Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, in Connection With the Proposed Establishment of BSTX LLC as a Facility of the Exchange

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

See Securities Exchange Act Release No. 92206 (June 17, 2021), 86 FR 33402 (“Notice”). Comments on the proposed rule change can be found at: https://www.sec.gov/comments/sr-box-2021-14/srbox202114.htm. The Commission received one comment letter that expresses opposition to the proposal but without specificity as to why. See Letter from David (September 23, 2021).

15 U.S.C. 78s(b)(2).

See Securities Exchange Act Release No. 92556, 86 FR 43572 (August 9, 2021). The Commission designated September 22, 2021, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to approve or disapprove, the proposed rule change.

In Amendment No. 1, the Exchange revised the proposal to: (1) Adopt the BSTX LLC Third Amended and Restated Limited Liability Company Agreement prior to the commencement of operations of BSTX as a facility of the Exchange, which, among other things, (a) changes the legal name of the facility from “Boston Security Token Exchange LLC” to “BSTX LLC,” (b) modifies certain defined terms, including “BSTX Product” and “Competing Business,” (c) defines the term “Governmental Authority” and modifies certain provisions to permit access to certain confidential information by any such authority, and (d) adds a provision that would, among other things, require an effective rule filing pursuant to Section 19 of the Exchange Act prior to any Member, or Related Person of such Member, becoming a BSTX Participant if such Member, alone or together with any Related Persons of such Member, has the right to appoint more than 20% of the BSTX Directors entitled to vote; (2) provide additional information about ownership of non-voting Class B Units; (3) clarify how limitations on voting of interests in BOX Holdings are implemented by reallocating voting rights to other BOX Holdings owners, and how a similar provision in the BSTX LLC Agreement would operate; (4) discuss certain provisions and associated definitions in the BSTX LLC Agreement that are the same or different from those that currently apply to BOX Holdings and BOX Options, particularly with respect to the board structure, intellectual property, and automatic admission of Class B Units as Members; (5) provide additional description of limitations on voting and ownership of interests in the Exchange; (6) provide additional description of the roles, obligations, and authorities of BOX Digital, tZERO, and the Exchange with respect to BSTX; (7) describe the funding of operations of BSTX; (8) clarify representation of BSTX Participants on the Exchange's Board and committees, and how those representatives would be appointed at the commencement of operations; and (9) make other technical, clarifying and conforming changes.

15 U.S.C. 78s(b)(2)(B).

See Securities Exchange Act Release No. 93094, 86 FR 53365 (September 27, 2021) (Notice of Filing of Amendment No. 1 and Order Instituting Proceedings) (“OIP”).

15 U.S.C. 78s(b)(2).

See Securities Exchange Act Release No. 93786, 86 FR 72296 (December 21, 2021).

In Amendment No. 2, the Exchange revised the proposal to: (1) Revise the BSTX LLC Agreement by, among other things, (a) introducing certain defined terms, including “Shortfall Amount,” “Statutory Disqualification,” and “Tax Matters Representative,” (b) converting existing class A and class B units of BSTX to economic units and voting units of BSTX, (c) prohibiting events that would result in any person, together with its related persons, holding an economic interest in BSTX greater than 40% or a voting interest in BSTX greater than 20% without both Exchange approval and an effective rule filing pursuant to Section 19 of the Exchange Act, (d) prohibiting BSTX Participants from holding either an economic interest or voting interest in BSTX greater than 20%, (e) modifying the structure and composition of the BSTX board of directors by limiting BOX Digital and tZERO to one director each, providing the regulatory director with voting rights, adding the BSTX CEO as a director, and providing that the independent director will serve as chairman of the board of directors, (f) providing that no person subject to a statutory disqualification will serve as a BSTX director or officer, and (g) removing the requirement that the BSTX board of directors will create and appoint audit and compensation committees; (2) specify the individuals and entities that own economic and voting interests in BSTX and at what levels, including that BOX Digital and tZERO's economic interests have been reduced to 40% each and that BOX Digital and tZERO's voting interests have been reduced to 20% each; (3) state that the Exchange will not distribute regulatory funds to its owners and that regulatory funds will not be used for non-regulatory purposes; (4) represent that the Exchange will have adequate funding for the Exchange's operations with respect to BSTX; (5) revise Exhibit 5B to propose the form of Instrument of Accession that each identified Controlling Person would sign; and (6) make other technical, clarifying and conforming changes. Amendment No. 2 is available on the Commission's website at: https://www.sec.gov/comments/sr-box-2021-14/srbox202114-20112131-265232.pdf (“Amendment No. 2”).

See OIP, supra note 8; Amendment No. 2, supra note 11.

See OIP, supra note 8, 86 FR at 53366. Pursuant to Section 3(a)(2) of the Exchange Act, 15 U.S.C. 78c(a)(2), the term “facility” when used with respect to an exchange, includes “its premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service.”

The proposed LLC Agreement is Exhibit 5A to Amendment No. 2. See Amendment No. 2, supra note 11. Capitalized terms not otherwise defined herein have the meanings specified in the BSTX LLC Agreement.

See id. at 3, 5.

See Securities Exchange Act Release No. 94092 (January 27, 2022), 87 FR 5881 (February 2, 2022) (SR-BOX-2021-06) (approving the trading of equity securities on the Exchange through a facility of the Exchange known as BSTX). Among other things, the BSTX trading rules proposal established rules regarding the listing and trading of securities on BSTX and the operations of and eligibility to participate on the BSTX Market.

See BSTX LLC Agreement, Sections 1.1 and 2.5(a); Amendment No. 2, supra note 11, at 7.

