Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, To Adopt Rules Governing the Trading of Equity Securities on the Exchange Through a Facility of the Exchange Known as BSTX LLC, 5881-5901 [2022-02086]

Download as PDF Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices (B) Clearing Agency’s Statement on Burden on Competition ICE Clear Europe does not believe the proposed amendments would have any impact, or impose any burden, on competition not necessary or appropriate in furtherance of the purposes of the Act. The proposed amendments to the Delivery Procedures are intended to address new settlement discipline procedures applicable to certain contracts as provided in the CSDR and RTS. Although the procedures could result in certain additional costs to Clearing Members, if certain fines were imposed as a result of a settlement failure, those additional costs result from the requirements of relevant EU legislation applicable to settlements in the affected underlying securities which would be applicable to all market participants for the relevant contracts and it would be inappropriate for the Clearing House to bear the cost of late delivery fines, which should reasonably be passed on to the Clearing Members responsible for delivery failures. Furthermore, any such additional costs would result from a failure by the relevant Clearing Member or its customer to comply in a timely manner with its settlement obligations as specified under EU legislation. Accordingly, ICE Clear Europe does not believe the amendments would adversely affect competition among Clearing Members, materially affect the cost of clearing, adversely affect access to clearing for Clearing Members or their customers, or otherwise adversely affect competition in clearing services. Accordingly, ICE Clear Europe does not believe that the amendments would impose any impact or burden on competition that is not appropriate in furtherance of the purpose of the Act. jspears on DSK121TN23PROD with NOTICES1 (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments relating to the proposed amendments have not been solicited or received by ICE Clear Europe. ICE Clear Europe will notify the Commission of any comments received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 18 and paragraph (f) of Rule 19b–4 19 thereunder. At any time within 18 15 19 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml) or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ICEEU–2022–002 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–ICEEU–2022–002. 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 such filings will also be available for inspection and copying at the principal office of ICE Clear Europe and on ICE Clear Europe’s website at https:// www.theice.com/notices/Notices.shtml? regulatoryFilings. 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. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 5881 You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ICEEU–2022–002 and should be submitted on or before February 23, 2022. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2022–02078 Filed 2–1–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–94092; File No. SR–BOX– 2021–06] Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, To Adopt Rules Governing the Trading of Equity Securities on the Exchange Through a Facility of the Exchange Known as BSTX LLC January 27, 2022. Introduction On May 12, 2021, 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 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt rules governing the listing and trading of equity securities on the Exchange through a facility of the Exchange to be known as BSTX LLC (‘‘BSTX’’). The proposed rule change was published for comment in the Federal Register on June 2, 2021.3 On July 13, 2021, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change, to August 31, 2021.4 On August 18, 2021, the Exchange filed Amendment No. 1 to the proposed rule change, which replaced and superseded the proposed rule 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 92017 (May 25, 2021), 86 FR 29634 (‘‘Notice’’). Comments on the proposed rule change can be found at: https://www.sec.gov/comments/sr-box-2021-06/ srbox202106.htm. 4 See Securities Exchange Act Release No. 92387 (July 13, 2021), 86 FR 38140 (July 19, 2021). 1 15 E:\FR\FM\02FEN1.SGM 02FEN1 5882 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices jspears on DSK121TN23PROD with NOTICES1 change as originally filed.5 On August 27, 2021, the Commission published notice of Amendment No. 1 and instituted proceedings pursuant to Section 19(b)(2)(B) of the Exchange Act 6 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 1.7 On November 23, 2021, the Commission designated a longer period for Commission action on the proposed rule change, as modified by Amendment No. 1.8 On December 20, 2021, the Exchange filed Amendment No. 2, which replaced and superseded the proposed rule change, as modified by Amendment No. 1.9 On January 20, 2022, the Exchange 5 In Amendment No. 1, the Exchange revised the proposal to: (i) Eliminate the proposed suspension of unlisted trading privileges for thinly traded securities; (ii) modify proposed rule text regarding the order parameter that would allow participants to indicate a preference for same day or next day settlement to clarify that, based on how the preferences of the two sides of an executed trade compare, the Exchange will transmit matched order information to a registered clearing agency for settlement as indicated to the extent that such settlement timing may be permitted under the rules, policies, and procedures of the registered clearing agency; (iii) modify aspects of the proposed market data blockchain to remove the Exchange’s ability to change the content of the market data blockchain through a regulatory circular, remove the unique identification number from the types of memberspecific market data, specify that anonymized, general market data will pertain to displayed orders, and add that the Exchange may provide permission for non-members to view the anonymized, general market data; (iv) add rule text regarding the Exchange’s proposed market data products; (v) eliminate a proposed rule regarding issuer conversion of a security to listing on BSTX; (vi) provide additional description of several aspects of the proposal, including the market data blockchain and the possibility to settle on a sameday or next-day basis; and (vii) make technical and conforming changes. Amendment No. 1 is available on the Commission’s website at: https:// www.sec.gov/comments/sr-box-2021-06/ srbox202106-9159349-247726.pdf. 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 92796, 86 FR 49416 (September 2, 2021) (‘‘OIP’’). 8 See Securities Exchange Act Release No. 93649, 86 FR 68023 (November 30, 2021). 9 In Amendment No. 2, the Exchange revised the proposal to: (i) Provide additional information regarding the connectivity and co-location services that will be offered at the Exchange’s primary data center, including equidistant cabling arrangements; (ii) state that, pursuant to its authority under proposed BSTX Rule 26101, the Exchange would not permit an issuer to list a new class of securities on BSTX that is not distinct from an existing class of securities of the issuer; (iii) modify proposed rule text regarding the proposed market data blockchain to clarify that non-members will have access to anonymized, general market data and specify what fields are included in this data, to specify that the market data will apply to trading activity for regular trading hours, and to clarify that users will view the data through an application programming interface; (iv) modify proposed rule text related to the proposed order parameter that would be used to preference same-day settlement to add a cut-off time by which an execution must occur to be eligible for same-day settlement; (v) modify certain proposed rules to bring them into closer alignment with the rules of other national securities exchanges VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 filed partial Amendment No. 3 to the proposed rule change.10 The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment Nos. 2 and 3, from interested persons and is approving the proposed rule change, as modified by Amendment Nos. 2 and 3, on an accelerated basis. II. Description of the Proposal, as Modified by Amendment Nos. 2 and 3 As set forth in the OIP and Amendment Nos. 2 and 3,11 the on which equity securities are traded, including rules regarding securities eligible for trading, prohibitions against trading ahead of customer orders, round lots, minimum price variants, auctions used to open or reopen trading, the dissemination of market data concerning such auctions, risk controls, market maker registration process and obligations, business conduct, trading practices, maintaining books and records, offexchange transactions, scope of the minor rule violation plan, trade reporting and the dissemination of quotations, clearly erroneous executions, and locking and crossing quotations; (vi) eliminate a proposed rule regarding an audit trail that has been superseded by rules pertaining to the Consolidated Audit Trail; (vii) modify certain proposed listing standards to comply with the thresholds in Rule 3a51–1, and bring the proposed listing standards into closer alignment with the rules of other national securities exchanges on which equities securities are traded, including with respect to the listing of secondary classes and preferred stock, the required number of market makers, requirements for securities of foreign issuers that would apply to the listing of Canadian issuers, the listing of securities that are subject to an exemption from Exchange Act registration, the method of computing the payment of cash in lieu of fractional shares, the settlement timing of securities transactions, requirements to notify the Exchange before engaging in activities relating to a proxy contest, requirements that listed companies establish and maintain an internal audit function, the calculation of regulatory transaction fees under Section 31 of the Exchange Act, and the distribution of funds in the event of liquidation of the Exchange; (viii) eliminate a proposed listing requirement that an applicant provide a legal opinion that its security qualifies as a security under applicable United States securities laws; (ix) provide additional description to clarify operation of the proposed market data blockchain and proposed order parameter that would be used to preference same-day or next-day settlement; and (x) make technical and conforming changes. Amendment No. 2 is available on the Commission’s website at: https://www.sec.gov/comments/sr-box-2021-06/ srbox202106-20110109-264393.pdf (‘‘Amendment No. 2’’). 10 In Amendment No. 3, the Exchange revised the proposal to make certain changes to the proposed listing rules in proposed BSTX Rule 26000 to promote consistency with the definition of ‘‘penny stock’’ under Exchange Act Rule 3a51–1, including by defining ‘‘public distribution’’ and ‘‘public shareholder’’ consistently with Rule 3a51–1, changing references to ‘‘Market Value of Listed Securities’’ to ‘‘Total Value of Market Capitalization,’’ and eliminating initial listing standards for preferred stock that were based on the rules of NYSE American. Amendment No. 3 is available on the Commission’s website at: https:// www.sec.gov/comments/sr-box-2021-06/ srbox202106-20112225-265310.pdf (‘‘Amendment No. 3’’). 11 See OIP, supra note 7; Amendment No. 2, supra note 9; Amendment No. 3, supra note 10. PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 Exchange proposes to adopt listing standards for certain equity securities (‘‘Securities’’) along with rules governing the trading of Securities through a facility of the Exchange known as BSTX.12 BSTX would operate a fully automated, price/time priority execution system (‘‘BSTX System’’) for the trading of Securities.13 Under the proposed rules, Securities would be NMS stocks, as defined in Rule 600(b)(54),14 that meet BSTX listing standards and that trade on the BSTX System.15 BSTX would serve as the listing market for eligible companies and issuers of exchange traded products (‘‘ETPs’’).16 The Exchange states that it is not proposing rules that would support the extension of unlisted trading privileges (‘‘UTP’’) to NMS stocks listed on other national securities exchanges.17 The Exchange proposes rules for participation on BSTX, business conduct for BSTX Participants,18 12 See OIP, supra note 7, 86 FR at 49416. Pursuant to a separate proposed rule change, the Exchange proposes to establish BSTX as a facility of the Exchange that will operate a market for the trading of securities (‘‘BSTX Market’’) and adopt the BSTX Third Amended and Restated LLC Agreement. See Securities Exchange Act Release No. 93094 (September 21, 2021), 86 FR 53365 (September 27, 2021) (SR–BOX–2021–14) (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 BSTX as a Facility of the Exchange) (‘‘Amended BSTX Governance Proposal’’); Amendment No. 2, supra note 9, at 7. Among other things, the Amended BSTX Governance Proposal sets forth the proposed ownership structure for BSTX. The Exchange states that without Commission approval of the trading rules, the Exchange 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–2021–14 is approved by the Commission. See Amended BSTX Governance Proposal, 86 FR at 53366. The Exchange also states that without approved rules pertaining to the governance structure of BSTX as a facility of the Exchange, the Exchange will not commence operation of BSTX. See Amendment No. 2, supra note 9, at 9. 13 See OIP, supra note 7, 86 FR at 49416. 14 17 CFR 242.600(b)(54). 15 See OIP, supra note 7, 86 FR at 49417. The Exchange proposes listing standards that, according to the Exchange, are similar to the listing standards of NYSE American LLC (‘‘NYSE American’’). See id. at 49439. 16 See id. at 49417. 17 See id. The Exchange also states that, therefore, it would only trade Securities listed on BSTX unless and until it proposes and receives Commission approval for rules that would support trading in other types of securities, including through the extension of UTP to other NMS stocks. See id. 18 ‘‘BSTX Participant’’ would be defined as a Participant or Options Participant that is authorized to trade securities on the Exchange. See proposed BSTX Rule 17000(a)(12). See also proposed BOX Rules 100(a)(41) (defining ‘‘Options Participant’’ to mean a Participant registered with the Exchange for E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices jspears on DSK121TN23PROD with NOTICES1 financial and operational provisions for BSTX Participants, supervision, trading practices, discipline, trading on the BSTX System, market making, and listing Securities on BSTX.19 The Exchange proposes to offer several proprietary market data products that are similar to those offered by other national securities exchanges, as well as a historical market data product that utilizes blockchain technology.20 Specifically, the Exchange proposes to record and disseminate certain information regarding orders and executions on BSTX on a proprietary market data feed that BSTX would operate using a proprietary blockchain system (‘‘BSTX Market Data Blockchain’’).21 The Exchange states that the BSTX Market Data Blockchain would be accessible through an application program interface (‘‘API’’) available through the internet, and the Exchange would control all aspects of the BSTX Market Data Blockchain and the associated API.22 The Exchange states that two types of information would be available on the BSTX Market Data Blockchain. Each BSTX Participant would be able to see its own order and transaction information related to its own trading activity on BSTX (‘‘Participant Proprietary Data’’).23 In addition, all BSTX Participants and non-BSTX Participants with permission to view the BSTX Market Data Blockchain would be able to see anonymized, general market data related to all trading activity occurring on BSTX (‘‘General Market Data’’).24 The Exchange states that information would be posted to the BSTX Market Data Blockchain on a delayed basis of at least five minutes.25 The Exchange states that the General Market Data that would be available on the BSTX Market Data Blockchain purposes of participating in options trading on the Exchange); and 100(a)(42) (defining ‘‘Participant’’ to mean a firm or organization that is registered with the Exchange pursuant to BOX Rule 2000 Series for purposes of participating in trading on a facility of the Exchange, including an Options Participant and BSTX Participant). 19 See OIP, supra note 7, 86 FR at 49417. 20 See proposed BSTX Rule 22060. The Exchange states that its rule concerning market data products is substantially similar to that of MEMX LLC (‘‘MEMX’’). See OIP, supra note 7, 86 FR at 49424 & n.154. 21 See proposed BSTX Rules 17000(a)(9) and 17020. 22 See OIP, supra note 7, 86 FR at 49420. The Exchange states that only the Exchange would have direct access to the underlying data on the private blockchain. See id. 23 See id. 24 See id. 25 See id. at 49421. See also infra note 156 (describing that by ‘‘five minute delay,’’ the Exchange means that market data would be uploaded once every five minutes). VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 would contain substantively similar information as would be available through the Exchange’s proprietary market data feeds.26 The Exchange further states that the BSTX Market Data Blockchain would not impact the ability of Securities to trade on other national securities exchanges or over-the-counter (‘‘OTC’’).27 According to the Exchange, all transactions in Securities would clear and settle in accordance with the rules, policies, and procedures of registered clearing agencies.28 The Exchange states that BSTX anticipates that The Depository Trust Company (‘‘DTC’’) would serve as the securities depository for Securities and that confirmed trades in Securities on BSTX would be transmitted to National Securities Clearing Corporation (‘‘NSCC’’) for clearing.29 The Exchange proposes to introduce an optional order parameter that would allow BSTX Participants to indicate a preference for settlement on a shorter settlement cycle than the standard two business day (‘‘T+2’’) settlement cycle. Specifically, the Exchange proposes that BSTX Participants would be able to utilize an order parameter that would indicate a preference for settlement on a same day (‘‘T+0’’) or next day (‘‘T+1’’) basis when certain conditions are met.30 The Exchange states that orders in a Security that include a parameter indicating a preference for settlement on a T+0 basis or on a T+1 basis would only result in executions that would actually settle more quickly than on a T+2 basis if, and only if, all of the specified conditions are met and the execution that is transmitted by BSTX to NSCC is eligible for T+0 or T+1 settlement under the rules, policies, and procedures of a registered clearing agency.31 The Exchange states that any such preference would only become 26 See OIP, supra note 7, 86 FR at 49421. id. at 49423. The Exchange states that it is proposing to use blockchain technology for purposes of the BSTX Market Data Blockchain and that, to the extent the Exchange proposes future applications of blockchain technology to the Exchange’s business, the Exchange would file such proposal with the Commission. See Amendment No. 2, supra note 9, at 29 n.52. The Commission notes that the Exchange’s current proposal does not involve the trading of digital tokens and such a proposal, or any other additional use of blockchain technology, would require that the Exchange file a proposed rule change pursuant to Section 19(b) and Rule 19b–4 of the Exchange Act. 28 See OIP, supra note 7, 86 FR at 49418. The Exchange also states that the operation of the BSTX Market Data Blockchain would have no impact or effect on the manner in which a Security clears and settles. See id. 29 See id. 30 See id. at 49423; proposed BSTX Rule 25060(h). 31 See OIP, supra note 7, 86 FR at 49424. 27 See PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 5883 operative if the order happened to execute against another order that also includes a parameter indicating a preference for settlement on a T+0 or T+1 basis.32 According to the Exchange, an order with a preference for faster settlement would continue to interact with any other order against which it is marketable, and a resulting execution would always settle using the latest settlement timing associated with the two matching orders.33 The Exchange also states that the possibility of a shortened settlement time would have no impact on the Exchange’s proposed price/time priority structure for order matching.34 III. Discussion and Commission Findings After careful review of the proposed rule change, as modified by Amendment Nos. 2 and 3, the Commission finds that the proposal is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.35 Specifically, the Commission finds that the proposed rule change, as amended, is consistent with Section 6(b)(5) of the Exchange Act,36 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, and processing information with respect to, and facilitating transactions in securities; to remove impediments to and perfect the mechanism of a free and open market and a national market system; and, in general, to protect investors and the public interest. Section 6(b)(5) also requires that the rules of a national securities exchange not be designed to permit unfair discrimination among customers, issuers, brokers, or dealers. Further, the Commission finds that the proposed rule change, as amended, is consistent with Section 6(b)(1) of the Exchange Act,37 which requires, among other things, that a national securities exchange be so organized and have the capacity to carry out the purposes of the Exchange Act, and to comply and enforce compliance by its members and 32 See id. id. at 49425. 34 See id. at 49424. 35 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 36 15 U.S.C. 78f(b)(5). 37 15 U.S.C. 78f(b)(1). 33 See E:\FR\FM\02FEN1.SGM 02FEN1 5884 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices persons associated with its members, with the provisions of the Exchange Act, the rules and regulations thereunder, and the rules of the exchange, and with Sections 6(b)(6) and 6(b)(7) of the Exchange Act,38 which require a national securities exchange to provide fair procedures for the disciplining of members and persons associated with members. The Commission also finds that the proposed rule change, as amended, is consistent with Section 11A of the Exchange Act,39 and, consistent with Section 6(b)(8) of the Exchange Act, does not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.40 The Commission further finds that the proposed rule change, as amended, is consistent with the public interest, the protection of investors, or otherwise in furtherance of the purposes of the Exchange Act, as required by Rule 19d– 1(c)(2) under the Exchange Act,41 which governs minor rule violation plans. The Exchange proposes to adopt rules governing the trading of Securities under the proposed rules through a facility of the Exchange known as BSTX, which will function in a manner similar to equities trading platforms that the Commission has approved for other national securities exchanges.42 With the exception of the proposed BSTX Market Data Blockchain and optional order parameter for preferencing settlement on a T+0 or T+1 basis, the Exchange’s proposed rules for BSTX are substantively similar to the corresponding rules of other equities exchanges. As discussed below, the Commission believes that the proposed rule change, as modified by Amendment Nos. 2 and 3, is consistent with the Exchange Act. A. BSTX Participants The Exchange proposes to adopt BSTX Rule 18000, which will set forth requirements for participation on BSTX. A ‘‘BSTX Participant’’ will be a new category of Exchange participant for effecting transactions on the BSTX System. All BOX Participants would be eligible to participate in BSTX provided that they become a BSTX Participant 38 15 U.S.C. 78f(b)(6) and (b)(7). U.S.C. 78k–1. 40 15 U.S.C. 78f(b)(8). 41 17 CFR 240.19d–1(c)(2). 42 BSTX’s rules, including its rules relating to participation on BSTX and business conduct, financial and operational, supervisory, and trading practice rules, and certain trading, market making, and listing rules, are similar to existing national securities exchanges’ trading and listing rules. See, e.g., Rules of the Cboe BZX Exchange, Inc. (‘‘Cboe BZX’’), Investors Exchange LLC (‘‘IEX’’), and NYSE American. jspears on DSK121TN23PROD with NOTICES1 39 15 VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 pursuant to the proposed rules.43 A BSTX Participant must complete the BSTX Participation Application, Participation Agreement, and User Agreement; 44 be an existing Participant or Options Participant or become a Participant or Options Participant of the Exchange pursuant to BOX Rule 2000 Series and continue to abide by all applicable provisions in BOX Rule 2000 Series; 45 and provide such other information as required by the Exchange.46 BSTX Participants would be required to comply with, among other things, financial responsibility requirements established by Rule 15c3– 1 under the Exchange Act and applicable books and records requirements, and be a member or participant of a registered clearing agency or clear security transactions through another BSTX Participant that is a member or participant of a registered clearing agency.47 In addition, proposed BSTX Rule 18020 would require associated persons of a BSTX Participant to be bound by the rules of the Exchange to the same extent as each BSTX Participant and allow the Exchange to discipline, suspend, or terminate the registration with the Exchange of any person associated with a BSTX Participant for violation of the Exchange rules.48 The Exchange also proposes rules for business conduct for BSTX Participants, financial and operational provisions for BSTX Participants, and rules for supervision, trading practices, 43 See OIP, supra note 7, 86 FR at 49417. The Exchange proposes defined terms for use in the BSTX Rules, and states that terms defined elsewhere in the BOX Rules shall have the same meaning. See proposed BSTX Rule 17000. The Exchange also proposes to specify that the proposed BSTX Rules apply to the trading of securities by BSTX Participants approved for such trading, the listing of securities, and related matters pertaining to the trading of securities, and that unless specific BSTX Rules related to securities govern or the context otherwise requires, the provisions of the existing BOX Rules shall be applicable to BSTX Participants and the trading of securities on the BSTX System. See proposed BSTX Rule 17010. Further, the Exchange proposes to make conforming changes to certain existing BOX Rules that would apply to BSTX Participants, but currently only contemplate trading in options. See Amendment No. 2, supra note 9, at 123; proposed BOX Rules 100, 2020, 2060, 3180, 7130, 7150, 7230, 7245, IM– 8050–3, 11010, 11030, and 12140. 44 See Exhibits 3A, 3B, and 3C, respectively. 45 The BOX Rule 2000 Series requires, among other things, that a Participant (including a BSTX Participant) remain a member of another registered national securities exchange or national securities association. See OIP, supra note 7, 86 FR at 49448 n.320. 46 See proposed BSTX Rule 18000. 47 See proposed BSTX Rule 18010(b). See also Exhibits 3F and 3G. 48 See proposed BSTX Rule 18020(b). PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 discipline, and market making.49 According to the Exchange, the proposed BSTX Rule 19000 Series would specify business conduct requirements that are substantially similar to those of other national securities exchanges,50 which pertain to: Just and equitable principles of trade; adherence to law; use of fraudulent devices; false statements; know your customer; fair dealing with customers; suitability; prompt receipt and delivery of securities; charges for services performed; use of information obtained in a fiduciary capacity; publication of transactions and quotations; offers at stated prices; payments involving publications that influence the market price of a security; customer confirmations; disclosure of a control relationship with an issuer of securities; discretionary accounts; improper use of customers’ securities or funds and a prohibition against guarantees and sharing in accounts; the extent to which sharing in accounts is permissible; communications with customers and the public; gratuities; telemarketing; mandatory systems testing; and short interest reporting. The Exchange states that the proposed business conduct rules are identical to those of other national securities exchanges, other than changes to defined terms and certain other provisions that would not apply to the trading of Securities on the BSTX System.51 According to the Exchange, the proposed BSTX Rule 20000 Series would specify financial and operational rules for BSTX Participants associated with maintenance and furnishing of books and records, financial reports, net capital compliance, early warning notifications pursuant to Rule 17a–11 under the Exchange Act, authority of the Chief Regulatory Officer to impose certain restrictions, margin, day-trading margin, customer account information, maintaining records of customer complaints, and disclosure of financial 49 See proposed BSTX Rule Series 19000, 20000, 21000, 23000, 24000, 25000, and 25200. 50 See Amendment No. 2, supra note 9, at 48 (citing to Cboe BZX Rules Chapter III and IEX Rules Chapter 3). 51 See OIP, supra note 7, 86 FR at 49427. For example, the Exchange is not proposing to adopt a rule contained in other national securities exchanges’ business conduct rules relating to disclosures that broker-dealers give to their customers regarding the risks of effecting securities transactions during times other than Regular Trading Hours because executions may only occur during Regular Trading Hours on the BSTX System. See id. at 49427 n.113 (citing to IEX Rule 3.290 and Cboe BZX Rule 3.21). ‘‘Regular Trading Hours’’ would mean the time between 9:30 a.m. and 4:00 p.m. Eastern Time (‘‘ET’’). See proposed BSTX Rule 17000(a)(29). E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices condition.52 The Exchange represents that the financial and operational requirements are substantially similar to those of other national securities exchanges.53 Further, the Exchange proposes to adopt supervisory requirements for BSTX Participants in the proposed BSTX Rule 21000 Series, which, according to the Exchange, are substantially similar to those of other national securities exchanges.54 The proposed supervisory requirements pertain to enforcing written procedures to appropriately supervise the BSTX Participant’s conduct and compliance with applicable regulatory requirements, designation of an individual to carry out written supervisory procedures, maintenance and keeping of records carrying out the BSTX Participant’s written supervisory procedures, review of activities of each BSTX Participant’s offices, including periodic examination of customer accounts to detect and prevent irregularities or abuses, prevention of the misuse of material non-public information, and implementation of an anti-money laundering compliance program.55 The proposed BSTX Rule 22000 Series would provide, among other things, that BSTX Participants must comply with requirements with respect to comparison and settlement, borrowing and deliveries in accordance with Rule 203 of Regulation SHO, forwarding of proxy and other issuerrelated materials, commissions, regulatory services agreements, and conditions and limitations on transactions involving Exchange employees.56 Proposed BSTX Rule 22070 would generally provide that the rules of the Exchange would not prohibit, condition, or limit the ability of any BSTX Participant, including a BSTX Participant acting as an agent, to effect any transaction otherwise than on the Exchange with another person in any security listed on the Exchange or to which UTP on the Exchange has been extended.57 The Exchange represents 52 See OIP, supra note 7, 86 FR at 49428. id. at 49428 & n.116 (citing to Cboe BZX Rules Chapter VI and IEX Rules Chapter 5). The Exchange states that the proposed BSTX Rule 20000 Series also incorporates existing rules of the Exchange or another self-regulatory organization (‘‘SRO’’) by reference. See id. at 49428. 54 See id. 55 See id. at 49428 & n.128 (citing to Cboe BZX Rules Chapter V and IEX Rule 5.150). 56 See proposed BSTX Rule 22000 Series. 57 See Amendment No. 2, supra note 9, at 58; proposed BSTX Rule 22070. The Exchange states that the proposed rule is consistent with the requirements of Rules 19c–1 and 19c–3 under the Exchange Act and substantially similar to rules of other national securities exchanges. See jspears on DSK121TN23PROD with NOTICES1 53 See VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 that these miscellaneous requirements are substantially similar to rules of other national securities exchanges.58 The Exchange also proposes to adopt the BSTX Rule 23000 Series relating to trading practice requirements for BSTX Participants, including prohibiting forms of market manipulation and specifying certain obligations brokerdealers have to their customers, such as the duty of best execution.59 The Exchange represents that the trading practice rules are substantially similar to those of other national securities exchanges.60 With respect to the imposition of suspension and disciplinary actions, the Exchange states that it proposes to adopt the BSTX Rule 24000 Series, which would provide that the Exchange rules 61 pertaining to discipline and suspension of Exchange Participants that have been approved by the Commission shall be applicable to BSTX Participants and trading on the BSTX System.62 The Exchange proposes to allow firms to register as Market Makers and Designated Market Makers (‘‘DMMs’’) 63 with affirmative and negative market Amendment No. 2, supra note 9, at 58 (citing to, for example, Cboe BZX Rule 13.6). 58 See OIP, supra note 7, 86 FR at 49429 & n.138 (citing to Cboe BZX Rules Chapter XIII and IEX Rule 6.180). 59 According to the Exchange, the proposed BSTX Rule 23000 Series would specify trading practice requirements related to: (i) Market manipulation; (ii) fictitious transactions; (iii) excessive sales by a BSTX Participant; (iv) manipulative transactions; (v) dissemination of false information; (vi) prohibition against trading ahead of customer orders; (vii) joint activity; (viii) influencing data feeds; (ix) trade shredding; (x) best execution; (xi) publication of transactions and changes; (xii) trading ahead of research reports; (xiii) front running of block transactions; and (xiv) a prohibition against disruptive quoting and trading activity. See id. at 49429. 60 See id. at 49429 & n.155 (citing to Cboe BZX Rules Chapter XII). The Exchange states that the proposed minimum price improvement standards in proposed BSTX Rule 23050(h) are consistent with those of other national securities exchanges and the Financial Industry Regulatory Authority (‘‘FINRA’’). See Amendment No. 2, supra note 9, at 62 (citing to Cboe BZX Rule 12.6.06). 61 See BOX Rule 11000 Series (Summary Suspension), 12000 Series (Discipline), 13000 Series (Review of Certain Exchange Actions), and 14000 Series (Arbitration). 62 See OIP, supra note 7, 86 FR at 49430–31; proposed BSTX Rule 24000. In addition, the Exchange proposes to amend its Minor Rule Violation Plan to add certain rules relating to BSTX to the list of rules eligible for minor rule violation plan treatment, by amending BOX Rule 12140 and adopting proposed BSTX Rule 24010 (Penalty for Minor Rule Violations). See Amendment No. 2, supra note 9, at 121. 63 ‘‘Designated Market Maker’’ or ‘‘DMM’’ would be defined as a BSTX Participant registered as a DMM pursuant to the BSTX Rule 25200 Series. See proposed BSTX Rule 17000(a)(20). PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 5885 making obligations.64 A BSTX Participant registered as a BSTX Market Maker, including a DMM, would be required to engage in a course of dealing for its own account in the maintenance of a fair and orderly market.65 Among other things, each Market Maker must maintain two-sided quotes during the regular market session for each Security in which it is registered as a Market Maker.66 A non-DMM Market Maker may temporarily withdraw its Market Maker status,67 and any BSTX Market Maker, other than a DMM, may voluntarily terminate its registration with the Exchange.68 If the Exchange finds any substantial or continued failure by a BSTX Market Maker to engage in a course of dealings specified in proposed BSTX Rule 25220(a),69 the 64 See proposed BSTX Rule 25200 Series. The Exchange states that rules relating to market makers are similar to the rules of other national securities exchanges. See Amendment No. 2, supra note 9, at 95–102 (citing to IEX Rules 11.150 and 11.151 and NYSE American Rules 7.20E through 7.26E). The Exchange states that proposed BSTX Rule 25200 differs from IEX Rule 11.150 in that IEX makes the registration effective on the trading day after the request is entered, whereas the Exchange would have discretion to make registration effective the day the request is entered with notice provided to the prospective BSTX Market Maker. See id. at 95 n.277. 65 See proposed BSTX Rule 25220. The Exchange states that proposed BSTX Rule 25220 is substantially similar to NYSE American Rule 7.23E, with certain exceptions, and IEX Rule 11.151. According to the Exchange, the proposed BSTX rule differs from NYSE American Rule 7.23E in that, among other things, the proposed BSTX rule specifies the minimum quotation increment for securities priced above $1.00 per share and below $1.00 per share and requires Market Maker quotations to be firm for their displayed size and automatically executable. See Amendment No. 2, supra note 9, at 97–98. See also infra note 66. 66 See proposed BSTX Rule 25220(a)(1). The Exchange proposes that the quotes must be entered within the ‘‘Designated Percentage,’’ which according to the Exchange would be the same as that required of market makers on other national securities exchanges. See Amendment No. 2, supra note 9, at 96 (citing to IEX Rule 11.151). The Exchange notes, however, that the Defined Percentage and ‘‘Defined Limit,’’ which is the percentage by which price movements cause a Market Maker or DMM’s quotations to fall outside of the national best bid and offer (‘‘NBBO’’) or last sale price, differ from NYSE American Rule 7.23E in that the Exchange specifies Defined Percentage and Defined Limit with reference to securities that are part of the S&P500 Index, Russell 1000 Index, or a pilot list of exchange traded products. The Exchange states its belief that the difference does not pose any novel requirements and is similar to the market maker requirements of IEX. See id. at 98 (citing to IEX Rules 11.151(a)(6), (7), (11), and 11.151(b)(1)). 67 See proposed BSTX Rule 25220(d). According to the Exchange, the process by which a DMM may temporarily withdraw from its DMM status is similar to the process applicable to a non-DMM Market Maker. See proposed BSTX Rule 25240(b)(4); OIP, supra note 7, 86 FR at 49438. 68 See proposed BSTX Rule 25210(d). 69 See supra note 66; proposed BSTX Rule 25220(a). E:\FR\FM\02FEN1.SGM 02FEN1 5886 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices Exchange would subject the Market Maker to disciplinary action or suspension or revocation of the registration by the Exchange in one or more of the Securities in which the Market Maker is registered.70 Proposed BSTX Rule 25230 sets forth certain requirements for Market Maker Authorized Traders (‘‘MMATs’’), which are individuals permitted to enter orders only for the account of the Market Maker or DMM for which they are registered.71 The proposed rule specifies, among other things, eligibility for registration as a MMAT, the Exchange’s ability to suspend an individual’s registration as a MMAT, and the process for voluntary withdrawal of a MMAT via written request of the BSTX Participant for which the MMAT is registered.72 The Exchange represents that the proposed provisions related to MMATs are substantially similar to those of other national securities exchanges.73 Proposed BSTX Rule 25240 sets forth the registration and obligations of DMMs.74 Among other things, a DMM must be registered as a Market Maker and, in addition to meeting the obligations of Market Makers set forth in proposed BSTX Rule 25220,75 the DMM must maintain a bid or offer at the NBBO at least 25% of the day as measured across all Securities that have been assigned to the DMM.76 Proposed BSTX Rule 25240 further provides that all BSTX-listed Securities may be assigned to a DMM and there would be no more than one DMM per BSTX-listed Security.77 A BSTX Participant registered as a DMM in a Security may also be registered as a Market Maker in that Security only if the BSTX Participant maintains information barriers between the trading unit operating as a DMM and the trading unit operating as a non-DMM Market Maker 70 See proposed BSTX Rule 25220(c). proposed BSTX Rule 25230. 72 See id. 73 See Amendment No. 2, supra note 9, at 98 (citing to NYSE American Rule 7.21E and Cboe BZX Rule 11.6). 74 See proposed BSTX Rule 25240. The Exchange represents that proposed BSTX Rule 25240 is substantially similar to NYSE American Rule 7.24E, except the Exchange would not be required to assign a DMM if the Security has an adequate number of BSTX Market Makers assigned to such Security. The Exchange states that the purpose of this requirement is to acknowledge the possibility that a Security need not necessarily have a DMM, provided that each Security has been assigned at least four active Market Makers, consistent with proposed the Market Maker requirement in BSTX Rule 26106. See Amendment No. 2, supra note 9, at 99–100. 75 See supra notes 65–66. 76 See proposed BSTX Rule 25240(c). 77 See proposed BSTX Rule 25240(a). jspears on DSK121TN23PROD with NOTICES1 71 See VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 in the same Security.78 Proposed BSTX Rule 25250 would set forth the allocation and reallocation of Securities to DMMs.79 Among other things, the proposed rule would set forth when a Security is eligible for allocation or reallocation, as well as the eligibility of DMMs to participate in the allocation process.80 The proposed rule further sets forth the allocation process— whether the issuer selects the DMM directly, delegates the selection to the Exchange, or opts to proceed with listing without a DMM, in which case a minimum of four non-DMM Market Makers must be assigned to its Security.81 In the event that a listed company wishes to change its DMM, proposed BSTX Rule 25250(c) sets forth the reallocation process.82 Should a DMM lose its registration or voluntarily withdraw its registration, the DMM would be ineligible, under the Exchange’s ‘‘Allocation Freeze Policy,’’ for future allocations for a six-month period.83 For companies that list Securities through an initial public offering, the allocation decision would remain effective for 18 months.84 The proposed rule also sets forth criteria the Exchange may consider for applicants that are not currently DMMs to be allocated a Security as a DMM.85 The Exchange proposes the DMM combination review policy in BSTX Rule 25260.86 A DMM combination would require proponents of the combination to make a written submission to the Office of the Corporate Secretary of the Exchange addressing certain enumerated factors 78 See proposed BSTX Rule 25240(b)(3). proposed BSTX Rule 25250. 