities
Exchange Act Release No. 66871 (April 27, 2012), 77 FR 26323 (May 3,
2012).
\41\ See, e.g., Article 4.6(b) of the BOX Exchange LLC Agreement
(requiring the Exchange and its Members to cooperate with BOX
Exchange and the Commission and to comply with federal securities
laws); and Article 18.6(b) of the BOX Holdings LLC Agreement
(deeming the Exchange, its Members and officers, directors,
employees and agents of each to submit to the jurisdiction of the US
federal courts and the Commission).
\42\ See, e.g., Article 4.12(b) of the BOX Holdings LLC
Agreement (requiring BOX Holdings and its Members to cooperate with
BOX Exchange and the Commission and to comply with federal
securities laws); Article 11.1 of the BOX Holdings LLC Agreement
(requiring the books and records of BOX Holdings and its Members to
be subject to inspection and copying by the Exchange and the
Commission at all times); and Article 18.6(b) of the BOX Holdings
LLC Agreement (deeming BOX Holdings, its Members and officers,
directors, employees and agents of each to submit to the
jurisdiction of the US federal courts, the Commission, and BOX
Exchange).
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With respect to the ownership of BOX Exchange, the Commission notes
that no BOX Exchange Member will own in excess of 40% of the Exchange's
Economic Units (20% if an Exchange Facility Participant) and 20% of the
Exchange's Voting Units. The board composition of the Exchange will not
change. And although BOX Holdings is not independently responsible for
regulation of BOX Options, its activities with respect to the operation
of BOX Options must be consistent with, and not interfere with, the
self-regulatory obligations of BOX Exchange. Pursuant to the
transaction, with respect to the ownership of BOX Holdings, the voting
power of IB, a BOX Options Participant, would remain at 20.00%.
Further, while MXUS2's voting power in BOX Holdings would increase,
MXUS2's power to appoint directors would remain unchanged.\43\ The
Commission accordingly believes that the proposed transfers are in
compliance with requirements in the BOX Exchange LLC Agreement and the
BOX Holdings LLC Agreement and provisions designed to help maintain BOX
Exchange's regulatory function.
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\43\ MXUS2 (through MXUS1) is a wholly-owned subsidiary of the
Bourse de Montreal (``Bourse'') and the Bourse is a wholly-owned
subsidiary of TMX Group Limited. Each of MXUS1, Bourse, and TMX
Group Limited is a party to the BOX Exchange LLC Agreement and BOX
Holdings LLC Agreement and has all the rights and responsibilities
of the Members of BOX Exchange and BOX Holdings. See Amendment No 1,
supra note 7.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\44\ that the proposed rule change (SR-BOX-2021-19), as modified by
Amendment No. 1, be, and hereby is, approved.
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\44\ Id.
\45\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27427 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P