See BSTX LLC Agreement, Sections 1.1 and 2.5(b); Amendment No. 2, supra note 11, at 7. The Exchange proposes that all Economic Units would be identical to each other and accord the holders thereof the same obligations, rights, and privileges as accorded to each other holder thereof. Similarly, all Voting Units would be identical to each other and accord the holder thereof the same obligations, rights, and privileges as accorded to each other holder thereof. See BSTX LLC Agreement, Sections 2.5(a), (b); Amendment No. 2, supra note 11, at 7.

See BSTX LLC Agreement, Section 1.1; Amendment No. 2, supra note 11, at 7. Members of the Exchange that are eligible for trading on the BSTX Market would be “BSTX Participants.” See BSTX LLC Agreement, Section 1.1 (defining BSTX Participant as a firm or organization that is registered with the Exchange pursuant to Exchange Rules for purposes of participating in Trading on the BSTX Market as an order flow provider or market maker).

See Amendment No. 2, supra note 11, at 7-8.

See id. at 8; see also id. at 7, n.14.

See BSTX LLC Agreement, Section 2.5(c); Amendment No. 2, supra note 11, at 8.

See BSTX LLC Agreement, Section 2.5(b).

See id. Section 7.1(a); Amendment No. 2, supra note 11, at 47-48.

See infra note 102 and accompanying text.

See BSTX LLC Agreement, Section 7.4(g)(i); Amendment No. 2, supra note 11, at 19-20.

“Economic Percentage Interest” would mean, with respect to a Member, the ratio of the number of Economic Units held by the Member, directly or indirectly, of record or beneficially, to the total of all of the issued and outstanding Economic Units held by Members, expressed as a percentage. See BSTX LLC Agreement, Section 1.1. “Voting Percentage Interest” would mean, with respect to a Member, the ratio of the number of Voting Units held by the Member, directly or indirectly, of record or beneficially, to the total of all of the issued and outstanding Voting Units held by Members, expressed as a percentage. Voting Units held by a Member that are ineligible to vote would not be counted in the numerator or the denominator when determining such ratio. See id.

The Exchange states that BOX Digital is a subsidiary of BOX Holdings and an affiliate of the Exchange, and that BSTX would be an affiliate of the Exchange. BOX Holdings owns 98% of BOX Digital and 2% of BOX Digital is held by Lisa Fall. BOX Holdings already owns one subsidiary that is an existing facility of the Exchange—BOX Options Market LLC (“BOX Options”)—which operates a market for trading option contracts on U.S. equities. BOX Holdings is the parent company for both BOX Digital and BOX Options and currently has seven separate, unaffiliated owners. See Amendment No. 2, supra note 11, at 9. The seven separate, unaffiliated owners include: MX US 2, Inc. (“MX US 2”), a wholly owned, indirect subsidiary of TMX Group Limited (“TMX”), which holds 47.89% of the outstanding units of BOX Holdings, IB Exchange Corp. (“IB”), which holds 25.5% of the outstanding units in BOX Holdings, and Citadel Securities Principal Investment LLC, which holds 15.5% of the outstanding units in BOX Holdings. The additional four owners each hold less than five percent of the outstanding units of BOX Holdings. See id. at 9. The Exchange states that Lisa Fall is a Director of BOX Digital. See id. at 8 n.18.

The Exchange states that ownership of tZERO is held by Medici Ventures, L.P. (“Medici”), a Delaware limited partnership, which owns 44% of the outstanding shares of tZERO, and Overstock, a publicly held corporation organized under the laws of Delaware, which owns 43% of the outstanding shares of tZERO. An individual, Joseph Cammarata, holds 7.53% of the outstanding shares of tZERO, and the remaining shares are held in less than three percent by thirty-one individuals and entities. Pelion MV GP, L.L.C. (“Medici GP”), a Delaware limited liability company, serves as the general partner of Medici and has the sole right to manage its affairs. Medici GP owns one percent of the partnership interest in Medici and Overstock owns 99% of the partnership interests in Medici. Membership interests in Medici GP are held by fifteen individuals and entities, all of who hold less than a 25% interest. The Exchange states that both tZERO and BSTX are affiliates of Overstock, Medici, and Medici GP. See OIP, supra note 8, 86 FR at 53367-68.

See Amendment No. 2, supra note 11, at 8. The Exchange states that FBP Digital LLC, which is wholly owned by Lisa Fall, would own an 11.1% Economic Percentage Interest in BSTX, and each of the following would own less than 5% Economic Percentage Interest: Susan Chamberlin (1.9%), Saum Noursalehi (0.4%), Will Easley (0.4%), Alan Konevsky (0.7%), Jay Fraser (1.4%), Enid Acquisition LLC (1.9%), Chris Zaremba (1.4%), and Todd Treworgy (0.4%). The Exchange also states that FBP Digital LLC will own a 19.6% Voting Percentage Interest in BSTX, and each of the following will own less than a 10% Voting Percentage Interest: Susan Chamberlin (8.8%), Saum Noursalehi (2.1%), Will Easley (2.1%), Alan Konevsky (3.1%), Jay Fraser (6.6%), Enid Acquisition LLC (wholly owned by Glen Openshaw) (8.8%), Chris Zaremba (6.6%), and Todd Treworgy (2.2%). See id. at 8-9. The Exchange states that Alan Konevsky is the CEO of tZERO. See id. at 8 n.21. The Exchange also states that the eleven Members are parties to the LLC Agreement. See id. at 7-8 n.15.

See BSTX LLC Agreement, Section 3.2(b); OIP, supra note 8, 86 FR at 53375. The Exchange states that among other things, under an IP License and Services Agreement by and between tZERO and BSTX (“LSA”), tZERO will provide BSTX and the Exchange with a license to use tZERO's intellectual property comprising the BSTX trading system, and will provide services to BSTX related to implementing, administering, maintaining, supporting, hosting, developing, testing and securing the trading system. See OIP, supra note 8, 86 FR at 53369, 53375.