80 See proposed BSTX Rule 25250(a). The Exchange states that the process by which the Exchange would handle a DMM that fails to meet its obligations, as proposed in BSTX Rule 25250(a)(4), is substantially similar to NYSE American Rule 7.25E(a)(4). See OIP, supra note 7, 86 FR at 49438 & n.254. 81 See proposed BSTX Rule 25250(b). See also Exhibit 3D. The Exchange states that the proposed rule is similar to NYSE American Rule 7.25E(b). See Amendment No. 2, supra note 9, at 101. 82 See proposed BSTX Rule 25250(c). The Exchange represents that the proposed reallocation policy is substantially similarly to corresponding provisions in NYSE American Rule 7.25E(c). See OIP, supra note 7, 86 FR at 49439. 83 See proposed BSTX Rule 25250(d); OIP, supra note 7, 86 FR at 49439 (stating that the proposed rule is substantially similar to NYSE American Rule 7.25E(d)). 84 See proposed BSTX Rule 25250(e); OIP, supra note 7, 86 FR at 49439 (stating that the proposed rule is substantially similar to NYSE American Rule 7.25E(e)). 85 See proposed BSTX Rule 25250(f); OIP, supra note 7, 86 FR at 49439 (stating that the proposed rule is substantially similar to NYSE American Rule 7.25E(f)). 86 See proposed BSTX Rule 25260. 79 See PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 for the Exchange to consider in reviewing the proposed combination, and as well as the procedures the Exchange would follow in approving or disapproving a combination.87 The proposed rule also sets forth the timeline for the Exchange to approve or disapprove a combination, the ability of the Exchange to grant conditional approvals, and the ability to have the Exchange’s board of directors to review a disapproval decision.88 The Exchange’s rules with respect to participation on BSTX, including the proposed affirmative and negative obligations for Market Makers and DMMs, and the proposed business conduct, financial and operational, supervision, and trading practice rules, raise no novel regulatory issues. The Commission finds that these proposed rules are consistent with the Exchange Act, and Section 6(b)(5) of the Exchange Act in particular,89 because by setting forth these requirements for different types of participants, they establish a framework for what entities will participate in BSTX and how they will interact with other BSTX Participants and fulfill their obligations, which should help to promote just and equitable principles of trade, perfect the mechanism of a national market system and, in general, protect investors and the public interest. The Commission also finds that these proposed rules subject BSTX Participants, including BSTX Market Makers and DMMs, to appropriate discipline for improper conduct, consistent with Sections 6(b)(6) and 6(b)(7) of the Exchange Act.90 B. BSTX System The Exchange proposes that BSTX would operate the BSTX System as a fully automated, price-time priority execution system.91 The BSTX System would operate as an ‘‘automated trading center’’ under Rule 600(b)(7) of Regulation NMS and would display ‘‘automated quotations’’ under Rule 600(b)(6) of Regulation NMS at all times, except in the event that a system malfunction renders the BSTX System incapable of displaying automated quotations.92 BSTX’s best-priced quotation in an NMS stock would be a 87 See id. id. The Exchange represents that the proposed rule is substantially similar to NYSE American Rule 7.26E. See OIP, supra note 7, 86 FR at 49439. 89 15 U.S.C. 78f(b)(5). 90 15 U.S.C. 78f(b)(6) and (7). 91 See OIP, supra note 7, 86 FR at 49416. 92 17 CFR 242.600(b)(6) and (b)(7). See Amendment No. 2, supra note 9, at 86; proposed BSTX Rule 25100(c). 88 See E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices ‘‘protected quotation’’ under Rules 600(b)(70) and 600(b)(71) of Regulation NMS.93 Only a BSTX Participant approved for trading on the BSTX System or a person associated with such a BSTX Participant would be able to effect any transactions on the BSTX System.94 jspears on DSK121TN23PROD with NOTICES1 Order Types and Instructions Proposed BSTX Rule 25060(c) provides that BSTX Participants may enter orders to the BSTX System as limit orders or Inter-Market Sweep Orders (‘‘ISOs’’).95 The BSTX System would only support two time-in-force (‘‘TIF’’) designations: DAY and IOC.96 Under proposed BSTX Rule 25060(d), all orders would be given a default TIF of DAY.97 DAY orders may queue during the Pre-Opening Phase 98 or before the resumption of trading following a trading halt, may trade only during Regular Market Hours, and, if unexecuted at the close of the trading day (4:00 p.m. ET), would be cancelled by the BSTX System.99 BSTX Participants may also designate orders as IOC, which overrides the default TIF of DAY.100 IOC orders are not accepted by the BSTX System during the PreOpening Phase, and during Regular Trading Hours, IOC orders will execute in whole or in part immediately upon receipt by the BSTX System.101 The BSTX System would not support modification of resting orders, and to change the price or quantity of an order resting on the BSTX Book,102 a BSTX Participant must cancel the resting order and submit a new order, which would result in a new time stamp for purposes 93 17 CFR 242.600(b)(70) and (b)(71). See OIP, supra note 7, 86 FR at 49435 & n.210. 94 See OIP, supra note 7, 86 FR at 49431; proposed BSTX Rule 25000(a). The Exchange represents that proposed BSTX Rule 25000 is substantially similar to IEX Rule 11.140. See Amendment No. 2, supra note 9, at 65 n.175. 95 See proposed BSTX Rule 25060(c). The Exchange states that if a BSTX Participant fails to specify a limit price with respect to its limit order, such order shall be rejected. ISOs must be limit orders, are ineligible for routing, may be submitted with a limit price during Regular Trading Hours, and must have a time-in-force of immediate-orcancel (‘‘IOC’’). See OIP, supra note 7, 86 FR at 49434 & n.202. 96 See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 25060(d). 97 See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 25060(d)(1). 98 ‘‘Pre-Opening Phase’’ would mean the time between 8:30 a.m. and 9:30 a.m. ET. See proposed BSTX Rule 17000(a)(28). 99 See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 25060(d)(1). 100 See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 25060(d)(2). 101 See id. 102 ‘‘BSTX Book’’ would mean the electronic book of orders on each Security maintained by the BSTX System. See proposed BSTX Rule 17000(a)(10). VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 of BSTX Book priority.103 The Exchange states that all orders on BSTX would be displayed.104 With the exception of the order parameter to preference faster settlement,105 the order types and instructions the Exchange has proposed for the BSTX System are similar to those approved by the Commission and currently available on other national securities exchanges 106 and raise no new regulatory issues. The Commission finds these proposed rules are consistent with the Exchange Act, and Section 6(b)(5) 107 of the Exchange Act in particular, because they establish the types of orders and modifiers that all BSTX Participants may use and provide transparency regarding how orders would operate on the BSTX System, which should help promote just and equitable principles of trade, foster coordination with persons engaged in facilitating transactions in securities, and remove impediments to and perfect the mechanism of a national market system. Auctions The Exchange proposes that order entry in BSTX-listed Securities 108 may commence at 8:30 a.m. ET during the Pre-Opening Phase, in which orders are placed on the BSTX Book but do not generate executions until Regular Trading Hours begin at 9:30 a.m. ET.109 103 See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 25060(f). 104 See OIP, supra note 7, 86 FR at 49434. The Exchange states that the BSTX System will not support hidden orders, undisplayed liquidity, price sliding, pegged orders, or other order type features that add complexity upon the initial launch of BSTX. See id. 105 See infra notes 190–207 and accompanying text. 106 See, e.g., Cboe BZX Rule 11.9(d). 107 15 U.S.C. 78f(b)(5). 108 Although the Exchange initially plans to only support trading in securities listed on BSTX, the Exchange states that it may in the future propose to trade securities listed on other national securities exchanges, subject to any necessary changes to its rules to support its trading pursuant to Section 19(b) and Rule 19b–4 of the Exchange Act. The Exchange also states that for such reason it proposes to adopt an opening process for non-BSTX-listed securities as a placeholder for potential trading of securities listed on other national securities exchanges in the future. The Exchange states that the proposed process for opening securities listed on other national securities exchanges is similar to the existing rules of another national securities exchange. See proposed BSTX Rule 25040(e); Amendment No. 2, supra note 9, at 74–75 (citing to Cboe BZX Rule 11.24). 109 See OIP, supra note 7, 86 FR at 49431. During the Pre-Opening Phase, orders may not be cancelled or modified from 9:28 a.m. to 9:30 a.m. Orders received during the 10 seconds prior to the Opening Auction would be rejected. See proposed BSTX Rule 25040(a)(1). ‘‘Opening Auction’’ would be defined as the process of crossing orders in BSTXlisted Securities to open the market. See proposed BSTX Rule 25040(a)(6). The Exchange states that these provisions are consistent with the rules of PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 5887 The Exchange states that, similar to how its opening process works for options trading, BSTX would calculate and disseminate a theoretical opening price (‘‘TOP’’) from the time that the BSTX System commences accepting orders to BSTX Participants for the current orders resting on the BSTX Book during the Pre-Opening Phase.110 The Exchange proposes to disseminate the TOP and other Broadcast Information pursuant to proposed BSTX Rule 25040(a)(3) during the Pre-Opening Phase.111 Broadcast Information would be recalculated and disseminated via electronic means (i.e., market data feeds) every five seconds.112 At the time of the opening match (i.e., 9:30 a.m. ET), the BSTX System would establish a single price at which the BSTX-listed Security would be opened (‘‘BSTX Official Opening Price’’), which would be the TOP at the moment of the Opening Auction, provided that the resulting price must be within the Collar Price Range.113 The Exchange states that the BSTX System would determine a single price at which a BSTX-listed Security would be opened by calculating the optimum number of shares that could be matched at a price, taking into consideration all the orders other equities exchanges. See Amendment No. 2, supra note 9, at 68 n.185 (citing to IEX Rules 11.350(c)(1)(B) and (C)). 110 See OIP, supra note 7, 86 FR at 49431; proposed BSTX Rule 25040(a)(2). The TOP is the price at which the Opening Auction would occur at the current time, if that time were the opening, according to the Opening Auction procedures in proposed BSTX Rule 25040(a)(6). See proposed BSTX Rule 25040(a). 111 See OIP, supra note 7, 86 FR at 49431–32. Specifically, in addition to the TOP, ‘‘Broadcast Information’’ would include: (i) ‘‘Paired Orders,’’ which is the quantity of shares that would execute at the TOP; (ii) the ‘‘Imbalance Quantity,’’ which is the number of shares that may not be matched with other orders at the TOP at the time of dissemination; and (iii) the ‘‘Imbalance Side,’’ which is the buy/sell direction of any imbalance at the time of dissemination. See Amendment No. 2, supra note 9, at 68–69. 112 See Amendment No. 2, supra note 9, at 69; proposed BSTX Rule 25040(a)(4). The Exchange states that Cboe BZX similarly broadcasts opening auction information every five seconds. See Amendment No. 2, supra note 9, at 69 n.189 (citing to Cboe BZX Rule 11.23(b)(2)(A)). 113 See Amendment No. 2, supra note 9, at 69– 70. See proposed BSTX Rule 25040(a)(5) for a definition of the ‘‘Collar Price Range.’’ As the BSTX Official Opening Price is determined and the matched shares are executed in the Opening Auction, the BSTX System would proceed to move the Security from the Pre-Opening Phase to the continuous or regular trading phase and disseminate the opening trade price, if any. Any orders that remain unexecuted in the Opening Auction, including any remaining portion of a partially executed order, would be moved onto the BSTX Book for the regular trading phase and would retain their price/time priority consistent with proposed BSTX Rule 25080. See proposed BSTX Rule 25040(a)(7). E:\FR\FM\02FEN1.SGM 02FEN1 jspears on DSK121TN23PROD with NOTICES1 5888 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices on the BSTX Book.114 The Exchange states that the requirement that the BSTX Official Opening Price must be within the Collar Price Range is designed to ensure that a Security opens in a fair and orderly manner and under market conditions where there is sufficient quotation interest (e.g., a NBBO), the market is not crossed, and where the opening price will not drastically depart from the market at the time of the auction or the preceding day’s closing price.115 The Exchange proposes that when the BSTX System cannot determine an opening price from the Opening Auction, BSTX would nevertheless open the Security for trading and move all trading interest received during the Pre-Opening Phase to the BSTX Book, and that in such case, the BSTX Official Opening Price would be the Final Last Sale Eligible Trade.116 The Exchange states that the opening process for initial public offerings of Securities (‘‘Initial Security Offerings’’) would be generally the same as regular market openings.117 However, in advance of an Initial Security Offering auction (‘‘Initial Security Offering Auction’’), the Exchange would announce a ‘‘Quote-Only Period’’ of between 15 and 30 minutes plus a short random period prior to the Initial Security Offering Auction.118 Orders may not be submitted to participate in an Initial Security Offering Auction until the beginning of the Quote-Only Period.119 All orders associated with the Initial Security Offering Auction must be received prior to the end of the Quote-Only Period in order to participate in the auction.120 Limit orders with TIF of DAY submitted during the Quote-Only Period would be eligible to participate in the Initial Security Offering Auction.121 According to the Exchange, it would disseminate Broadcast Information at the commencement of the Quote-Only Period as with regular market openings, and Broadcast Information would be recalculated and disseminated via electronic means every five seconds.122 Orders would be matched and executed at the conclusion of the Quote-Only Period, rather than at 9:30 a.m. ET.123 Following the initial cross at the end of the Quote-Only Period wherein orders will execute based on price/time priority, consistent with proposed BSTX Rule 25080, the Exchange would transition to normal trading pursuant to proposed BSTX Rule 25040(a)(6).124 The Exchange also proposes a process for reopening trading following a ‘‘trading halt,’’ a halt or pause in trading initiated by the Exchange, or a Limit Up-Limit Down Trading Pause 125 (‘‘Halt 114 See Amendment No. 2, supra note 9, at 69; proposed BSTX Rule 25040(a)(6)(ii). The Exchange states that the determination of the opening match price is consistent with the manner in which the Exchange opens options trading. See Amendment No. 2, supra note 9, at 69. Proposed BSTX Rule 25040(a)(6)(ii) would further provide that the BSTX Official Opening Price is the price which results in the matching of the highest number of shares. If two or more prices would satisfy this maximum quantity criteria, the price leaving the fewest resting shares in the BSTX Book would be selected as the BSTX Official Opening Price. Where two or more prices would satisfy the maximum quantity criteria and leave the fewest shares in the BSTX Book, the price closest to the previous day’s last round lot trade occurring during Regular Trading Hours on the Exchange (‘‘BSTX Official Closing Price’’) will be selected as the BSTX Official Opening Price. See proposed BSTX Rules 25040(a)(5)(ii) and (6)(ii). 115 See OIP, supra note 7, 86 FR at 49432; proposed BSTX Rule 25040(a)(5). 116 See Amendment No. 2, supra note 9, at 70; proposed BSTX Rule 25040(a)(7). See also proposed BSTX Rule 25040(a)(5)(ii) (defining ‘‘Final Last Sale Eligible Trade’’). 117 See OIP, supra note 7, 86 FR at 49432. 118 See id.; proposed BSTX Rule 25040(b)(1). The Quote-Only Period may be extended in certain cases where (i) there is no TOP; (ii) the underwriter requests an extension; (iii) the TOP moves the greater of 10% or 50 cents in the 15 seconds prior to the initial cross; or (iv) in the event of a technical or systems issue at the Exchange that may impair the ability of BSTX Participants to participate in the Initial Security Offering Auction or of the Exchange to complete the Initial Security Offering Auction. See proposed BSTX Rule 25040(b)(2). In the event of any extension to the Quote-Only Period or a trading pause, the Exchange proposes to notify market participants regarding the circumstances and length of the extension. See OIP, supra note 7, 86 FR at 49432; proposed BSTX Rule 25040(b)(4). 119 See proposed BSTX Rule 25040(b)(1). 120 See id. 121 See id. Orders marked IOC submitted during the Quote-Only Period would be rejected. See id. 122 See Amendment No. 2, supra note 9, at 71; proposed BSTX Rule 25040(b)(3). 123 See OIP, supra note 7, 86 FR at 49432; proposed BSTX Rule 25040(b)(5). 124 See Amendment No. 2, supra note 9, at 71– 72; proposed BSTX Rule 25040(b)(5). 125 See proposed BSTX Rule 25050(g). The Exchange states that proposed BSTX Rule 25050 regarding trading halts is substantially similar to other national securities exchange rules adopted in connection with the NMS Plan to Address Extraordinary Market Volatility (‘‘LULD Plan’’)—for example, IEX Rule 11.280—with certain exceptions, such as excluding rules relating to order types and other aspects of the LULD Plan that would not be supported by the Exchange, including market orders and auction orders. See Amendment No. 2, supra note 9, at 78–79. The Exchange would cancel all resting orders in a non-BSTX listed security subject to a trading halt, reject any incoming orders in that security, and will only resume accepting orders following a broadcast message to BSTX Participants indicating a forthcoming re-opening of trading. See OIP, supra note 7, 86 FR at 49433; proposed BSTX Rule 25050(d). In addition, the Exchange proposes to reserve the right to halt or suspend trading in other circumstances where the Exchange deems it necessary to do so for the protection of investors and the public interest, or pursuant to any other Exchange rule or policy. See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 25050(f). Proposed BSTX Rule 25010(d) would allow for the CEO, President, or Chief Regulatory Officer, or such person’s designee, provided the designee is a senior officer, to halt or suspend VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 Auctions’’).126 For Halt Auctions, the Exchange proposes that in advance of reopening, the Exchange would announce a Quote-Only Period that would be five minutes prior to the Halt Auction, and that all orders associated with the Halt Auction must be received prior to the end of the Quote-Only Period in order to participate in the auction.127 According to the Exchange, it would disseminate the same Broadcast Information as it does for an Initial Security Offering Auction, except it would also disseminate to market participants the applicable Halt Auction Reference Price and the Halt Auction Collars, and would similarly provide notification of any extension to the Quote-Only Period as with an Initial Security Offering Auction.128 The transition to normal trading would also occur in the same manner as for Initial Security Offering Auctions.129 trading in securities. The Exchange states that while comparable rules of other national securities exchanges (e.g., IEX Rule 11.110(c) and BOX Rule 7020) may not currently specify that the Chief Regulatory Officer has the authority, both of these comparable rules contemplate the CEO or President delegating the task to a senior officer, which could be the Chief Regulatory Officer. The Exchange states that it does not believe that the addition of the Chief Regulatory Officer would expand the authority of who can declare a trading halt or suspend trading. See Amendment No. 2, supra note 9, at 65 n.176. 126 See Amendment No. 2, supra note 9, at 72; proposed BSTX Rule 25040(c). 127 See Amendment No. 2, supra note 9, at 72– 73; proposed BSTX Rule 25040(c)(1). Limit orders with TIF of DAY submitted during the Quote-Only Period would be eligible to participate in the Halt Auction, whereas orders marked IOC submitted during the Quote-Only Period would be rejected. See OIP, supra note 7, 86 FR at 49432; proposed BSTX Rule 25040(c)(1). In addition, Halt Auctions would be subject to the proposed Halt Auction Collars, which the Exchange states are substantially similar to those provided by Cboe BZX, and are designed to ensure that the Exchange is able to reopen trading in a Security in a fair and orderly manner. To the extent a Halt Auction is unable to be performed due to the absence of a TOP or the TOP is outside the proposed Halt Auction Collars, the Exchange would extend the period of Halt Auction for an additional five minutes (‘‘Initial Extension Period’’). After the Initial Extension Period, the Exchange proposes that the Quote-Only Period be extended for additional five-minute periods, should a Halt Auction be unable to be performed due to absence of a TOP or because the TOP is outside the proposed Halt Auction Collars (‘‘Additional Extension Period’’), until a Halt Auction occurs. See Amendment No. 2, supra note 9, at 72 n.206 and n.207; proposed BSTX Rule 25040(c)(2). 128 See Amendment No. 2, supra note 9, at 73; proposed BSTX Rule 25040(c)(3). In addition, the Exchange represents that if a trading halt is triggered by the Exchange or if the Exchange is unable to reopen trading at the end of the trading halt due to a systems or technology issue, the Exchange will immediately notify the single plan processor responsible for consolidation of information for the security pursuant to Rule 603 of Regulation NMS under the Exchange Act. See proposed BSTX Rule 25040(c)(4). 129 See OIP, supra note 7, 86 FR at 49432. E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices In the event a disruption occurs that prevents the execution of an Initial Security Offering Auction or Halt Auction, including any extensions, the Exchange proposes to apply certain contingency procedures.130 For a disruption in an Initial Security Offering Auction, the Exchange would publicly announce that the Quote-Only Period for the Initial Security Offering Auction will reset for the subject Security, cancel all orders on the BSTX Book, and disseminate a new scheduled time for the Quote-Only Period and opening match.131 Similarly, for a disruption in a Halt Auction, the Exchange would publicly announce that no Halt Auction will occur and all orders in the halted Security on the BSTX Book will be cancelled, after which the Exchange will open the Security for trading without an auction.132 The Exchange has not proposed to operate a closing auction. Instead, the Exchange proposes that the BSTX Official Closing Price will be the last round lot trade occurring during Regular Trading Hours on BSTX.133 The Exchange states that it believes this method is a simple and fair way to establish the closing price of a Security, and is consistent with the overall proposed simplified market structure for BSTX that does not include order types such as market-on-close or limit-onclose.134 The Commission believes that the proposed opening, re-opening, and closing procedures are reasonably designed to provide for an orderly opening or re-opening of trading or close of trading on BSTX, and thus are consistent with the Exchange Act, and in particular the Section 6(b)(5) goals of removing impediments to the mechanism of a national market system and protecting investors and the public interest.135 jspears on DSK121TN23PROD with NOTICES1 Order Priority and Execution The Exchange proposes BSTX Rule 25080 to govern the execution of orders on the BSTX System.136 The proposed rule provides that orders of BSTX Participants shall be ranked and maintained in the BSTX Book according to price/time priority, such that within each price level, all orders shall be 130 See id. at 49432–33; proposed BSTX Rule 25040(d). 131 See OIP, supra note 7, 86 FR at 49432–33; proposed BSTX Rule 25040(d)(1). 132 See OIP, supra note 7, 86 FR at 49433; proposed BSTX Rule 25040(d)(2). 133 See Amendment No. 2, supra note 9, at 77– 78; proposed BSTX Rule 25040(a)(5)(ii). 134 See Amendment No. 2, supra note 9, at 78. 135 15 U.S.C. 78f(b)(5). 136 See proposed BSTX Rule 25080. VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 organized by the time of entry.137 Further, the proposed rule provides that an order would be cancelled back to the BSTX Participant if, based on market conditions, BSTX Participant instructions, applicable Exchange Rules, and/or the Exchange Act and the rules and regulations thereunder, such order is not executable and cannot be posted to the BSTX Book.138 Specifically, proposed BSTX Rules 25080(b)(1) through (3) provide that executions occurring on BSTX will comply with Regulation SHO, Regulation NMS, including Rule 611, and the LULD Plan.139 In addition, proposed BSTX Rule 25130 prohibits BSTX Participants from engaging in a pattern or practice of displaying quotations that lock or cross a protected quotation, unless an exception applies, and provides that the BSTX System will reject any order or quotation that would lock or cross a protected quotation of another national securities exchange at the time of entry.140 To meet their regulatory responsibilities under Rule 611(a) of Regulation NMS, other trading centers will be required to have sufficient notice of new protected quotations, as well as all necessary information (such as final technical specifications).141 The Commission believes that it would be a reasonable policy and procedure under Rule 611(a) to require that industry participants begin treating BSTX’s best bid and best offer as a protected quotation as soon as possible but no later than 90 days after BOX begins operation of its equities trading platform. The Commission has taken the same position with other new equities exchanges.142 In light of the foregoing, the Commission finds that the proposed 137 See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 25080(a). 138 See proposed BSTX Rule 25080(b). The Exchange states that sell orders cannot execute at a price below the best bid in the marketplace and buy orders cannot execute at a price above the best offer in the marketplace. See OIP, supra note 7, 86 FR at 49434. 139 See proposed BSTX Rules 25080(b)(1)–(3). 140 See OIP, supra note 7, 86 FR at 49437; proposed BSTX Rule 25130. The Exchange states that the proposed rule is substantially similar to the rules of other national securities exchanges. See Amendment No. 2, supra note 9, at 93 (citing to IEX Rule 11.310 and Cboe BZX Rule 11.20). 141 See Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR 30038, 30041 (May 24, 2006) (File No. S7–10–04) (extending the compliance dates for Rule 610 and Rule 611 of Regulation NMS under the Exchange Act). 142 See, e.g., Securities Exchange Act Release Nos. 85828 (May 10, 2019), 84 FR 21841 (May 15, 2019) (File No. 10–234) (order granting registration of Long-Term Stock Exchange, Inc.); and 88806 (May 4, 2020), 85 FR 27451 (May 8, 2020) (File No. 10– 237) (order granting registration of MEMX). PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 5889 BSTX trading rules are consistent with the Exchange Act and, in particular, Section 6(b)(5) of the Exchange Act, because they set forth a fair and transparent process for establishing order priority and are reasonably designed to ensure compliance with Commission rules concerning quoting and executions, which should promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system, and protect investors and the public interest.143 Market Data Products The Exchange proposes to offer proprietary market data products, including BSTX Depth-of-Book, BSTX Top-of-Book, and BSTX Last Sale.144 The Exchange states that its proposed rule regarding market data product offerings is substantially similar to the rules of another national securities exchange.145 In addition, the Exchange proposes to offer a historical market data product, known as the BSTX Market Data Blockchain, that would provide information about trading on the BSTX System.146 The BSTX Market Data Blockchain would operate as a private, permission-based blockchain that will allow BSTX Participants to see detailed information on their own trading activity on BSTX and anonymized information with respect to the trading activity of other BSTX Participants. According to the Exchange, BSTX Participants would have no obligations with respect to providing information to, accessing, maintaining, or using the BSTX Market Data Blockchain.147 Each BSTX Participant would be assigned a BSTX Market Data Blockchain address that corresponds to the BSTX Participant’s trading activity on 143 15 U.S.C. 78f(b)(5). proposed BSTX Rule 22060. BSTX Depthof-Book is a data feed that contains all displayed orders for securities traded on the Exchange, order executions, order cancellations, order modifications, order identification numbers, administrative messages, and auction information disseminated pursuant to proposed BSTX Rule 25040 (Auctions). See proposed BSTX Rule 22060(a). BSTX Top-of-Book is an uncompressed data feed that offers top of book quotations and execution information based on orders entered into the BSTX System, as well as auction information disseminated pursuant to proposed BSTX Rule 25040 (Auctions). See proposed BSTX Rule 22060(b). BSTX Last Sale is an uncompressed data feed that offers only execution information based on orders entered into the BSTX System. See proposed BSTX Rule 22060(c). 145 See OIP, supra note 7, 86 FR at 49429 (citing to MEMX Rule 13.8). 146 See proposed BSTX Rule 22060(d); OIP, supra note 7, 86 FR at 49420. 147 See OIP, supra note 7, 86 FR at 49420. 144 See E:\FR\FM\02FEN1.SGM 02FEN1 5890 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices BSTX.148 The Exchange would issue login credentials to each user, including any non-BSTX Participant that chooses to subscribe.149 The BSTX Market Data Blockchain would generally operate by collecting information from two sources, which the Exchange would then translate into information capable of being recorded to the BSTX Market Data Blockchain.150 Specifically, the data provided would be collected from (i) the BSTX System, with respect to information such as executed transactions; and (ii) each BSTX Participant’s order/message passing through the financial information exchange (‘‘FIX’’) gateway through which all orders and messages pass to connect to the BSTX System.151 The Exchange states that the BSTX Market Data Blockchain does not require any affirmative action on the part of the BSTX Participants in order for the information to be recorded, but rather captures trading activity that occurs on BSTX in the normal course of trading.152 The BSTX Market Data Blockchain would provide two types of information for Regular Trading Hours: (i) Participant Proprietary Data with respect to the specific BSTX Participant; 153 and (ii) General Market Data made available to all BSTX Participants and non-BSTX Participants that subscribe.154 The Exchange 148 See proposed BSTX Rule 17020(b). Amendment No. 2, supra note 9, at 19 & n.36; proposed BSTX Rule 17020(b). 150 See OIP, supra note 7, 86 FR at 49420. 151 See id. The Exchange states that BSTX Participants (and non-BSTX Participants to which the BSTX Market Data Blockchain is made available by the Exchange) would only be able to access the information contained on the BSTX Market Data Blockchain through the API, and only the Exchange would have direct access to the underlying data on the private blockchain. See id. The Exchange further states that the FIX gateway and the BSTX System are the same sources of information used to generate consolidated market data. See id. at 49420 n.39. 152 See id. at 49420. 153 See id. Under proposed BSTX Rule 17020(c)(1), a BSTX Participant would be able to see the following information with respect to all orders and messages submitted by the BSTX Participant and any executions of such orders: (i) Symbol, side (buy/sell), limit price, quantity, timein-force; (ii) order type (e.g., limit order, ISO); (iii) order capacity (principal/agent); (iv) short/long sale order marking; and (v) message type (e.g., order, modification, cancelation). 154 See id. Under proposed BSTX Rule 17020(c)(2), this would include, in an anonymized format, all displayed orders, modifications, cancelations, and executions occurring on BSTX (i.e., the user may see the symbol, side (buy/sell), limit price, quantity, and message type), along with administrative data and other information from the Exchange (e.g., trading halts or technical messages). See Amendment No. 2, supra note 9, at 22–23; proposed BSTX Rule 17020(c)(2). The Exchange states that the BSTX Market Data Blockchain would not include details regarding the T+0 or T+1 order jspears on DSK121TN23PROD with NOTICES1 149 See VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 represents that no BSTX Participant, or non-BSTX Participant, would have access to the Participant Proprietary Data of another BSTX Participant.155 Both types of data would be available on a delayed basis of at least five minutes, with each new block of market data showing market data for the preceding five minutes.156 According to the Exchange, the BSTX Market Data Blockchain would not function as a substitute for real-time market data.157 A BSTX Participant, through the API, would be able to run searches of its previous orders and trading activity using the BSTX Market Data Blockchain. The Participant Proprietary Data would be visible to the specific BSTX Participant in sequential order of when each action occurred 158 and the General Market Data, available to both BSTX Participants and non-BSTX Participants, would allow viewers to observe the historical orders, executions, and other events (e.g., cancelations) received by and occurring on BSTX, which is generally the same information available through subscribing to proprietary data feeds of other exchanges.159 The Exchange also matching preference or matched trades bound for shorter settlement. See Amendment No. 2, supra note 9, at 41 n.73. 155 See OIP, supra note 7, 86 FR at 49421. The Exchange states that since no BSTX Participant, or non-BSTX Participant, would be provided with access to trading information of another BSTX Participant, it would not allow for reverse engineering of trading strategies or otherwise compromise the confidential nature of each BSTX Participant’s trading information. See id. 156 See Amendment No. 2, supra note 9, at 25. The Exchange specifies that the market data uploaded as part of each block would contain the most recent transactions on the Exchange, aged only a few seconds, as well as market data for the preceding five minutes, such that the oldest market data on each new block would be aged at least five minutes. See id. at 25 n.44. 157 See OIP, supra note 7, 86 FR at 49421. The Exchange states that consolidated market data or proprietary market data are disseminated on a subsecond, or sub-millisecond, timescale and that even the consolidated securities information processor’s 99th percentile of quote latency today is below 100 microseconds. See id. at 49421 n.44. The Exchange also states that, to promote clarity with respect to how a BSTX Participant may use the BSTX Market Data Blockchain, proposed BSTX Rule 17020(c)(3) would provide that information available on the BSTX Market Data Blockchain does not act as a substitute for any recordkeeping obligations of a BSTX Participant. See id. at 49422. 158 The BSTX Participant would be able to filter the different information fields or run searches for a particular item (e.g., only showing cancel orders or only showing activity in a particular symbol). See id. at 49421. 159 Similar to the Participant Proprietary Data, the General Market Data would generally be visible in sequential order of when each action occurred, although viewers would also have the ability to filter the different information fields or run searches for a particular symbol. The Exchange states that the General Market Data would differ from the Exchange’s propriety market data feed, which PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 proposes to append timestamps to the information made available through the BSTX Market Data Blockchain, which would indicate the time to the microsecond at which an order posted to the BSTX Book or that the BSTX System took other actions with respect to an order.160 A BSTX Participant would have the ability to download market data from the BSTX Market Data Blockchain and could potentially use the data to back test trading strategies or evaluate executions received on BSTX.161 The Exchange also proposes to periodically audit, at least bi-annually, the BSTX Market Data Blockchain to help ensure the proper functioning of the BSTX Market Data Blockchain and the accuracy of the information thereon.162 The Exchange states that it expects to initially audit the BSTX Market Data Blockchain more frequently, likely monthly, during the first year of operations to ensure the BSTX Market Data Blockchain operates as intended.163 The Exchange states that as a system of the Exchange, the BSTX Market Data Blockchain will be subject to the requirements of the Exchange Act, including Regulation Systems Compliance and Integrity (‘‘Regulation SCI’’) and that the Exchange has in place, among other requirements of Regulation SCI, robust safeguards to protect against any possible system intrusion to the market data blockchain.164 The Exchange states that any unauthorized access to the API through which data on the BSTX Market Data Blockchain may be accessed would not allow for any intruder to modify, delete, or otherwise change any data on the BSTX Market Data Blockchain.165 The Exchange states that the benefits of the BSTX Market Data Blockchain are twofold: (1) BSTX Participants may find the information useful to them for a provides real-time snapshots of the order book, including depth-of-book quotations and quantity of shares available at each price point. Additionally, the General Market Data would show viewers, in an anonymized format, the sequential entry of each order, modification, or cancelation in the order book in each symbol as historical orders and transaction information, rather than real-time snapshots. See id. at 49421 n.42. 160 See id. at 49421. 161 See id. at 49422. 162 See id.; proposed BSTX Rule 17020(d). See also proposed BSTX Rule 17020(c)(3) (stating that information available on the BSTX Market Data Blockchain does not act as a substitute for any recordkeeping obligations of a BSTX Participant). 163 See OIP, supra note 7, 86 FR at 49422. 164 See Amendment No. 2, supra note 9, at 27. The Exchange states that it has classified the BSTX Market Data Blockchain as an ‘‘SCI system’’ and not as an ‘‘indirect SCI system.’’ See id. 165 See OIP, supra note 7, 86 FR at 49422. E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices variety of purposes, such as to review the BSTX Participant’s trading activity on BSTX, determine what the market was at a particular point in time on BSTX for a given Security, evaluate equation quality, help confirm the accuracy of their internal trading data, or download the data to back-test trading strategies; and (2) help familiarize BSTX Participants with the use and capabilities of blockchain technology in a manner that does not impose any burden on them or other market participants.166 The Exchange also states that BSTX Securities would be eligible for trading on other national securities exchanges that extend UTP to them and that the BSTX Market Data Blockchain would not impact the ability of Securities to trade on other national securities exchanges or OTC.167 One commenter states that the United States should support blockchain technologies like BSTX to be competitive globally, and that blockchain affords more efficiency and transparency.168 Another commenter states that blockchain will bring the advantages of better security, higher transparency, more trust, and a fairer marketplace to the sector.169 This commenter also states that blockchain would afford savings in time and money, make the market safer against fraud, and help United States markets keep up with other global systems.170 Another commenter states that the proposed five minute delay is not problematic given delays in other market data products.171 The Commission finds that the Exchange’s proposed market data products are consistent with the Exchange Act. The Commission believes that the proposed BSTX Depth-of-Book, BSTX Top-of-Book, and BSTX Last Sale data products do not raise any novel 166 See id. id. at 49423. 168 See Letter from Anonymous (June 15, 2021) (‘‘Anonymous Letter II’’). 169 See Letter from Anonymous (June 21, 2021) (‘‘Anonymous Letter III’’). 170 See id. See also Letter from Jonathan Seeley (September 20, 2021) (‘‘Seeley Letter’’) (stating that the proposed BSTX facility is designed to promote just and equitable principles of trade and remove impediments to a free and open national market system in a transparent and secure manner through the proposed use of blockchain technology and would not inappropriately burden competition); Letter from Tyler Hess (June 17, 2021) (stating that the commenter would like to see the development of financial institutions and securities exchanges that allow access to financial instruments and investments without the burdens and controls placed by traditional exchanges, and that the proposal represents the first steps in a free and equitable publicly auditable financial system). 