See BSTX LLC Agreement, Section 3.2(c); Amendment No. 2, supra note 11, at 37. “BSTX Product” would mean a Security, as defined in the Exchange Rules, trading on the BSTX System. See BSTX LLC Agreement, Section 1.1. “BSTX System” would mean the technology, know-how, software, equipment, communication lines or services, services and other deliverables or materials of any kind as may be necessary or desirable for the operation of the BSTX Market. See id. Section 1.1.

See OIP, supra note 8, 86 FR at 53366 (describing BOX Holdings ownership of BOX Options, as well as the ownership of BOX Holdings).

See id. at 53366. The Exchange states that it currently operates BOX Options as its only facility, and that it filed a separate proposed rule change to accommodate regulation of BSTX in addition to BOX Options (“Multiple Facilities Filing”). See id. The Commission approved this proposal, which included amendments to the Exchange's governing documents designed to provide the Exchange the flexibility to regulate additional facilities. See Securities Exchange Act Release Nos. 88236 (February 19, 2020), 85 FR 10765 (February 25, 2020) (Notice of Filing of Proposed Rule Change); 88934 (May 22, 2020), 85 FR 32085 (May 28, 2020) (Order Granting Approval of a Proposed Rule Change) (“BOX-2020-04 Approval”).

See 15 U.S.C. 78f(b)(1).

See id.; see also Section 19(g) of the Exchange Act, 15 U.S.C. 78s(g).

The Exchange proposes that the LLC Agreement would provide that the Exchange will act as the SEC-approved SRO for the BSTX Market, have regulatory responsibility for the activities of the BSTX Market, and provide regulatory services to the BSTX pursuant to the Facility Agreement. See BSTX LLC Agreement, Section 3.2(a); OIP, supra note 8, 86 FR at 53370; see also infra Sections III.A and III.B (describing provisions in the LLC Agreement providing for and clarifying the regulatory authority and jurisdiction of the Exchange over the BSTX facility and its Members, Officers, Directors, employees, agents, and Controlling Persons ( see infra note 57)).

See OIP, supra note 8, 86 FR at 53366. For example, the Exchange would receive notice of all planned or proposed changes to BSTX (other than with respect to Non-Market Matters). The Exchange states that this authority would ensure that while BSTX operates as a facility of the Exchange, BSTX would be required to submit any such changes to the Exchange for approval and the Exchange would have the right to direct BSTX to make any modifications deemed necessary or appropriate by the Exchange to resolve any Regulatory Deficiency. The Exchange states that this regulatory authority would override any authority of BSTX management, its Members or its Board regardless of any Member's level of ownership or control of the Board at the facility level. See OIP, supra note 8, 86 FR at 53381; Amendment No. 2, supra note 11, at 68.

See BSTX LLC Agreement, Section 3.2(a); OIP, supra note 8, 86 FR at 53372-73. “Regulatory Deficiency” would be defined as “the operation of the Company (in connection with matters that are not Non-Market Matters) or the BSTX Market (including, but not limited to, the BSTX System) in a manner that is not consistent with the Exchange Rules and/or the SEC Rules governing the BSTX Market or BSTX Participants, or that otherwise impedes the Exchange's ability to regulate the BSTX Market or BSTX Participants or to fulfill its obligations under the Exchange Act as an SRO.” See BSTX LLC Agreement, Section 1.1. The Exchange states that the proposed provisions in Section 3.2(a) of the LLC Agreement are substantially the same as those in the Amended and Restated Limited Liability Company Agreement of BOX Options Market LLC, dated as of August 15, 2018, and help guarantee the Exchange's ability to fulfill its regulatory responsibilities and operate in a manner consistent with the Exchange Act, and in particular with Section 6(b)(1) of the Exchange Act. See OIP, supra note 8, 86 FR at 53373; see also id. at 53377 n.87 and accompanying text.

See OIP, supra note 8, 86 FR at 53366.

See BSTX LLC Agreement, Section 4.1(a); OIP, supra note 8, 86 FR at 53370, 53881. The Exchange proposes that only to the extent expressly provided for in the LLC Agreement and the Related Agreements, and as delegated by the Board to committees of the Board or to duly appointed Officers or agents of BSTX, neither a Member nor any other Person other than the Board of Directors shall be an agent of BSTX or have any right, power or authority to transact any business in the name of BSTX or to act for or on behalf of or to bind BSTX. See BSTX LLC Agreement, Section 4.9; OIP, supra note 8, 86 FR at 53370; Amendment No. 2, supra note 11, at 23-24. Members would have the right to vote on the admission of additional or substitute Members, the admission of a personal representative or successor in interest of a Member, and the dissolution and winding up of the BSTX. See BSTX LLC Agreement, Sections 7.1(b), 7.5, and 10.1(a)(iii); Amendment No. 2, supra note 11, at 7 n.14.

The Exchange states that the one Member Director appointed by each of BOX Digital and tZERO would comprise a maximum of 20% of all Directors on BSTX's Board. See Amendment No. 2, supra note 11, at 70. A Member Director would not have more than 20% of the total voting power on any committee of the BSTX Board. See BSTX LLC Agreement, Section 4.2(c); Amendment No. 2, supra note 11, at 25 n.52.

The Exchange proposes that for so long as BSTX is a facility of the Exchange, the Exchange will have the right to appoint a member of the senior management of the regulation staff of the Exchange to serve as Regulatory Director. See BSTX LLC Agreement, Section 4.1(a); OIP, supra note 8, 86 FR at 53370.

The Exchange proposes that the Independent Director would be appointed by the affirmative vote of a majority of the other Directors. See BSTX LLC Agreement, Section 4.1(a); Amendment No. 2, supra note 11, at 25.

See BSTX LLC Agreement, Section 4.3; Amendment No. 2, supra note 11, at 27.

See Amendment No. 2, supra note 11, at 37.

See id. at 37-38.

See id. at 38. Pursuant to the Facility Agreement, the Exchange would be entitled to receive all fees, fines and penalties imposed upon BSTX Participants with respect to the BSTX trading system, as well as market data fees, tape and other revenue including regulatory fees and trading fees, payable by BSTX Participants, as well as any funds received from any applicable market data fees, tape revenue, and other revenue. All such funds may be used by the Exchange for regulatory purposes, as determined solely by the Exchange, and any excess funds will be remitted to BSTX. See id. Further, any “Regulatory Funds” received by the Exchange will not be distributed to the Exchange's owners or used for non-regulatory purpose. See id. at 39 n.77 and accompanying text; see also BOX Exchange LLC Second Amended and Restated Limited Liability Company Agreement, dated November 30, 2020 (“Exchange LLC Agreement”), Sections 1.1, 8.1.

In approving the proposed rule change, the Commission has considered its impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).

15 U.S.C. 78f(b)(1).

15 U.S.C. 78f(b)(3).

15 U.S.C. 78f(b)(5).

See BSTX LLC Agreement, Section 4.11(b).

See, e.g., Securities Exchange Act Release Nos. 59281 (January 22, 2009), 74 FR 5014 (January 28, 2009) (order approving New York Block Exchange as a facility of the New York Stock Exchange); 55389 (March 2, 2007), 72 FR 10575 (March 8, 2007) (order approving CBOE Stock Exchange as a facility of the Chicago Board Options Exchange) (“CBSX Order”); 54399 (September 1, 2006), 71 FR 53728 (September 12, 2006) (order approving the ISE Stock Exchange as a facility of the International Securities Exchange) (“ISE Stock Order”); 54364 (August 25, 2006), 71 FR 52185 (September 1, 2006) (order approving the Boston Equities Exchange as a facility of the Boston Stock Exchange); and 49065 (January 13, 2004), 69 FR 2768 (January 20, 2004) (order approving the Boston Options Exchange Regulation as a facility of the Boston Stock Exchange).

See BSTX LLC Agreement, Section 4.11(b).

See id. Section 4.11(a).

“Controlling Person” would mean a Person who, alone or together with any Related Persons of such Person, holds a Controlling Interest in a Member. “Controlling Interest” would mean direct or indirect ownership of 25% or more of the total voting power of all equity securities of a Member (other than voting rights solely with respect to matters affecting the rights, preferences, or privileges of a particular class of equity securities), by any Person, alone or together with any Related Persons of such Person. See id. Section 7.4(h)(iv). The Exchange represents that the definitions of “Controlling Person” and “Controlling Interest” are the same as those that currently apply to BOX Holdings. See OIP, supra note 8, 86 FR at 53368.

See BSTX LLC Agreement, Section 7.4(h)(i); OIP, supra note 8, 86 FR at 53368; Amendment No. 2, supra note 11, at 12-13. The Exchange states that BOX Digital's upstream owners (BOX Holdings, MX US 2, MX US 1, Inc. (“MX US 1”), Bourse de Montreal Inc. (“Bourse de Montreal”), and TMX) and tZERO's upstream owners (Medici, Medici GP, and Overstock) would be Controlling Persons and, prior to the commencement of operations of BSTX, would be required to become parties to the LLC Agreement and abide by its provisions to the same extent as Members. See OIP, supra note 8, 86 FR at 53368; Amendment No. 2, supra note 11, at 13-14. The Exchange also states that any future Controlling Person would also be subject to its requirements. See OIP, supra note 8, 86 FR at 53376-77; Amendment No. 2, supra note 11, at 51; see also infra note 112 and accompanying text (enumerating the current persons who would be Controlling Persons of BSTX at the commencement of operations).

See BSTX LLC Agreement, Section 4.11(b).

See id. Section 4.11(a).

See id.

See Amendment No. 2, supra note 11, at 72-73.

See BSTX LLC Agreement, Section 15.6. The Exchange states that, in order to protect the confidential information of the Exchange, tZERO directors, officers, and employees will only receive confidential information of BSTX and the Exchange, including confidential information pertaining to regulatory matters of BSTX and the Exchange (including but not limited to disciplinary matters, trading data, trading practices and audit information), on a need-to-know basis as it relates to the technology services being provided or specific roles with respect to BSTX and the Exchange, and that they will be subject to confidentiality obligations with respect to any confidential information they receive in the course of performing their services, including regulatory information. The Exchange also states that tZERO employees providing technology services to BSTX or the Exchange will have offices physically separate from employees of BSTX and the Exchange. See Amendment No. 2, supra note 11, at 45-46.

See BSTX LLC Agreement, Section 15.6; see also OIP, supra note 8, 86 FR at 53372; Amendment No. 2, supra note 11, at 57-58.

Non-Market Matters would be defined as changes relating solely to one or more of the following: Marketing, administrative matters, personnel matters, social or team-building events, meetings of the Members, communication with the Members, finance, location and timing of Board meetings, market research, real property, equipment, furnishings, personal property, intellectual property, insurance, contracts unrelated to the operation of the BSTX Market, and de minimis items. See BSTX LLC Agreement, Section 3.2(a)(ii).

See id.; see also Amendment No. 2, supra note 11, at 34-35.

See BSTX LLC Agreement, Section 3.2(a)(iii). See also Amendment No. 2, supra note 11, at 35.

See BSTX LLC Agreement, Section 3.2(a)(iv).

See id. Section 18.1; see also Amendment No. 2, supra note 11, at 62.