171 See Letter from Anonymous (September 6, 2021) (‘‘Anonymous Letter IV’’). regulatory issues.172 The Commission also believes that the BSTX Market Data Blockchain would not result in the disclosure of novel information about trading activity on the BSTX System. A BSTX Participant viewing the Participant Proprietary Data would access the same underlying information that the BSTX Participant would already have from FIX messages sent to and received from the Exchange.173 Further, the General Market Data would contain the same substantive information that could be found in BSTX’s proprietary market data feeds and this information would be comparable to the proprietary market data distributed by other national securities exchanges. At the same time, the Commission believes that the BSTX Market Data Blockchain is reasonably designed to prevent other market participants from learning BSTX Participants’ sensitive trading information. The BSTX Market Data Blockchain would not be a real-time market data product and would contain historical market data posted in fiveminute increments. In addition, the Participant Proprietary Data accessible to each BSTX Participant would be specific to that BSTX Participant’s orders and executions, and the General Market Data would be anonymized by displaying only the symbol, side (buy/ sell), limit price, quantity, and message type. As an SCI system operated by an SCI entity, the BSTX Market Data Blockchain would also be subject to the requirements of Regulation SCI.174 National securities exchanges are not required to offer proprietary market data, but those that do so must offer such data in a manner that is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.175 The Commission believes that the proposed dissemination of the Participant Proprietary Data is not designed to permit unfair discrimination because jspears on DSK121TN23PROD with NOTICES1 167 See VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 172 See supra notes 144–145 and accompanying text. 173 The Commission has previously approved proposals by national securities exchanges to offer a data product to a member of the exchange consisting of information regarding the member’s own trading activity on the exchange. See, e.g., Securities Exchange Act Release Nos. 78886 (September 20, 2016), 81 FR 66113 (September 26, 2016) (approving Nasdaq ‘‘Trading Insights’’ product); 91787 (May 6, 2021), 86 FR 26111 (May 12, 2021) (approving MIAX Emerald ‘‘Liquidity Taker Event Report’’). 174 See, e.g., 17 CFR 242.1001(a)(1) (requiring each SCI entity to establish, maintain, and enforce written policies and procedures reasonably designed to ensure that its SCI systems have levels of capacity, integrity, resiliency, availability, and security adequate to maintain the SCI entity’s operational capability and promote the maintenance of fair and orderly markets). 175 See 15 U.S.C. 78f(b)(5). PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 5891 each BSTX Participant will have access to information specific to its own orders and executions through the Participant Proprietary Data. In the OIP, the Commission states that it was not clear what conditions, if any, the Exchange may place on non-BSTX Participants before granting access to the General Market Data.176 In Amendment No. 2, the Exchange states that all BSTX Participants and non-BSTX Participants will have access to the same anonymized market data on the same terms through the General Market Data.177 In addition, market participants would be able to obtain the same substantive information contained in the General Market Data through access to BSTX’s other proprietary market data feeds. Further, the five-minute delay for the BSTX Market Data Blockchain would be a uniform delay for all BSTX Participants and non-BSTX Participants that subscribe, and the data on the BSTX Market Data Blockchain would not be available on a faster basis than other BSTX data products (and instead would be available on a slower basis). For these reasons, the Commission finds that the Exchange’s proposed market data products are consistent with the Exchange Act, and, in particular, Section 6(b)(5) of the Exchange Act 178 because they would prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest, and would not permit unfair discrimination among customers, issuers, brokers, or dealers; and with Section 6(b)(8) of the Exchange Act 179 because they would not impose any burden on competition not necessary or appropriate in furtherance of the Exchange Act. The Commission also finds that the proposed BSTX Market Data Blockchain is consistent with the Exchange Act, and Section 6(b)(7) of the Exchange Act 180 in particular, and its requirements that the rules of a national securities exchange provide a fair procedure for the prohibition or limitation by the exchange of any access to services, because the Exchange will 176 See OIP, supra note 7, 86 FR at 49454. Amendment No. 2, supra note 9, at 25 (stating that the Exchange would make the General Market Data available to BSTX Participants and non-BSTX Participants for the same fee and on the same subscription terms, once the Exchange establishes a fee schedule pursuant to the proposed rule change process under the Exchange Act prior to the launch of BSTX). 178 15 U.S.C. 78f(b)(5). 179 15 U.S.C. 78f(b)(8). 180 15 U.S.C. 78f(b)(7). 177 See E:\FR\FM\02FEN1.SGM 02FEN1 5892 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices not limit non-BSTX Participants’ access to the BSTX Market Data Blockchain beyond applying the same general terms that apply to BSTX Participants. jspears on DSK121TN23PROD with NOTICES1 Access to BSTX The Commission received a comment stating that the proposal does not specifically address how participants shall access BSTX and that, by comparison, with respect to the trading of options, the Exchange does not currently enforce equidistant cabling among and between participants and its matching engine located in the same data center.181 This commenter states that concerns regarding unfair discrimination and inappropriate burdens on competition could arise in the absence of confirmation that BOX will ensure that all co-location participants will enjoy the same opportunity for order execution regardless of their location in the data center relative to the BSTX matching engine.182 Absent such confirmation, the commenter urges the Commission to disapprove the proposal.183 In response, the Exchange states that BSTX will provide for equidistant cabling arrangements to ensure that all colocated BSTX Participants are on a level playing field in connecting to the BSTX matching engine.184 The Exchange also states that BSTX plans to have equidistant cabling arrangements within the area of the data center that it controls, and that it will make technical details regarding those arrangements available to prospective BSTX Participants in certain specification documents after approval of BSTX as a new facility of the Exchange.185 In further response, in Amendment No. 2, the Exchange states that it will offer connectivity services at its primary data center (Equinix NY4 in Secaucus, NJ) and that connectivity to the Exchange in the primary data center for both order entry and market data dissemination is equalized for all Participants with equipment co-located in Equinix NY4.186 Specifically, the Exchange states that all BSTX Participants co-located in the same data 181 See Letter from Andrew Stevens, General Counsel, IMC Chicago, LLC and Richard McDonald, Compliance Coordinator, Susquehanna International Group, LLP (June 28, 2021), at 2. 182 See id. 183 See id. at 3. 184 See Letter from Lisa J. Fall, President, BOX Exchange LLC (July 1, 2021), at 1. 185 See id. The Exchange also states that its options trading platform is an entirely separate facility of the Exchange with a separate ownership structure from BSTX, and BSTX will use separate data center operations and a different technology provider. See id. at 2. 186 See Amendment No. 2, supra note 9, at 6. VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 center would connect to BSTX through an equidistant cabling cabinet, which is a separate cabinet from the cabinet hosting the BSTX System and market data distribution system. The cross connects from the equidistant cabling cabinet to the cabinet hosting BSTX’s systems are equidistant.187 Additionally, the Exchange states that all cross connects from the equidistant cabling cabinet to each BSTX Participant’s cabinet, wherever located in the data center, provide for equidistant connectivity.188 As a result, even if BSTX Participant X’s cabinet is closer in physical proximity to the equidistant cabling cabinet than BSTX Participant Y’s cabinet, the arrangement is such that both BSTX Participant X and BSTX Participant Y have equidistant connectivity to the equidistant cabling cabinet and in turn to BSTX’s systems.189 The Commission believes that Amendment No. 2 addresses the commenter’s concern regarding whether all co-location participants will enjoy the same opportunity for order execution regardless of their location in the data center relative to the BSTX matching engine. As described above, the Exchange states in Amendment No. 2 that all BSTX Participants co-located in the data center would access BSTX’s systems through an equidistant cabling cabinet that connects to each BSTX Participant’s cabinet through fiber connections of equal length and that the cross connects from the equidistant cabling cabinet to the cabinet hosting BSTX’s systems are also equidistant. This arrangement would prevent BSTX Participants located in closer proximity to the cabinet hosting the BSTX System and market data distribution system from having a shorter path to connect to BSTX’s systems. Clearance and Settlement Under the Exchange’s proposal, executions occurring as a result of orders matched against the BSTX Book will be transmitted by BSTX to a registered clearing agency to clear and settle pursuant to the rules, policies, 187 See id. at 6 n.6. id. Specifically, the equidistant cabling cabinet contains equal length spools of fiber that connect to each external BSTX Participant cabinet in the data center, and all BSTX Participants must connect to BSTX through the equidistant cabling cabinet from their own external cabinets. See id. 189 See id. The Exchange states that it believes that this structure is designed to prevent unfair discrimination between market participants, consistent with Section 6(b)(5) of the Exchange Act, by ensuring that all co-located BSTX Participants have equidistant connections to BSTX irrespective of where their equipment is located within the data center. See id. 188 See PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 and procedures of the registered clearing agency.190 The Exchange states that Securities would be cleared and settled by NSCC and DTC in the same manner as those activities are performed by NSCC and DTC currently with respect to a class of NMS stock.191 The Exchange also states that the operation of the BSTX Market Data Blockchain will have no impact or effect on the manner in which a Security clears and settles.192 The Exchange proposes to allow BSTX Participants to indicate a preference for settling faster than the standard T+2 settlement cycle.193 Specifically, BSTX Participants would be able to submit an order with a preference for settlement on a T+0 basis (‘‘Order with a T+0 Preference’’) or on a T+1 basis (‘‘Order with a T+1 Preference’’).194 The Exchange states that, based on discussions with representatives from The Depository Trust & Clearing Corporation (‘‘DTCC’’), BSTX believes that NSCC already has the authority under its rules, policies, and procedures to clear certain trades on T+1 or T+0 basis.195 Orders with a T+0 Preference and Orders with a T+1 Preference would result in executions that settle more quickly than on a T+2 basis if, and only if, all of the conditions in proposed BSTX Rule 25060(h) are met and the execution that is transmitted by BSTX to NSCC is eligible for T+0 or T+1 settlement under the rules, policies, and procedures of the registered clearing agency.196 For an 190 See proposed BSTX Rule 25100(d). See also proposed BSTX Rule 25140 for additional provisions regarding clearance and settlement. 191 See OIP, supra note 7, 86 FR at 49418. 192 See id. 193 See id. at 49419. 194 See proposed BSTX Rule 25140(h). The Exchange states that T+1 and T+0 are shorter settlement cycles than the longest settlement cycle of T+2 that is generally permitted under SEC Rule 15c6–1, for a security trade that involves a brokerdealer. See OIP, supra note 7, 86 FR at 49419 (citing 17 CFR 240.15c6–1). The Exchange states that under SEC Rule 15c6–1, with certain exceptions, a broker-dealer is not permitted to enter a contract for the purchase or sale of a security that provides for payment of funds and delivery of securities later than the second business day after the date of the contract unless otherwise expressly agreed to by the parties at the time of the transaction. See id. at 49419 n.33. 195 See OIP, supra note 7, 86 FR at 49423. The Exchange states that it understands that NSCC and DTC are already using this authority for shortened settlement times, and that DTCC makes data regarding T+0 and T+1 clearance and settlement through NSCC and DTC available on the DTCC website for review by the public. See id. at 49424. 196 See id. at 49423–24; proposed BSTX Rule 25060(h). See also proposed BSTX Rule 25100(d). The Exchange states that it understands that under its current rules, policies, and procedures, NSCC accepts trades for T+0 settlement through its continuous net settlement system provided that they are received by NSCC before a cut-off time of E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices jspears on DSK121TN23PROD with NOTICES1 Order with a T+0 Preference to be eligible to be transmitted by BSTX to NSCC for same-day settlement, the resulting execution must occur on the BSTX System prior to the ‘‘T+0 Cut-Off Time,’’ which would be one minute before any applicable cut-off time established by NSCC for inclusion of T+0 settling trades in its continuous net settlement process established pursuant to its rules, policies, and procedures.197 Any preference for T+0 or T+1 settlement included by a BSTX Participant would only become operative if the order happens to execute against another order from a BSTX Participant that also includes a parameter indicating a preference for settlement on a T+0 or T+1 basis.198 The 11:30 a.m. ET. DTCC provides on its website an overview of the cut-off times for participation in the continuous net settlement system process and other procedural considerations under its rules, policies, and procedures that are associated with processing trades for accelerated settlement on a T+0 or T+1 basis. See Amendment No. 2, supra note 9, at 34 n.62. 197 See Amendment No. 2, supra note 9, at 35; proposed BSTX Rule 25060(h)(3). The BSTX System would not accept any new Orders with a T+0 Preference after the T+0 Cut-Off Time. See Amendment No. 2, supra note 9, at 36; proposed BSTX Rule 25060(h)(3). However, an Order with a T+0 Preference resting on the BSTX Book after the T+0 Cut-Off Time would still be able to execute against orders against which it is marketable, and would remain eligible for potential T+1 settlement to the extent it executed against an Order with a T+1 Preference. See id. According to the Exchange, it believes that a one minute buffer between its T+0 Cut-Off Time and NSCC’s cut-off time for inclusion of such same-day settling trades in NSCC’s continuous net settlement process would be sufficient time to allow the Exchange to transmit the relevant execution details to NSCC and for NSCC to include such same-day settling trades in its continuous net settlement system. See Amendment No. 2, supra note 9, at 35–36. The Exchange represents that it will monitor the application of the one minute buffer and whether it provides the Exchange and NSCC with sufficient time to prevent executed trades from being transmitted by the Exchange to NSCC after NSCC’s cut-off time for inclusion of same-day settling trades in NSCC’s continuous net settlement system, and the Exchange will submit additional rule changes in the future as may be necessary to increase the buffer if appropriate. See id. at 36. The Exchange also represents that it will post the then-applicable T+0 Cut-Off Time on the BSTX website to ensure BSTX Participants are adequately informed. See id. at 36 n.64. 198 See OIP, supra note 7, 86 FR at 49424. Under the proposal, an Order with a T+0 Preference will execute against any order against which it is marketable and BSTX will transmit the matched order information to a registered clearing agency for settlement on a standard settlement cycle (T+2) pursuant to the rules, policies, and procedures of the registered clearing agency, except where: (i) the Order with a T+0 Preference executes against another Order with a T+0 Preference, in which case BSTX will transmit the matched order information to a registered clearing agency for settlement on the trade date as may be permitted by the rules, policies, and procedures of the registered clearing agency, subject to the limitations in proposed BSTX Rule 25060(h)(3); or (ii) the Order with a T+0 Preference executes against an Order with a T+1 VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 Exchange states that, at the time of order entry, any orders that include a parameter indicating a preference for faster settlement would be regular way orders that would be presumed to settle on a T+2 basis, just like any orders without such a parameter.199 The Exchange states that, in all cases, an order not marked with a preference for either T+0 or T+1 settlement would be assured under the settlement timing logic in proposed BSTX Rule 25060(h) of settlement on a T+2 basis. The Exchange also states that the possibility of a shortened settlement time would have no impact on the Exchange’s proposed price/time priority structure for order matching.200 The Exchange states that, as a result of this structure, all orders in Securities would be eligible to match and execute against any order against which they are marketable, with settlement to occur at the later settlement date of any two matching orders.201 Therefore, according to the Exchange, only where an Order with a T+1 Preference or an Order with a T+0 Preference match with another Order with a T+1 Preference or Order with a T+0 Preference will those orders (or matching portions thereof) be eligible to settle more quickly than the standard settlement cycle of T+2.202 The Exchange states that it believes the proposal to allow BSTX Participants to access the shorter settlement cycles of T+1 and T+0 that are already being used by NSCC and DTC today represents a change that is both consistent with and in furtherance of broader industry efforts to move the standard settlement style to T+1.203 The Exchange also states that it believes that providing an optional T+0 or T+1 settlement cycle to BSTX Participants could also incrementally and immediately provide market participants with the benefits of Preference, in which case BSTX will transmit the matched order information to a registered clearing agency for settlement on the next trading day after the trade date (i.e., T+1) as may be permitted by the rules, policies, and procedures of the registered clearing agency. See proposed BSTX Rule 25060(h)(1). An Order with a T+1 Preference will execute against any order against which it is marketable and BSTX will transmit the matched order information to a registered clearing agency for settlement on a standard settlement cycle (T+2), except where the Order with a T+1 Preference executes against another Order with a T+1 Preference or an Order with a T+0 Preference, in which case BSTX will transmit the matched order information to a registered clearing agency for settlement on the next trading day after the trade date (i.e., T+1) as may be permitted by the rules, policies, and procedures of the registered clearing agency. See proposed BSTX Rule 25060(h)(2). 199 See OIP, supra note 7, 86 FR at 49423. 200 See id. at 49424. 201 See id. 202 See id. 203 See id. at 49424–25. PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 5893 shorter settlement cycles.204 The Exchange further states that it believes that BSTX Participants have an interest in being able to assess risk-reducing market functionality that is presently available and compatible with market structure and that this can reduce costs for market participants settling trading obligations in that Security and reduce settlement risk.205 According to the Exchange, because all orders in Securities submitted to BSTX would at the time of order entry be presumed to settle on a regular way T+2 basis and would interact with any other order against which the order is marketable, the Exchange believes that Orders with a T+0 Preference and Orders with a T+1 Preference would be considered ‘‘protected’’ within the meaning of Rule 611 under the Exchange Act.206 The Exchange states that Orders with a T+0 Preference and Orders with a T+1 Preference would not fall within the exception for protected quotation status set forth in Rule 611(b)(2) under the Exchange Act, because they will only settle more quickly than T+2 when all of the conditions in proposed BSTX Rule 25060(h) are met and where faster settlement is consistent with the rules, policies, and procedures of a registered clearing agency.207 The Commission has received several comments expressing support for the proposal’s use of a shortened settlement cycle under certain circumstances.208 One commenter states in support of the proposal that BSTX would provide significant advantages over existing national securities exchanges by providing fairer conditions to market participants through reduced settlement times and more transparency.209 This commenter states that T+0 settlement would improve market conditions for retail investors by reducing risk of failure to deliver on highly shorted stocks, and would reduce actual and opportunity costs by eliminating margin lending for the period before settlement and lost opportunities to reinvest.210 204 See id. id. at 49425. 206 See id. (citing 17 CFR 242.611(b)(2)). 207 See id. 208 See Letter from Meagan Darata, Utah Salt Supplements (June 21, 2021) (‘‘Darata Letter’’); Letter from Mark Nelson (June 10, 2021); Letter from Robert Shaw (June 11, 2021) (‘‘Shaw Letter’’); Letter from Neil Skinner (June 11, 2021) (‘‘Skinner Letter’’). 209 See Skinner Letter, supra note 208. 210 See id. This commenter also states that the commenter expects the reduced costs of operating the exchange to be passed on to prospective companies and issuers, thereby creating more opportunities for companies and asset holders to 205 See E:\FR\FM\02FEN1.SGM Continued 02FEN1 5894 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices jspears on DSK121TN23PROD with NOTICES1 Two commenters refer to recent problems that they characterize as arising from T+2 settlement and short selling,211 and state that the proposal for a shorter settlement cycle would level the playing field for retail investors.212 Another commenter states that if a particular trade does not meet the criteria or conditions on T+0 or T+1, the fallback option will be the standard settlement cycle, and that because shorter settlement will depend on the NSCC clearing system, addressing any adverse market effects is NSCC’s responsibility.213 Another commenter states that uncertainty regarding whether an order would receive faster settlement at the time of order entry would not affect the ability of a market participants to reap the potential benefits of faster settlement.214 This commenter also states that there has been much recent public focus on the inefficiency of the current settlement system and that there is no evidence that the proposal would have adverse market effects.215 The Commission believes that the optional order parameter that would allow a BSTX Participant to place an Order with a T+0 Preference or Order with a T+1 Preference would permit BSTX Participants to take advantage of faster settlement timing provided by DTC and NSCC in manner that is consistent with fair and orderly markets. Use of the order parameter would be optional and would not have any effect on price/time execution priority. Therefore, any order placed by a BSTX Participant that prefers to settle on a T+2 basis (or any order routed to BSTX from another national securities exchange) would receive T+2 settlement and that order would not be disadvantaged in obtaining an execution due to the absence of a preference for faster settlement.216 The Commission offer securities, and resulting in a market boom as new market participants join the exchange. See id. 211 See Letter from Anonymous (June 15, 2021) (‘‘Anonymous Letter I’’); Skinner Letter, supra note 208. See also Shaw Letter, supra note 208 (stating that, with the current issues regarding settlement time, the proposal to offer speedy settlement is one answer to improving the system). 212 See Anonymous Letter I, supra note 211; Skinner Letter, supra note 208. See also Darata Letter, supra note 208 (stating that there is a wide power differential between retail and institutional traders). 213 See Anonymous Letter IV, supra note 171. 214 See Seeley Letter, supra note 170 (stating also that this uncertainty would not represent any additional inconsistency with the Exchange Act compared to current settlement systems and does not provide an appropriate basis for disapproving the proposal). 215 Id. 216 In the OIP, the Commission raises whether introducing the possibility for T+0 or T+1 settlement for on-exchange trades in NMS stocks VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 also believes that the proposal that Orders with a T+0 Preference must be executed on the BSTX System prior to the T+0 Cut-Off Time to be eligible for same-day settlement is reasonably designed to ensure that when BSTX transmits an order to the registered clearing agency for same-day settlement, the registered clearing agency will be able to include that trade in its continuous net settlement process. For these reasons, the Commission finds that the proposed order parameter that BSTX Participants could use to preference faster settlement is consistent with the Exchange Act and, in particular, Section 6(b)(5)’s requirement to foster cooperation and coordination with persons engaged in clearing, settling, and processing information with respect to transactions in securities; remove impediments to and perfect the mechanism of a free and open market and a national market system; and, in general, protect investors and the public interest.217 The Commission also finds that the proposed order parameter for faster settlement is consistent with Section 6(b)(8)’s requirement that the proposal not impose any burden on competition not necessary or appropriate in further of the purposes of the Exchange Act, because the operation of this order parameter will not impact the ability of a market participant that instead prefers T+2 settlement to obtain an execution.218 C. Eligibility for Listing and Trading on BSTX Once BSTX begins operations as a facility of the Exchange, a security would be considered for listing on BSTX only if such security is registered under both Section 12 of the Exchange Act 219 and Section 6 of the Securities Act of 1933 (‘‘Securities Act’’),220 or such security to subject to an exemption under Regulation A.221 An issuer may register a security pursuant to Section 12(b) by submitting to the Exchange a listing application that provides certain pursuant to the rules of a single national securities exchange, at a time when the industry standard is T+2 settlement, might have any adverse market effects. See OIP, supra note 7, 86 FR at 49455. The Commission notes that no commenters raised any potential adverse market effects. 217 15 U.S.C. 78f(b)(5). 218 15 U.S.C. 78f(b)(8). 219 15 U.S.C. 78l; proposed BSTX Rule 26210. 220 15 U.S.C. 78f. 221 See Amendment No. 2, supra note 9, at 10– 11. See also 17 CFR 230.251. The Exchange states that IEX similarly allows for securities subject to an exemption from registration under Section 12(b) of the Exchange Act to be listed on IEX. See Amendment No. 2, supra note 9, at 11 n.20 (citing to IEX Rule 14.203). PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 required information.222 The Exchange will review the listing application and, if the listing application is approved, will certify to the Commission that it has approved the security for listing and registration.223 Registration of the security will become effective thirty days after the receipt of such certification by the Commission or within a shorter period of time as the Commission may determine.224 Once registration is effective, the Security would be eligible to be admitted to dealings on BSTX.225 The Exchange proposes that the only securities that will be eligible for trading on BSTX will be BSTX-listed securities.226 The Exchange states that it is not proposing rules that would support its extension of UTP to other NMS stock.227 However, according to the Exchange, BSTX-listed Securities would be eligible for trading on other national securities exchanges that extend UTP to them and would be able to trade on other national securities exchanges and OTC in the same manner as other NMS stock.228 Classes of Securities Eligible for Listing The Exchange states that issuers on BSTX could include both: (i) New issuers who do not currently have any class of securities registered on a national securities exchange, and (ii) issuers who currently have securities registered on a national securities exchange and who are seeking registration of a new class of equity securities for listing on BSTX as Securities.229 In the original Notice, the Exchange stated that while BSTX does not intend for Securities listed on BSTX to be fungible with any other class of securities from the same issuer, to the 222 See proposed BSTX Rules 26210–26217; 15 U.S.C. 78l(b). Prior to submitting a listing application to the Exchange, the issuer would be required to participate in a confidential preapplication eligibility review, in which the Exchange will determine whether the issuer meets its listing criteria and is eligible to submit a listing application. See proposed BSTX Rule 26201. 223 See proposed BSTX Rule 26210(b); 15 U.S.C. 78l(d). See Exhibits 3G, 3H, 3I, 3J, 3K, and 3L for agreements and forms related to the listing process. 224 15 U.S.C. 78l(d). 225 See proposed BSTX Rule 26202. See also 15 U.S.C. 78l(d). 226 See proposed BSTX Rule 25020(a) (providing that any class of securities listed on the Exchange shall be eligible to become designated for trading on the Exchange in accordance with the proposed BSTX Rule 26000 and 28000 Rule Series). 227 See OIP, supra note 7, 86 FR at 49417. The Exchange also states that it would only trade BSTXlisted Securities on BSTX unless and until the Exchange proposes and receives Commission approval for rules that would support trading in other types of securities, including thorough any extension of UTP to other NMS stock. See id. 228 See id. at 49423. 229 See Amendment No. 2, supra note 9, at 13. E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices extent that two classes of an issuer’s shares had identical voting and economic rights but were registered with the Commission as separate classes, the two classes of shares could be ‘‘economically fungible’’ with each other.230 With respect to the Notice, one commenter states that BSTX appears to be contemplating that an issuer could list shares with identical voting and economic rights on BSTX and another exchange but designate the shares listed on BSTX as a separate class of the issuer’s securities, with the only distinguishing factor between the two classes of securities being that the BSTX-listed securities would have the additional blockchain functionality.231 The commenter states that, in the trading context, having two separate classes of an issuer’s securities with identical economic and voting rights trading at the same time on different exchanges could result in investor and market confusion.232 In Amendment No. 2, the Exchange states that BSTX does not intend for a Security listed on BSTX to be a unique class of security due only to the fact that certain trading activity in the Security on BSTX would be recorded on the BSTX Market Data Blockchain.233 The Exchange also states that if an issuer sought to list a new class of securities on BSTX that is not distinct from an existing class of securities of the issuer, the Exchange would not allow such a class to be listed pursuant to its authority under proposed BSTX Rule 26101.234 The Commission believes that Amendment No. 2 addresses the commenter’s concern that an issuer could list one class of securities on BSTX and a separate class of securities on another national securities exchange, with both classes having identical voting and economic interests. Proposed BSTX Rule 26101 provides that the approval of an application for listing of a security for trading on BSTX is a matter solely within the discretion of the Exchange.235 The Exchange’s use of this 230 See Notice, supra note 3, 86 FR at 29636 & jspears on DSK121TN23PROD with NOTICES1 n.20. 231 See Letter from Ellen Greene, Managing Director, Equities & Options Market Structure, Securities Industry and Financial Markets Association (September 27, 2021) (‘‘SIFMA Letter’’), at 2 (stating that ‘‘the definition of ‘class’ of securities in Section 12(g)(5) of the Exchange Act contemplates that securities of an issuer that have identical economic and voting rights would be part of the same class of securities’’). 232 See id. (stating that ‘‘issuers have dually-listed securities on two exchanges to meet the different listing standards of each of the exchanges, but the issuers have done so by listing the same class of securities on both exchanges’’). 233 See Amendment No. 2, supra note 9, at 13. 234 See id. 235 See proposed BSTX Rule 26101. VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 discretionary authority to prevent an issuer from listing a class of securities on BSTX that is not distinct from an existing class of securities would prevent the listing of a class of securities that has the same voting and economic rights as another listed class of securities of that same issuer. Initial and Continued Listing Standards The Commission has consistently recognized the importance and significance of national securities exchange listing standards. Among other things, such listing standards help ensure that exchange-listed companies will have sufficient public float, investor base, and trading interest to provide the depth and liquidity necessary to promote fair and orderly markets.236 The standards, collectively, also provide investors and market participants with some level of assurance that the listed company has the resources, policies, and procedures to comply with the requirements of the Exchange Act and Exchange rules.237 236 The Commission has stated in approving national securities exchange listing requirements that the development and enforcement of adequate standards governing the listing of securities on an exchange is an activity of critical importance to the financial markets and the investing public. In addition, once a security has been approved for initial listing, maintenance criteria allow an exchange to monitor the status and trading characteristics of that issue to ensure that it continues to meet the exchange’s standards for market depth and liquidity so that fair and orderly markets can be maintained. See, e.g., Securities Exchange Act Release Nos. 90768 (December 22, 2020), 85 FR 85807, 85811 n.55 (December 29, 2020) (SR–NYSE–2019–67) (‘‘NYSE 2020 Order’’); 82627 (February 2, 2018), 83 FR 5650, 5653 n.53 (February 8, 2018) (SR–NYSE–2017–30) (‘‘NYSE 2018 Order’’); 81856 (October 11, 2017), 82 FR 48296, 48298 (October 17, 2017) (SR–NYSE–2017– 31); 81079 (July 5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR–NYSE–2017–11). The Commission has stated that adequate listing standards, by promoting fair and orderly markets, are consistent with Section 6(b)(5) of the Exchange Act, in that they are, among other things, designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, and protect investors and the public interest. See, e.g., NYSE 2020 Order, 85 FR at 85811 n.55; NYSE 2018 Order, 83 FR at 5653 n.53; Securities Exchange Act Release Nos. 87648 (December 3, 2019), 84 FR 67308, 67314 n.42 (December 9, 2019) (SR– NASDAQ–2019–059); 88716 (April 21, 2020), 85 FR 23393, 23395 n.22 (April 27, 2020) (SR–NASDAQ– 2020–001). 237 ‘‘Meaningful listing standards are also important given investor expectations regarding the nature of securities that have achieved a national securities exchange listing, and the role of a national securities exchange in overseeing its market and assuring compliance with its listing standards.’’ Securities Exchange Act Release No. 65708 (November 8, 2011), 76 FR 70799, 70802 (November 15, 2011) (SR–NASDAQ–2011–073). See also, e.g., NYSE 2020 Order, supra note 236, 85 FR at 85811 n.56; Securities Exchange Act Release Nos. 65709 (November 8, 2011), 76 FR 70795 (November 15, 2011) (SR–NYSE–2011–38); 88389 (March 16, 2020), 85 FR 16163 (March 20, 2020) (SR– NASDAQ–2019–089). The Exchange, in addition to PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 5895 The Exchange has proposed initial and continued listing standards for companies to be listed on BSTX that are substantially similar to the current rules for NYSE American.238 These proposed listing standards relate to the listing and delisting of companies, including procedures and prerequisites for initial and continued listing on BSTX, the obligations of issuers with Securities listed on BSTX, as well as rules describing the application and qualification process, the suspension and delisting process, and procedures for review of the Exchange’s listing determinations.239 The Commission has previously determined that the initial and continued listing standards of NYSE American are consistent with the Exchange Act.240 The Exchange states that it did not integrate certain sections of NYSE American’s listing standards that the Exchange deemed were inapplicable to its operations, such as with respect to types of securities that the Exchange does not propose to make eligible for listing.241 The Exchange also proposes to include certain listing standards that are substantially similar requiring companies seeking to list to meet the quantitative initial listing standards and once listed the quantitative continued listing standards, also requires listed companies to meet other qualitative requirements. See, e.g., proposed BSTX Rules 26800 Series, Corporate Governance. 238 See OIP, supra note 7, 86 FR at 49439 (citing Parts 1–12 of the NYSE American Company Guide). The Exchange states that it understands that the Commission has extended relief to NYSE American with respect to certain quantitative listing standards that do not meet the thresholds of Rule 3a51–1, and that initial listings of securities that do not meet such thresholds and are not subject to the relief provided to NYSE American would qualify as ‘‘penny stocks’’ and would be subject to additional regulation. See Amendment No. 2, supra note 9, at 106 (citing 17 CFR 240.3a51–1); Amendment No. 3, supra note 10, at 4–5. The Exchange states that it is not seeking relief related to Rule 3a51–1 and describes certain adjustments made to the proposed BSTX rules to meet the requirements in Rule 3a51– 1. See Amendment No. 2, supra note 9, at 106; Amendment No. 3, supra note 10, at 4–5. 239 See proposed BSTX Rules 26000 Series (BSTX Listing Rules Other Than for Exchange Traded Products), 26200 Series (Original Listing Procedures), 26300 Series (Additional Listings), 27000 Series (Suspension and Delisting), 27100 Series (Guide to Filing Requirements), and 27200 Series (Procedures for Review of Exchange Listing Determinations). 240 See, e.g., Securities Exchange Act Release Nos. 59050 (December 3, 2008), 73 FR 75144 (December 10, 2008) (SR-Amex-2008–70) (approving revisions to the listing process and removal of alternative listing standards for American Stock Exchange LLC (‘‘Amex’’), a predecessor to NYSE American); 53050 (January 3, 2006), 71 FR 1580 (January 10, 2006) (SR-Amex-2005–114) (approving change to initial listing standards for Amex). 241 See Amendment No. 2, supra note 9, at 103 n.301. For example, the Exchange does not propose to list bonds, debentures, securities of foreign companies (other than Canadian companies), or investment trusts. See id. The Exchange also does not propose to allow the issuance of fractional shares of Securities. See id. at 114. E:\FR\FM\02FEN1.SGM 02FEN1 5896 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices jspears on DSK121TN23PROD with NOTICES1 to the rules of other national securities exchanges.242 In addition, the Exchange has proposed initial and continued listing standards for ETP-related securities to be listed on BSTX that are substantially similar to the rules of NYSE Arca, Inc. (‘‘NYSE Arca’’).243 These initial and continued listing standards relate to the specific types of ETPs that the Exchange proposes to make eligible for listing on BSTX.244 The Exchange states that the proposed rules do not include certain products that are supported by NYSE Arca but that the Exchange does not plan to offer.245 The Commission has previously determined that the ETPrelated listing standards of NYSE Arca are consistent with the Exchange Act.246 Accordingly, the Commission finds that the Exchange’s proposed initial and continued listing requirements, including the procedures for listing and delisting securities, are consistent with the Exchange Act, and Section 6(b)(5) of the Exchange Act 247 in particular, and its requirements that the rules of a national securities exchange be reasonably designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principals of trade, 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; and that the rules not be designed to permit unfair 242 See, e.g., Amendment No. 3, supra note 10, at 5–6 (stating that the Exchange is including initial listing standards for preferred securities and secondary classes based on Nasdaq Rule 5510). 243 See OIP, supra note 7, 86 FR at 49442 (citing to NYSE Arca Rules 5.2–E(j)(3), 5.2–E(j)(6), 5.2– E(j)(8), 8.200–E, 8.201–E, 8.600–E, 8.601–E, and 8.900–E). 244 See proposed BSTX Rules 28000 (Investment Company Units), 28001 (Equity Index-Linked Securities, Commodity-Linked Securities, CurrencyLinked Securities, Fixed Income Index-Linked Securities, Futures-Listed Securities, and Multifactor Index-Linked Securities), 28002 (Exchange-Traded Fund Shares), 28003 (Trust Issued Receipts), 28004 (Commodity-Based Trust Shares), 28005 (Managed Fund Shares), 28006 (Active Proxy Portfolio Shares), and 28007 (Managed Portfolio Shares). 245 See OIP, supra note 7, 86 FR at 49443 (stating that the Exchange will not support trading in a Nasdaq-100 Index Product, Currency Trust Shares, or Commodity Index Trust Shares). 246 See, e.g., Securities Exchange Act Release Nos. 44551 (July 12, 2001), 66 FR 37716 (July 19, 2001) (PCX–2001–14) (approving generic listing standards for investment company units and portfolio depository receipts for Pacific Exchange, Inc. (‘‘PCX’’), a predecessor to NYSE Arca); 52204 (August 3, 2005), 70 FR 46559 (August 10, 2005) (PCX–2005–63) (approving PCX’s generic listing standards for index-linked securities); 78397 (July 22, 2016), 81 FR 49320 (July 27, 2016) (NYSEArca2015–110) (approving NYSE Arca’s generic listing standards for managed fund shares). 247 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 discrimination between customers, issuers, brokers, or dealers. The Commission also finds that procedures for listing and delisting securities, including the procedures for challenging the Exchange’s listing determinations, are consistent with Section 6(b)(7) of the Exchange Act,248 which requires, among other things, that the rules of a national securities exchange provide a fair procedure for the prohibition or limitation by the exchange of any person with respect to access to services offered by the exchange. Corporate Governance Standards The development and enforcement of meaningful corporate governance listing standards for a national securities exchange is of substantial importance to financial markets and the investing public, especially given investor expectations regarding the nature of companies that have achieved an exchange listing for their securities.249 The corporate governance standards embodied in the listing standards of national securities exchanges, in particular, play an important role in assuring that exchange-listed companies observe good governance practices including safeguarding the interests of shareholders.250 The Exchange proposes corporate governance standards in connection with Securities to be listed and traded on BSTX that are substantially similar to the corporate governance standards for listed issuers of NYSE American.251 These corporate governance standards for listed issuers include policies relating to disclosures, the handling of stock dividends and splits, accounting, shareholder meetings and voting, and required notifications to the Exchange, as well as standards for the issuer’s corporate structure and its board of directors and committees thereof.252 Further, these standards include rules requiring a majority of directors on a listed issuer’s board to be independent, 248 15 U.S.C. 78f(b)(7). e.g., Securities Exchange Act Release Nos. 85374 (March 20, 2019), 84 FR 11354, 11356 (March 26, 2019); 91567 (April 14, 2021), 86 FR 20556, 20559 (April 20, 2021). 250 See, e.g., Securities Exchange Act Release Nos. 85374 (March 20, 2019), 84 FR 11354, 11356 (March 26, 2019); 91567 (April 14, 2021), 86 FR 20556, 20559 (April 20, 2021). 251 See OIP, supra note 7, at 49442 (citing to NYSE American Sections 401–404, 501–522, 603– 624, 701–726, 801–809, and 920–994). 252 See proposed BSTX Rule 26400 Series (Disclosure Policies), 26500 Series (Dividends and Splits), 26600 Series (Accounting; Annual and Quarterly Reports), 26700 Series (Shareholders’ Meetings, Approval and Voting of Proxies), 26800 Series (Corporate Governance), and 26900 Series (Additional Matters). 249 See, PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 rules and independence requirements relating to audit and compensation committees and the oversight of nominations, and rules requiring listed issuers to adopt codes of conduct applicable to all their directors, officers, and employees.253 The Commission has previously determined that the corporate governance standards for listed issuers of NYSE American are consistent with the Exchange Act.254 The Exchange also proposes to require listed companies to maintain an internal audit function pursuant to a rule that is substantially similar to the requirements of IEX.255 The Commission finds that BSTX’s proposed corporate governance standards for listed issuers contained in BSTX’s proposed rules are consistent with the Exchange Act, and in particular Section 6(b)(5) of the Exchange Act and its requirements that the rules of a national securities exchange be reasonably designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, 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; and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Commission further finds that BSTX’s proposed rules satisfy the requirements of Section 10A(m) of the Exchange Act and Rule 10A–3 thereunder and Section 10C of the Exchange Act and Rule 10C–1 thereunder, relating to audit and compensation committees, respectively.256 The Commission believes that BSTX’s corporate governance standards for listed issuers that require a fully independent audit committee are designed to promote independent and objective review and oversight of the accounting and auditing practices of listed issuers and to enhance audit committee independence, authority, and responsibility by implementing the standards set forth in 253 See proposed BSTX Rules 26802, 26803, and 27807. 254 See, e.g., Securities Exchange Act Release Nos. 48863 (December 1, 2003), 68 FR 68432 (December 8, 2003) (SR–Amex–2003–65) (approving proposal to enhance the corporate governance requirements applicable to listed companies for Amex); 54851 (November 30, 2006), 71 FR 71201 (December 8, 2006) (SR–Amex–2006–48) (approving exchange’s independent director and audit committee corporate governance standards for Amex). 255 See Amendment No. 2, supra note 9, at 115 (citing to IEX Rule 14.414). See also proposed BSTX Rule 26801(i). 256 See 15 U.S.C. 78j–1(m); 15 U.S.C. 78j–3; 17 CFR 240.10A–3; 17 CFR 240.10C–1. E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices Rule 10A–3.257 In addition, the Commission believes that BSTX’s proposed requirements relating to independent compensation committees for listed issuers would benefit investors by implementing the standards set forth in Rule 10C–1, which requires that the independent directors of a listed issuer oversee executive compensation matters, consider independence criteria before retaining compensation advisers, and have responsibility for the appointment, compensation, and oversight of these advisers.258 Corporate governance standards play an important role in assuring that companies listed for trading on the national securities exchanges’ markets have a reasoned, fair, and impartial approach for determining the compensation of corporate executives.259 The Commission believes that the Exchange’s rules will foster greater transparency, accountability, and objectivity in the oversight of compensation practices of listed issuers and in the decision-making processes of their compensation committees.260 jspears on DSK121TN23PROD with NOTICES1 Regulation The Exchange states that in connection with the operation of BSTX, it will leverage many of the Exchange’s existing regulatory structures.261 The Exchange states that it will extend its Regulatory Services Agreement with FINRA to cover BSTX Participants and trading on the BSTX System, and this Regulatory Services Agreement will govern many aspects of the regulation and discipline of BSTX Participants.262 According to the Exchange, the Exchange will regulate the listing of Securities, authorize BSTX Participants to trade on the BSTX System, and conduct surveillance of Security trading 257 See Securities Exchange Act Release No. 47654 (April 9, 2003), 68 FR 18788 (April 16, 2003). 258 See Securities Exchange Act Release No. 67220 (June 20, 2012), 77 FR 38422, 38425 (June 27, 2012). 259 See proposed BSTX Rule 26805. See, e.g., Securities Exchange Act Release No. 68640 (January 11, 2013), 78 FR 4554, 4563 (January 22, 2013) (SR– NASDAQ–2012–109) (‘‘Nasdaq 2012 Order’’) (approving proposal relating to rules for compensation committees for listed companies). 260 See, e.g., Nasdaq 2012 Order, supra note 259 (finding Nasdaq compensation committee rules consistent with the Exchange Act). See also, e.g., Securities Exchange Act Release Nos. 68639 (January 11, 2013), 78 FR 4570 (January 22, 2013) (order approving NYSE’s compensation committee rules, which was cited by Nasdaq as precedent for a subsequent amendment to its own rules that was filed on an immediately effective basis); 71037 (December 11, 2013), 78 FR 76179 (December 16, 2013) (SR–NASDAQ–2013–147). 261 See OIP, supra note 7, 86 FR at 49448. 262 See id. The Exchange states that, as is the case with the Exchange’s options trading platform, the Exchange will supervise FINRA and bear ultimate regulatory responsibility for BSTX. See id. VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 on the BSTX System.263 The Exchange states that, consistent with the Exchange’s existing regulatory structure, the Exchange’s Chief Regulatory Officer will have general supervision of the regulatory operations of BSTX, including responsibility for overseeing the surveillance, examination, and enforcement functions and for administering all regulatory services agreements applicable to BSTX.264 The Exchange states that its existing Regulatory Oversight Committee will be responsible for overseeing the adequacy and effectiveness of the Exchange’s regulatory and self-regulatory organization responsibilities, including those applicable to BSTX.265 The Exchange proposes specific business conduct and operational rules for BSTX Participants that include rules covering similar subject matter as existing Exchange Rules applicable to Options Participants.266 The Exchange also proposes to adopt proposed BSTX Rule 24000 (Discipline and Summary Suspension), which provides that the provisions of the Exchange’s existing BOX Rule 11000 Series (Summary Suspension), 12000 Series (Discipline), 13000 Series (Review of Certain Exchange Actions), and 14000 Series (Arbitration) shall be applicable to BSTX Participants and trading on the BSTX System.267 According to the Exchange, the Exchange already has Rules pertaining to discipline and suspension of Exchange Participants that it proposes to extend to BSTX Participants and trading on the BSTX System.268 In addition to the Exchange’s other disciplinary rules, the Exchange’s Minor Rule Violation Plan (‘‘MRVP’’) specifies those uncontested minor rule violations with sanctions not exceeding $2,500 that would not be subject to the provisions of Rule 19d–1(c)(1) under the Exchange Act 269 requiring that an SRO promptly file notice with the Commission of any final disciplinary action taken with respect to any person or organization.270 The Exchange’s 263 See id. id. 265 See id. at 49448–49. 266 See id. at 49427–30 (discussing proposed BSTX Rules regarding Business Conduct for BSTX Participants (Rule 19000 Series), Financial and Operational Rules for BSTX Participants (Rule 20000 Series), Supervision (Rule 21000 Series) and Miscellaneous Provisions (Rule 22000 Series)). 267 See id. at 49430–31; proposed BSTX Rule 24000. The Exchange proposes to make conforming edits to certain existing Exchange Rules to expand their coverage to all Participants. See proposed BOX Rules 11010 and 11030. 268 See OIP, supra note 7, 86 FR at 49431. 269 17 CFR 240.19d–1(c)(1). 270 See OIP, supra note 7, 86 FR at 49443. 264 See PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 5897 MRVP includes the policies and procedures set forth in existing BOX Rule 12140 (Imposition of Fines for Minor Violations).271 The Exchange proposes to amend its MRVP to add certain rules relating to BSTX to the list of rules eligible for MRVP treatment, by amending BOX Rule 12140 and adopting proposed BSTX Rule 24010.272 Specifically, the Exchange proposes to modify BOX Rule 12140 to specify that rules and penalties relating to trading on BSTX are set forth in proposed BSTX Rule 24010.273 The Exchange also proposes to set forth a fine schedule for violations of certain rules related to activity on BSTX and provide that a subsequent violation is calculated on the basis of a rolling 12-month period.274 The Exchange states that the rules that it proposes to include in its MRVP are comparable to the rules included in the MRVPs of other national securities exchanges.275 The Exchange represents that it plans to join the multi-party Rule 17d–2 Plan for Allocation of Regulatory Responsibilities Regarding Regulation NMS and is in the process of joining certain Rule 17d–2 agreements, including those applicable to equities trading and equities market surveillance.276 The Exchange states that it is a participant in the NMS plan related to the Consolidated Audit Trail, and that it intends to join the Order Execution Quality Disclosure Plan, the LULD Plan, and the applicable plans for the consolidation and dissemination of 271 See id. Amendment No. 2, supra note 9, at 121. 273 See OIP, supra note 7, 86 FR at 49443; proposed BOX Rule 12140(f). The Exchange also proposes to make conforming changes to replaced references to ‘‘Options Participant’’ with ‘‘Participant.’’ See proposed BOX Rule 12140. 274 See proposed BSTX Rule 24010. The Exchange proposes that violations of the following rules would be appropriate for dispositions under the MRVP: proposed BSTX Rule 19180 (Communications with the Public), proposed BSTX Rule 20000 (Maintenance, Retention and Furnishing of Records), proposed BSTX Rule 25070 (Consolidated Audit Trail), proposed BSTX Rule 25130 (Locking or Crossing Quotations in NMS Stocks), proposed BSTX Rule 25210(a)(1) (BSTX Market Maker Two-Sided Quote Obligation), and proposed BSTX Rule 25120 (Short Sales). See proposed BSTX Rule 24010(b). 275 See Amendment No. 2, supra note 9, at 122 (citing to IEX Rule 9.218, Cboe BZX Rule 8.15.01, and MIAX Pearl Rule 1014(d)(15)). 276 See id. at 143. Rule 17d–2 provides that any two or more SROs may file with the Commission a plan for allocating among such SROs the responsibility to receive regulatory reports from persons who are members or participants of more than one of such SROs to examine such persons for compliance, or to enforce compliance by such persons, with specified provisions of the Exchange Act, the rules and regulations thereunder, and the rules of such SROs, or to carry out other specified regulatory functions with respect to such persons. See 17 CFR 240.17d–2. 272 See E:\FR\FM\02FEN1.SGM 02FEN1 5898 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices market data.277 The Exchange also states that it will ensure that its membership in the Intermarket Surveillance Group extends to the BSTX facility.278 According to the Exchange, the Exchange will perform automated surveillance of trading on BSTX for the purposes of maintaining a fair and orderly market at all times and monitor BSTX to identify unusual trading patterns and determine whether particular trading activity requires further regulatory investigation by FINRA.279 The Exchange states that it will oversee the process for determining and implementing trading halts, identifying and responding to unusual market conditions, and administering the Exchange’s process for identifying and remediating ‘‘clearly erroneous trades’’ pursuant to proposed BSTX Rule 25110.280 The Exchange has also proposed BSTX Rules 25050 and 25080(b)(3) to comply with the LULD Plan.281 Proposed BSTX Rule 25080(b)(3) provides that, for any execution to occur during Regular Trading Hours, such executions must comply with the LULD plan, as set forth in BSTX Rule 25050.282 Proposed BSTX Rule 25050 describes the Exchange’s order handling procedures to comply with the LULD Plan.283 The Exchange’s proposed regulatory structure raises no new regulatory issues. Accordingly, the Commission finds that the Exchange’s proposed regulatory structure, including the Exchange’s proposed application of its existing rules to BSTX and BSTX Participants’ conduct, the Exchange’s commitment to establish new or expand existing agreements with third-parties including FINRA for purposes such as surveillance, member discipline, and overseeing and enforcing compliance with BSTX rules, and proposed BSTX Rule 25050 requiring compliance with the LULD Plan are consistent with the Exchange Act and, in particular, the Section 6(b)(5) requirement that a national securities exchange’s rules be designed to promote just and equitable principles of trade, remove 277 See Amendment No. 2, supra note 9, at 144. id. 279 See OIP, supra note 7, 86 FR at 49449. The Exchange states that it currently does this for options. See id. 280 See id. 281 See id. at 49433. The Exchange represents that it intends to join the LULD Plan prior to the commencement of trading Securities. See id. 282 See proposed BSTX Rule 25080(b)(3). 283 See proposed BSTX Rule 25050. See also supra note 125 (discussing how proposed BSTX Rule 25050 is substantially similar to the rules of other national securities exchanges adopted in connection with the LULD Plan). jspears on DSK121TN23PROD with NOTICES1 278 See VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 impediments to and perfect the mechanisms of a free and open market and a national market system, and protect investors and the public interest.284 The Commission also finds that the Exchange’s proposed regulatory structure is consistent with the requirements of Section 6(b)(1) of the Exchange Act, which requires a national securities exchange to be so organized and have the capacity to be able to carry out the purposes of the Exchange Act and to comply, and to enforce compliance by its members and persons associated with its members, with the Exchange Act and the rules and regulations thereunder, and the rules of the Exchange,285 and with Sections 6(b)(6) and 6(b)(7) of the Exchange Act,286 which require an Exchange to provide fair procedures for the disciplining of members and persons associated with members. Finally, the Commission finds that the proposed changes to the Exchange’s MRVP are consistent with the public interest, the protection of investors, or otherwise in furtherance of the purpose of the Exchange Act, as required by Rule 19d–1(c)(2) under the Exchange Act,287 which governs minor rule violation plans. The Commission believes that BOX Rule 12140 is an effective way to discipline a member for a minor violation of a rule. The Commission believes that the Exchange’s proposal to add rules related to BSTX to the list of rules that are eligible for minor rule violation plan treatment is consistent with the Exchange Act because it may help the Exchange’s ability to better carry out its oversight and enforcement responsibilities. In approving the proposed changes to the Exchange’s MRVP, the Commission in no way minimizes the importance of complying with the Exchange’s rules and all other rules subject to fines under BOX Rule 12140 and proposed BSTX Rule 24010. The Commission believes that a violation of any SRO’s rules, as well as Commission rules, is a serious matter. However, BOX Rule 12140 and proposed BSTX Rule 24010 provide a reasonable means of addressing rule violations that may not rise to the level of requiring formal disciplinary proceedings, while providing greater flexibility in handling certain violations. Consistent with its rules and the requirements of the Exchange Act, the Commission expects that the Exchange will continue to conduct surveillance with due diligence and make a 284 See 15 U.S.C. 78f(b)(5). U.S.C. 78f(b)(1). 286 15 U.S.C. 78f(b)(6) and (b)(7). 287 17 CFR 240.19d–1(c)(2). 285 15 PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 determination based on its findings, on a case-by-case basis, whether a fine of more or less than the recommended amount is appropriate for a violation under BOX Rule 12140 and proposed BSTX Rule 24010 or whether a violation requires formal disciplinary action. Section 11(a) of the Exchange Act Section 11(a)(1) of the Exchange Act 288 prohibits a member of a national securities exchange from effecting transactions on that exchange for its own account, the account of an associated person, or an account over which it or its associated person exercises investment discretion (collectively, ‘‘covered accounts’’) unless an exception applies. Rule 11a2– 2(T) under the Exchange Act,289 known as the ‘‘effect versus execute’’ rule, provides exchange members with an exemption from the Section 11(a)(1) prohibition. Rule 11a2–2(T) permits an exchange member, subject to certain conditions, to effect transactions for covered accounts by arranging for an unaffiliated member to execute transactions on the exchange. To comply with Rule 11a2–2(T)’s conditions, a member: (i) Must transmit the order from off the exchange floor; (ii) may not participate in the execution of the transaction once it has been transmitted to the member performing the execution; 290 (iii) may not be affiliated with the executing member; and (iv) with respect to an account over which the member or an associated person has investment discretion, neither the member nor its associated person may retain any compensation in connection with effecting the transaction except as provided in the Rule. In a letter to the Commission, the Exchange requests that the Commission concur with the Exchange’s conclusion that Exchange members that enter orders into the BSTX System satisfy the conditions of Rule 11a2–2(T).291 For the reasons set forth below, the Commission believes that members entering orders into the BSTX System could satisfy the requirements of Rule 11a2–2(T). The Rule’s first condition is that orders for covered accounts be transmitted from off the exchange floor. In the context of automated trading 288 15 U.S.C. 78k(a)(1). CFR 240.11a2–2(T). 290 This prohibition also applies to associated persons. The member may, however, participate in clearing and settling the transaction. 291 See Letter from Lisa Fall, President, BOX, dated December 23, 2021 (‘‘BSTX 11(a) Letter’’) available on the Commission’s website at: https:// www.sec.gov/comments/sr-box-2021-06/ srbox202106-20110741-264607.pdf. 289 17 E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices jspears on DSK121TN23PROD with NOTICES1 systems, the Commission has found that the off-floor transmission condition is met if a covered account order is transmitted from a remote location directly to an exchange’s floor by electronic means.292 The Exchange has represented that BSTX does not have a physical trading floor, and the BSTX System will receive orders from members electronically through remote terminals or computer-to-computer interfaces.293 The Commission believes that the BSTX System satisfies this offfloor transmission condition. The second condition states that the member and any associated person not participate in the execution of its order after the order has been transmitted. The Exchange has represented that at no time following the submission of an order is a member or an associated person of the member able to acquire control or influence over the result or timing of the order’s execution.294 According to the Exchange, the execution of a member’s order is determined solely by what quotes and orders are present in the BSTX System at the time the member submits the order, and the order priority based on the BSTX rules.295 Accordingly, the Commission believes that a member and its associated persons do not participate 292 See, e.g., Securities Exchange Act Release Nos. 78101 (June 17, 2016), 81 FR 41141 (June 23, 2016) (order approving IEX exchange registration); 75650 (August 7, 2015), 80 FR 48600 (August 13, 2015) (order approving EDGX Options as an options trading facility of the EDGX Exchange, Inc.); 61419 (January 26, 2010), 75 FR 5157 (February 1, 2010) (order approving the BATS Options as an options trading facility of the BATS Exchange, Inc.); 49068 (January 13, 2004), 69 FR 2775 (January 20, 2004) (order approving the Boston Options Exchange as an options trading facility of the Boston Stock Exchange); 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001) (order approving Archipelago Exchange as electronic trading facility of the Pacific Exchange); 29237 (May 24, 1991), 56 FR 24853 (May 31, 1991) (regarding NYSE’s Off-Hours Trading Facility); 15533 (January 29, 1979), 44 FR 6084 (January 31, 1979) (‘‘1979 Release’’); and 14563 (March 14, 1978), 43 FR 11542 (March 17, 1978) (‘‘1978 Release’’) (regarding NYSE’s Designated Order Turnaround System). 293 See BSTX 11(a) Letter, supra note 291, at 3. 294 See id. at 4. 295 See id. The Exchange states that a member may cancel or modify the order, or modify the instructions for executing the order, provided such cancellations or modifications are transmitted from off an exchange floor. See id. at 3 (citing the 1978 Release). The Commission has stated that the nonparticipation requirement is satisfied under such circumstances, so long as such modifications or cancellations are also transmitted from off the floor. See 1978 Release, supra note 292 (stating that the ‘‘non-participation requirement does not prevent initiating members from canceling or modifying orders (or the instructions pursuant to which the initiating member wishes orders to be executed) after the orders have been transmitted to the executing member, provided that any such instructions are also transmitted from off the floor’’). VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 in the execution of an order submitted to the BSTX System. The third condition states that the order be executed by an exchange member who is unaffiliated with the member initiating the order. The Commission has stated that this condition is satisfied when automated exchange facilities are used, as long as the design of these systems ensures that members do not possess any special or unique trading advantages in handling their orders after transmitting them to the exchange.296 The Exchange has represented that the design of the BSTX System ensures that no member has any special or unique trading advantage in the handling of its orders after transmitting its orders to the Exchange.297 Based on the Exchange’s representation that the design of the BSTX System ensures that no member has any special or unique trading advantage in the handling of its orders after transmitting its orders to BSTX, the Commission believes that the BSTX System satisfies this condition of Rule 11a2–2(T). Fourth, in the case of a transaction effected for an account with respect to which the initiating member or an associated person thereof exercises investment discretion, neither the initiating member nor any associated person thereof may retain any compensation in connection with effecting the transaction, unless the person authorized to transact business for the account has expressly provided otherwise by written contract referring to Section 11(a) of the Exchange Act and Rule 11a2–2(T) thereunder.298 Members 296 In considering the operation of automated execution systems operated by an exchange, the Commission has stated that while there is not an independent executing exchange member, the execution of an order is automatic once it has been transmitted into the system. Because the design of these systems ensures that members do not possess any special or unique trading advantages in handling their orders after transmitting them to the exchange, the Commission has stated that executions obtained through these systems satisfy the independent execution requirement of Rule 11a2–2(T). See 1979 Release, supra note 292. 297 See BSTX 11(a) Letter, supra note 291, at 4. The Exchange also states that access to the BSTX Market Data Blockchain will not allow a member or an associated person of such member to acquire control or influence over the result or timing of an order’s execution. See id. 298 17 CFR 240.11a2–2(T)(a)(2)(iv). In addition, Rule 11a2–2(T)(d) requires a member or associated person authorized by written contract to retain compensation, in connection with effecting transactions for covered accounts over which such member or associated persons thereof exercises investment discretion, to furnish at least annually to the person authorized to transact business for the account a statement setting forth the total amount of compensation retained by the member in connection with effecting transactions for the account during the period covered by the statement. See 17 CFR 240.11a2–2(T)(d). See also 1978 PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 5899 trading for covered accounts over which they exercise investment discretion must comply with this condition in order to rely on the rule’s exemption.299 IV. Solicitation of Comments on Amendment Nos. 2 and 3 to the Proposed Rule Change Interested persons are invited to submit written data, views, and arguments concerning whether Amendment Nos. 2 and 3 are consistent with the Exchange Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BOX–2021–06 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–2021–06. 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 Release, supra note 292 (stating ‘‘[t]he contractual and disclosure requirements are designed to assure that accounts electing to permit transaction-related compensation do so only after deciding that such arrangements are suitable to their interests’’). 299 See BSTX 11(a) Letter, supra note 291, at 4– 5. E:\FR\FM\02FEN1.SGM 02FEN1 5900 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices jspears on DSK121TN23PROD with NOTICES1 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–2021–06, and should be submitted on or before February 23, 2022. V. Accelerated Approval of Proposed Rule Change, as Modified by Amendment Nos. 2 and 3 The Commission finds good cause to approve the proposed rule change, as modified by Amendment Nos. 2 and 3, prior to the thirtieth day after the date of publication of notice of the filing of Amendment Nos. 2 and 3 in the Federal Register. The Commission notes that the original proposal and the proposal as modified by Amendment No. 1 were published for comment in the Federal Register.300 In Amendment No. 2, the Exchange revised the proposal to: (i) Provide additional information regarding the connectivity and co-location services that will be offered at the Exchange’s primary data center, including equidistant cabling arrangements; (ii) state that, pursuant to its authority under proposed BSTX Rule 26101, the Exchange would not permit an issuer to list a new class of securities on BSTX that is not distinct from an existing class of securities of the issuer; (iii) modify proposed rule text regarding the proposed BSTX Market Data Blockchain to clarify that non-BSTX Participants will have access to anonymized, general market data and specify what fields are included in this data, to specify that the market data will apply to trading activity for regular trading hours, and to clarify that users will view the data through an application programming interface; (iv) modify proposed rule text related to the proposed order parameter that would be used to preference T+0 settlement to add the T+0 Cut-Off Time by which an execution must occur to be eligible for T+0 settlement; (v) provide additional description to clarify operation of the proposed BSTX Market Data Blockchain and proposed optional order parameter for T+0 or T+1 settlement; and (vi) make technical and conforming changes. The Commission believes that these changes help to clarify the proposal and address concerns raised by commenters regarding the Exchange’s equidistant cabling arrangements and the potential for listing a class of securities that has the same economic and voting rights as a class of securities listed on another national securities exchange. The 300 See Notice, supra note 3; OIP, supra note 7. VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 Commission also believes that the changes regarding General Market Data on the BSTX Market Data Blockchain help to clarify access for non-BSTX Participants and how the Exchange will anonymize the data. The Commission further believes that the addition of the T+0 Cut-Off Time will help to ensure that trades submitted to NSCC for T+0 settlement are received by NSCC before NSCC’s cut-off time and thus can be settled using the consolidated net settlement process, and that the additional explanation regarding the order parameter for T+0 and T+1 settlement helps to clarify how this functionality will operate. In addition, the Exchange made several changes in Amendment No. 2 to bring the proposed rules into closer alignment with the rules of other national securities exchanges on which equities securities are traded, including by: (i) Modifying certain trading rules regarding securities eligible for trading, prohibitions against trading ahead of customer orders, round lots, minimum price variants, auctions used to open or reopen trading, the dissemination of market data concerning such auctions, risk controls, market maker registration process and obligations, business conduct, trading practices, maintaining books and records, off-exchange transactions, scope of the MRVP, trade reporting and the dissemination of quotations, clearly erroneous executions, and locking and crossing quotations; (ii) eliminating a proposed rule regarding an audit trail that has been superseded by rules pertaining to the Consolidated Audit Trail; (iii) modifying certain proposed listing standards regarding the listing of secondary classes and preferred stock, the required number of market makers, requirements for securities of foreign issuers that would apply to the listing of Canadian issuers, the listing of securities subject to an exemption from Exchange Act registration, the method of computing the payment of cash in lieu of fractional shares, the settlement timing of securities transactions, requirements to notify the Exchange before engaging in activities relating to a proxy contest, requirements that listed companies establish and maintain an internal audit function, the calculation of regulatory transaction fees under Section 31 of the Exchange Act, and the distribution of funds in the event of liquidation of the Exchange; and (iv) eliminating a proposed listing requirement that an applicant provide a legal opinion that its security qualifies as a security under applicable United States securities laws. The Exchange PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 also made changes in Amendment Nos. 2 and 3 to certain quantitative listing requirements to comply with the thresholds and other terminology in Rule 3a51–1. The Commission believes that these changes help make these aspects of the proposal substantially similar to the existing rules of national securities exchanges. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Exchange Act,301 to approve the proposed rule change, as modified by Amendment Nos. 2 and 3, on an accelerated basis. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act 302 and Rule 19d–1(c)(2) thereunder,303 that the proposed rule change (SR–BOX– 2021–06), as modified by Amendment Nos. 2 and 3 thereto, be, and it hereby is, approved on an accelerated basis. Although the Commission’s approval of the proposed rule change is final, and the proposed rules are therefore effective, it is further ordered that the operation of BSTX is conditioned on the satisfaction of the requirements below: A. Participation in National Market System Plans Relating to Equities Trading. BOX must join all relevant national market system plans related to BSTX equities trading, including: (1) The Consolidated Tape Association Plan, the Consolidated Quotation Plan, and the Nasdaq UTP Plan (or any successors thereto); (2) the National Market System Plan to Address Extraordinary Market Volatility; and (3) the National Market System Plan Establishing Procedures Under Rule 605 of Regulation NMS. B. Regulatory Services Agreement and Rule 17d–2 Agreements. BOX must ensure that all necessary changes are made to its Regulatory Services Agreement with FINRA and must be a party to the multi-party Rule 17d–2 agreements applicable to BSTX equities trading and equities market surveillance. C. Intermarket Surveillance Group. BOX must ensure that its membership in the Intermarket Surveillance Group extends to the BSTX facility. D. Governance Structure. BOX must ensure, consistent with the requirements of Section 19(b) and Rule 19b–4, that it has adopted a rule establishing BSTX as a facility of the Exchange.304 301 15 U.S.C. 78f(b)(2). U.S.C. 78s(b)(2). 303 17 CFR 240.19d–1(c)(2). 304 See also supra note 12 and accompanying text. 305 17 CFR 200.30–3(a)(12). 302 15 E:\FR\FM\02FEN1.SGM 02FEN1 Federal Register / Vol. 87, No. 22 / Wednesday, February 2, 2022 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.305 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2022–02086 Filed 2–1–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–94088; File Nos. SR–MIAX– 2021–59, SR–PEARL–2021–57] Self-Regulatory Organizations; Miami International Securities Exchange, LLC, MIAX PEARL, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Amend the Fee Schedules To Adopt a Tiered-Pricing Structure for Certain Connectivity Fees January 27, 2022. I. Introduction On December 1, 2021, Miami International Securities Exchange LLC, LLC (‘‘MIAX’’) and MIAX PEARL, LLC (‘‘MIAX Pearl’’) (collectively, the ‘‘Exchanges’’) each filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change (File Numbers SR–MIAX–2021– 59 and SR–PEARL–2021–57) to amend the MIAX Fee Schedule and MIAX Pearl Options Fee Schedule (collectively, the ‘‘Fee Schedules’’) to adopt a tiered pricing structure for certain connectivity fees. The proposed rule changes were immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.3 The proposed rule changes were published for comment in the Federal Register on December 20, 2021.4 Under Section 19(b)(3)(C) of the Act,5 the Commission is hereby: (i) Temporarily suspending File Numbers SR–MIAX–2021–59 and SR–PEARL–2021–57; and (ii) instituting proceedings to determine whether to 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take effect upon filing with the Commission if it is designated by the exchange as ‘‘establishing or changing a due, fee, or other charge imposed by the self-regulatory organization on any person, whether or not the person is a member of the self-regulatory organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii). 4 See Securities Exchange Act Release Nos. 93775 (December 14, 2021), 86 FR 71996 (‘‘MIAX Notice’’); 93774 (December 14, 2021), 86 FR 71952 (‘‘Pearl Notice’’). For ease of reference, citations to statements generally applicable to both notices are to the MIAX Notice. 5 15 U.S.C. 78s(b)(3)(C). jspears on DSK121TN23PROD with NOTICES1 2 17 VerDate Sep<11>2014 21:31 Feb 01, 2022 Jkt 256001 approve or disapprove File Numbers SR–MIAX–2021–59 and SR–PEARL– 2021–57. II. Background and Description of the Proposed Rule Changes MIAX and the MIAX Pearl options facility have a shared connectivity infrastructure that permits Members and non-Members to connect directly to either or both of the Exchanges, and thereby access the associated Exchanges’ trading platforms, market data systems, test systems, and disaster recovery facilities via a single, shared connection.6 Prior to implementation of the proposed rule changes, a market participant connecting to the primary or secondary facility of either or both of the Exchanges options platforms via a 10 gigabit ultra-low latency (‘‘10Gb ULL’’) fiber connection was assessed a monthly fee of $10,000 per connection.7 The Exchanges proposes to modify their respective Fee Schedules to adopt a tiered pricing structure for 10Gb ULL fiber connections as follows: • $9,000 each for the 1st and 2nd 10Gb ULL connections; • $11,000 each for the 3rd and 4th 10Gb ULL connections; and • $13,000 for each additional connection 10Gb ULL connection.8 These fees (the ‘‘Proposed Access Fees’’) are assessed in any month the Member or non-Member is credentialed to use any of the Exchanges’ APIs or market data feeds in the Exchanges’ production environment, pro-rated when a Member or non-Member adds or deletes a connection.9 6 See MIAX Notice, supra note 4 at 71998. id. 1Gb connections to the primary/ secondary facility, and 1Gb and 10Gb connections to the disaster recovery facility are subject to separate monthly charges that are not affected by the proposed rule changes. As the MIAX Pearl filing relates only the MIAX Pearl Options Fee Schedule, fees for the MIAX Pearl Equities facility also are outside the scope of the proposed rule changes. 8 The Exchanges initially filed the proposed fee changes on July 30, 2021. See Securities Exchange Act Release Nos. 92643 (August 11, 2021), 86 FR 46034 (August 17, 2021) (SR–MIAX–2021–35), 92644 (August 11, 2021), 86 FR 46055 (August 17, 2021) (SR–PEARL–2021–36). These filings were withdrawn by the Exchanges. The Exchanges filed new proposed fee changes with additional justification (SR–MIAX–2021–41 and SR–PEARL– 2021–45), which were the subject of a Suspension of and Order Instituting Proceedings. See Securities Exchange Act Release No. 93639 (November 22, 2021), 86 FR 67758 (November 29, 2021). The Exchanges subsequently withdrew those filings and replaced them with the instant filings to provide additional information and a revised justification for the proposal, which is discussed herein. See Securities Exchange Act Release No. 93733 (December 7, 2021), 86 FR 71108 (December 14, 2021) (Notice of Withdrawal); see also MIAX Notice and Pearl Notice, supra note 4 at 71997, 71984, respectively. 9 See MIAX Notice, supra note 4, at 71998. The Exchanges state that they deem connectivity fees to 7 See PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 5901 III. Suspension of the Proposed Rule Changes Pursuant to Section 19(b)(3)(C) of the Act,10 at any time within 60 days of the date of filing of an immediately effective proposed rule change pursuant to Section 19(b)(1) of the Act,11 the Commission summarily may temporarily suspend the change in the rules of a self-regulatory organization (‘‘SRO’’) if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. As discussed below, the Commission believes a temporary suspension of the proposed rule changes is necessary and appropriate to allow for additional analysis of the proposed rule changes’ consistency with the Act and the rules thereunder. In support of the proposals, the Exchanges argue that the proposed tiered pricing structure for 10Gb ULL connections is reasonable, equitable, and not unfairly discriminatory because the new tiers result in a majority of 10Gb ULL purchasers either saving money or paying the same amount.12 As discussed further below, the Exchanges state that ‘‘a higher fee to a Member or non-Member that utilizes numerous connections is directly related to the increased costs the Exchange incurs in providing and maintaining those additional connections.’’ 13 The Exchanges also maintain that the tiered pricing structure will encourage Members and non-Members to be more efficient and economical when determining how to connect to the Exchanges and should better enable the Exchanges to monitor and provide access to the Exchanges’ network to ensure sufficient capacity and headroom in the System.14 In further support of the proposals, the Exchanges argue that the Proposed Access Fees are reasonable because they will permit recovery of the Exchange’s costs in providing the associated services and will not result in the Exchange generating a suprabe access fees, and records these fees as part of its ‘‘Access Fees’’ revenue in its financial statements. Id. at 71999. 10 15 U.S.C. 78s(b)(3)(C). 11 15 U.S.C. 78s(b)(1). 12 See MIAX Notice, supra note 4, at 72004. The Exchanges state that approximately 80% of the firms that purchased at least one 10Gb ULL connection experienced a decrease in their monthly connectivity fees, while approximately 20% of firms experienced an increase in their monthly connectivity fees. See id. 13 See id. 14 See MIAX Notice, supra note 4, at 72004. E:\FR\FM\02FEN1.SGM 02FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 87, Number 22 (Wednesday, February 2, 2022)]
[Notices]
[Pages 5881-5901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02086]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94092; File No. SR-BOX-2021-06]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Amendment Nos. 2 and 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, To Adopt 
Rules Governing the Trading of Equity Securities on the Exchange 
Through a Facility of the Exchange Known as BSTX LLC