See BSTX LLC Agreement, Section 5.8; see also Amendment No. 2, supra note 11, at 53.

See BSTX LLC Agreement, Section 5.8.

See id. Section 4.1(a), (b); Section 4.5; see also Amendment No. 2, supra note 11, at 24-25, 24 n.51.

15 U.S.C. 78f(b)(1).

See BSTX LLC Agreement, Section 11.1.

See id.

See supra note 58 and accompanying text.

See BSTX LLC Agreement, Section 18.6(b).

See id. Section 18.6(c); see also OIP, supra note 8, 86 FR at 53379; Amendment No. 2, supra note 11, at 61.

See supra note 58 and accompanying text.

15 U.S.C. 78s(h)(4) (authorizing the Commission, by order, to remove from office or censure any officer or director of a national securities exchange if it finds, after notice and an opportunity for hearing, that such officer or director has: (1) Willfully violated any provision of the Exchange Act or the rules and regulations thereunder, or the rules of a national securities exchange; (2) willfully abused his or her authority; or (3) without reasonable justification or excuse, has failed to enforce compliance with any such provision by a member or person associated with a member of the national securities exchange).

15 U.S.C. 78q(b)(1).

15 U.S.C. 78t(a).

15 U.S.C. 78c(a)(27).

15 U.S.C. 78s(h)(1).

15 U.S.C. 78t(e).

15 U.S.C. 78u-3.

These provisions are consistent with ownership and voting limits approved by the Commission for other SROs. See, e.g., Securities Exchange Act Release Nos. 88806 (May 4, 2020), 85 FR 27451 (May 8, 2020) (File No. 10-237) (order granting the registration of MEMX LLC) (“MEMX Order”); 78101 (June 17, 2016), 81 FR 41142 (June 23, 2016) (File No. 10-222) (order granting the registration of Investors' Exchange, LLC); 85828 (May 10, 2019), 84 FR 21841 (May 15, 2019) (File No. 10-234) (order granting registration of Long Term Stock Exchange, Inc.) (“LTSE Order”); 79543 (December 13, 2016), 81 FR 92901, 92903 (December 20, 2016) (File No. 10-227) (order granting registration of MIAX PEARL, LLC) (“MIAX Pearl Order”); 68341 (December 3, 2012), 77 FR 73065, 73067 (December 7, 2012) (File No. 10-207) (order granting the registration of Miami International Securities Exchange, LLC); 58375 (August 18, 2008), 73 FR 49498, 49501 (August 21, 2008) (File No. 10-182) (order granting the registration of BATS Exchange, Inc.); see also Securities Exchange Release Nos. 76998 (January 29, 2016), 81 FR 6066, 6069 (February 4, 2016) (File No. 10-221) (order granting exchange registration of ISE Mercury, LLC); 70050 (July 26, 2013), 78 FR 46622, 46624 (August 1, 2013) (File No. 10-209) (order granting the exchange registration of Topaz Exchange, LLC (n.k.a. Nasdaq GEMX, LLC; f.k.a. ISE Gemini, LLC); 62158 (May 24, 2010), 75 FR 30082 (May 28, 2010) (SR-CBOE-2008-88) (Cboe demutualization order); 53963 (June 8, 2006), 71 FR 34660 (June 15, 2006) (SR-NSX-2006-03) (NSX demutualization order); 51149 (February 8, 2005), 70 FR 7531 (February 14, 2005) (SR-CHX-2004-26) (CHX demutualization order); and 49098 (January 16, 2004), 69 FR 3974 (January 27, 2004) (SR-Phlx-2003-73) (Phlx demutualization order). The Exchange states that Section 7.4 of the proposed LLC Agreement is substantially similar to provisions in the BOX Holdings LLC Agreement, subject to changes related to differences in BSTX's structure, or provisions in the Exchange LLC Agreement. See Amendment No. 2, supra note 11, at 53.

See supra note 34 and accompanying text.

See supra notes 28-30 and accompanying text.

“Person” would be defined as any individual, partnership, corporation, association, trust, limited liability company, joint venture, unincorporated organization and any government, governmental department or agency or political subdivision thereof. See BSTX LLC Agreement, Section 1.1.

“Related Person” would mean with respect to any Person: (A) Any Affiliate of such Person; (B) any other Person with which such first Person has any agreement, arrangement or understanding (whether or not in writing) to act together for the purpose of acquiring, voting, holding or disposing of Units; (C) in the case of a Person that is a company, corporation or similar entity, any executive officer (as defined under Rule 3b-7 under the Exchange Act) or director of such Person and, in the case of a Person that is a partnership or limited liability company, any general partner, managing member or manager of such Person, as applicable; (D) in the case of any BSTX Participant who is at the same time a broker-dealer, any Person that is associated with the BSTX Participant (as determined using the definition of “person associated with a member” as defined under Section 3(a)(21) of the Exchange Act); (E) in the case of a Person that is a natural person and a BSTX Participant, any broker or dealer that is also a BSTX Participant with which such Person is associated; (F) in the case of a Person that is a natural person, any relative or spouse of such Person, or any relative of such spouse who has the same home as such Person or who is a director or officer of the Exchange or any of its parents or subsidiaries; (G) in the case of a Person that is an executive officer (as defined under Rule 3b-7 under the Exchange Act) or a director of a company, corporation or similar entity, such company, corporation or entity, as applicable; and (H) in the case of a Person that is a general partner, managing member or manager of a partnership or limited liability company, such partnership or limited liability company, as applicable. See id. “Units” would mean Economic Units and/or Voting Units. See id. “Affiliate” would mean with respect to any Person, any other Person controlling, controlled by or under common control with, such Person. As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise with respect to such Person. A Person is presumed to control any other Person, if that Person: (i) Is a director, general partner, or officer exercising executive responsibility (or having similar status or performing similar functions); (ii) directly or indirectly has the right to vote 25 percent or more of a class of voting security or has the power to sell or direct the sale of 25 percent or more of a class of voting securities of the Person; or (iii) in the case of a partnership, has contributed, or has the right to receive upon dissolution, 25 percent or more of the capital of the partnership. See id.