January 27, 2022.

Introduction

    On May 12, 2021, 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 (``Exchange 
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
adopt rules governing the listing and trading of equity securities on 
the Exchange through a facility of the Exchange to be known as BSTX LLC 
(``BSTX''). The proposed rule change was published for comment in the 
Federal Register on June 2, 2021.\3\ On July 13, 2021, the Commission 
extended the time period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to approve or disapprove the proposed rule change, 
to August 31, 2021.\4\ On August 18, 2021, the Exchange filed Amendment 
No. 1 to the proposed rule change, which replaced and superseded the 
proposed rule

[[Page 5882]]

change as originally filed.\5\ On August 27, 2021, the Commission 
published notice of Amendment No. 1 and instituted proceedings pursuant 
to Section 19(b)(2)(B) of the Exchange Act \6\ to determine whether to 
approve or disapprove the proposed rule change, as modified by 
Amendment No. 1.\7\ On November 23, 2021, the Commission designated a 
longer period for Commission action on the proposed rule change, as 
modified by Amendment No. 1.\8\ On December 20, 2021, the Exchange 
filed Amendment No. 2, which replaced and superseded the proposed rule 
change, as modified by Amendment No. 1.\9\ On January 20, 2022, the 
Exchange filed partial Amendment No. 3 to the proposed rule change.\10\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment Nos. 2 and 3, from 
interested persons and is approving the proposed rule change, as 
modified by Amendment Nos. 2 and 3, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92017 (May 25, 
2021), 86 FR 29634 (``Notice''). Comments on the proposed rule 
change can be found at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106.htm.
    \4\ See Securities Exchange Act Release No. 92387 (July 13, 
2021), 86 FR 38140 (July 19, 2021).
    \5\ In Amendment No. 1, the Exchange revised the proposal to: 
(i) Eliminate the proposed suspension of unlisted trading privileges 
for thinly traded securities; (ii) modify proposed rule text 
regarding the order parameter that would allow participants to 
indicate a preference for same day or next day settlement to clarify 
that, based on how the preferences of the two sides of an executed 
trade compare, the Exchange will transmit matched order information 
to a registered clearing agency for settlement as indicated to the 
extent that such settlement timing may be permitted under the rules, 
policies, and procedures of the registered clearing agency; (iii) 
modify aspects of the proposed market data blockchain to remove the 
Exchange's ability to change the content of the market data 
blockchain through a regulatory circular, remove the unique 
identification number from the types of member-specific market data, 
specify that anonymized, general market data will pertain to 
displayed orders, and add that the Exchange may provide permission 
for non-members to view the anonymized, general market data; (iv) 
add rule text regarding the Exchange's proposed market data 
products; (v) eliminate a proposed rule regarding issuer conversion 
of a security to listing on BSTX; (vi) provide additional 
description of several aspects of the proposal, including the market 
data blockchain and the possibility to settle on a same-day or next-
day basis; and (vii) make technical and conforming changes. 
Amendment No. 1 is available on the Commission's website at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106-9159349-247726.pdf.
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 92796, 86 FR 49416 
(September 2, 2021) (``OIP'').
    \8\ See Securities Exchange Act Release No. 93649, 86 FR 68023 
(November 30, 2021).
    \9\ In Amendment No. 2, the Exchange revised the proposal to: 
(i) Provide additional information regarding the connectivity and 
co-location services that will be offered at the Exchange's primary 
data center, including equidistant cabling arrangements; (ii) state 
that, pursuant to its authority under proposed BSTX Rule 26101, the 
Exchange would not permit an issuer to list a new class of 
securities on BSTX that is not distinct from an existing class of 
securities of the issuer; (iii) modify proposed rule text regarding 
the proposed market data blockchain to clarify that non-members will 
have access to anonymized, general market data and specify what 
fields are included in this data, to specify that the market data 
will apply to trading activity for regular trading hours, and to 
clarify that users will view the data through an application 
programming interface; (iv) modify proposed rule text related to the 
proposed order parameter that would be used to preference same-day 
settlement to add a cut-off time by which an execution must occur to 
be eligible for same-day settlement; (v) modify certain proposed 
rules to bring them into closer alignment with the rules of other 
national securities exchanges on which equity securities are traded, 
including rules regarding securities eligible for trading, 
prohibitions against trading ahead of customer orders, round lots, 
minimum price variants, auctions used to open or reopen trading, the 
dissemination of market data concerning such auctions, risk 
controls, market maker registration process and obligations, 
business conduct, trading practices, maintaining books and records, 
off-exchange transactions, scope of the minor rule violation plan, 
trade reporting and the dissemination of quotations, clearly 
erroneous executions, and locking and crossing quotations; (vi) 
eliminate a proposed rule regarding an audit trail that has been 
superseded by rules pertaining to the Consolidated Audit Trail; 
(vii) modify certain proposed listing standards to comply with the 
thresholds in Rule 3a51-1, and bring the proposed listing standards 
into closer alignment with the rules of other national securities 
exchanges on which equities securities are traded, including with 
respect to the listing of secondary classes and preferred stock, the 
required number of market makers, requirements for securities of 
foreign issuers that would apply to the listing of Canadian issuers, 
the listing of securities that are subject to an exemption from 
Exchange Act registration, the method of computing the payment of 
cash in lieu of fractional shares, the settlement timing of 
securities transactions, requirements to notify the Exchange before 
engaging in activities relating to a proxy contest, requirements 
that listed companies establish and maintain an internal audit 
function, the calculation of regulatory transaction fees under 
Section 31 of the Exchange Act, and the distribution of funds in the 
event of liquidation of the Exchange; (viii) eliminate a proposed 
listing requirement that an applicant provide a legal opinion that 
its security qualifies as a security under applicable United States 
securities laws; (ix) provide additional description to clarify 
operation of the proposed market data blockchain and proposed order 
parameter that would be used to preference same-day or next-day 
settlement; and (x) make technical and conforming changes. Amendment 
No. 2 is available on the Commission's website at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106-20110109-264393.pdf 
(``Amendment No. 2'').
    \10\ In Amendment No. 3, the Exchange revised the proposal to 
make certain changes to the proposed listing rules in proposed BSTX 
Rule 26000 to promote consistency with the definition of ``penny 
stock'' under Exchange Act Rule 3a51-1, including by defining 
``public distribution'' and ``public shareholder'' consistently with 
Rule 3a51-1, changing references to ``Market Value of Listed 
Securities'' to ``Total Value of Market Capitalization,'' and 
eliminating initial listing standards for preferred stock that were 
based on the rules of NYSE American. Amendment No. 3 is available on 
the Commission's website at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106-20112225-265310.pdf (``Amendment No. 3'').
---------------------------------------------------------------------------

II. Description of the Proposal, as Modified by Amendment Nos. 2 and 3

    As set forth in the OIP and Amendment Nos. 2 and 3,\11\ the 
Exchange proposes to adopt listing standards for certain equity 
securities (``Securities'') along with rules governing the trading of 
Securities through a facility of the Exchange known as BSTX.\12\ BSTX 
would operate a fully automated, price/time priority execution system 
(``BSTX System'') for the trading of Securities.\13\ Under the proposed 
rules, Securities would be NMS stocks, as defined in Rule 
600(b)(54),\14\ that meet BSTX listing standards and that trade on the 
BSTX System.\15\ BSTX would serve as the listing market for eligible 
companies and issuers of exchange traded products (``ETPs'').\16\ The 
Exchange states that it is not proposing rules that would support the 
extension of unlisted trading privileges (``UTP'') to NMS stocks listed 
on other national securities exchanges.\17\
---------------------------------------------------------------------------

    \11\ See OIP, supra note 7; Amendment No. 2, supra note 9; 
Amendment No. 3, supra note 10.
    \12\ See OIP, supra note 7, 86 FR at 49416. Pursuant to a 
separate proposed rule change, the Exchange proposes to establish 
BSTX as a facility of the Exchange that will operate a market for 
the trading of securities (``BSTX Market'') and adopt the BSTX Third 
Amended and Restated LLC Agreement. See Securities Exchange Act 
Release No. 93094 (September 21, 2021), 86 FR 53365 (September 27, 
2021) (SR-BOX-2021-14) (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 BSTX as a Facility 
of the Exchange) (``Amended BSTX Governance Proposal''); Amendment 
No. 2, supra note 9, at 7. Among other things, the Amended BSTX 
Governance Proposal sets forth the proposed ownership structure for 
BSTX. The Exchange states that without Commission approval of the 
trading rules, the Exchange 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-2021-14 is approved by the Commission. See 
Amended BSTX Governance Proposal, 86 FR at 53366. The Exchange also 
states that without approved rules pertaining to the governance 
structure of BSTX as a facility of the Exchange, the Exchange will 
not commence operation of BSTX. See Amendment No. 2, supra note 9, 
at 9.
    \13\ See OIP, supra note 7, 86 FR at 49416.
    \14\ 17 CFR 242.600(b)(54).
    \15\ See OIP, supra note 7, 86 FR at 49417. The Exchange 
proposes listing standards that, according to the Exchange, are 
similar to the listing standards of NYSE American LLC (``NYSE 
American''). See id. at 49439.
    \16\ See id. at 49417.
    \17\ See id. The Exchange also states that, therefore, it would 
only trade Securities listed on BSTX unless and until it proposes 
and receives Commission approval for rules that would support 
trading in other types of securities, including through the 
extension of UTP to other NMS stocks. See id.
---------------------------------------------------------------------------

    The Exchange proposes rules for participation on BSTX, business 
conduct for BSTX Participants,\18\

[[Page 5883]]

financial and operational provisions for BSTX Participants, 
supervision, trading practices, discipline, trading on the BSTX System, 
market making, and listing Securities on BSTX.\19\ The Exchange 
proposes to offer several proprietary market data products that are 
similar to those offered by other national securities exchanges, as 
well as a historical market data product that utilizes blockchain 
technology.\20\ Specifically, the Exchange proposes to record and 
disseminate certain information regarding orders and executions on BSTX 
on a proprietary market data feed that BSTX would operate using a 
proprietary blockchain system (``BSTX Market Data Blockchain'').\21\ 
The Exchange states that the BSTX Market Data Blockchain would be 
accessible through an application program interface (``API'') available 
through the internet, and the Exchange would control all aspects of the 
BSTX Market Data Blockchain and the associated API.\22\
---------------------------------------------------------------------------

    \18\ ``BSTX Participant'' would be defined as a Participant or 
Options Participant that is authorized to trade securities on the 
Exchange. See proposed BSTX Rule 17000(a)(12). See also proposed BOX 
Rules 100(a)(41) (defining ``Options Participant'' to mean a 
Participant registered with the Exchange for purposes of 
participating in options trading on the Exchange); and 100(a)(42) 
(defining ``Participant'' to mean a firm or organization that is 
registered with the Exchange pursuant to BOX Rule 2000 Series for 
purposes of participating in trading on a facility of the Exchange, 
including an Options Participant and BSTX Participant).
    \19\ See OIP, supra note 7, 86 FR at 49417.
    \20\ See proposed BSTX Rule 22060. The Exchange states that its 
rule concerning market data products is substantially similar to 
that of MEMX LLC (``MEMX''). See OIP, supra note 7, 86 FR at 49424 & 
n.154.
    \21\ See proposed BSTX Rules 17000(a)(9) and 17020.
    \22\ See OIP, supra note 7, 86 FR at 49420. The Exchange states 
that only the Exchange would have direct access to the underlying 
data on the private blockchain. See id.
---------------------------------------------------------------------------

    The Exchange states that two types of information would be 
available on the BSTX Market Data Blockchain. Each BSTX Participant 
would be able to see its own order and transaction information related 
to its own trading activity on BSTX (``Participant Proprietary 
Data'').\23\ In addition, all BSTX Participants and non-BSTX 
Participants with permission to view the BSTX Market Data Blockchain 
would be able to see anonymized, general market data related to all 
trading activity occurring on BSTX (``General Market Data'').\24\ The 
Exchange states that information would be posted to the BSTX Market 
Data Blockchain on a delayed basis of at least five minutes.\25\ The 
Exchange states that the General Market Data that would be available on 
the BSTX Market Data Blockchain would contain substantively similar 
information as would be available through the Exchange's proprietary 
market data feeds.\26\ The Exchange further states that the BSTX Market 
Data Blockchain would not impact the ability of Securities to trade on 
other national securities exchanges or over-the-counter (``OTC'').\27\
---------------------------------------------------------------------------

    \23\ See id.
    \24\ See id.
    \25\ See id. at 49421. See also infra note 156 (describing that 
by ``five minute delay,'' the Exchange means that market data would 
be uploaded once every five minutes).
    \26\ See OIP, supra note 7, 86 FR at 49421.
    \27\ See id. at 49423. The Exchange states that it is proposing 
to use blockchain technology for purposes of the BSTX Market Data 
Blockchain and that, to the extent the Exchange proposes future 
applications of blockchain technology to the Exchange's business, 
the Exchange would file such proposal with the Commission. See 
Amendment No. 2, supra note 9, at 29 n.52. The Commission notes that 
the Exchange's current proposal does not involve the trading of 
digital tokens and such a proposal, or any other additional use of 
blockchain technology, would require that the Exchange file a 
proposed rule change pursuant to Section 19(b) and Rule 19b-4 of the 
Exchange Act.
---------------------------------------------------------------------------

    According to the Exchange, all transactions in Securities would 
clear and settle in accordance with the rules, policies, and procedures 
of registered clearing agencies.\28\ The Exchange states that BSTX 
anticipates that The Depository Trust Company (``DTC'') would serve as 
the securities depository for Securities and that confirmed trades in 
Securities on BSTX would be transmitted to National Securities Clearing 
Corporation (``NSCC'') for clearing.\29\ The Exchange proposes to 
introduce an optional order parameter that would allow BSTX 
Participants to indicate a preference for settlement on a shorter 
settlement cycle than the standard two business day (``T+2'') 
settlement cycle. Specifically, the Exchange proposes that BSTX 
Participants would be able to utilize an order parameter that would 
indicate a preference for settlement on a same day (``T+0'') or next 
day (``T+1'') basis when certain conditions are met.\30\ The Exchange 
states that orders in a Security that include a parameter indicating a 
preference for settlement on a T+0 basis or on a T+1 basis would only 
result in executions that would actually settle more quickly than on a 
T+2 basis if, and only if, all of the specified conditions are met and 
the execution that is transmitted by BSTX to NSCC is eligible for T+0 
or T+1 settlement under the rules, policies, and procedures of a 
registered clearing agency.\31\ The Exchange states that any such 
preference would only become operative if the order happened to execute 
against another order that also includes a parameter indicating a 
preference for settlement on a T+0 or T+1 basis.\32\ According to the 
Exchange, an order with a preference for faster settlement would 
continue to interact with any other order against which it is 
marketable, and a resulting execution would always settle using the 
latest settlement timing associated with the two matching orders.\33\ 
The Exchange also states that the possibility of a shortened settlement 
time would have no impact on the Exchange's proposed price/time 
priority structure for order matching.\34\
---------------------------------------------------------------------------

    \28\ See OIP, supra note 7, 86 FR at 49418. The Exchange also 
states that the operation of the BSTX Market Data Blockchain would 
have no impact or effect on the manner in which a Security clears 
and settles. See id.
    \29\ See id.
    \30\ See id. at 49423; proposed BSTX Rule 25060(h).
    \31\ See OIP, supra note 7, 86 FR at 49424.
    \32\ See id.
    \33\ See id. at 49425.
    \34\ See id. at 49424.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review of the proposed rule change, as modified by 
Amendment Nos. 2 and 3, the Commission finds that the proposal is 
consistent with the requirements of the Exchange Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\35\ Specifically, the Commission finds that the proposed rule 
change, as amended, is consistent with Section 6(b)(5) of the Exchange 
Act,\36\ 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, and processing 
information with respect to, and facilitating transactions in 
securities; to remove impediments to and perfect the mechanism of a 
free and open market and a national market system; and, in general, to 
protect investors and the public interest. Section 6(b)(5) also 
requires that the rules of a national securities exchange not be 
designed to permit unfair discrimination among customers, issuers, 
brokers, or dealers. Further, the Commission finds that the proposed 
rule change, as amended, is consistent with Section 6(b)(1) of the 
Exchange Act,\37\ which requires, among other things, that a national 
securities exchange be so organized and have the capacity to carry out 
the purposes of the Exchange Act, and to comply and enforce compliance 
by its members and

[[Page 5884]]

persons associated with its members, with the provisions of the 
Exchange Act, the rules and regulations thereunder, and the rules of 
the exchange, and with Sections 6(b)(6) and 6(b)(7) of the Exchange 
Act,\38\ which require a national securities exchange to provide fair 
procedures for the disciplining of members and persons associated with 
members. The Commission also finds that the proposed rule change, as 
amended, is consistent with Section 11A of the Exchange Act,\39\ and, 
consistent with Section 6(b)(8) of the Exchange Act, does not impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Exchange Act.\40\ The Commission further finds 
that the proposed rule change, as amended, is consistent with the 
public interest, the protection of investors, or otherwise in 
furtherance of the purposes of the Exchange Act, as required by Rule 
19d-1(c)(2) under the Exchange Act,\41\ which governs minor rule 
violation plans.
---------------------------------------------------------------------------

    \35\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \36\ 15 U.S.C. 78f(b)(5).
    \37\ 15 U.S.C. 78f(b)(1).
    \38\ 15 U.S.C. 78f(b)(6) and (b)(7).
    \39\ 15 U.S.C. 78k-1.
    \40\ 15 U.S.C. 78f(b)(8).
    \41\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    The Exchange proposes to adopt rules governing the trading of 
Securities under the proposed rules through a facility of the Exchange 
known as BSTX, which will function in a manner similar to equities 
trading platforms that the Commission has approved for other national 
securities exchanges.\42\ With the exception of the proposed BSTX 
Market Data Blockchain and optional order parameter for preferencing 
settlement on a T+0 or T+1 basis, the Exchange's proposed rules for 
BSTX are substantively similar to the corresponding rules of other 
equities exchanges. As discussed below, the Commission believes that 
the proposed rule change, as modified by Amendment Nos. 2 and 3, is 
consistent with the Exchange Act.
---------------------------------------------------------------------------

    \42\ BSTX's rules, including its rules relating to participation 
on BSTX and business conduct, financial and operational, 
supervisory, and trading practice rules, and certain trading, market 
making, and listing rules, are similar to existing national 
securities exchanges' trading and listing rules. See, e.g., Rules of 
the Cboe BZX Exchange, Inc. (``Cboe BZX''), Investors Exchange LLC 
(``IEX''), and NYSE American.
---------------------------------------------------------------------------

A. BSTX Participants

    The Exchange proposes to adopt BSTX Rule 18000, which will set 
forth requirements for participation on BSTX. A ``BSTX Participant'' 
will be a new category of Exchange participant for effecting 
transactions on the BSTX System. All BOX Participants would be eligible 
to participate in BSTX provided that they become a BSTX Participant 
pursuant to the proposed rules.\43\ A BSTX Participant must complete 
the BSTX Participation Application, Participation Agreement, and User 
Agreement; \44\ be an existing Participant or Options Participant or 
become a Participant or Options Participant of the Exchange pursuant to 
BOX Rule 2000 Series and continue to abide by all applicable provisions 
in BOX Rule 2000 Series; \45\ and provide such other information as 
required by the Exchange.\46\ BSTX Participants would be required to 
comply with, among other things, financial responsibility requirements 
established by Rule 15c3-1 under the Exchange Act and applicable books 
and records requirements, and be a member or participant of a 
registered clearing agency or clear security transactions through 
another BSTX Participant that is a member or participant of a 
registered clearing agency.\47\ In addition, proposed BSTX Rule 18020 
would require associated persons of a BSTX Participant to be bound by 
the rules of the Exchange to the same extent as each BSTX Participant 
and allow the Exchange to discipline, suspend, or terminate the 
registration with the Exchange of any person associated with a BSTX 
Participant for violation of the Exchange rules.\48\
---------------------------------------------------------------------------

    \43\ See OIP, supra note 7, 86 FR at 49417. The Exchange 
proposes defined terms for use in the BSTX Rules, and states that 
terms defined elsewhere in the BOX Rules shall have the same 
meaning. See proposed BSTX Rule 17000. The Exchange also proposes to 
specify that the proposed BSTX Rules apply to the trading of 
securities by BSTX Participants approved for such trading, the 
listing of securities, and related matters pertaining to the trading 
of securities, and that unless specific BSTX Rules related to 
securities govern or the context otherwise requires, the provisions 
of the existing BOX Rules shall be applicable to BSTX Participants 
and the trading of securities on the BSTX System. See proposed BSTX 
Rule 17010. Further, the Exchange proposes to make conforming 
changes to certain existing BOX Rules that would apply to BSTX 
Participants, but currently only contemplate trading in options. See 
Amendment No. 2, supra note 9, at 123; proposed BOX Rules 100, 2020, 
2060, 3180, 7130, 7150, 7230, 7245, IM-8050-3, 11010, 11030, and 
12140.
    \44\ See Exhibits 3A, 3B, and 3C, respectively.
    \45\ The BOX Rule 2000 Series requires, among other things, that 
a Participant (including a BSTX Participant) remain a member of 
another registered national securities exchange or national 
securities association. See OIP, supra note 7, 86 FR at 49448 n.320.
    \46\ See proposed BSTX Rule 18000.
    \47\ See proposed BSTX Rule 18010(b). See also Exhibits 3F and 
3G.
    \48\ See proposed BSTX Rule 18020(b).
---------------------------------------------------------------------------

    The Exchange also proposes rules for business conduct for BSTX 
Participants, financial and operational provisions for BSTX 
Participants, and rules for supervision, trading practices, discipline, 
and market making.\49\ According to the Exchange, the proposed BSTX 
Rule 19000 Series would specify business conduct requirements that are 
substantially similar to those of other national securities 
exchanges,\50\ which pertain to: Just and equitable principles of 
trade; adherence to law; use of fraudulent devices; false statements; 
know your customer; fair dealing with customers; suitability; prompt 
receipt and delivery of securities; charges for services performed; use 
of information obtained in a fiduciary capacity; publication of 
transactions and quotations; offers at stated prices; payments 
involving publications that influence the market price of a security; 
customer confirmations; disclosure of a control relationship with an 
issuer of securities; discretionary accounts; improper use of 
customers' securities or funds and a prohibition against guarantees and 
sharing in accounts; the extent to which sharing in accounts is 
permissible; communications with customers and the public; gratuities; 
telemarketing; mandatory systems testing; and short interest reporting. 
The Exchange states that the proposed business conduct rules are 
identical to those of other national securities exchanges, other than 
changes to defined terms and certain other provisions that would not 
apply to the trading of Securities on the BSTX System.\51\
---------------------------------------------------------------------------

    \49\ See proposed BSTX Rule Series 19000, 20000, 21000, 23000, 
24000, 25000, and 25200.
    \50\ See Amendment No. 2, supra note 9, at 48 (citing to Cboe 
BZX Rules Chapter III and IEX Rules Chapter 3).
    \51\ See OIP, supra note 7, 86 FR at 49427. For example, the 
Exchange is not proposing to adopt a rule contained in other 
national securities exchanges' business conduct rules relating to 
disclosures that broker-dealers give to their customers regarding 
the risks of effecting securities transactions during times other 
than Regular Trading Hours because executions may only occur during 
Regular Trading Hours on the BSTX System. See id. at 49427 n.113 
(citing to IEX Rule 3.290 and Cboe BZX Rule 3.21). ``Regular Trading 
Hours'' would mean the time between 9:30 a.m. and 4:00 p.m. Eastern 
Time (``ET''). See proposed BSTX Rule 17000(a)(29).
---------------------------------------------------------------------------

    According to the Exchange, the proposed BSTX Rule 20000 Series 
would specify financial and operational rules for BSTX Participants 
associated with maintenance and furnishing of books and records, 
financial reports, net capital compliance, early warning notifications 
pursuant to Rule 17a-11 under the Exchange Act, authority of the Chief 
Regulatory Officer to impose certain restrictions, margin, day-trading 
margin, customer account information, maintaining records of customer 
complaints, and disclosure of financial

[[Page 5885]]

condition.\52\ The Exchange represents that the financial and 
operational requirements are substantially similar to those of other 
national securities exchanges.\53\ Further, the Exchange proposes to 
adopt supervisory requirements for BSTX Participants in the proposed 
BSTX Rule 21000 Series, which, according to the Exchange, are 
substantially similar to those of other national securities 
exchanges.\54\ The proposed supervisory requirements pertain to 
enforcing written procedures to appropriately supervise the BSTX 
Participant's conduct and compliance with applicable regulatory 
requirements, designation of an individual to carry out written 
supervisory procedures, maintenance and keeping of records carrying out 
the BSTX Participant's written supervisory procedures, review of 
activities of each BSTX Participant's offices, including periodic 
examination of customer accounts to detect and prevent irregularities 
or abuses, prevention of the misuse of material non-public information, 
and implementation of an anti-money laundering compliance program.\55\
---------------------------------------------------------------------------

    \52\ See OIP, supra note 7, 86 FR at 49428.
    \53\ See id. at 49428 & n.116 (citing to Cboe BZX Rules Chapter 
VI and IEX Rules Chapter 5). The Exchange states that the proposed 
BSTX Rule 20000 Series also incorporates existing rules of the 
Exchange or another self-regulatory organization (``SRO'') by 
reference. See id. at 49428.
    \54\ See id.
    \55\ See id. at 49428 & n.128 (citing to Cboe BZX Rules Chapter 
V and IEX Rule 5.150).
---------------------------------------------------------------------------

    The proposed BSTX Rule 22000 Series would provide, among other 
things, that BSTX Participants must comply with requirements with 
respect to comparison and settlement, borrowing and deliveries in 
accordance with Rule 203 of Regulation SHO, forwarding of proxy and 
other issuer-related materials, commissions, regulatory services 
agreements, and conditions and limitations on transactions involving 
Exchange employees.\56\ Proposed BSTX Rule 22070 would generally 
provide that the rules of the Exchange would not prohibit, condition, 
or limit the ability of any BSTX Participant, including a BSTX 
Participant acting as an agent, to effect any transaction otherwise 
than on the Exchange with another person in any security listed on the 
Exchange or to which UTP on the Exchange has been extended.\57\ The 
Exchange represents that these miscellaneous requirements are 
substantially similar to rules of other national securities 
exchanges.\58\ The Exchange also proposes to adopt the BSTX Rule 23000 
Series relating to trading practice requirements for BSTX Participants, 
including prohibiting forms of market manipulation and specifying 
certain obligations broker-dealers have to their customers, such as the 
duty of best execution.\59\ The Exchange represents that the trading 
practice rules are substantially similar to those of other national 
securities exchanges.\60\
---------------------------------------------------------------------------

    \56\ See proposed BSTX Rule 22000 Series.
    \57\ See Amendment No. 2, supra note 9, at 58; proposed BSTX 
Rule 22070. The Exchange states that the proposed rule is consistent 
with the requirements of Rules 19c-1 and 19c-3 under the Exchange 
Act and substantially similar to rules of other national securities 
exchanges. See Amendment No. 2, supra note 9, at 58 (citing to, for 
example, Cboe BZX Rule 13.6).
    \58\ See OIP, supra note 7, 86 FR at 49429 & n.138 (citing to 
Cboe BZX Rules Chapter XIII and IEX Rule 6.180).
    \59\ According to the Exchange, the proposed BSTX Rule 23000 
Series would specify trading practice requirements related to: (i) 
Market manipulation; (ii) fictitious transactions; (iii) excessive 
sales by a BSTX Participant; (iv) manipulative transactions; (v) 
dissemination of false information; (vi) prohibition against trading 
ahead of customer orders; (vii) joint activity; (viii) influencing 
data feeds; (ix) trade shredding; (x) best execution; (xi) 
publication of transactions and changes; (xii) trading ahead of 
research reports; (xiii) front running of block transactions; and 
(xiv) a prohibition against disruptive quoting and trading activity. 
See id. at 49429.
    \60\ See id. at 49429 & n.155 (citing to Cboe BZX Rules Chapter 
XII). The Exchange states that the proposed minimum price 
improvement standards in proposed BSTX Rule 23050(h) are consistent 
with those of other national securities exchanges and the Financial 
Industry Regulatory Authority (``FINRA''). See Amendment No. 2, 
supra note 9, at 62 (citing to Cboe BZX Rule 12.6.06).
---------------------------------------------------------------------------

    With respect to the imposition of suspension and disciplinary 
actions, the Exchange states that it proposes to adopt the BSTX Rule 
24000 Series, which would provide that the Exchange rules \61\ 
pertaining to discipline and suspension of Exchange Participants that 
have been approved by the Commission shall be applicable to BSTX 
Participants and trading on the BSTX System.\62\
---------------------------------------------------------------------------

    \61\ See BOX Rule 11000 Series (Summary Suspension), 12000 
Series (Discipline), 13000 Series (Review of Certain Exchange 
Actions), and 14000 Series (Arbitration).
    \62\ See OIP, supra note 7, 86 FR at 49430-31; proposed BSTX 
Rule 24000. In addition, the Exchange proposes to amend its Minor 
Rule Violation Plan to add certain rules relating to BSTX to the 
list of rules eligible for minor rule violation plan treatment, by 
amending BOX Rule 12140 and adopting proposed BSTX Rule 24010 
(Penalty for Minor Rule Violations). See Amendment No. 2, supra note 
9, at 121.
---------------------------------------------------------------------------

    The Exchange proposes to allow firms to register as Market Makers 
and Designated Market Makers (``DMMs'') \63\ with affirmative and 
negative market making obligations.\64\ A BSTX Participant registered 
as a BSTX Market Maker, including a DMM, would be required to engage in 
a course of dealing for its own account in the maintenance of a fair 
and orderly market.\65\ Among other things, each Market Maker must 
maintain two-sided quotes during the regular market session for each 
Security in which it is registered as a Market Maker.\66\ A non-DMM 
Market Maker may temporarily withdraw its Market Maker status,\67\ and 
any BSTX Market Maker, other than a DMM, may voluntarily terminate its 
registration with the Exchange.\68\ If the Exchange finds any 
substantial or continued failure by a BSTX Market Maker to engage in a 
course of dealings specified in proposed BSTX Rule 25220(a),\69\ the

[[Page 5886]]

Exchange would subject the Market Maker to disciplinary action or 
suspension or revocation of the registration by the Exchange in one or 
more of the Securities in which the Market Maker is registered.\70\
---------------------------------------------------------------------------

    \63\ ``Designated Market Maker'' or ``DMM'' would be defined as 
a BSTX Participant registered as a DMM pursuant to the BSTX Rule 
25200 Series. See proposed BSTX Rule 17000(a)(20).
    \64\ See proposed BSTX Rule 25200 Series. The Exchange states 
that rules relating to market makers are similar to the rules of 
other national securities exchanges. See Amendment No. 2, supra note 
9, at 95-102 (citing to IEX Rules 11.150 and 11.151 and NYSE 
American Rules 7.20E through 7.26E). The Exchange states that 
proposed BSTX Rule 25200 differs from IEX Rule 11.150 in that IEX 
makes the registration effective on the trading day after the 
request is entered, whereas the Exchange would have discretion to 
make registration effective the day the request is entered with 
notice provided to the prospective BSTX Market Maker. See id. at 95 
n.277.
    \65\ See proposed BSTX Rule 25220. The Exchange states that 
proposed BSTX Rule 25220 is substantially similar to NYSE American 
Rule 7.23E, with certain exceptions, and IEX Rule 11.151. According 
to the Exchange, the proposed BSTX rule differs from NYSE American 
Rule 7.23E in that, among other things, the proposed BSTX rule 
specifies the minimum quotation increment for securities priced 
above $1.00 per share and below $1.00 per share and requires Market 
Maker quotations to be firm for their displayed size and 
automatically executable. See Amendment No. 2, supra note 9, at 97-
98. See also infra note 66.
    \66\ See proposed BSTX Rule 25220(a)(1). The Exchange proposes 
that the quotes must be entered within the ``Designated 
Percentage,'' which according to the Exchange would be the same as 
that required of market makers on other national securities 
exchanges. See Amendment No. 2, supra note 9, at 96 (citing to IEX 
Rule 11.151). The Exchange notes, however, that the Defined 
Percentage and ``Defined Limit,'' which is the percentage by which 
price movements cause a Market Maker or DMM's quotations to fall 
outside of the national best bid and offer (``NBBO'') or last sale 
price, differ from NYSE American Rule 7.23E in that the Exchange 
specifies Defined Percentage and Defined Limit with reference to 
securities that are part of the S&P500 Index, Russell 1000 Index, or 
a pilot list of exchange traded products. The Exchange states its 
belief that the difference does not pose any novel requirements and 
is similar to the market maker requirements of IEX. See id. at 98 
(citing to IEX Rules 11.151(a)(6), (7), (11), and 11.151(b)(1)).
    \67\ See proposed BSTX Rule 25220(d). According to the Exchange, 
the process by which a DMM may temporarily withdraw from its DMM 
status is similar to the process applicable to a non-DMM Market 
Maker. See proposed BSTX Rule 25240(b)(4); OIP, supra note 7, 86 FR 
at 49438.
    \68\ See proposed BSTX Rule 25210(d).
    \69\ See supra note 66; proposed BSTX Rule 25220(a).
    \70\ See proposed BSTX Rule 25220(c).
---------------------------------------------------------------------------

    Proposed BSTX Rule 25230 sets forth certain requirements for Market 
Maker Authorized Traders (``MMATs''), which are individuals permitted 
to enter orders only for the account of the Market Maker or DMM for 
which they are registered.\71\ The proposed rule specifies, among other 
things, eligibility for registration as a MMAT, the Exchange's ability 
to suspend an individual's registration as a MMAT, and the process for 
voluntary withdrawal of a MMAT via written request of the BSTX 
Participant for which the MMAT is registered.\72\ The Exchange 
represents that the proposed provisions related to MMATs are 
substantially similar to those of other national securities 
exchanges.\73\ Proposed BSTX Rule 25240 sets forth the registration and 
obligations of DMMs.\74\ Among other things, a DMM must be registered 
as a Market Maker and, in addition to meeting the obligations of Market 
Makers set forth in proposed BSTX Rule 25220,\75\ the DMM must maintain 
a bid or offer at the NBBO at least 25% of the day as measured across 
all Securities that have been assigned to the DMM.\76\ Proposed BSTX 
Rule 25240 further provides that all BSTX-listed Securities may be 
assigned to a DMM and there would be no more than one DMM per BSTX-
listed Security.\77\ A BSTX Participant registered as a DMM in a 
Security may also be registered as a Market Maker in that Security only 
if the BSTX Participant maintains information barriers between the 
trading unit operating as a DMM and the trading unit operating as a 
non-DMM Market Maker in the same Security.\78\ Proposed BSTX Rule 25250 
would set forth the allocation and reallocation of Securities to 
DMMs.\79\ Among other things, the proposed rule would set forth when a 
Security is eligible for allocation or reallocation, as well as the 
eligibility of DMMs to participate in the allocation process.\80\ The 
proposed rule further sets forth the allocation process--whether the 
issuer selects the DMM directly, delegates the selection to the 
Exchange, or opts to proceed with listing without a DMM, in which case 
a minimum of four non-DMM Market Makers must be assigned to its 
Security.\81\
---------------------------------------------------------------------------

    \71\ See proposed BSTX Rule 25230.
    \72\ See id.
    \73\ See Amendment No. 2, supra note 9, at 98 (citing to NYSE 
American Rule 7.21E and Cboe BZX Rule 11.6).
    \74\ See proposed BSTX Rule 25240. The Exchange represents that 
proposed BSTX Rule 25240 is substantially similar to NYSE American 
Rule 7.24E, except the Exchange would not be required to assign a 
DMM if the Security has an adequate number of BSTX Market Makers 
assigned to such Security. The Exchange states that the purpose of 
this requirement is to acknowledge the possibility that a Security 
need not necessarily have a DMM, provided that each Security has 
been assigned at least four active Market Makers, consistent with 
proposed the Market Maker requirement in BSTX Rule 26106. See 
Amendment No. 2, supra note 9, at 99-100.
    \75\ See supra notes 65-66.
    \76\ See proposed BSTX Rule 25240(c).
    \77\ See proposed BSTX Rule 25240(a).
    \78\ See proposed BSTX Rule 25240(b)(3).
    \79\ See proposed BSTX Rule 25250.
    \80\ See proposed BSTX Rule 25250(a). The Exchange states that 
the process by which the Exchange would handle a DMM that fails to 
meet its obligations, as proposed in BSTX Rule 25250(a)(4), is 
substantially similar to NYSE American Rule 7.25E(a)(4). See OIP, 
supra note 7, 86 FR at 49438 & n.254.
    \81\ See proposed BSTX Rule 25250(b). See also Exhibit 3D. The 
Exchange states that the proposed rule is similar to NYSE American 
Rule 7.25E(b). See Amendment No. 2, supra note 9, at 101.
---------------------------------------------------------------------------

    In the event that a listed company wishes to change its DMM, 
proposed BSTX Rule 25250(c) sets forth the reallocation process.\82\ 
Should a DMM lose its registration or voluntarily withdraw its 
registration, the DMM would be ineligible, under the Exchange's 
``Allocation Freeze Policy,'' for future allocations for a six-month 
period.\83\ For companies that list Securities through an initial 
public offering, the allocation decision would remain effective for 18 
months.\84\ The proposed rule also sets forth criteria the Exchange may 
consider for applicants that are not currently DMMs to be allocated a 
Security as a DMM.\85\
---------------------------------------------------------------------------

    \82\ See proposed BSTX Rule 25250(c). The Exchange represents 
that the proposed reallocation policy is substantially similarly to 
corresponding provisions in NYSE American Rule 7.25E(c). See OIP, 
supra note 7, 86 FR at 49439.
    \83\ See proposed BSTX Rule 25250(d); OIP, supra note 7, 86 FR 
at 49439 (stating that the proposed rule is substantially similar to 
NYSE American Rule 7.25E(d)).
    \84\ See proposed BSTX Rule 25250(e); OIP, supra note 7, 86 FR 
at 49439 (stating that the proposed rule is substantially similar to 
NYSE American Rule 7.25E(e)).
    \85\ See proposed BSTX Rule 25250(f); OIP, supra note 7, 86 FR 
at 49439 (stating that the proposed rule is substantially similar to 
NYSE American Rule 7.25E(f)).
---------------------------------------------------------------------------

    The Exchange proposes the DMM combination review policy in BSTX 
Rule 25260.\86\ A DMM combination would require proponents of the 
combination to make a written submission to the Office of the Corporate 
Secretary of the Exchange addressing certain enumerated factors for the 
Exchange to consider in reviewing the proposed combination, and as well 
as the procedures the Exchange would follow in approving or 
disapproving a combination.\87\ The proposed rule also sets forth the 
timeline for the Exchange to approve or disapprove a combination, the 
ability of the Exchange to grant conditional approvals, and the ability 
to have the Exchange's board of directors to review a disapproval 
decision.\88\
---------------------------------------------------------------------------

    \86\ See proposed BSTX Rule 25260.
    \87\ See id.
    \88\ See id. The Exchange represents that the proposed rule is 
substantially similar to NYSE American Rule 7.26E. See OIP, supra 
note 7, 86 FR at 49439.
---------------------------------------------------------------------------

    The Exchange's rules with respect to participation on BSTX, 
including the proposed affirmative and negative obligations for Market 
Makers and DMMs, and the proposed business conduct, financial and 
operational, supervision, and trading practice rules, raise no novel 
regulatory issues. The Commission finds that these proposed rules are 
consistent with the Exchange Act, and Section 6(b)(5) of the Exchange 
Act in particular,\89\ because by setting forth these requirements for 
different types of participants, they establish a framework for what 
entities will participate in BSTX and how they will interact with other 
BSTX Participants and fulfill their obligations, which should help to 
promote just and equitable principles of trade, perfect the mechanism 
of a national market system and, in general, protect investors and the 
public interest. The Commission also finds that these proposed rules 
subject BSTX Participants, including BSTX Market Makers and DMMs, to 
appropriate discipline for improper conduct, consistent with Sections 
6(b)(6) and 6(b)(7) of the Exchange Act.\90\
---------------------------------------------------------------------------

    \89\ 15 U.S.C. 78f(b)(5).
    \90\ 15 U.S.C. 78f(b)(6) and (7).
---------------------------------------------------------------------------

B. BSTX System

    The Exchange proposes that BSTX would operate the BSTX System as a 
fully automated, price-time priority execution system.\91\ The BSTX 
System would operate as an ``automated trading center'' under Rule 
600(b)(7) of Regulation NMS and would display ``automated quotations'' 
under Rule 600(b)(6) of Regulation NMS at all times, except in the 
event that a system malfunction renders the BSTX System incapable of 
displaying automated quotations.\92\ BSTX's best-priced quotation in an 
NMS stock would be a

[[Page 5887]]

``protected quotation'' under Rules 600(b)(70) and 600(b)(71) of 
Regulation NMS.\93\ Only a BSTX Participant approved for trading on the 
BSTX System or a person associated with such a BSTX Participant would 
be able to effect any transactions on the BSTX System.\94\
---------------------------------------------------------------------------

    \91\ See OIP, supra note 7, 86 FR at 49416.
    \92\ 17 CFR 242.600(b)(6) and (b)(7). See Amendment No. 2, supra 
note 9, at 86; proposed BSTX Rule 25100(c).
    \93\ 17 CFR 242.600(b)(70) and (b)(71). See OIP, supra note 7, 
86 FR at 49435 & n.210.
    \94\ See OIP, supra note 7, 86 FR at 49431; proposed BSTX Rule 
25000(a). The Exchange represents that proposed BSTX Rule 25000 is 
substantially similar to IEX Rule 11.140. See Amendment No. 2, supra 
note 9, at 65 n.175.
---------------------------------------------------------------------------

Order Types and Instructions
    Proposed BSTX Rule 25060(c) provides that BSTX Participants may 
enter orders to the BSTX System as limit orders or Inter-Market Sweep 
Orders (``ISOs'').\95\ The BSTX System would only support two time-in-
force (``TIF'') designations: DAY and IOC.\96\ Under proposed BSTX Rule 
25060(d), all orders would be given a default TIF of DAY.\97\ DAY 
orders may queue during the Pre-Opening Phase \98\ or before the 
resumption of trading following a trading halt, may trade only during 
Regular Market Hours, and, if unexecuted at the close of the trading 
day (4:00 p.m. ET), would be cancelled by the BSTX System.\99\ BSTX 
Participants may also designate orders as IOC, which overrides the 
default TIF of DAY.\100\ IOC orders are not accepted by the BSTX System 
during the Pre-Opening Phase, and during Regular Trading Hours, IOC 
orders will execute in whole or in part immediately upon receipt by the 
BSTX System.\101\ The BSTX System would not support modification of 
resting orders, and to change the price or quantity of an order resting 
on the BSTX Book,\102\ a BSTX Participant must cancel the resting order 
and submit a new order, which would result in a new time stamp for 
purposes of BSTX Book priority.\103\ The Exchange states that all 
orders on BSTX would be displayed.\104\ With the exception of the order 
parameter to preference faster settlement,\105\ the order types and 
instructions the Exchange has proposed for the BSTX System are similar 
to those approved by the Commission and currently available on other 
national securities exchanges \106\ and raise no new regulatory issues. 
The Commission finds these proposed rules are consistent with the 
Exchange Act, and Section 6(b)(5) \107\ of the Exchange Act in 
particular, because they establish the types of orders and modifiers 
that all BSTX Participants may use and provide transparency regarding 
how orders would operate on the BSTX System, which should help promote 
just and equitable principles of trade, foster coordination with 
persons engaged in facilitating transactions in securities, and remove 
impediments to and perfect the mechanism of a national market system.
---------------------------------------------------------------------------

    \95\ See proposed BSTX Rule 25060(c). The Exchange states that 
if a BSTX Participant fails to specify a limit price with respect to 
its limit order, such order shall be rejected. ISOs must be limit 
orders, are ineligible for routing, may be submitted with a limit 
price during Regular Trading Hours, and must have a time-in-force of 
immediate-or-cancel (``IOC''). See OIP, supra note 7, 86 FR at 49434 
& n.202.
    \96\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 
25060(d).
    \97\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 
25060(d)(1).
    \98\ ``Pre-Opening Phase'' would mean the time between 8:30 a.m. 
and 9:30 a.m. ET. See proposed BSTX Rule 17000(a)(28).
    \99\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 
25060(d)(1).
    \100\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 
25060(d)(2).
    \101\ See id.
    \102\ ``BSTX Book'' would mean the electronic book of orders on 
each Security maintained by the BSTX System. See proposed BSTX Rule 
17000(a)(10).
    \103\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 
25060(f).
    \104\ See OIP, supra note 7, 86 FR at 49434. The Exchange states 
that the BSTX System will not support hidden orders, undisplayed 
liquidity, price sliding, pegged orders, or other order type 
features that add complexity upon the initial launch of BSTX. See 
id.
    \105\ See infra notes 190-207 and accompanying text.
    \106\ See, e.g., Cboe BZX Rule 11.9(d).
    \107\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Auctions
    The Exchange proposes that order entry in BSTX-listed Securities 
\108\ may commence at 8:30 a.m. ET during the Pre-Opening Phase, in 
which orders are placed on the BSTX Book but do not generate executions 
until Regular Trading Hours begin at 9:30 a.m. ET.\109\ The Exchange 
states that, similar to how its opening process works for options 
trading, BSTX would calculate and disseminate a theoretical opening 
price (``TOP'') from the time that the BSTX System commences accepting 
orders to BSTX Participants for the current orders resting on the BSTX 
Book during the Pre-Opening Phase.\110\ The Exchange proposes to 
disseminate the TOP and other Broadcast Information pursuant to 
proposed BSTX Rule 25040(a)(3) during the Pre-Opening Phase.\111\ 
Broadcast Information would be recalculated and disseminated via 
electronic means (i.e., market data feeds) every five seconds.\112\
---------------------------------------------------------------------------

    \108\ Although the Exchange initially plans to only support 
trading in securities listed on BSTX, the Exchange states that it 
may in the future propose to trade securities listed on other 
national securities exchanges, subject to any necessary changes to 
its rules to support its trading pursuant to Section 19(b) and Rule 
19b-4 of the Exchange Act. The Exchange also states that for such 
reason it proposes to adopt an opening process for non-BSTX-listed 
securities as a placeholder for potential trading of securities 
listed on other national securities exchanges in the future. The 
Exchange states that the proposed process for opening securities 
listed on other national securities exchanges is similar to the 
existing rules of another national securities exchange. See proposed 
BSTX Rule 25040(e); Amendment No. 2, supra note 9, at 74-75 (citing 
to Cboe BZX Rule 11.24).
    \109\ See OIP, supra note 7, 86 FR at 49431. During the Pre-
Opening Phase, orders may not be cancelled or modified from 9:28 
a.m. to 9:30 a.m. Orders received during the 10 seconds prior to the 
Opening Auction would be rejected. See proposed BSTX Rule 
25040(a)(1). ``Opening Auction'' would be defined as the process of 
crossing orders in BSTX-listed Securities to open the market. See 
proposed BSTX Rule 25040(a)(6). The Exchange states that these 
provisions are consistent with the rules of other equities 
exchanges. See Amendment No. 2, supra note 9, at 68 n.185 (citing to 
IEX Rules 11.350(c)(1)(B) and (C)).
    \110\ See OIP, supra note 7, 86 FR at 49431; proposed BSTX Rule 
25040(a)(2). The TOP is the price at which the Opening Auction would 
occur at the current time, if that time were the opening, according 
to the Opening Auction procedures in proposed BSTX Rule 25040(a)(6). 
See proposed BSTX Rule 25040(a).
    \111\ See OIP, supra note 7, 86 FR at 49431-32. Specifically, in 
addition to the TOP, ``Broadcast Information'' would include: (i) 
``Paired Orders,'' which is the quantity of shares that would 
execute at the TOP; (ii) the ``Imbalance Quantity,'' which is the 
number of shares that may not be matched with other orders at the 
TOP at the time of dissemination; and (iii) the ``Imbalance Side,'' 
which is the buy/sell direction of any imbalance at the time of 
dissemination. See Amendment No. 2, supra note 9, at 68-69.
    \112\ See Amendment No. 2, supra note 9, at 69; proposed BSTX 
Rule 25040(a)(4). The Exchange states that Cboe BZX similarly 
broadcasts opening auction information every five seconds. See 
Amendment No. 2, supra note 9, at 69 n.189 (citing to Cboe BZX Rule 
11.23(b)(2)(A)).
---------------------------------------------------------------------------

    At the time of the opening match (i.e., 9:30 a.m. ET), the BSTX 
System would establish a single price at which the BSTX-listed Security 
would be opened (``BSTX Official Opening Price''), which would be the 
TOP at the moment of the Opening Auction, provided that the resulting 
price must be within the Collar Price Range.\113\ The Exchange states 
that the BSTX System would determine a single price at which a BSTX-
listed Security would be opened by calculating the optimum number of 
shares that could be matched at a price, taking into consideration all 
the orders

[[Page 5888]]

on the BSTX Book.\114\ The Exchange states that the requirement that 
the BSTX Official Opening Price must be within the Collar Price Range 
is designed to ensure that a Security opens in a fair and orderly 
manner and under market conditions where there is sufficient quotation 
interest (e.g., a NBBO), the market is not crossed, and where the 
opening price will not drastically depart from the market at the time 
of the auction or the preceding day's closing price.\115\ The Exchange 
proposes that when the BSTX System cannot determine an opening price 
from the Opening Auction, BSTX would nevertheless open the Security for 
trading and move all trading interest received during the Pre-Opening 
Phase to the BSTX Book, and that in such case, the BSTX Official 
Opening Price would be the Final Last Sale Eligible Trade.\116\
---------------------------------------------------------------------------

    \113\ See Amendment No. 2, supra note 9, at 69-70. See proposed 
BSTX Rule 25040(a)(5) for a definition of the ``Collar Price 
Range.'' As the BSTX Official Opening Price is determined and the 
matched shares are executed in the Opening Auction, the BSTX System 
would proceed to move the Security from the Pre-Opening Phase to the 
continuous or regular trading phase and disseminate the opening 
trade price, if any. Any orders that remain unexecuted in the 
Opening Auction, including any remaining portion of a partially 
executed order, would be moved onto the BSTX Book for the regular 
trading phase and would retain their price/time priority consistent 
with proposed BSTX Rule 25080. See proposed BSTX Rule 25040(a)(7).
    \114\ See Amendment No. 2, supra note 9, at 69; proposed BSTX 
Rule 25040(a)(6)(ii). The Exchange states that the determination of 
the opening match price is consistent with the manner in which the 
Exchange opens options trading. See Amendment No. 2, supra note 9, 
at 69. Proposed BSTX Rule 25040(a)(6)(ii) would further provide that 
the BSTX Official Opening Price is the price which results in the 
matching of the highest number of shares. If two or more prices 
would satisfy this maximum quantity criteria, the price leaving the 
fewest resting shares in the BSTX Book would be selected as the BSTX 
Official Opening Price. Where two or more prices would satisfy the 
maximum quantity criteria and leave the fewest shares in the BSTX 
Book, the price closest to the previous day's last round lot trade 
occurring during Regular Trading Hours on the Exchange (``BSTX 
Official Closing Price'') will be selected as the BSTX Official 
Opening Price. See proposed BSTX Rules 25040(a)(5)(ii) and (6)(ii).
    \115\ See OIP, supra note 7, 86 FR at 49432; proposed BSTX Rule 
25040(a)(5).
    \116\ See Amendment No. 2, supra note 9, at 70; proposed BSTX 
Rule 25040(a)(7). See also proposed BSTX Rule 25040(a)(5)(ii) 
(defining ``Final Last Sale Eligible Trade'').
---------------------------------------------------------------------------

    The Exchange states that the opening process for initial public 
offerings of Securities (``Initial Security Offerings'') would be 
generally the same as regular market openings.\117\ However, in advance 
of an Initial Security Offering auction (``Initial Security Offering 
Auction''), the Exchange would announce a ``Quote-Only Period'' of 
between 15 and 30 minutes plus a short random period prior to the 
Initial Security Offering Auction.\118\ Orders may not be submitted to 
participate in an Initial Security Offering Auction until the beginning 
of the Quote-Only Period.\119\ All orders associated with the Initial 
Security Offering Auction must be received prior to the end of the 
Quote-Only Period in order to participate in the auction.\120\ Limit 
orders with TIF of DAY submitted during the Quote-Only Period would be 
eligible to participate in the Initial Security Offering Auction.\121\ 
According to the Exchange, it would disseminate Broadcast Information 
at the commencement of the Quote-Only Period as with regular market 
openings, and Broadcast Information would be re-calculated and 
disseminated via electronic means every five seconds.\122\ Orders would 
be matched and executed at the conclusion of the Quote-Only Period, 
rather than at 9:30 a.m. ET.\123\ Following the initial cross at the 
end of the Quote-Only Period wherein orders will execute based on 
price/time priority, consistent with proposed BSTX Rule 25080, the 
Exchange would transition to normal trading pursuant to proposed BSTX 
Rule 25040(a)(6).\124\
---------------------------------------------------------------------------

    \117\ See OIP, supra note 7, 86 FR at 49432.
    \118\ See id.; proposed BSTX Rule 25040(b)(1). The Quote-Only 
Period may be extended in certain cases where (i) there is no TOP; 
(ii) the underwriter requests an extension; (iii) the TOP moves the 
greater of 10% or 50 cents in the 15 seconds prior to the initial 
cross; or (iv) in the event of a technical or systems issue at the 
Exchange that may impair the ability of BSTX Participants to 
participate in the Initial Security Offering Auction or of the 
Exchange to complete the Initial Security Offering Auction. See 
proposed BSTX Rule 25040(b)(2). In the event of any extension to the 
Quote-Only Period or a trading pause, the Exchange proposes to 
notify market participants regarding the circumstances and length of 
the extension. See OIP, supra note 7, 86 FR at 49432; proposed BSTX 
Rule 25040(b)(4).
    \119\ See proposed BSTX Rule 25040(b)(1).
    \120\ See id.
    \121\ See id. Orders marked IOC submitted during the Quote-Only 
Period would be rejected. See id.
    \122\ See Amendment No. 2, supra note 9, at 71; proposed BSTX 
Rule 25040(b)(3).
    \123\ See OIP, supra note 7, 86 FR at 49432; proposed BSTX Rule 
25040(b)(5).
    \124\ See Amendment No. 2, supra note 9, at 71-72; proposed BSTX 
Rule 25040(b)(5).
---------------------------------------------------------------------------

    The Exchange also proposes a process for reopening trading 
following a ``trading halt,'' a halt or pause in trading initiated by 
the Exchange, or a Limit Up-Limit Down Trading Pause \125\ (``Halt 
Auctions'').\126\ For Halt Auctions, the Exchange proposes that in 
advance of reopening, the Exchange would announce a Quote-Only Period 
that would be five minutes prior to the Halt Auction, and that all 
orders associated with the Halt Auction must be received prior to the 
end of the Quote-Only Period in order to participate in the 
auction.\127\ According to the Exchange, it would disseminate the same 
Broadcast Information as it does for an Initial Security Offering 
Auction, except it would also disseminate to market participants the 
applicable Halt Auction Reference Price and the Halt Auction Collars, 
and would similarly provide notification of any extension to the Quote-
Only Period as with an Initial Security Offering Auction.\128\ The 
transition to normal trading would also occur in the same manner as for 
Initial Security Offering Auctions.\129\
---------------------------------------------------------------------------

    \125\ See proposed BSTX Rule 25050(g). The Exchange states that 
proposed BSTX Rule 25050 regarding trading halts is substantially 
similar to other national securities exchange rules adopted in 
connection with the NMS Plan to Address Extraordinary Market 
Volatility (``LULD Plan'')--for example, IEX Rule 11.280--with 
certain exceptions, such as excluding rules relating to order types 
and other aspects of the LULD Plan that would not be supported by 
the Exchange, including market orders and auction orders. See 
Amendment No. 2, supra note 9, at 78-79. The Exchange would cancel 
all resting orders in a non-BSTX listed security subject to a 
trading halt, reject any incoming orders in that security, and will 
only resume accepting orders following a broadcast message to BSTX 
Participants indicating a forthcoming re-opening of trading. See 
OIP, supra note 7, 86 FR at 49433; proposed BSTX Rule 25050(d). In 
addition, the Exchange proposes to reserve the right to halt or 
suspend trading in other circumstances where the Exchange deems it 
necessary to do so for the protection of investors and the public 
interest, or pursuant to any other Exchange rule or policy. See OIP, 
supra note 7, 86 FR at 49434; proposed BSTX Rule 25050(f). Proposed 
BSTX Rule 25010(d) would allow for the CEO, President, or Chief 
Regulatory Officer, or such person's designee, provided the designee 
is a senior officer, to halt or suspend trading in securities. The 
Exchange states that while comparable rules of other national 
securities exchanges (e.g., IEX Rule 11.110(c) and BOX Rule 7020) 
may not currently specify that the Chief Regulatory Officer has the 
authority, both of these comparable rules contemplate the CEO or 
President delegating the task to a senior officer, which could be 
the Chief Regulatory Officer. The Exchange states that it does not 
believe that the addition of the Chief Regulatory Officer would 
expand the authority of who can declare a trading halt or suspend 
trading. See Amendment No. 2, supra note 9, at 65 n.176.
    \126\ See Amendment No. 2, supra note 9, at 72; proposed BSTX 
Rule 25040(c).
    \127\ See Amendment No. 2, supra note 9, at 72-73; proposed BSTX 
Rule 25040(c)(1). Limit orders with TIF of DAY submitted during the 
Quote-Only Period would be eligible to participate in the Halt 
Auction, whereas orders marked IOC submitted during the Quote-Only 
Period would be rejected. See OIP, supra note 7, 86 FR at 49432; 
proposed BSTX Rule 25040(c)(1). In addition, Halt Auctions would be 
subject to the proposed Halt Auction Collars, which the Exchange 
states are substantially similar to those provided by Cboe BZX, and 
are designed to ensure that the Exchange is able to re-open trading 
in a Security in a fair and orderly manner. To the extent a Halt 
Auction is unable to be performed due to the absence of a TOP or the 
TOP is outside the proposed Halt Auction Collars, the Exchange would 
extend the period of Halt Auction for an additional five minutes 
(``Initial Extension Period''). After the Initial Extension Period, 
the Exchange proposes that the Quote-Only Period be extended for 
additional five-minute periods, should a Halt Auction be unable to 
be performed due to absence of a TOP or because the TOP is outside 
the proposed Halt Auction Collars (``Additional Extension Period''), 
until a Halt Auction occurs. See Amendment No. 2, supra note 9, at 
72 n.206 and n.207; proposed BSTX Rule 25040(c)(2).
    \128\ See Amendment No. 2, supra note 9, at 73; proposed BSTX 
Rule 25040(c)(3). In addition, the Exchange represents that if a 
trading halt is triggered by the Exchange or if the Exchange is 
unable to reopen trading at the end of the trading halt due to a 
systems or technology issue, the Exchange will immediately notify 
the single plan processor responsible for consolidation of 
information for the security pursuant to Rule 603 of Regulation NMS 
under the Exchange Act. See proposed BSTX Rule 25040(c)(4).
    \129\ See OIP, supra note 7, 86 FR at 49432.

---------------------------------------------------------------------------

[[Page 5889]]

    In the event a disruption occurs that prevents the execution of an 
Initial Security Offering Auction or Halt Auction, including any 
extensions, the Exchange proposes to apply certain contingency 
procedures.\130\ For a disruption in an Initial Security Offering 
Auction, the Exchange would publicly announce that the Quote-Only 
Period for the Initial Security Offering Auction will reset for the 
subject Security, cancel all orders on the BSTX Book, and disseminate a 
new scheduled time for the Quote-Only Period and opening match.\131\ 
Similarly, for a disruption in a Halt Auction, the Exchange would 
publicly announce that no Halt Auction will occur and all orders in the 
halted Security on the BSTX Book will be cancelled, after which the 
Exchange will open the Security for trading without an auction.\132\
---------------------------------------------------------------------------

    \130\ See id. at 49432-33; proposed BSTX Rule 25040(d).
    \131\ See OIP, supra note 7, 86 FR at 49432-33; proposed BSTX 
Rule 25040(d)(1).
    \132\ See OIP, supra note 7, 86 FR at 49433; proposed BSTX Rule 
25040(d)(2).
---------------------------------------------------------------------------

    The Exchange has not proposed to operate a closing auction. 
Instead, the Exchange proposes that the BSTX Official Closing Price 
will be the last round lot trade occurring during Regular Trading Hours 
on BSTX.\133\ The Exchange states that it believes this method is a 
simple and fair way to establish the closing price of a Security, and 
is consistent with the overall proposed simplified market structure for 
BSTX that does not include order types such as market-on-close or 
limit-on-close.\134\
---------------------------------------------------------------------------

    \133\ See Amendment No. 2, supra note 9, at 77-78; proposed BSTX 
Rule 25040(a)(5)(ii).
    \134\ See Amendment No. 2, supra note 9, at 78.
---------------------------------------------------------------------------

    The Commission believes that the proposed opening, re-opening, and 
closing procedures are reasonably designed to provide for an orderly 
opening or re-opening of trading or close of trading on BSTX, and thus 
are consistent with the Exchange Act, and in particular the Section 
6(b)(5) goals of removing impediments to the mechanism of a national 
market system and protecting investors and the public interest.\135\
---------------------------------------------------------------------------

    \135\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Order Priority and Execution
    The Exchange proposes BSTX Rule 25080 to govern the execution of 
orders on the BSTX System.\136\ The proposed rule provides that orders 
of BSTX Participants shall be ranked and maintained in the BSTX Book 
according to price/time priority, such that within each price level, 
all orders shall be organized by the time of entry.\137\ Further, the 
proposed rule provides that an order would be cancelled back to the 
BSTX Participant if, based on market conditions, BSTX Participant 
instructions, applicable Exchange Rules, and/or the Exchange Act and 
the rules and regulations thereunder, such order is not executable and 
cannot be posted to the BSTX Book.\138\ Specifically, proposed BSTX 
Rules 25080(b)(1) through (3) provide that executions occurring on BSTX 
will comply with Regulation SHO, Regulation NMS, including Rule 611, 
and the LULD Plan.\139\ In addition, proposed BSTX Rule 25130 prohibits 
BSTX Participants from engaging in a pattern or practice of displaying 
quotations that lock or cross a protected quotation, unless an 
exception applies, and provides that the BSTX System will reject any 
order or quotation that would lock or cross a protected quotation of 
another national securities exchange at the time of entry.\140\
---------------------------------------------------------------------------

    \136\ See proposed BSTX Rule 25080.
    \137\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule 
25080(a).
    \138\ See proposed BSTX Rule 25080(b). The Exchange states that 
sell orders cannot execute at a price below the best bid in the 
marketplace and buy orders cannot execute at a price above the best 
offer in the marketplace. See OIP, supra note 7, 86 FR at 49434.
    \139\ See proposed BSTX Rules 25080(b)(1)-(3).
    \140\ See OIP, supra note 7, 86 FR at 49437; proposed BSTX Rule 
25130. The Exchange states that the proposed rule is substantially 
similar to the rules of other national securities exchanges. See 
Amendment No. 2, supra note 9, at 93 (citing to IEX Rule 11.310 and 
Cboe BZX Rule 11.20).
---------------------------------------------------------------------------

    To meet their regulatory responsibilities under Rule 611(a) of 
Regulation NMS, other trading centers will be required to have 
sufficient notice of new protected quotations, as well as all necessary 
information (such as final technical specifications).\141\ The 
Commission believes that it would be a reasonable policy and procedure 
under Rule 611(a) to require that industry participants begin treating 
BSTX's best bid and best offer as a protected quotation as soon as 
possible but no later than 90 days after BOX begins operation of its 
equities trading platform. The Commission has taken the same position 
with other new equities exchanges.\142\
---------------------------------------------------------------------------

    \141\ See Securities Exchange Act Release No. 53829 (May 18, 
2006), 71 FR 30038, 30041 (May 24, 2006) (File No. S7-10-04) 
(extending the compliance dates for Rule 610 and Rule 611 of 
Regulation NMS under the Exchange Act).
    \142\ See, e.g., Securities Exchange Act Release Nos. 85828 (May 
10, 2019), 84 FR 21841 (May 15, 2019) (File No. 10-234) (order 
granting registration of Long-Term Stock Exchange, Inc.); and 88806 
(May 4, 2020), 85 FR 27451 (May 8, 2020) (File No. 10-237) (order 
granting registration of MEMX).
---------------------------------------------------------------------------

    In light of the foregoing, the Commission finds that the proposed 
BSTX trading rules are consistent with the Exchange Act and, in 
particular, Section 6(b)(5) of the Exchange Act, because they set forth 
a fair and transparent process for establishing order priority and are 
reasonably designed to ensure compliance with Commission rules 
concerning quoting and executions, which should promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanisms of a free and open market and a national market system, and 
protect investors and the public interest.\143\
---------------------------------------------------------------------------

    \143\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Market Data Products
    The Exchange proposes to offer proprietary market data products, 
including BSTX Depth-of-Book, BSTX Top-of-Book, and BSTX Last 
Sale.\144\ The Exchange states that its proposed rule regarding market 
data product offerings is substantially similar to the rules of another 
national securities exchange.\145\
---------------------------------------------------------------------------

    \144\ See proposed BSTX Rule 22060. BSTX Depth-of-Book is a data 
feed that contains all displayed orders for securities traded on the 
Exchange, order executions, order cancellations, order 
modifications, order identification numbers, administrative 
messages, and auction information disseminated pursuant to proposed 
BSTX Rule 25040 (Auctions). See proposed BSTX Rule 22060(a). BSTX 
Top-of-Book is an uncompressed data feed that offers top of book 
quotations and execution information based on orders entered into 
the BSTX System, as well as auction information disseminated 
pursuant to proposed BSTX Rule 25040 (Auctions). See proposed BSTX 
Rule 22060(b). BSTX Last Sale is an uncompressed data feed that 
offers only execution information based on orders entered into the 
BSTX System. See proposed BSTX Rule 22060(c).
    \145\ See OIP, supra note 7, 86 FR at 49429 (citing to MEMX Rule 
13.8).
---------------------------------------------------------------------------

    In addition, the Exchange proposes to offer a historical market 
data product, known as the BSTX Market Data Blockchain, that would 
provide information about trading on the BSTX System.\146\ The BSTX 
Market Data Blockchain would operate as a private, permission-based 
blockchain that will allow BSTX Participants to see detailed 
information on their own trading activity on BSTX and anonymized 
information with respect to the trading activity of other BSTX 
Participants. According to the Exchange, BSTX Participants would have 
no obligations with respect to providing information to, accessing, 
maintaining, or using the BSTX Market Data Blockchain.\147\ Each BSTX 
Participant would be assigned a BSTX Market Data Blockchain address 
that corresponds to the BSTX Participant's trading activity on

[[Page 5890]]

BSTX.\148\ The Exchange would issue login credentials to each user, 
including any non-BSTX Participant that chooses to subscribe.\149\ The 
BSTX Market Data Blockchain would generally operate by collecting 
information from two sources, which the Exchange would then translate 
into information capable of being recorded to the BSTX Market Data 
Blockchain.\150\ Specifically, the data provided would be collected 
from (i) the BSTX System, with respect to information such as executed 
transactions; and (ii) each BSTX Participant's order/message passing 
through the financial information exchange (``FIX'') gateway through 
which all orders and messages pass to connect to the BSTX System.\151\ 
The Exchange states that the BSTX Market Data Blockchain does not 
require any affirmative action on the part of the BSTX Participants in 
order for the information to be recorded, but rather captures trading 
activity that occurs on BSTX in the normal course of trading.\152\
---------------------------------------------------------------------------

    \146\ See proposed BSTX Rule 22060(d); OIP, supra note 7, 86 FR 
at 49420.
    \147\ See OIP, supra note 7, 86 FR at 49420.
    \148\ See proposed BSTX Rule 17020(b).
    \149\ See Amendment No. 2, supra note 9, at 19 & n.36; proposed 
BSTX Rule 17020(b).
    \150\ See OIP, supra note 7, 86 FR at 49420.
    \151\ See id. The Exchange states that BSTX Participants (and 
non-BSTX Participants to which the BSTX Market Data Blockchain is 
made available by the Exchange) would only be able to access the 
information contained on the BSTX Market Data Blockchain through the 
API, and only the Exchange would have direct access to the 
underlying data on the private blockchain. See id. The Exchange 
further states that the FIX gateway and the BSTX System are the same 
sources of information used to generate consolidated market data. 
See id. at 49420 n.39.
    \152\ See id. at 49420.
---------------------------------------------------------------------------

    The BSTX Market Data Blockchain would provide two types of 
information for Regular Trading Hours: (i) Participant Proprietary Data 
with respect to the specific BSTX Participant; \153\ and (ii) General 
Market Data made available to all BSTX Participants and non-BSTX 
Participants that subscribe.\154\ The Exchange represents that no BSTX 
Participant, or non-BSTX Participant, would have access to the 
Participant Proprietary Data of another BSTX Participant.\155\ Both 
types of data would be available on a delayed basis of at least five 
minutes, with each new block of market data showing market data for the 
preceding five minutes.\156\ According to the Exchange, the BSTX Market 
Data Blockchain would not function as a substitute for real-time market 
data.\157\
---------------------------------------------------------------------------

    \153\ See id. Under proposed BSTX Rule 17020(c)(1), a BSTX 
Participant would be able to see the following information with 
respect to all orders and messages submitted by the BSTX Participant 
and any executions of such orders: (i) Symbol, side (buy/sell), 
limit price, quantity, time-in-force; (ii) order type (e.g., limit 
order, ISO); (iii) order capacity (principal/agent); (iv) short/long 
sale order marking; and (v) message type (e.g., order, modification, 
cancelation).
    \154\ See id. Under proposed BSTX Rule 17020(c)(2), this would 
include, in an anonymized format, all displayed orders, 
modifications, cancelations, and executions occurring on BSTX (i.e., 
the user may see the symbol, side (buy/sell), limit price, quantity, 
and message type), along with administrative data and other 
information from the Exchange (e.g., trading halts or technical 
messages). See Amendment No. 2, supra note 9, at 22-23; proposed 
BSTX Rule 17020(c)(2). The Exchange states that the BSTX Market Data 
Blockchain would not include details regarding the T+0 or T+1 order 
matching preference or matched trades bound for shorter settlement. 
See Amendment No. 2, supra note 9, at 41 n.73.
    \155\ See OIP, supra note 7, 86 FR at 49421. The Exchange states 
that since no BSTX Participant, or non-BSTX Participant, would be 
provided with access to trading information of another BSTX 
Participant, it would not allow for reverse engineering of trading 
strategies or otherwise compromise the confidential nature of each 
BSTX Participant's trading information. See id.
    \156\ See Amendment No. 2, supra note 9, at 25. The Exchange 
specifies that the market data uploaded as part of each block would 
contain the most recent transactions on the Exchange, aged only a 
few seconds, as well as market data for the preceding five minutes, 
such that the oldest market data on each new block would be aged at 
least five minutes. See id. at 25 n.44.
    \157\ See OIP, supra note 7, 86 FR at 49421. The Exchange states 
that consolidated market data or proprietary market data are 
disseminated on a sub-second, or sub-millisecond, timescale and that 
even the consolidated securities information processor's 99th 
percentile of quote latency today is below 100 microseconds. See id. 
at 49421 n.44. The Exchange also states that, to promote clarity 
with respect to how a BSTX Participant may use the BSTX Market Data 
Blockchain, proposed BSTX Rule 17020(c)(3) would provide that 
information available on the BSTX Market Data Blockchain does not 
act as a substitute for any recordkeeping obligations of a BSTX 
Participant. See id. at 49422.
---------------------------------------------------------------------------

    A BSTX Participant, through the API, would be able to run searches 
of its previous orders and trading activity using the BSTX Market Data 
Blockchain. The Participant Proprietary Data would be visible to the 
specific BSTX Participant in sequential order of when each action 
occurred \158\ and the General Market Data, available to both BSTX 
Participants and non-BSTX Participants, would allow viewers to observe 
the historical orders, executions, and other events (e.g., 
cancelations) received by and occurring on BSTX, which is generally the 
same information available through subscribing to proprietary data 
feeds of other exchanges.\159\ The Exchange also proposes to append 
timestamps to the information made available through the BSTX Market 
Data Blockchain, which would indicate the time to the microsecond at 
which an order posted to the BSTX Book or that the BSTX System took 
other actions with respect to an order.\160\ A BSTX Participant would 
have the ability to download market data from the BSTX Market Data 
Blockchain and could potentially use the data to back test trading 
strategies or evaluate executions received on BSTX.\161\
---------------------------------------------------------------------------

    \158\ The BSTX Participant would be able to filter the different 
information fields or run searches for a particular item (e.g., only 
showing cancel orders or only showing activity in a particular 
symbol). See id. at 49421.
    \159\ Similar to the Participant Proprietary Data, the General 
Market Data would generally be visible in sequential order of when 
each action occurred, although viewers would also have the ability 
to filter the different information fields or run searches for a 
particular symbol. The Exchange states that the General Market Data 
would differ from the Exchange's propriety market data feed, which 
provides real-time snapshots of the order book, including depth-of-
book quotations and quantity of shares available at each price 
point. Additionally, the General Market Data would show viewers, in 
an anonymized format, the sequential entry of each order, 
modification, or cancelation in the order book in each symbol as 
historical orders and transaction information, rather than real-time 
snapshots. See id. at 49421 n.42.
    \160\ See id. at 49421.
    \161\ See id. at 49422.
---------------------------------------------------------------------------

    The Exchange also proposes to periodically audit, at least bi-
annually, the BSTX Market Data Blockchain to help ensure the proper 
functioning of the BSTX Market Data Blockchain and the accuracy of the 
information thereon.\162\ The Exchange states that it expects to 
initially audit the BSTX Market Data Blockchain more frequently, likely 
monthly, during the first year of operations to ensure the BSTX Market 
Data Blockchain operates as intended.\163\
---------------------------------------------------------------------------

    \162\ See id.; proposed BSTX Rule 17020(d). See also proposed 
BSTX Rule 17020(c)(3) (stating that information available on the 
BSTX Market Data Blockchain does not act as a substitute for any 
recordkeeping obligations of a BSTX Participant).
    \163\ See OIP, supra note 7, 86 FR at 49422.
---------------------------------------------------------------------------

    The Exchange states that as a system of the Exchange, the BSTX 
Market Data Blockchain will be subject to the requirements of the 
Exchange Act, including Regulation Systems Compliance and Integrity 
(``Regulation SCI'') and that the Exchange has in place, among other 
requirements of Regulation SCI, robust safeguards to protect against 
any possible system intrusion to the market data blockchain.\164\ The 
Exchange states that any unauthorized access to the API through which 
data on the BSTX Market Data Blockchain may be accessed would not allow 
for any intruder to modify, delete, or otherwise change any data on the 
BSTX Market Data Blockchain.\165\
---------------------------------------------------------------------------

    \164\ See Amendment No. 2, supra note 9, at 27. The Exchange 
states that it has classified the BSTX Market Data Blockchain as an 
``SCI system'' and not as an ``indirect SCI system.'' See id.
    \165\ See OIP, supra note 7, 86 FR at 49422.
---------------------------------------------------------------------------

    The Exchange states that the benefits of the BSTX Market Data 
Blockchain are twofold: (1) BSTX Participants may find the information 
useful to them for a

[[Page 5891]]

variety of purposes, such as to review the BSTX Participant's trading 
activity on BSTX, determine what the market was at a particular point 
in time on BSTX for a given Security, evaluate equation quality, help 
confirm the accuracy of their internal trading data, or download the 
data to back-test trading strategies; and (2) help familiarize BSTX 
Participants with the use and capabilities of blockchain technology in 
a manner that does not impose any burden on them or other market 
participants.\166\ The Exchange also states that BSTX Securities would 
be eligible for trading on other national securities exchanges that 
extend UTP to them and that the BSTX Market Data Blockchain would not 
impact the ability of Securities to trade on other national securities 
exchanges or OTC.\167\
---------------------------------------------------------------------------

    \166\ See id.
    \167\ See id. at 49423.
---------------------------------------------------------------------------