See id. Section 7.4(f); see also Amendment No. 2, supra note 11, at 16-17.

See BSTX LLC Agreement, Section 7.4(f).

See id. Section 7.4(g). The Exchange states that owners of the Exchange that are also Exchange Facility Participants are similarly limited to a maximum of 20% economic ownership of the Exchange. See OIP, supra note 8, 86 FR at 53369, n.39 and accompanying text (citing to Exchange LLC Agreement, supra note 48, Section 7.3); Amendment No. 2, supra note 11, at 21 n.41 and accompanying text (citing to Exchange LLC Agreement, supra note 48, Section 7.3). The Exchange also represents that the existing ownership limits of 40% economic ownership for owners of the Exchange, and further limitation of 20% economic ownership for owners that are Exchange Facility Participants, and the general limitation of 20% voting power of the Exchange would remain unchanged, and that these existing ownership limits would help ensure the independence of the Exchange's regulatory oversight of BSTX and facilitate the ability of the Exchange to carry out its regulatory responsibilities and operate in a manner consistent with Section 6(b)(1) of the Exchange Act. See OIP, supra note 8, 86 FR at 53369. “Exchange Facility Participant” means a firm or organization (including a BSTX Participant) that is registered with the Exchange pursuant to the rules of the Exchange that constitute the “rules of an exchange” within the meaning of Section 3 of the Exchange Act for purposes of participating in trading on any Exchange Facility. See Exchange LLC Agreement, supra note 48, Section 1.1; Amendment No. 2, supra note 11, at 5 n.9. “Exchange Facility” means any facility of the Exchange as defined in Section 3 of the Exchange Act. See Exchange LLC Agreement, supra note 48, Section 1.1.

See BSTX LLC Agreement, Section 7.4(g). A Member could also voluntarily impose a lower ownership or voting restriction on itself. See id. Sections 7.4(g), (f); see also Amendment No. 2, supra note 11, at 18-19.

See BSTX LLC Agreement, Sections 7.4(g), (f). The required determinations would be that (A) such waiver will not impair the ability of the Exchange to carry out its functions and responsibilities under the Exchange Act and the rules and regulations thereunder, (B) such waiver is otherwise in the best interests of the Exchange and the Members of BSTX, (C) such waiver will not impair the ability of the Commission to enforce the Exchange Act and (D) if applicable, the transferee in such transfer and its Related Persons are not subject to a Statutory Disqualification. See id. The Commission has previously approved the rules of other exchanges that provide for the ability of the exchange or its facility to waive comparable ownership and voting limitations for non-members of the exchange. See, e.g., MEMX Order, supra note 87, 85 FR at 27454; CBSX Order, supra note 54, 72 FR at 10578.

See supra notes 13-15 and accompanying text.

See supra note 30 and accompanying text (discussing the specific Economic Percentage Interest and Voting Percentage Interest to be held by each Member upon adoption of the proposed BSTX LLC Agreement pursuant to the proposed rule change).

See BSTX LLC Agreement, Sections 7.4(g), (f). BSTX Participants, however, would not be eligible for a waiver of the applicable 20% BSTX Participant Economic Ownership Limit or the Voting Ownership Limit. See id.

See infra note 102 and accompanying text.

See BSTX LLC Agreement, Section 7.4(g)(i). Upon any change in the ownership of Economic Units for any reason, the Voting Units held by the Members would be recalculated simultaneously so that each Member holds the number of Voting Units equal to the number of Economic Units, subject to any automatic reallocation of Voting Units required by the Voting Units Adjustment ( see infra note 102). See BSTX LLC Agreement, Section 7.4(g)(ii).

See BSTX LLC Agreement, Section 7.4(g)(i). In calculating the Voting Units Adjustment, any applicable Voting Ownership Limit with respect to each Member would be observed and no Member would be permitted to hold Voting Units in excess of such Member's applicable Voting Ownership Limit. See id.

See id. Section 7.4(e); OIP, supra note 8, 86 FR at 53369. The Exchange states that the provisions in proposed Section 7.4(e) are the same as those contained in Section 7.4(e) of the BOX Holdings LLC Agreement. See OIP, supra note 8, 86 FR at 53369 n.34.

See BSTX LLC Agreement, Section 7.4(e). The notice would be required to state: (i) Such Person's full legal name; (ii) the number of Voting Units and Economic Units owned, directly or indirectly, of record or beneficially, by such Person together with such Person's Related Persons; and (iii) whether such Person has the power, directly or indirectly, to direct the management or policies of BSTX, whether through ownership of Voting Units, by contract or otherwise. See id.

See id. Section 7.4(e).

See id. Section 7.4(d).

See id.; OIP, supra note 8, 86 FR at 53368 (stating that this proposed provision is the same as a BOX Holdings provision). The Exchange states that Related Persons that are otherwise Controlling Persons are not required to become parties to the LLC Agreement if they are only under common control of an upstream owner but are not in the upstream ownership chain above a BSTX owner because they will not have the ability to exert any control over BSTX. See OIP, supra note 8, 86 FR at 53368; see also supra notes 59-61, 79, and accompanying text (setting forth some of the provisions in the BSTX LLC Agreement to which Controlling Persons required to become parties to the BSTX LLC Agreement would be subject). Also, any additional or substitute Member of BSTX would be required to execute a counterpart to the LLC Agreement to evidence its acceptance of the terms and provisions of the LLC Agreement. See BSTX LLC Agreement, Section 7.1(b); see also Amendment No. 2, supra note 11, at 48.