    One commenter states that the United States should support 
blockchain technologies like BSTX to be competitive globally, and that 
blockchain affords more efficiency and transparency.\168\ Another 
commenter states that blockchain will bring the advantages of better 
security, higher transparency, more trust, and a fairer marketplace to 
the sector.\169\ This commenter also states that blockchain would 
afford savings in time and money, make the market safer against fraud, 
and help United States markets keep up with other global systems.\170\ 
Another commenter states that the proposed five minute delay is not 
problematic given delays in other market data products.\171\
---------------------------------------------------------------------------

    \168\ See Letter from Anonymous (June 15, 2021) (``Anonymous 
Letter II'').
    \169\ See Letter from Anonymous (June 21, 2021) (``Anonymous 
Letter III'').
    \170\ See id. See also Letter from Jonathan Seeley (September 
20, 2021) (``Seeley Letter'') (stating that the proposed BSTX 
facility is designed to promote just and equitable principles of 
trade and remove impediments to a free and open national market 
system in a transparent and secure manner through the proposed use 
of blockchain technology and would not inappropriately burden 
competition); Letter from Tyler Hess (June 17, 2021) (stating that 
the commenter would like to see the development of financial 
institutions and securities exchanges that allow access to financial 
instruments and investments without the burdens and controls placed 
by traditional exchanges, and that the proposal represents the first 
steps in a free and equitable publicly auditable financial system).
    \171\ See Letter from Anonymous (September 6, 2021) (``Anonymous 
Letter IV'').
---------------------------------------------------------------------------

    The Commission finds that the Exchange's proposed market data 
products are consistent with the Exchange Act. The Commission believes 
that the proposed BSTX Depth-of-Book, BSTX Top-of-Book, and BSTX Last 
Sale data products do not raise any novel regulatory issues.\172\ The 
Commission also believes that the BSTX Market Data Blockchain would not 
result in the disclosure of novel information about trading activity on 
the BSTX System. A BSTX Participant viewing the Participant Proprietary 
Data would access the same underlying information that the BSTX 
Participant would already have from FIX messages sent to and received 
from the Exchange.\173\ Further, the General Market Data would contain 
the same substantive information that could be found in BSTX's 
proprietary market data feeds and this information would be comparable 
to the proprietary market data distributed by other national securities 
exchanges. At the same time, the Commission believes that the BSTX 
Market Data Blockchain is reasonably designed to prevent other market 
participants from learning BSTX Participants' sensitive trading 
information. The BSTX Market Data Blockchain would not be a real-time 
market data product and would contain historical market data posted in 
five-minute increments. In addition, the Participant Proprietary Data 
accessible to each BSTX Participant would be specific to that BSTX 
Participant's orders and executions, and the General Market Data would 
be anonymized by displaying only the symbol, side (buy/sell), limit 
price, quantity, and message type. As an SCI system operated by an SCI 
entity, the BSTX Market Data Blockchain would also be subject to the 
requirements of Regulation SCI.\174\
---------------------------------------------------------------------------

    \172\ See supra notes 144-145 and accompanying text.
    \173\ The Commission has previously approved proposals by 
national securities exchanges to offer a data product to a member of 
the exchange consisting of information regarding the member's own 
trading activity on the exchange. See, e.g., Securities Exchange Act 
Release Nos. 78886 (September 20, 2016), 81 FR 66113 (September 26, 
2016) (approving Nasdaq ``Trading Insights'' product); 91787 (May 6, 
2021), 86 FR 26111 (May 12, 2021) (approving MIAX Emerald 
``Liquidity Taker Event Report'').
    \174\ See, e.g., 17 CFR 242.1001(a)(1) (requiring each SCI 
entity to establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure that its SCI systems have 
levels of capacity, integrity, resiliency, availability, and 
security adequate to maintain the SCI entity's operational 
capability and promote the maintenance of fair and orderly markets).
---------------------------------------------------------------------------

    National securities exchanges are not required to offer proprietary 
market data, but those that do so must offer such data in a manner that 
is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.\175\ The Commission believes that the 
proposed dissemination of the Participant Proprietary Data is not 
designed to permit unfair discrimination because each BSTX Participant 
will have access to information specific to its own orders and 
executions through the Participant Proprietary Data. In the OIP, the 
Commission states that it was not clear what conditions, if any, the 
Exchange may place on non-BSTX Participants before granting access to 
the General Market Data.\176\ In Amendment No. 2, the Exchange states 
that all BSTX Participants and non-BSTX Participants will have access 
to the same anonymized market data on the same terms through the 
General Market Data.\177\ In addition, market participants would be 
able to obtain the same substantive information contained in the 
General Market Data through access to BSTX's other proprietary market 
data feeds. Further, the five-minute delay for the BSTX Market Data 
Blockchain would be a uniform delay for all BSTX Participants and non-
BSTX Participants that subscribe, and the data on the BSTX Market Data 
Blockchain would not be available on a faster basis than other BSTX 
data products (and instead would be available on a slower basis).
---------------------------------------------------------------------------

    \175\ See 15 U.S.C. 78f(b)(5).
    \176\ See OIP, supra note 7, 86 FR at 49454.
    \177\ See Amendment No. 2, supra note 9, at 25 (stating that the 
Exchange would make the General Market Data available to BSTX 
Participants and non-BSTX Participants for the same fee and on the 
same subscription terms, once the Exchange establishes a fee 
schedule pursuant to the proposed rule change process under the 
Exchange Act prior to the launch of BSTX).
---------------------------------------------------------------------------

    For these reasons, the Commission finds that the Exchange's 
proposed market data products are consistent with the Exchange Act, 
and, in particular, Section 6(b)(5) of the Exchange Act \178\ because 
they would prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest, and would not permit unfair discrimination among customers, 
issuers, brokers, or dealers; and with Section 6(b)(8) of the Exchange 
Act \179\ because they would not impose any burden on competition not 
necessary or appropriate in furtherance of the Exchange Act. The 
Commission also finds that the proposed BSTX Market Data Blockchain is 
consistent with the Exchange Act, and Section 6(b)(7) of the Exchange 
Act \180\ in particular, and its requirements that the rules of a 
national securities exchange provide a fair procedure for the 
prohibition or limitation by the exchange of any access to services, 
because the Exchange will

[[Page 5892]]

not limit non-BSTX Participants' access to the BSTX Market Data 
Blockchain beyond applying the same general terms that apply to BSTX 
Participants.
---------------------------------------------------------------------------

    \178\ 15 U.S.C. 78f(b)(5).
    \179\ 15 U.S.C. 78f(b)(8).
    \180\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

Access to BSTX
    The Commission received a comment stating that the proposal does 
not specifically address how participants shall access BSTX and that, 
by comparison, with respect to the trading of options, the Exchange 
does not currently enforce equidistant cabling among and between 
participants and its matching engine located in the same data 
center.\181\ This commenter states that concerns regarding unfair 
discrimination and inappropriate burdens on competition could arise in 
the absence of confirmation that BOX will ensure that all co-location 
participants will enjoy the same opportunity for order execution 
regardless of their location in the data center relative to the BSTX 
matching engine.\182\ Absent such confirmation, the commenter urges the 
Commission to disapprove the proposal.\183\ In response, the Exchange 
states that BSTX will provide for equidistant cabling arrangements to 
ensure that all co-located BSTX Participants are on a level playing 
field in connecting to the BSTX matching engine.\184\ The Exchange also 
states that BSTX plans to have equidistant cabling arrangements within 
the area of the data center that it controls, and that it will make 
technical details regarding those arrangements available to prospective 
BSTX Participants in certain specification documents after approval of 
BSTX as a new facility of the Exchange.\185\
---------------------------------------------------------------------------

    \181\ See Letter from Andrew Stevens, General Counsel, IMC 
Chicago, LLC and Richard McDonald, Compliance Coordinator, 
Susquehanna International Group, LLP (June 28, 2021), at 2.
    \182\ See id.
    \183\ See id. at 3.
    \184\ See Letter from Lisa J. Fall, President, BOX Exchange LLC 
(July 1, 2021), at 1.
    \185\ See id. The Exchange also states that its options trading 
platform is an entirely separate facility of the Exchange with a 
separate ownership structure from BSTX, and BSTX will use separate 
data center operations and a different technology provider. See id. 
at 2.
---------------------------------------------------------------------------

    In further response, in Amendment No. 2, the Exchange states that 
it will offer connectivity services at its primary data center (Equinix 
NY4 in Secaucus, NJ) and that connectivity to the Exchange in the 
primary data center for both order entry and market data dissemination 
is equalized for all Participants with equipment co-located in Equinix 
NY4.\186\ Specifically, the Exchange states that all BSTX Participants 
co-located in the same data center would connect to BSTX through an 
equidistant cabling cabinet, which is a separate cabinet from the 
cabinet hosting the BSTX System and market data distribution system. 
The cross connects from the equidistant cabling cabinet to the cabinet 
hosting BSTX's systems are equidistant.\187\ Additionally, the Exchange 
states that all cross connects from the equidistant cabling cabinet to 
each BSTX Participant's cabinet, wherever located in the data center, 
provide for equidistant connectivity.\188\ As a result, even if BSTX 
Participant X's cabinet is closer in physical proximity to the 
equidistant cabling cabinet than BSTX Participant Y's cabinet, the 
arrangement is such that both BSTX Participant X and BSTX Participant Y 
have equidistant connectivity to the equidistant cabling cabinet and in 
turn to BSTX's systems.\189\
---------------------------------------------------------------------------

    \186\ See Amendment No. 2, supra note 9, at 6.
    \187\ See id. at 6 n.6.
    \188\ See id. Specifically, the equidistant cabling cabinet 
contains equal length spools of fiber that connect to each external 
BSTX Participant cabinet in the data center, and all BSTX 
Participants must connect to BSTX through the equidistant cabling 
cabinet from their own external cabinets. See id.
    \189\ See id. The Exchange states that it believes that this 
structure is designed to prevent unfair discrimination between 
market participants, consistent with Section 6(b)(5) of the Exchange 
Act, by ensuring that all co-located BSTX Participants have 
equidistant connections to BSTX irrespective of where their 
equipment is located within the data center. See id.
---------------------------------------------------------------------------

    The Commission believes that Amendment No. 2 addresses the 
commenter's concern regarding whether all co-location participants will 
enjoy the same opportunity for order execution regardless of their 
location in the data center relative to the BSTX matching engine. As 
described above, the Exchange states in Amendment No. 2 that all BSTX 
Participants co-located in the data center would access BSTX's systems 
through an equidistant cabling cabinet that connects to each BSTX 
Participant's cabinet through fiber connections of equal length and 
that the cross connects from the equidistant cabling cabinet to the 
cabinet hosting BSTX's systems are also equidistant. This arrangement 
would prevent BSTX Participants located in closer proximity to the 
cabinet hosting the BSTX System and market data distribution system 
from having a shorter path to connect to BSTX's systems.
Clearance and Settlement
    Under the Exchange's proposal, executions occurring as a result of 
orders matched against the BSTX Book will be transmitted by BSTX to a 
registered clearing agency to clear and settle pursuant to the rules, 
policies, and procedures of the registered clearing agency.\190\ The 
Exchange states that Securities would be cleared and settled by NSCC 
and DTC in the same manner as those activities are performed by NSCC 
and DTC currently with respect to a class of NMS stock.\191\ The 
Exchange also states that the operation of the BSTX Market Data 
Blockchain will have no impact or effect on the manner in which a 
Security clears and settles.\192\
---------------------------------------------------------------------------

    \190\ See proposed BSTX Rule 25100(d). See also proposed BSTX 
Rule 25140 for additional provisions regarding clearance and 
settlement.
    \191\ See OIP, supra note 7, 86 FR at 49418.
    \192\ See id.
---------------------------------------------------------------------------

    The Exchange proposes to allow BSTX Participants to indicate a 
preference for settling faster than the standard T+2 settlement 
cycle.\193\ Specifically, BSTX Participants would be able to submit an 
order with a preference for settlement on a T+0 basis (``Order with a 
T+0 Preference'') or on a T+1 basis (``Order with a T+1 
Preference'').\194\ The Exchange states that, based on discussions with 
representatives from The Depository Trust & Clearing Corporation 
(``DTCC''), BSTX believes that NSCC already has the authority under its 
rules, policies, and procedures to clear certain trades on T+1 or T+0 
basis.\195\ Orders with a T+0 Preference and Orders with a T+1 
Preference would result in executions that settle more quickly than on 
a T+2 basis if, and only if, all of the conditions in proposed BSTX 
Rule 25060(h) are met and the execution that is transmitted by BSTX to 
NSCC is eligible for T+0 or T+1 settlement under the rules, policies, 
and procedures of the registered clearing agency.\196\ For an

[[Page 5893]]

Order with a T+0 Preference to be eligible to be transmitted by BSTX to 
NSCC for same-day settlement, the resulting execution must occur on the 
BSTX System prior to the ``T+0 Cut-Off Time,'' which would be one 
minute before any applicable cut-off time established by NSCC for 
inclusion of T+0 settling trades in its continuous net settlement 
process established pursuant to its rules, policies, and 
procedures.\197\ Any preference for T+0 or T+1 settlement included by a 
BSTX Participant would only become operative if the order happens to 
execute against another order from a BSTX Participant that also 
includes a parameter indicating a preference for settlement on a T+0 or 
T+1 basis.\198\ The Exchange states that, at the time of order entry, 
any orders that include a parameter indicating a preference for faster 
settlement would be regular way orders that would be presumed to settle 
on a T+2 basis, just like any orders without such a parameter.\199\
---------------------------------------------------------------------------

    \193\ See id. at 49419.
    \194\ See proposed BSTX Rule 25140(h). The Exchange states that 
T+1 and T+0 are shorter settlement cycles than the longest 
settlement cycle of T+2 that is generally permitted under SEC Rule 
15c6-1, for a security trade that involves a broker-dealer. See OIP, 
supra note 7, 86 FR at 49419 (citing 17 CFR 240.15c6-1). The 
Exchange states that under SEC Rule 15c6-1, with certain exceptions, 
a broker-dealer is not permitted to enter a contract for the 
purchase or sale of a security that provides for payment of funds 
and delivery of securities later than the second business day after 
the date of the contract unless otherwise expressly agreed to by the 
parties at the time of the transaction. See id. at 49419 n.33.
    \195\ See OIP, supra note 7, 86 FR at 49423. The Exchange states 
that it understands that NSCC and DTC are already using this 
authority for shortened settlement times, and that DTCC makes data 
regarding T+0 and T+1 clearance and settlement through NSCC and DTC 
available on the DTCC website for review by the public. See id. at 
49424.
    \196\ See id. at 49423-24; proposed BSTX Rule 25060(h). See also 
proposed BSTX Rule 25100(d). The Exchange states that it understands 
that under its current rules, policies, and procedures, NSCC accepts 
trades for T+0 settlement through its continuous net settlement 
system provided that they are received by NSCC before a cut-off time 
of 11:30 a.m. ET. DTCC provides on its website an overview of the 
cut-off times for participation in the continuous net settlement 
system process and other procedural considerations under its rules, 
policies, and procedures that are associated with processing trades 
for accelerated settlement on a T+0 or T+1 basis. See Amendment No. 
2, supra note 9, at 34 n.62.
    \197\ See Amendment No. 2, supra note 9, at 35; proposed BSTX 
Rule 25060(h)(3). The BSTX System would not accept any new Orders 
with a T+0 Preference after the T+0 Cut-Off Time. See Amendment No. 
2, supra note 9, at 36; proposed BSTX Rule 25060(h)(3). However, an 
Order with a T+0 Preference resting on the BSTX Book after the T+0 
Cut-Off Time would still be able to execute against orders against 
which it is marketable, and would remain eligible for potential T+1 
settlement to the extent it executed against an Order with a T+1 
Preference. See id. According to the Exchange, it believes that a 
one minute buffer between its T+0 Cut-Off Time and NSCC's cut-off 
time for inclusion of such same-day settling trades in NSCC's 
continuous net settlement process would be sufficient time to allow 
the Exchange to transmit the relevant execution details to NSCC and 
for NSCC to include such same-day settling trades in its continuous 
net settlement system. See Amendment No. 2, supra note 9, at 35-36. 
The Exchange represents that it will monitor the application of the 
one minute buffer and whether it provides the Exchange and NSCC with 
sufficient time to prevent executed trades from being transmitted by 
the Exchange to NSCC after NSCC's cut-off time for inclusion of 
same-day settling trades in NSCC's continuous net settlement system, 
and the Exchange will submit additional rule changes in the future 
as may be necessary to increase the buffer if appropriate. See id. 
at 36. The Exchange also represents that it will post the then-
applicable T+0 Cut-Off Time on the BSTX website to ensure BSTX 
Participants are adequately informed. See id. at 36 n.64.
    \198\ See OIP, supra note 7, 86 FR at 49424. Under the proposal, 
an Order with a T+0 Preference will execute against any order 
against which it is marketable and BSTX will transmit the matched 
order information to a registered clearing agency for settlement on 
a standard settlement cycle (T+2) pursuant to the rules, policies, 
and procedures of the registered clearing agency, except where: (i) 
the Order with a T+0 Preference executes against another Order with 
a T+0 Preference, in which case BSTX will transmit the matched order 
information to a registered clearing agency for settlement on the 
trade date as may be permitted by the rules, policies, and 
procedures of the registered clearing agency, subject to the 
limitations in proposed BSTX Rule 25060(h)(3); or (ii) the Order 
with a T+0 Preference executes against an Order with a T+1 
Preference, in which case BSTX will transmit the matched order 
information to a registered clearing agency for settlement on the 
next trading day after the trade date (i.e., T+1) as may be 
permitted by the rules, policies, and procedures of the registered 
clearing agency. See proposed BSTX Rule 25060(h)(1). An Order with a 
T+1 Preference will execute against any order against which it is 
marketable and BSTX will transmit the matched order information to a 
registered clearing agency for settlement on a standard settlement 
cycle (T+2), except where the Order with a T+1 Preference executes 
against another Order with a T+1 Preference or an Order with a T+0 
Preference, in which case BSTX will transmit the matched order 
information to a registered clearing agency for settlement on the 
next trading day after the trade date (i.e., T+1) as may be 
permitted by the rules, policies, and procedures of the registered 
clearing agency. See proposed BSTX Rule 25060(h)(2).
    \199\ See OIP, supra note 7, 86 FR at 49423.
---------------------------------------------------------------------------

    The Exchange states that, in all cases, an order not marked with a 
preference for either T+0 or T+1 settlement would be assured under the 
settlement timing logic in proposed BSTX Rule 25060(h) of settlement on 
a T+2 basis. The Exchange also states that the possibility of a 
shortened settlement time would have no impact on the Exchange's 
proposed price/time priority structure for order matching.\200\ The 
Exchange states that, as a result of this structure, all orders in 
Securities would be eligible to match and execute against any order 
against which they are marketable, with settlement to occur at the 
later settlement date of any two matching orders.\201\ Therefore, 
according to the Exchange, only where an Order with a T+1 Preference or 
an Order with a T+0 Preference match with another Order with a T+1 
Preference or Order with a T+0 Preference will those orders (or 
matching portions thereof) be eligible to settle more quickly than the 
standard settlement cycle of T+2.\202\
---------------------------------------------------------------------------

    \200\ See id. at 49424.
    \201\ See id.
    \202\ See id.
---------------------------------------------------------------------------

    The Exchange states that it believes the proposal to allow BSTX 
Participants to access the shorter settlement cycles of T+1 and T+0 
that are already being used by NSCC and DTC today represents a change 
that is both consistent with and in furtherance of broader industry 
efforts to move the standard settlement style to T+1.\203\ The Exchange 
also states that it believes that providing an optional T+0 or T+1 
settlement cycle to BSTX Participants could also incrementally and 
immediately provide market participants with the benefits of shorter 
settlement cycles.\204\ The Exchange further states that it believes 
that BSTX Participants have an interest in being able to assess risk-
reducing market functionality that is presently available and 
compatible with market structure and that this can reduce costs for 
market participants settling trading obligations in that Security and 
reduce settlement risk.\205\
---------------------------------------------------------------------------

    \203\ See id. at 49424-25.
    \204\ See id.
    \205\ See id. at 49425.
---------------------------------------------------------------------------

    According to the Exchange, because all orders in Securities 
submitted to BSTX would at the time of order entry be presumed to 
settle on a regular way T+2 basis and would interact with any other 
order against which the order is marketable, the Exchange believes that 
Orders with a T+0 Preference and Orders with a T+1 Preference would be 
considered ``protected'' within the meaning of Rule 611 under the 
Exchange Act.\206\ The Exchange states that Orders with a T+0 
Preference and Orders with a T+1 Preference would not fall within the 
exception for protected quotation status set forth in Rule 611(b)(2) 
under the Exchange Act, because they will only settle more quickly than 
T+2 when all of the conditions in proposed BSTX Rule 25060(h) are met 
and where faster settlement is consistent with the rules, policies, and 
procedures of a registered clearing agency.\207\
---------------------------------------------------------------------------

    \206\ See id. (citing 17 CFR 242.611(b)(2)).
    \207\ See id.
---------------------------------------------------------------------------

    The Commission has received several comments expressing support for 
the proposal's use of a shortened settlement cycle under certain 
circumstances.\208\ One commenter states in support of the proposal 
that BSTX would provide significant advantages over existing national 
securities exchanges by providing fairer conditions to market 
participants through reduced settlement times and more 
transparency.\209\ This commenter states that T+0 settlement would 
improve market conditions for retail investors by reducing risk of 
failure to deliver on highly shorted stocks, and would reduce actual 
and opportunity costs by eliminating margin lending for the period 
before settlement and lost opportunities to reinvest.\210\

[[Page 5894]]

Two commenters refer to recent problems that they characterize as 
arising from T+2 settlement and short selling,\211\ and state that the 
proposal for a shorter settlement cycle would level the playing field 
for retail investors.\212\ Another commenter states that if a 
particular trade does not meet the criteria or conditions on T+0 or 
T+1, the fallback option will be the standard settlement cycle, and 
that because shorter settlement will depend on the NSCC clearing 
system, addressing any adverse market effects is NSCC's 
responsibility.\213\ Another commenter states that uncertainty 
regarding whether an order would receive faster settlement at the time 
of order entry would not affect the ability of a market participants to 
reap the potential benefits of faster settlement.\214\ This commenter 
also states that there has been much recent public focus on the 
inefficiency of the current settlement system and that there is no 
evidence that the proposal would have adverse market effects.\215\
---------------------------------------------------------------------------

    \208\ See Letter from Meagan Darata, Utah Salt Supplements (June 
21, 2021) (``Darata Letter''); Letter from Mark Nelson (June 10, 
2021); Letter from Robert Shaw (June 11, 2021) (``Shaw Letter''); 
Letter from Neil Skinner (June 11, 2021) (``Skinner Letter'').
    \209\ See Skinner Letter, supra note 208.
    \210\ See id. This commenter also states that the commenter 
expects the reduced costs of operating the exchange to be passed on 
to prospective companies and issuers, thereby creating more 
opportunities for companies and asset holders to offer securities, 
and resulting in a market boom as new market participants join the 
exchange. See id.
    \211\ See Letter from Anonymous (June 15, 2021) (``Anonymous 
Letter I''); Skinner Letter, supra note 208. See also Shaw Letter, 
supra note 208 (stating that, with the current issues regarding 
settlement time, the proposal to offer speedy settlement is one 
answer to improving the system).
    \212\ See Anonymous Letter I, supra note 211; Skinner Letter, 
supra note 208. See also Darata Letter, supra note 208 (stating that 
there is a wide power differential between retail and institutional 
traders).
    \213\ See Anonymous Letter IV, supra note 171.
    \214\ See Seeley Letter, supra note 170 (stating also that this 
uncertainty would not represent any additional inconsistency with 
the Exchange Act compared to current settlement systems and does not 
provide an appropriate basis for disapproving the proposal).
    \215\ Id.
---------------------------------------------------------------------------

    The Commission believes that the optional order parameter that 
would allow a BSTX Participant to place an Order with a T+0 Preference 
or Order with a T+1 Preference would permit BSTX Participants to take 
advantage of faster settlement timing provided by DTC and NSCC in 
manner that is consistent with fair and orderly markets. Use of the 
order parameter would be optional and would not have any effect on 
price/time execution priority. Therefore, any order placed by a BSTX 
Participant that prefers to settle on a T+2 basis (or any order routed 
to BSTX from another national securities exchange) would receive T+2 
settlement and that order would not be disadvantaged in obtaining an 
execution due to the absence of a preference for faster 
settlement.\216\ The Commission also believes that the proposal that 
Orders with a T+0 Preference must be executed on the BSTX System prior 
to the T+0 Cut-Off Time to be eligible for same-day settlement is 
reasonably designed to ensure that when BSTX transmits an order to the 
registered clearing agency for same-day settlement, the registered 
clearing agency will be able to include that trade in its continuous 
net settlement process.
---------------------------------------------------------------------------

    \216\ In the OIP, the Commission raises whether introducing the 
possibility for T+0 or T+1 settlement for on-exchange trades in NMS 
stocks pursuant to the rules of a single national securities 
exchange, at a time when the industry standard is T+2 settlement, 
might have any adverse market effects. See OIP, supra note 7, 86 FR 
at 49455. The Commission notes that no commenters raised any 
potential adverse market effects.
---------------------------------------------------------------------------

    For these reasons, the Commission finds that the proposed order 
parameter that BSTX Participants could use to preference faster 
settlement is consistent with the Exchange Act and, in particular, 
Section 6(b)(5)'s requirement to foster cooperation and coordination 
with persons engaged in clearing, settling, and processing information 
with respect to transactions in securities; remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system; and, in general, protect investors and the public 
interest.\217\ The Commission also finds that the proposed order 
parameter for faster settlement is consistent with Section 6(b)(8)'s 
requirement that the proposal not impose any burden on competition not 
necessary or appropriate in further of the purposes of the Exchange 
Act, because the operation of this order parameter will not impact the 
ability of a market participant that instead prefers T+2 settlement to 
obtain an execution.\218\
---------------------------------------------------------------------------

    \217\ 15 U.S.C. 78f(b)(5).
    \218\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

C. Eligibility for Listing and Trading on BSTX

    Once BSTX begins operations as a facility of the Exchange, a 
security would be considered for listing on BSTX only if such security 
is registered under both Section 12 of the Exchange Act \219\ and 
Section 6 of the Securities Act of 1933 (``Securities Act''),\220\ or 
such security to subject to an exemption under Regulation A.\221\ An 
issuer may register a security pursuant to Section 12(b) by submitting 
to the Exchange a listing application that provides certain required 
information.\222\ The Exchange will review the listing application and, 
if the listing application is approved, will certify to the Commission 
that it has approved the security for listing and registration.\223\ 
Registration of the security will become effective thirty days after 
the receipt of such certification by the Commission or within a shorter 
period of time as the Commission may determine.\224\ Once registration 
is effective, the Security would be eligible to be admitted to dealings 
on BSTX.\225\
---------------------------------------------------------------------------

    \219\ 15 U.S.C. 78l; proposed BSTX Rule 26210.
    \220\ 15 U.S.C. 78f.
    \221\ See Amendment No. 2, supra note 9, at 10-11. See also 17 
CFR 230.251. The Exchange states that IEX similarly allows for 
securities subject to an exemption from registration under Section 
12(b) of the Exchange Act to be listed on IEX. See Amendment No. 2, 
supra note 9, at 11 n.20 (citing to IEX Rule 14.203).
    \222\ See proposed BSTX Rules 26210-26217; 15 U.S.C. 78l(b). 
Prior to submitting a listing application to the Exchange, the 
issuer would be required to participate in a confidential pre-
application eligibility review, in which the Exchange will determine 
whether the issuer meets its listing criteria and is eligible to 
submit a listing application. See proposed BSTX Rule 26201.
    \223\ See proposed BSTX Rule 26210(b); 15 U.S.C. 78l(d). See 
Exhibits 3G, 3H, 3I, 3J, 3K, and 3L for agreements and forms related 
to the listing process.
    \224\ 15 U.S.C. 78l(d).
    \225\ See proposed BSTX Rule 26202. See also 15 U.S.C. 78l(d).
---------------------------------------------------------------------------

    The Exchange proposes that the only securities that will be 
eligible for trading on BSTX will be BSTX-listed securities.\226\ The 
Exchange states that it is not proposing rules that would support its 
extension of UTP to other NMS stock.\227\ However, according to the 
Exchange, BSTX-listed Securities would be eligible for trading on other 
national securities exchanges that extend UTP to them and would be able 
to trade on other national securities exchanges and OTC in the same 
manner as other NMS stock.\228\
---------------------------------------------------------------------------

    \226\ See proposed BSTX Rule 25020(a) (providing that any class 
of securities listed on the Exchange shall be eligible to become 
designated for trading on the Exchange in accordance with the 
proposed BSTX Rule 26000 and 28000 Rule Series).
    \227\ See OIP, supra note 7, 86 FR at 49417. The Exchange also 
states that it would only trade BSTX-listed Securities on BSTX 
unless and until the Exchange proposes and receives Commission 
approval for rules that would support trading in other types of 
securities, including thorough any extension of UTP to other NMS 
stock. See id.
    \228\ See id. at 49423.
---------------------------------------------------------------------------

Classes of Securities Eligible for Listing
    The Exchange states that issuers on BSTX could include both: (i) 
New issuers who do not currently have any class of securities 
registered on a national securities exchange, and (ii) issuers who 
currently have securities registered on a national securities exchange 
and who are seeking registration of a new class of equity securities 
for listing on BSTX as Securities.\229\ In the original Notice, the 
Exchange stated that while BSTX does not intend for Securities listed 
on BSTX to be fungible with any other class of securities from the same 
issuer, to the

[[Page 5895]]

extent that two classes of an issuer's shares had identical voting and 
economic rights but were registered with the Commission as separate 
classes, the two classes of shares could be ``economically fungible'' 
with each other.\230\ With respect to the Notice, one commenter states 
that BSTX appears to be contemplating that an issuer could list shares 
with identical voting and economic rights on BSTX and another exchange 
but designate the shares listed on BSTX as a separate class of the 
issuer's securities, with the only distinguishing factor between the 
two classes of securities being that the BSTX-listed securities would 
have the additional blockchain functionality.\231\ The commenter states 
that, in the trading context, having two separate classes of an 
issuer's securities with identical economic and voting rights trading 
at the same time on different exchanges could result in investor and 
market confusion.\232\ In Amendment No. 2, the Exchange states that 
BSTX does not intend for a Security listed on BSTX to be a unique class 
of security due only to the fact that certain trading activity in the 
Security on BSTX would be recorded on the BSTX Market Data 
Blockchain.\233\ The Exchange also states that if an issuer sought to 
list a new class of securities on BSTX that is not distinct from an 
existing class of securities of the issuer, the Exchange would not 
allow such a class to be listed pursuant to its authority under 
proposed BSTX Rule 26101.\234\ The Commission believes that Amendment 
No. 2 addresses the commenter's concern that an issuer could list one 
class of securities on BSTX and a separate class of securities on 
another national securities exchange, with both classes having 
identical voting and economic interests. Proposed BSTX Rule 26101 
provides that the approval of an application for listing of a security 
for trading on BSTX is a matter solely within the discretion of the 
Exchange.\235\ The Exchange's use of this discretionary authority to 
prevent an issuer from listing a class of securities on BSTX that is 
not distinct from an existing class of securities would prevent the 
listing of a class of securities that has the same voting and economic 
rights as another listed class of securities of that same issuer.
---------------------------------------------------------------------------

    \229\ See Amendment No. 2, supra note 9, at 13.
    \230\ See Notice, supra note 3, 86 FR at 29636 & n.20.
    \231\ See Letter from Ellen Greene, Managing Director, Equities 
& Options Market Structure, Securities Industry and Financial 
Markets Association (September 27, 2021) (``SIFMA Letter''), at 2 
(stating that ``the definition of `class' of securities in Section 
12(g)(5) of the Exchange Act contemplates that securities of an 
issuer that have identical economic and voting rights would be part 
of the same class of securities'').
    \232\ See id. (stating that ``issuers have dually-listed 
securities on two exchanges to meet the different listing standards 
of each of the exchanges, but the issuers have done so by listing 
the same class of securities on both exchanges'').
    \233\ See Amendment No. 2, supra note 9, at 13.
    \234\ See id.
    \235\ See proposed BSTX Rule 26101.
---------------------------------------------------------------------------

Initial and Continued Listing Standards
    The Commission has consistently recognized the importance and 
significance of national securities exchange listing standards. Among 
other things, such listing standards help ensure that exchange-listed 
companies will have sufficient public float, investor base, and trading 
interest to provide the depth and liquidity necessary to promote fair 
and orderly markets.\236\ The standards, collectively, also provide 
investors and market participants with some level of assurance that the 
listed company has the resources, policies, and procedures to comply 
with the requirements of the Exchange Act and Exchange rules.\237\
---------------------------------------------------------------------------

    \236\ The Commission has stated in approving national securities 
exchange listing requirements that the development and enforcement 
of adequate standards governing the listing of securities on an 
exchange is an activity of critical importance to the financial 
markets and the investing public. In addition, once a security has 
been approved for initial listing, maintenance criteria allow an 
exchange to monitor the status and trading characteristics of that 
issue to ensure that it continues to meet the exchange's standards 
for market depth and liquidity so that fair and orderly markets can 
be maintained. See, e.g., Securities Exchange Act Release Nos. 90768 
(December 22, 2020), 85 FR 85807, 85811 n.55 (December 29, 2020) 
(SR-NYSE-2019-67) (``NYSE 2020 Order''); 82627 (February 2, 2018), 
83 FR 5650, 5653 n.53 (February 8, 2018) (SR-NYSE-2017-30) (``NYSE 
2018 Order''); 81856 (October 11, 2017), 82 FR 48296, 48298 (October 
17, 2017) (SR-NYSE-2017-31); 81079 (July 5, 2017), 82 FR 32022, 
32023 (July 11, 2017) (SR-NYSE-2017-11). The Commission has stated 
that adequate listing standards, by promoting fair and orderly 
markets, are consistent with Section 6(b)(5) of the Exchange Act, in 
that they are, among other things, designed to prevent fraudulent 
and manipulative acts and practices, promote just and equitable 
principles of trade, and protect investors and the public interest. 
See, e.g., NYSE 2020 Order, 85 FR at 85811 n.55; NYSE 2018 Order, 83 
FR at 5653 n.53; Securities Exchange Act Release Nos. 87648 
(December 3, 2019), 84 FR 67308, 67314 n.42 (December 9, 2019) (SR-
NASDAQ-2019-059); 88716 (April 21, 2020), 85 FR 23393, 23395 n.22 
(April 27, 2020) (SR-NASDAQ-2020-001).
    \237\ ``Meaningful listing standards are also important given 
investor expectations regarding the nature of securities that have 
achieved a national securities exchange listing, and the role of a 
national securities exchange in overseeing its market and assuring 
compliance with its listing standards.'' Securities Exchange Act 
Release No. 65708 (November 8, 2011), 76 FR 70799, 70802 (November 
15, 2011) (SR-NASDAQ-2011-073). See also, e.g., NYSE 2020 Order, 
supra note 236, 85 FR at 85811 n.56; Securities Exchange Act Release 
Nos. 65709 (November 8, 2011), 76 FR 70795 (November 15, 2011) (SR-
NYSE-2011-38); 88389 (March 16, 2020), 85 FR 16163 (March 20, 2020) 
(SR-NASDAQ-2019-089). The Exchange, in addition to requiring 
companies seeking to list to meet the quantitative initial listing 
standards and once listed the quantitative continued listing 
standards, also requires listed companies to meet other qualitative 
requirements. See, e.g., proposed BSTX Rules 26800 Series, Corporate 
Governance.
---------------------------------------------------------------------------

    The Exchange has proposed initial and continued listing standards 
for companies to be listed on BSTX that are substantially similar to 
the current rules for NYSE American.\238\ These proposed listing 
standards relate to the listing and delisting of companies, including 
procedures and prerequisites for initial and continued listing on BSTX, 
the obligations of issuers with Securities listed on BSTX, as well as 
rules describing the application and qualification process, the 
suspension and delisting process, and procedures for review of the 
Exchange's listing determinations.\239\ The Commission has previously 
determined that the initial and continued listing standards of NYSE 
American are consistent with the Exchange Act.\240\ The Exchange states 
that it did not integrate certain sections of NYSE American's listing 
standards that the Exchange deemed were inapplicable to its operations, 
such as with respect to types of securities that the Exchange does not 
propose to make eligible for listing.\241\ The Exchange also proposes 
to include certain listing standards that are substantially similar

[[Page 5896]]

to the rules of other national securities exchanges.\242\
---------------------------------------------------------------------------

    \238\ See OIP, supra note 7, 86 FR at 49439 (citing Parts 1-12 
of the NYSE American Company Guide). The Exchange states that it 
understands that the Commission has extended relief to NYSE American 
with respect to certain quantitative listing standards that do not 
meet the thresholds of Rule 3a51-1, and that initial listings of 
securities that do not meet such thresholds and are not subject to 
the relief provided to NYSE American would qualify as ``penny 
stocks'' and would be subject to additional regulation. See 
Amendment No. 2, supra note 9, at 106 (citing 17 CFR 240.3a51-1); 
Amendment No. 3, supra note 10, at 4-5. The Exchange states that it 
is not seeking relief related to Rule 3a51-1 and describes certain 
adjustments made to the proposed BSTX rules to meet the requirements 
in Rule 3a51-1. See Amendment No. 2, supra note 9, at 106; Amendment 
No. 3, supra note 10, at 4-5.
    \239\ See proposed BSTX Rules 26000 Series (BSTX Listing Rules 
Other Than for Exchange Traded Products), 26200 Series (Original 
Listing Procedures), 26300 Series (Additional Listings), 27000 
Series (Suspension and Delisting), 27100 Series (Guide to Filing 
Requirements), and 27200 Series (Procedures for Review of Exchange 
Listing Determinations).
    \240\ See, e.g., Securities Exchange Act Release Nos. 59050 
(December 3, 2008), 73 FR 75144 (December 10, 2008) (SR-Amex-2008-
70) (approving revisions to the listing process and removal of 
alternative listing standards for American Stock Exchange LLC 
(``Amex''), a predecessor to NYSE American); 53050 (January 3, 
2006), 71 FR 1580 (January 10, 2006) (SR-Amex-2005-114) (approving 
change to initial listing standards for Amex).
    \241\ See Amendment No. 2, supra note 9, at 103 n.301. For 
example, the Exchange does not propose to list bonds, debentures, 
securities of foreign companies (other than Canadian companies), or 
investment trusts. See id. The Exchange also does not propose to 
allow the issuance of fractional shares of Securities. See id. at 
114.
    \242\ See, e.g., Amendment No. 3, supra note 10, at 5-6 (stating 
that the Exchange is including initial listing standards for 
preferred securities and secondary classes based on Nasdaq Rule 
5510).
---------------------------------------------------------------------------

    In addition, the Exchange has proposed initial and continued 
listing standards for ETP-related securities to be listed on BSTX that 
are substantially similar to the rules of NYSE Arca, Inc. (``NYSE 
Arca'').\243\ These initial and continued listing standards relate to 
the specific types of ETPs that the Exchange proposes to make eligible 
for listing on BSTX.\244\ The Exchange states that the proposed rules 
do not include certain products that are supported by NYSE Arca but 
that the Exchange does not plan to offer.\245\ The Commission has 
previously determined that the ETP-related listing standards of NYSE 
Arca are consistent with the Exchange Act.\246\
---------------------------------------------------------------------------

    \243\ See OIP, supra note 7, 86 FR at 49442 (citing to NYSE Arca 
Rules 5.2-E(j)(3), 5.2-E(j)(6), 5.2-E(j)(8), 8.200-E, 8.201-E, 
8.600-E, 8.601-E, and 8.900-E).
    \244\ See proposed BSTX Rules 28000 (Investment Company Units), 
28001 (Equity Index-Linked Securities, Commodity-Linked Securities, 
Currency-Linked Securities, Fixed Income Index-Linked Securities, 
Futures-Listed Securities, and Multifactor Index-Linked Securities), 
28002 (Exchange-Traded Fund Shares), 28003 (Trust Issued Receipts), 
28004 (Commodity-Based Trust Shares), 28005 (Managed Fund Shares), 
28006 (Active Proxy Portfolio Shares), and 28007 (Managed Portfolio 
Shares).
    \245\ See OIP, supra note 7, 86 FR at 49443 (stating that the 
Exchange will not support trading in a Nasdaq-100 Index Product, 
Currency Trust Shares, or Commodity Index Trust Shares).
    \246\ See, e.g., Securities Exchange Act Release Nos. 44551 
(July 12, 2001), 66 FR 37716 (July 19, 2001) (PCX-2001-14) 
(approving generic listing standards for investment company units 
and portfolio depository receipts for Pacific Exchange, Inc. 
(``PCX''), a predecessor to NYSE Arca); 52204 (August 3, 2005), 70 
FR 46559 (August 10, 2005) (PCX-2005-63) (approving PCX's generic 
listing standards for index-linked securities); 78397 (July 22, 
2016), 81 FR 49320 (July 27, 2016) (NYSEArca-2015-110) (approving 
NYSE Arca's generic listing standards for managed fund shares).
---------------------------------------------------------------------------

    Accordingly, the Commission finds that the Exchange's proposed 
initial and continued listing requirements, including the procedures 
for listing and delisting securities, are consistent with the Exchange 
Act, and Section 6(b)(5) of the Exchange Act \247\ in particular, and 
its requirements that the rules of a national securities exchange be 
reasonably designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principals of trade, 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; and that the rules not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers. The 
Commission also finds that procedures for listing and delisting 
securities, including the procedures for challenging the Exchange's 
listing determinations, are consistent with Section 6(b)(7) of the 
Exchange Act,\248\ which requires, among other things, that the rules 
of a national securities exchange provide a fair procedure for the 
prohibition or limitation by the exchange of any person with respect to 
access to services offered by the exchange.
---------------------------------------------------------------------------

    \247\ 15 U.S.C. 78f(b)(5).
    \248\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

Corporate Governance Standards
    The development and enforcement of meaningful corporate governance 
listing standards for a national securities exchange is of substantial 
importance to financial markets and the investing public, especially 
given investor expectations regarding the nature of companies that have 
achieved an exchange listing for their securities.\249\ The corporate 
governance standards embodied in the listing standards of national 
securities exchanges, in particular, play an important role in assuring 
that exchange-listed companies observe good governance practices 
including safeguarding the interests of shareholders.\250\
---------------------------------------------------------------------------

    \249\ See, e.g., Securities Exchange Act Release Nos. 85374 
(March 20, 2019), 84 FR 11354, 11356 (March 26, 2019); 91567 (April 
14, 2021), 86 FR 20556, 20559 (April 20, 2021).
    \250\ See, e.g., Securities Exchange Act Release Nos. 85374 
(March 20, 2019), 84 FR 11354, 11356 (March 26, 2019); 91567 (April 
14, 2021), 86 FR 20556, 20559 (April 20, 2021).
---------------------------------------------------------------------------

    The Exchange proposes corporate governance standards in connection 
with Securities to be listed and traded on BSTX that are substantially 
similar to the corporate governance standards for listed issuers of 
NYSE American.\251\ These corporate governance standards for listed 
issuers include policies relating to disclosures, the handling of stock 
dividends and splits, accounting, shareholder meetings and voting, and 
required notifications to the Exchange, as well as standards for the 
issuer's corporate structure and its board of directors and committees 
thereof.\252\ Further, these standards include rules requiring a 
majority of directors on a listed issuer's board to be independent, 
rules and independence requirements relating to audit and compensation 
committees and the oversight of nominations, and rules requiring listed 
issuers to adopt codes of conduct applicable to all their directors, 
officers, and employees.\253\ The Commission has previously determined 
that the corporate governance standards for listed issuers of NYSE 
American are consistent with the Exchange Act.\254\ The Exchange also 
proposes to require listed companies to maintain an internal audit 
function pursuant to a rule that is substantially similar to the 
requirements of IEX.\255\
---------------------------------------------------------------------------

    \251\ See OIP, supra note 7, at 49442 (citing to NYSE American 
Sections 401-404, 501-522, 603-624, 701-726, 801-809, and 920-994).
    \252\ See proposed BSTX Rule 26400 Series (Disclosure Policies), 
26500 Series (Dividends and Splits), 26600 Series (Accounting; 
Annual and Quarterly Reports), 26700 Series (Shareholders' Meetings, 
Approval and Voting of Proxies), 26800 Series (Corporate 
Governance), and 26900 Series (Additional Matters).
    \253\ See proposed BSTX Rules 26802, 26803, and 27807.
    \254\ See, e.g., Securities Exchange Act Release Nos. 48863 
(December 1, 2003), 68 FR 68432 (December 8, 2003) (SR-Amex-2003-65) 
(approving proposal to enhance the corporate governance requirements 
applicable to listed companies for Amex); 54851 (November 30, 2006), 
71 FR 71201 (December 8, 2006) (SR-Amex-2006-48) (approving 
exchange's independent director and audit committee corporate 
governance standards for Amex).
    \255\ See Amendment No. 2, supra note 9, at 115 (citing to IEX 
Rule 14.414). See also proposed BSTX Rule 26801(i).
---------------------------------------------------------------------------

    The Commission finds that BSTX's proposed corporate governance 
standards for listed issuers contained in BSTX's proposed rules are 
consistent with the Exchange Act, and in particular Section 6(b)(5) of 
the Exchange Act and its requirements that the rules of a national 
securities exchange be reasonably designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, 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; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Commission further finds that BSTX's proposed 
rules satisfy the requirements of Section 10A(m) of the Exchange Act 
and Rule 10A-3 thereunder and Section 10C of the Exchange Act and Rule 
10C-1 thereunder, relating to audit and compensation committees, 
respectively.\256\ The Commission believes that BSTX's corporate 
governance standards for listed issuers that require a fully 
independent audit committee are designed to promote independent and 
objective review and oversight of the accounting and auditing practices 
of listed issuers and to enhance audit committee independence, 
authority, and responsibility by implementing the standards set forth 
in

[[Page 5897]]

Rule 10A-3.\257\ In addition, the Commission believes that BSTX's 
proposed requirements relating to independent compensation committees 
for listed issuers would benefit investors by implementing the 
standards set forth in Rule 10C-1, which requires that the independent 
directors of a listed issuer oversee executive compensation matters, 
consider independence criteria before retaining compensation advisers, 
and have responsibility for the appointment, compensation, and 
oversight of these advisers.\258\ Corporate governance standards play 
an important role in assuring that companies listed for trading on the 
national securities exchanges' markets have a reasoned, fair, and 
impartial approach for determining the compensation of corporate 
executives.\259\ The Commission believes that the Exchange's rules will 
foster greater transparency, accountability, and objectivity in the 
oversight of compensation practices of listed issuers and in the 
decision-making processes of their compensation committees.\260\
---------------------------------------------------------------------------

    \256\ See 15 U.S.C. 78j-1(m); 15 U.S.C. 78j-3; 17 CFR 240.10A-3; 
17 CFR 240.10C-1.
    \257\ See Securities Exchange Act Release No. 47654 (April 9, 
2003), 68 FR 18788 (April 16, 2003).
    \258\ See Securities Exchange Act Release No. 67220 (June 20, 
2012), 77 FR 38422, 38425 (June 27, 2012).
    \259\ See proposed BSTX Rule 26805. See, e.g., Securities 
Exchange Act Release No. 68640 (January 11, 2013), 78 FR 4554, 4563 
(January 22, 2013) (SR-NASDAQ-2012-109) (``Nasdaq 2012 Order'') 
(approving proposal relating to rules for compensation committees 
for listed companies).
    \260\ See, e.g., Nasdaq 2012 Order, supra note 259 (finding 
Nasdaq compensation committee rules consistent with the Exchange 
Act). See also, e.g., Securities Exchange Act Release Nos. 68639 
(January 11, 2013), 78 FR 4570 (January 22, 2013) (order approving 
NYSE's compensation committee rules, which was cited by Nasdaq as 
precedent for a subsequent amendment to its own rules that was filed 
on an immediately effective basis); 71037 (December 11, 2013), 78 FR 
76179 (December 16, 2013) (SR-NASDAQ-2013-147).
---------------------------------------------------------------------------

Regulation

    The Exchange states that in connection with the operation of BSTX, 
it will leverage many of the Exchange's existing regulatory 
structures.\261\ The Exchange states that it will extend its Regulatory 
Services Agreement with FINRA to cover BSTX Participants and trading on 
the BSTX System, and this Regulatory Services Agreement will govern 
many aspects of the regulation and discipline of BSTX 
Participants.\262\ According to the Exchange, the Exchange will 
regulate the listing of Securities, authorize BSTX Participants to 
trade on the BSTX System, and conduct surveillance of Security trading 
on the BSTX System.\263\ The Exchange states that, consistent with the 
Exchange's existing regulatory structure, the Exchange's Chief 
Regulatory Officer will have general supervision of the regulatory 
operations of BSTX, including responsibility for overseeing the 
surveillance, examination, and enforcement functions and for 
administering all regulatory services agreements applicable to 
BSTX.\264\ The Exchange states that its existing Regulatory Oversight 
Committee will be responsible for overseeing the adequacy and 
effectiveness of the Exchange's regulatory and self-regulatory 
organization responsibilities, including those applicable to BSTX.\265\
---------------------------------------------------------------------------

    \261\ See OIP, supra note 7, 86 FR at 49448.
    \262\ See id. The Exchange states that, as is the case with the 
Exchange's options trading platform, the Exchange will supervise 
FINRA and bear ultimate regulatory responsibility for BSTX. See id.
    \263\ See id.
    \264\ See id.
    \265\ See id. at 49448-49.
---------------------------------------------------------------------------

    The Exchange proposes specific business conduct and operational 
rules for BSTX Participants that include rules covering similar subject 
matter as existing Exchange Rules applicable to Options 
Participants.\266\ The Exchange also proposes to adopt proposed BSTX 
Rule 24000 (Discipline and Summary Suspension), which provides that the 
provisions of the Exchange's existing BOX Rule 11000 Series (Summary 
Suspension), 12000 Series (Discipline), 13000 Series (Review of Certain 
Exchange Actions), and 14000 Series (Arbitration) shall be applicable 
to BSTX Participants and trading on the BSTX System.\267\ According to 
the Exchange, the Exchange already has Rules pertaining to discipline 
and suspension of Exchange Participants that it proposes to extend to 
BSTX Participants and trading on the BSTX System.\268\
---------------------------------------------------------------------------

    \266\ See id. at 49427-30 (discussing proposed BSTX Rules 
regarding Business Conduct for BSTX Participants (Rule 19000 
Series), Financial and Operational Rules for BSTX Participants (Rule 
20000 Series), Supervision (Rule 21000 Series) and Miscellaneous 
Provisions (Rule 22000 Series)).
    \267\ See id. at 49430-31; proposed BSTX Rule 24000. The 
Exchange proposes to make conforming edits to certain existing 
Exchange Rules to expand their coverage to all Participants. See 
proposed BOX Rules 11010 and 11030.
    \268\ See OIP, supra note 7, 86 FR at 49431.
---------------------------------------------------------------------------

    In addition to the Exchange's other disciplinary rules, the 
Exchange's Minor Rule Violation Plan (``MRVP'') specifies those 
uncontested minor rule violations with sanctions not exceeding $2,500 
that would not be subject to the provisions of Rule 19d-1(c)(1) under 
the Exchange Act \269\ requiring that an SRO promptly file notice with 
the Commission of any final disciplinary action taken with respect to 
any person or organization.\270\ The Exchange's MRVP includes the 
policies and procedures set forth in existing BOX Rule 12140 
(Imposition of Fines for Minor Violations).\271\ The Exchange proposes 
to amend its MRVP to add certain rules relating to BSTX to the list of 
rules eligible for MRVP treatment, by amending BOX Rule 12140 and 
adopting proposed BSTX Rule 24010.\272\ Specifically, the Exchange 
proposes to modify BOX Rule 12140 to specify that rules and penalties 
relating to trading on BSTX are set forth in proposed BSTX Rule 
24010.\273\ The Exchange also proposes to set forth a fine schedule for 
violations of certain rules related to activity on BSTX and provide 
that a subsequent violation is calculated on the basis of a rolling 12-
month period.\274\ The Exchange states that the rules that it proposes 
to include in its MRVP are comparable to the rules included in the 
MRVPs of other national securities exchanges.\275\
---------------------------------------------------------------------------

    \269\ 17 CFR 240.19d-1(c)(1).
    \270\ See OIP, supra note 7, 86 FR at 49443.
    \271\ See id.
    \272\ See Amendment No. 2, supra note 9, at 121.
    \273\ See OIP, supra note 7, 86 FR at 49443; proposed BOX Rule 
12140(f). The Exchange also proposes to make conforming changes to 
replaced references to ``Options Participant'' with ``Participant.'' 
See proposed BOX Rule 12140.
    \274\ See proposed BSTX Rule 24010. The Exchange proposes that 
violations of the following rules would be appropriate for 
dispositions under the MRVP: proposed BSTX Rule 19180 
(Communications with the Public), proposed BSTX Rule 20000 
(Maintenance, Retention and Furnishing of Records), proposed BSTX 
Rule 25070 (Consolidated Audit Trail), proposed BSTX Rule 25130 
(Locking or Crossing Quotations in NMS Stocks), proposed BSTX Rule 
25210(a)(1) (BSTX Market Maker Two-Sided Quote Obligation), and 
proposed BSTX Rule 25120 (Short Sales). See proposed BSTX Rule 
24010(b).
    \275\ See Amendment No. 2, supra note 9, at 122 (citing to IEX 
Rule 9.218, Cboe BZX Rule 8.15.01, and MIAX Pearl Rule 1014(d)(15)).
---------------------------------------------------------------------------

    The Exchange represents that it plans to join the multi-party Rule 
17d-2 Plan for Allocation of Regulatory Responsibilities Regarding 
Regulation NMS and is in the process of joining certain Rule 17d-2 
agreements, including those applicable to equities trading and equities 
market surveillance.\276\ The Exchange states that it is a participant 
in the NMS plan related to the Consolidated Audit Trail, and that it 
intends to join the Order Execution Quality Disclosure Plan, the LULD 
Plan, and the applicable plans for the consolidation and dissemination 
of

[[Page 5898]]

market data.\277\ The Exchange also states that it will ensure that its 
membership in the Intermarket Surveillance Group extends to the BSTX 
facility.\278\
---------------------------------------------------------------------------

    \276\ See id. at 143. Rule 17d-2 provides that any two or more 
SROs may file with the Commission a plan for allocating among such 
SROs the responsibility to receive regulatory reports from persons 
who are members or participants of more than one of such SROs to 
examine such persons for compliance, or to enforce compliance by 
such persons, with specified provisions of the Exchange Act, the 
rules and regulations thereunder, and the rules of such SROs, or to 
carry out other specified regulatory functions with respect to such 
persons. See 17 CFR 240.17d-2.
    \277\ See Amendment No. 2, supra note 9, at 144.
    \278\ See id.
---------------------------------------------------------------------------

    According to the Exchange, the Exchange will perform automated 
surveillance of trading on BSTX for the purposes of maintaining a fair 
and orderly market at all times and monitor BSTX to identify unusual 
trading patterns and determine whether particular trading activity 
requires further regulatory investigation by FINRA.\279\ The Exchange 
states that it will oversee the process for determining and 
implementing trading halts, identifying and responding to unusual 
market conditions, and administering the Exchange's process for 
identifying and remediating ``clearly erroneous trades'' pursuant to 
proposed BSTX Rule 25110.\280\
---------------------------------------------------------------------------

    \279\ See OIP, supra note 7, 86 FR at 49449. The Exchange states 
that it currently does this for options. See id.
    \280\ See id.
---------------------------------------------------------------------------

    The Exchange has also proposed BSTX Rules 25050 and 25080(b)(3) to 
comply with the LULD Plan.\281\ Proposed BSTX Rule 25080(b)(3) provides 
that, for any execution to occur during Regular Trading Hours, such 
executions must comply with the LULD plan, as set forth in BSTX Rule 
25050.\282\ Proposed BSTX Rule 25050 describes the Exchange's order 
handling procedures to comply with the LULD Plan.\283\
---------------------------------------------------------------------------

    \281\ See id. at 49433. The Exchange represents that it intends 
to join the LULD Plan prior to the commencement of trading 
Securities. See id.
    \282\ See proposed BSTX Rule 25080(b)(3).
    \283\ See proposed BSTX Rule 25050. See also supra note 125 
(discussing how proposed BSTX Rule 25050 is substantially similar to 
the rules of other national securities exchanges adopted in 
connection with the LULD Plan).
---------------------------------------------------------------------------

    The Exchange's proposed regulatory structure raises no new 
regulatory issues. Accordingly, the Commission finds that the 
Exchange's proposed regulatory structure, including the Exchange's 
proposed application of its existing rules to BSTX and BSTX 
Participants' conduct, the Exchange's commitment to establish new or 
expand existing agreements with third-parties including FINRA for 
purposes such as surveillance, member discipline, and overseeing and 
enforcing compliance with BSTX rules, and proposed BSTX Rule 25050 
requiring compliance with the LULD Plan are consistent with the 
Exchange Act and, in particular, the Section 6(b)(5) requirement that a 
national securities exchange's rules be designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanisms of a free and open market and a national market system, and 
protect investors and the public interest.\284\ The Commission also 
finds that the Exchange's proposed regulatory structure is consistent 
with the requirements of Section 6(b)(1) of the Exchange Act, which 
requires a national securities exchange to be so organized and have the 
capacity to be able to carry out the purposes of the Exchange Act and 
to comply, and to enforce compliance by its members and persons 
associated with its members, with the Exchange Act and the rules and 
regulations thereunder, and the rules of the Exchange,\285\ and with 
Sections 6(b)(6) and 6(b)(7) of the Exchange Act,\286\ which require an 
Exchange to provide fair procedures for the disciplining of members and 
persons associated with members.
---------------------------------------------------------------------------

    \284\ See 15 U.S.C. 78f(b)(5).
    \285\ 15 U.S.C. 78f(b)(1).
    \286\ 15 U.S.C. 78f(b)(6) and (b)(7).
---------------------------------------------------------------------------

    Finally, the Commission finds that the proposed changes to the 
Exchange's MRVP are consistent with the public interest, the protection 
of investors, or otherwise in furtherance of the purpose of the 
Exchange Act, as required by Rule 19d-1(c)(2) under the Exchange 
Act,\287\ which governs minor rule violation plans. The Commission 
believes that BOX Rule 12140 is an effective way to discipline a member 
for a minor violation of a rule. The Commission believes that the 
Exchange's proposal to add rules related to BSTX to the list of rules 
that are eligible for minor rule violation plan treatment is consistent 
with the Exchange Act because it may help the Exchange's ability to 
better carry out its oversight and enforcement responsibilities.
---------------------------------------------------------------------------

    \287\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    In approving the proposed changes to the Exchange's MRVP, the 
Commission in no way minimizes the importance of complying with the 
Exchange's rules and all other rules subject to fines under BOX Rule 
12140 and proposed BSTX Rule 24010. The Commission believes that a 
violation of any SRO's rules, as well as Commission rules, is a serious 
matter. However, BOX Rule 12140 and proposed BSTX Rule 24010 provide a 
reasonable means of addressing rule violations that may not rise to the 
level of requiring formal disciplinary proceedings, while providing 
greater flexibility in handling certain violations. Consistent with its 
rules and the requirements of the Exchange Act, the Commission expects 
that the Exchange will continue to conduct surveillance with due 
diligence and make a determination based on its findings, on a case-by-
case basis, whether a fine of more or less than the recommended amount 
is appropriate for a violation under BOX Rule 12140 and proposed BSTX 
Rule 24010 or whether a violation requires formal disciplinary action.

Section 11(a) of the Exchange Act

    Section 11(a)(1) of the Exchange Act \288\ prohibits a member of a 
national securities exchange from effecting transactions on that 
exchange for its own account, the account of an associated person, or 
an account over which it or its associated person exercises investment 
discretion (collectively, ``covered accounts'') unless an exception 
applies. Rule 11a2-2(T) under the Exchange Act,\289\ known as the 
``effect versus execute'' rule, provides exchange members with an 
exemption from the Section 11(a)(1) prohibition. Rule 11a2-2(T) permits 
an exchange member, subject to certain conditions, to effect 
transactions for covered accounts by arranging for an unaffiliated 
member to execute transactions on the exchange. To comply with Rule 
11a2-2(T)'s conditions, a member: (i) Must transmit the order from off 
the exchange floor; (ii) may not participate in the execution of the 
transaction once it has been transmitted to the member performing the 
execution; \290\ (iii) may not be affiliated with the executing member; 
and (iv) with respect to an account over which the member or an 
associated person has investment discretion, neither the member nor its 
associated person may retain any compensation in connection with 
effecting the transaction except as provided in the Rule.
---------------------------------------------------------------------------

    \288\ 15 U.S.C. 78k(a)(1).
    \289\ 17 CFR 240.11a2-2(T).
    \290\ This prohibition also applies to associated persons. The 
member may, however, participate in clearing and settling the 
transaction.
---------------------------------------------------------------------------

    In a letter to the Commission, the Exchange requests that the 
Commission concur with the Exchange's conclusion that Exchange members 
that enter orders into the BSTX System satisfy the conditions of Rule 
11a2-2(T).\291\ For the reasons set forth below, the Commission 
believes that members entering orders into the BSTX System could 
satisfy the requirements of Rule 11a2-2(T).
---------------------------------------------------------------------------

    \291\ See Letter from Lisa Fall, President, BOX, dated December 
23, 2021 (``BSTX 11(a) Letter'') available on the Commission's 
website at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106-20110741-264607.pdf.
---------------------------------------------------------------------------

    The Rule's first condition is that orders for covered accounts be 
transmitted from off the exchange floor. In the context of automated 
trading

[[Page 5899]]

systems, the Commission has found that the off-floor transmission 
condition is met if a covered account order is transmitted from a 
remote location directly to an exchange's floor by electronic 
means.\292\ The Exchange has represented that BSTX does not have a 
physical trading floor, and the BSTX System will receive orders from 
members electronically through remote terminals or computer-to-computer 
interfaces.\293\ The Commission believes that the BSTX System satisfies 
this off-floor transmission condition.
---------------------------------------------------------------------------

    \292\ See, e.g., Securities Exchange Act Release Nos. 78101 
(June 17, 2016), 81 FR 41141 (June 23, 2016) (order approving IEX 
exchange registration); 75650 (August 7, 2015), 80 FR 48600 (August 
13, 2015) (order approving EDGX Options as an options trading 
facility of the EDGX Exchange, Inc.); 61419 (January 26, 2010), 75 
FR 5157 (February 1, 2010) (order approving the BATS Options as an 
options trading facility of the BATS Exchange, Inc.); 49068 (January 
13, 2004), 69 FR 2775 (January 20, 2004) (order approving the Boston 
Options Exchange as an options trading facility of the Boston Stock 
Exchange); 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001) 
(order approving Archipelago Exchange as electronic trading facility 
of the Pacific Exchange); 29237 (May 24, 1991), 56 FR 24853 (May 31, 
1991) (regarding NYSE's Off-Hours Trading Facility); 15533 (January 
29, 1979), 44 FR 6084 (January 31, 1979) (``1979 Release''); and 
14563 (March 14, 1978), 43 FR 11542 (March 17, 1978) (``1978 
Release'') (regarding NYSE's Designated Order Turnaround System).
    \293\ See BSTX 11(a) Letter, supra note 291, at 3.
---------------------------------------------------------------------------

    The second condition states that the member and any associated 
person not participate in the execution of its order after the order 
has been transmitted. The Exchange has represented that at no time 
following the submission of an order is a member or an associated 
person of the member able to acquire control or influence over the 
result or timing of the order's execution.\294\ According to the 
Exchange, the execution of a member's order is determined solely by 
what quotes and orders are present in the BSTX System at the time the 
member submits the order, and the order priority based on the BSTX 
rules.\295\ Accordingly, the Commission believes that a member and its 
associated persons do not participate in the execution of an order 
submitted to the BSTX System.
---------------------------------------------------------------------------

    \294\ See id. at 4.
    \295\ See id. The Exchange states that a member may cancel or 
modify the order, or modify the instructions for executing the 
order, provided such cancellations or modifications are transmitted 
from off an exchange floor. See id. at 3 (citing the 1978 Release). 
The Commission has stated that the non-participation requirement is 
satisfied under such circumstances, so long as such modifications or 
cancellations are also transmitted from off the floor. See 1978 
Release, supra note 292 (stating that the ``non-participation 
requirement does not prevent initiating members from canceling or 
modifying orders (or the instructions pursuant to which the 
initiating member wishes orders to be executed) after the orders 
have been transmitted to the executing member, provided that any 
such instructions are also transmitted from off the floor'').
---------------------------------------------------------------------------

    The third condition states that the order be executed by an 
exchange member who is unaffiliated with the member initiating the 
order. The Commission has stated that this condition is satisfied when 
automated exchange facilities are used, as long as the design of these 
systems ensures that members do not possess any special or unique 
trading advantages in handling their orders after transmitting them to 
the exchange.\296\ The Exchange has represented that the design of the 
BSTX System ensures that no member has any special or unique trading 
advantage in the handling of its orders after transmitting its orders 
to the Exchange.\297\ Based on the Exchange's representation that the 
design of the BSTX System ensures that no member has any special or 
unique trading advantage in the handling of its orders after 
transmitting its orders to BSTX, the Commission believes that the BSTX 
System satisfies this condition of Rule 11a2-2(T).
---------------------------------------------------------------------------

    \296\ In considering the operation of automated execution 
systems operated by an exchange, the Commission has stated that 
while there is not an independent executing exchange member, the 
execution of an order is automatic once it has been transmitted into 
the system. Because the design of these systems ensures that members 
do not possess any special or unique trading advantages in handling 
their orders after transmitting them to the exchange, the Commission 
has stated that executions obtained through these systems satisfy 
the independent execution requirement of Rule 11a2-2(T). See 1979 
Release, supra note 292.
    \297\ See BSTX 11(a) Letter, supra note 291, at 4. The Exchange 
also states that access to the BSTX Market Data Blockchain will not 
allow a member or an associated person of such member to acquire 
control or influence over the result or timing of an order's 
execution. See id.
---------------------------------------------------------------------------

    Fourth, in the case of a transaction effected for an account with 
respect to which the initiating member or an associated person thereof 
exercises investment discretion, neither the initiating member nor any 
associated person thereof may retain any compensation in connection 
with effecting the transaction, unless the person authorized to 
transact business for the account has expressly provided otherwise by 
written contract referring to Section 11(a) of the Exchange Act and 
Rule 11a2-2(T) thereunder.\298\ Members trading for covered accounts 
over which they exercise investment discretion must comply with this 
condition in order to rely on the rule's exemption.\299\
---------------------------------------------------------------------------

    \298\ 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written 
contract to retain compensation, in connection with effecting 
transactions for covered accounts over which such member or 
associated persons thereof exercises investment discretion, to 
furnish at least annually to the person authorized to transact 
business for the account a statement setting forth the total amount 
of compensation retained by the member in connection with effecting 
transactions for the account during the period covered by the 
statement. See 17 CFR 240.11a2-2(T)(d). See also 1978 Release, supra 
note 292 (stating ``[t]he contractual and disclosure requirements 
are designed to assure that accounts electing to permit transaction-
related compensation do so only after deciding that such 
arrangements are suitable to their interests'').
    \299\ See BSTX 11(a) Letter, supra note 291, at 4-5.
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment Nos. 2 and 3 to the Proposed 
Rule Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment Nos. 2 and 3 are consistent with 
the Exchange Act. Comments may be submitted by any of the following 
methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2021-06 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-2021-06. 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

[[Page 5900]]

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-2021-06, and should be 
submitted on or before February 23, 2022.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment Nos. 2 and 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 2 and 3, prior to the thirtieth 
day after the date of publication of notice of the filing of Amendment 
Nos. 2 and 3 in the Federal Register. The Commission notes that the 
original proposal and the proposal as modified by Amendment No. 1 were 
published for comment in the Federal Register.\300\
---------------------------------------------------------------------------

    \300\ See Notice, supra note 3; OIP, supra note 7.
---------------------------------------------------------------------------

    In Amendment No. 2, the Exchange revised the proposal to: (i) 
Provide additional information regarding the connectivity and co-
location services that will be offered at the Exchange's primary data 
center, including equidistant cabling arrangements; (ii) state that, 
pursuant to its authority under proposed BSTX Rule 26101, the Exchange 
would not permit an issuer to list a new class of securities on BSTX 
that is not distinct from an existing class of securities of the 
issuer; (iii) modify proposed rule text regarding the proposed BSTX 
Market Data Blockchain to clarify that non-BSTX Participants will have 
access to anonymized, general market data and specify what fields are 
included in this data, to specify that the market data will apply to 
trading activity for regular trading hours, and to clarify that users 
will view the data through an application programming interface; (iv) 
modify proposed rule text related to the proposed order parameter that 
would be used to preference T+0 settlement to add the T+0 Cut-Off Time 
by which an execution must occur to be eligible for T+0 settlement; (v) 
provide additional description to clarify operation of the proposed 
BSTX Market Data Blockchain and proposed optional order parameter for 
T+0 or T+1 settlement; and (vi) make technical and conforming changes. 
The Commission believes that these changes help to clarify the proposal 
and address concerns raised by commenters regarding the Exchange's 
equidistant cabling arrangements and the potential for listing a class 
of securities that has the same economic and voting rights as a class 
of securities listed on another national securities exchange. The 
Commission also believes that the changes regarding General Market Data 
on the BSTX Market Data Blockchain help to clarify access for non-BSTX 
Participants and how the Exchange will anonymize the data. The 
Commission further believes that the addition of the T+0 Cut-Off Time 
will help to ensure that trades submitted to NSCC for T+0 settlement 
are received by NSCC before NSCC's cut-off time and thus can be settled 
using the consolidated net settlement process, and that the additional 
explanation regarding the order parameter for T+0 and T+1 settlement 
helps to clarify how this functionality will operate.
    In addition, the Exchange made several changes in Amendment No. 2 
to bring the proposed rules into closer alignment with the rules of 
other national securities exchanges on which equities securities are 
traded, including by: (i) Modifying certain trading rules regarding 
securities eligible for trading, prohibitions against trading ahead of 
customer orders, round lots, minimum price variants, auctions used to 
open or reopen trading, the dissemination of market data concerning 
such auctions, risk controls, market maker registration process and 
obligations, business conduct, trading practices, maintaining books and 
records, off-exchange transactions, scope of the MRVP, trade reporting 
and the dissemination of quotations, clearly erroneous executions, and 
locking and crossing quotations; (ii) eliminating a proposed rule 
regarding an audit trail that has been superseded by rules pertaining 
to the Consolidated Audit Trail; (iii) modifying certain proposed 
listing standards regarding the listing of secondary classes and 
preferred stock, the required number of market makers, requirements for 
securities of foreign issuers that would apply to the listing of 
Canadian issuers, the listing of securities subject to an exemption 
from Exchange Act registration, the method of computing the payment of 
cash in lieu of fractional shares, the settlement timing of securities 
transactions, requirements to notify the Exchange before engaging in 
activities relating to a proxy contest, requirements that listed 
companies establish and maintain an internal audit function, the 
calculation of regulatory transaction fees under Section 31 of the 
Exchange Act, and the distribution of funds in the event of liquidation 
of the Exchange; and (iv) eliminating a proposed listing requirement 
that an applicant provide a legal opinion that its security qualifies 
as a security under applicable United States securities laws. The 
Exchange also made changes in Amendment Nos. 2 and 3 to certain 
quantitative listing requirements to comply with the thresholds and 
other terminology in Rule 3a51-1. The Commission believes that these 
changes help make these aspects of the proposal substantially similar 
to the existing rules of national securities exchanges.
    Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Exchange Act,\301\ to approve the proposed rule change, 
as modified by Amendment Nos. 2 and 3, on an accelerated basis.
---------------------------------------------------------------------------

    \301\ 15 U.S.C. 78f(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act \302\ and Rule 19d-1(c)(2) thereunder,\303\ that the 
proposed rule change (SR-BOX-2021-06), as modified by Amendment Nos. 2 
and 3 thereto, be, and it hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \302\ 15 U.S.C. 78s(b)(2).
    \303\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    Although the Commission's approval of the proposed rule change is 
final, and the proposed rules are therefore effective, it is further 
ordered that the operation of BSTX is conditioned on the satisfaction 
of the requirements below:
    A. Participation in National Market System Plans Relating to 
Equities Trading. BOX must join all relevant national market system 
plans related to BSTX equities trading, including: (1) The Consolidated 
Tape Association Plan, the Consolidated Quotation Plan, and the Nasdaq 
UTP Plan (or any successors thereto); (2) the National Market System 
Plan to Address Extraordinary Market Volatility; and (3) the National 
Market System Plan Establishing Procedures Under Rule 605 of Regulation 
NMS.
    B. Regulatory Services Agreement and Rule 17d-2 Agreements. BOX 
must ensure that all necessary changes are made to its Regulatory 
Services Agreement with FINRA and must be a party to the multi-party 
Rule 17d-2 agreements applicable to BSTX equities trading and equities 
market surveillance.
    C. Intermarket Surveillance Group. BOX must ensure that its 
membership in the Intermarket Surveillance Group extends to the BSTX 
facility.
    D. Governance Structure. BOX must ensure, consistent with the 
requirements of Section 19(b) and Rule 19b-4, that it has adopted a 
rule establishing BSTX as a facility of the Exchange.\304\
---------------------------------------------------------------------------

    \304\ See also supra note 12 and accompanying text.
    \305\ 17 CFR 200.30-3(a)(12).


[[Page 5901]]


---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\305\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02086 Filed 2-1-22; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.