See BSTX LLC Agreement, Section 7.4(h)(iii).

The Exchange states that membership interests in Medici GP are held by the following, each of which holds less than 25% of Medici GP: Carine Clark, Susannah Duke, Steve Glover, Brad Hintze, Jeff Kearl, Trevor Lund, Matt Mosman, Erika Nash, Zain Rizavi, Laura Summerhays, The Blake G Modersitzki 2020 Irrevocable Trust (affiliated with Blake G. Modersitzki), The Capitola Trust (affiliated with Chad Packard), The GP Investment Trust (affiliated with Chris Cooper), and The Oaxaca Dynasty Trust (affiliated with Ben Lambert). See OIP, supra note 8, 86 FR at 53368; Amendment No. 2, supra note 11, at 12.

In addition to the direct owners of BOX Holdings identified above ( see supra note 28), the Exchange states that UBS Americas Inc., JPMC Strategic Investments I Corporation, Wolverine Holdings, L.P., and Aragon Solutions Ltd. (“Aragon”), each hold less than a 5% outstanding units of BOX Holdings. See Amendment No. 2, supra note 11, at 9. The Exchange states that the current equity ownership and voting power of the direct owners of BOX Holdings are reflected in Securities Exchange Act Release No. 93778. See id. at 9 n.26. In Securities Exchange Act Release No. 93778, the Commission approved a proposed rule change related to changes in ownership of the Exchange and BOX Holdings. See Securities Exchange Act Release No. 93778 (December 14, 2021), 86 FR 72021 (December 20, 2021) (SR-BOX-2021-19). The Exchange also states that Will Easley owns Aragon and is a Director of BOX Holdings. See Amendment No. 2, supra note 11, at 8 n.20.

Specifically, Exhibit 5B of the proposal contains instruments of accession that will be executed by all Controlling Persons prior, and as a condition, to commencement of operations of BSTX as a facility of the Exchange. Following commencement of operations as a facility of the Exchange, any new Controlling Person will be required to execute an amendment in substantially the same form, and the Controlling Person will agree to become a party to the LLC Agreement and abide by all of its provisions, to the same extent and as if they were Members. See Amendment No. 2, supra note 11, at 51.

See id. at 13-14. As discussed above, BOX Digital and tZERO will each hold a 40% Economic Percentage Interest in BSTX. See supra notes 28-30 and accompanying text (discussing upstream ownership of BSTX). The Exchange states that Overstock owns 43% of tZERO directly and 99% of Medici, which owns 44% of tZERO, and that as a result, Overstock owns, directly or indirectly, more than 80% of tZERO, which will own 40% of the Economic Units and 20% of the Voting Units of BSTX. The Exchange states that as such, Overstock, Medici, and Medici GP will be required to become parties to BSTX's LLC Agreement by executing an instrument of accession and abide by its provisions, to the same extent and as if they were Members, because they are Controlling Persons of BSTX. In addition to the direct owners of tZERO identified above, the Exchange states that each of the following own less than 3% of the outstanding shares of tZERO: Todd Tobacco, Newer Ventures LLC, Schalk Steyn, Raj Karkara, Alec Wilkins, Dohi Ang, Brian Capuano, Trent Larson, Eric Fish, Kristen Anne Bagley, Kirstie Dougherty, SpeedRoute Technologies Inc., Tommy McSherry, Rob Collucci, John Gilchrist, John Paul DeVito, Jimmy Ambrose, Jason Heckler, Max Melmed, Alex Vlastakis, Olalekan Abebefe, Samson Arubuola, Ryan Mitchell, Zachary Wilezol, Anthony Bove, Ralph Daiuto, Rob Christiansen, Amanda Gervase, Derek Tobacco, Steve Bailey, and Dinosaur Financial. The Exchange also states that BOX Holdings, MX US 2, MX US 1, Bourse de Montreal, and TMX will each be required to become parties to the LLC Agreement by executing an instrument of accession and abide by its provisions to the same extent and as if they were Members because they are Controlling Persons of BSTX. The Exchange states that TMX owns 100% of Bourse de Montreal, which owns 100% of MX US 1, which owns 100% of MX US 2, which owns more than 40% of BOX Holdings, and that BOX Holdings owns 98% of BOX Digital, which will own 40% of the Economic Units and 20% of the Voting Units of BSTX. See Amendment No. 2, supra note 11, at 11-14. The Exchange represents that there are no other “Controlling Persons” that would be required to become parties to the LLC Agreement prior to the commencement of operations of BSTX. See id. at 14.

See BSTX LLC Agreement, Section 7.4(h)(iii). The Exchange states that the amendment will be in substantially the form of the instruments of accession filed by the Exchange as Exhibit 5B to the proposal and subject to the rule filing process pursuant to Section 19 of the Exchange Act. See Amendment No. 2, supra note 11, at 51.

The Exchange states that it will implement policies and procedures, including annual attestations by Members, to ensure potential direct and indirect owners of BSTX are required to provide any required notice to BSTX or to take other actions, such as executing an amendment to the LLC Agreement upon establishing a Controlling Interest, if applicable, and to monitor compliance with the proposed provisions related to changes in ownership and control. See Amendment No. 2, supra note 11, at 52.

See, e.g., MEMX Order, supra note 87, 85 FR at 27455; LTSE Order, supra note 87, 84 FR at 21845; MIAX PEARL Order, supra note 87, 81 FR at 92906; and Securities Exchange Act Release No. 59281 (January 22, 2009), 74 FR 5014, 5018 (January 28, 2009) (SR-NYSE-2008-120) (order approving a proposed rule change relating to the Limited Liability Company Agreement of the New York Block Exchange, a facility of NYSE) (“NYBX Order”).

See, e.g., MEMX Order, supra note 87, 85 FR at 27455; ISE Stock Order, supra note 54, 71 FR at 53735.

15 U.S.C. 78f(b)(1).

See OIP, supra note 8, 86 FR at 53366 n.13 and accompanying text (citing BOX-2020-04 Approval, supra note 34); see also Bylaws of BOX Exchange LLC (“Exchange Bylaws”).

See OIP, supra note 8, 86 FR at 53366; Amendment No. 2, supra note 11, at 14.

See supra note 34.

See, e.g., Securities Exchange Act Release No. 66871 (April 27, 2012), 86 FR 26323, 26325 (May 3, 2012) (“BOX Form 1 Approval”); BOX-2020-04 Approval, supra note 34, 85 FR at 32085-86.

15 U.S.C. 78(b)(3).

See generally BOX Form 1 Approval, supra note 121, 77 FR at 26325; BOX-2020-04 Approval, supra note 34. A “BOX Options Participant” is an Exchange Facility Participant that is registered with the Exchange pursuant to the Exchange Rules for purposes of participating in trading on the BOX Options Market. See BOX Holdings LLC Agreement, Section 1.1; Amendment No. 2, supra note 11, at 10, n.29.

See BOX-2020-04 Approval, supra note 34; see also supra note 118 and accompanying text.

See OIP, supra note 8, 86 FR at 53366.

See BOX-2020-04 Approval, supra note 34, 85 FR at 32085.

See id. at 32086.

See id. at 32085-86.

“Participant Director” means an Exchange Director who (i) has no material business relationship with the Exchange or any Affiliate of the Exchange, or any Exchange Facility Participant or any Affiliate of any Exchange Facility Participant and (ii) is not associated with any broker or dealer as required pursuant to Section 6(b)(3) of the Exchange Act, as amended; provided, however, that an individual who otherwise qualifies as a Public Director shall not be disqualified from serving in such capacity solely because such individual is a Director of the Exchange and/or the Chairman or Vice Chairman of the Exchange. See Exchange Bylaws, Section 1.01(w).

See id. Section 4.02.

See id. Section 4.06.

15 U.S.C. 78(b)(3). Among other things, these provisions provide that the Nominating Committee of the Exchange shall be composed of at least five members, and that at least twenty percent (20%) of the members of the Nominating Committee shall be Participant Representatives and at least one Participant Representative shall be selected from among the Exchange Facility Participants of each then existing Exchange Facility. See Exchange Bylaws, Section 4.06(a). “Participant Representative” means an officer, director or employee of an Exchange Facility Participant. See id. Section 1.01(v). The Exchange states that, under the Exchange Bylaws, as soon as practicable after the commencement of operations of BSTX as a new facility of the Exchange, a Participant Director, Participant Representative, Facility Director (defined further below), and Facility Representative (defined further below) will be appointed by the Exchange Board from among the eligible individuals with respect to the BSTX facility and that such individuals shall serve in their respective capacities until the first annual meeting of the Exchange members following appointment, when the regular selection processes shall govern. See OIP, supra note 8, 86 FR at 53380 (citing Exchange Bylaws, Section 4.02). As Exchange Facility Participants, and as is the case with respect to the Exchange's existing facility, BOX Options, BSTX Participants will also be entitled to representation on certain other committees of the Exchange, such as the Exchange's Hearing Committee. For example, the Exchange's Hearing Committee or any panel thereof shall include at least one Participant Representative and shall have exclusive jurisdiction to conduct hearings on disciplinary proceedings brought by the Exchange against any Exchange Facility Participant, or any Person employed by or associated with any Exchange Facility Participant for any alleged violation of the Exchange Act, the rules and regulations thereunder, the Exchange Bylaws or Exchange Rules, or the interpretations and stated policies of the Exchange Board. See Exchange Bylaws, Section 6.08(a); see also OIP, supra note 8, 86 FR at 53380 (stating that the Exchange's Hearing Committee includes Exchange Facility Participants, which could include one or more BSTX Participants). The Exchange's Executive Committee, if appointed and with certain exceptions, may exercise all the powers and authority of the Exchange Board in the management of the business and affairs of the Exchange. Pursuant to the Exchange Bylaws, at least 20% of the members of the Executive Committee shall be Participant Directors and at least one Participant Director shall be selected from among the Exchange Facility Participants of each then existing Exchange Facility. See Exchange Bylaws, Section 6.04; see also Amendment No. 2, supra note 11, at 63-64.

See BOX Form 1 Approval, supra note 121, 86 FR at 26325.

See supra note 128.

“Facility Director” means a Director who is a director or senior executive officer of an Exchange Facility. See Exchange Bylaws, Section 1.01(j).

A number of directors equal to the number of Exchange Facilities shall be Facility Directors and one such Facility Director shall be selected by each Exchange Facility. See id. Section 4.02.

“Facility Representative” means a member of the Nominating Committee who is a director or senior executive officer of an Exchange Facility. See id. Section 1.01(j).

One member of the Nominating Committee with respect to each Exchange Facility shall be the Facility Representative selected by such Exchange Facility. See id. Section 4.06(a).

See OIP, supra note 8, 86 FR at 53380.

See BOX-2020-04 Approval, supra note 34, 85 FR at 32086.

See Notice, supra note 3; OIP, supra note 8.

The Commission notes that this configuration is similar to other rule filings the Commission has approved. See, e.g., NYBX Order, supra note 115; ISE Stock Order, supra note 54.

15 U.S.C. 78f(b)(2).

15 U.S.C. 78s(b)(2).