[Federal Register Volume 85, Number 105 (Monday, June 1, 2020)]
[Notices]
[Pages 33258-33271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11653]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88949; File No. SR-BOX-2020-16]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Proposed Rule Change in Connection With the Proposed Commencement of 
Operations of Boston Security Token Exchange LLC (``BSTX'') as a 
Facility of the Exchange

May 26, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 12, 2020, BOX Exchange LLC (the ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is submitting this Proposed Rule Change to the 
Commission in connection with the proposed commencement of operations 
of BSTX. In this Proposed Rule Change, the proposed Amended and 
Restated Limited Liability Company Agreement of the Company dated 
December 24, 2019 (the ``LLC Agreement''), is attached as Exhibit 5A 
hereto [sic]. The text of the proposed rule change is available from 
the principal office of the Exchange, at the Commission's Public 
Reference Room and also on the Exchange's internet website at http://boxoptions.com.

[[Page 33259]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is submitting this Proposed Rule Change to the 
Commission in connection with the proposed commencement of operations 
of BSTX. The Exchange proposes to establish BSTX as a facility, as that 
term is defined in Section 3(a)(2) of the Act,\3\ of the Exchange.\4\ 
BSTX would be a facility of the Exchange that will operate a market for 
the trading of digital security tokens. BSTX would operate a fully 
automated, price/time priority execution system for the trading of 
``security tokens,'' which would be equity securities that meet BSTX 
listing standards and for which ancillary records of ownership would be 
able to be created and maintained using distributed ledger (or 
``blockchain'') technology. The security tokens would qualify as NMS 
stocks pursuant to Regulation NMS.\5\ All transactions in security 
tokens would clear and settle in accordance with the rules, policies 
and procedures of registered clearing agencies.
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    \3\ 15 U.S.C. 78c(a)(2).
    \4\ Approval for the BSTX facility will be sought by the 
Exchange through a separate proposed rule change with the 
Commission. (``BSTX Rulebook Proposal''). The Exchange has also 
separately proposed certain other rule changes with the Commission 
designed to provide sufficient flexibility for there to be multiple 
facilities under the Exchange's regulatory authority. Currently, 
there is only one facility of the Exchange, BOX Options Market LLC. 
See Securities Exchange Act Release No. 88236 February 19, 2020, 85 
FR 10765 February 25, 2020.
    \5\ 17 CFR 242.600 through 613.
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    BSTX is controlled jointly by BOX Digital, a Delaware limited 
liability company and a subsidiary of BOX Holdings Group LLC, and tZERO 
Group, Inc., a Delaware corporation and an affiliate of Overstock.com, 
Inc. BSTX is an affiliate of the Exchange and, when it commences 
trading operations, will be subject to regulatory oversight by the 
Exchange. In addition, the Exchange will enter into a facility 
agreement with BSTX (the ``Facility Agreement'') pursuant to which the 
Exchange will regulate the Company as a facility of the Exchange. The 
Exchange's powers and authority under the Facility Agreement ensure 
that the Exchange has full regulatory control over BSTX, which is 
designed to prevent any owner of BSTX from exercising undue influence 
over the regulated activities of the Company. The Exchange will also 
provide certain business services to the Company such as providing 
human resources and office technology support pursuant to an 
administrative services agreement between the Exchange and BSTX.
    The LLC Agreement is the source of governance and operating 
authority for the Company and, therefore, functions in a similar manner 
as articles of incorporation and bylaws would function for a 
corporation. The Exchange is submitting a separate filing to establish 
rules relating to trading on BSTX.\6\ The Exchange also submitted a 
separate filing to introduce structural changes to the Exchange to 
accommodate regulation of BSTX in addition to the Exchange's existing 
facility. With the addition of BSTX as an Exchange facility, BSTX 
Participants \7\ will have the same representation, rights and 
responsibilities as Participants on the Exchange's other facility.
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    \6\ See BSTX Rulebook Proposal.
    \7\ A BSTX Participant is a firm or organization that is 
registered with the Exchange pursuant to Exchange Rules for the 
purposes of participating on the BSTX Market as an order flow 
provider or market maker. See Section 1.1, LLC Agreement.
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    The Exchange currently operates BOX Options Market LLC (``BOX 
Options''), which is a facility of the Exchange, as that term is 
defined in Section 3(a)(2) of the Act. The proposed LLC Agreement 
provisions are generally the same as the provisions of the BOX Options 
LLC Agreement or, where indicated herein, are the same as provisions of 
the BOX Holdings LLC Agreement.\8\ Currently, BOX Holdings has nine 
separate, unaffiliated owners. BOX Holdings owns 100% of BOX Options so 
BOX Holdings is essentially the alter ego of BOX Options. By contrast, 
the Company has two separate, unaffiliated voting owners, BOX Digital 
and tZERO, each of which owns 50% of the voting class of equity of the 
Company. Ownership diverges for BOX Options directly above BOX Holdings 
in its ownership structure and ownership diverges for the Company 
directly above the Company in its ownership structure. Therefore, as 
discussed below, when comparing various provisions in the LLC 
Agreement, some provisions are more appropriately compared with the BOX 
Holdings LLC Agreement, particularly with respect to ownership issues. 
The Exchange believes that governance consistent with established 
provisions that have already received Commission approval harmonizes 
rules and practices across the Exchange's facilities, which may foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, consistent with Section 
6(b)(5) of the Act.\9\
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    \8\ The Exchange notes, as further described in the Proposed 
Rule Change, that certain provisions of the BOX Holdings LLC and BOX 
Options LLC Agreements are not included in the LLC Agreement because 
they are not applicable. For example, certain provisions in the BOX 
Holdings LLC Agreement that are related to different voting classes 
of ownership are not present in the LLC Agreement because BSTX has 
only one voting class of ownership. See, e.g., Sections 4.1, 4.4, 
4.13 and 7 of the BOX Holdings LLC Agreement.
    \9\ 15 U.S.C. 78f(b)(5).
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Structure of the Company
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to the structure of the Company, highlighting 
areas that vary in comparison to the BOX Options LLC Agreement and/or 
BOX Holdings LLC Agreement and provides the statutory basis for such 
variation.
    Ownership interests of the Company are represented by Units.\10\ 
The Company has two classes of Units: Class A Units \11\ and Class B 
Units.\12\ Except as otherwise provided in the LLC Agreement, all Units 
are identical to each other and accord the holders thereof the same 
obligations, rights, and privileges as accorded to each other holder 
thereof.\13\ The duly admitted

[[Page 33260]]

holders of Units are referred to as the members of the Company 
(``Members''). The Units represent equity interests in the Company and 
entitle the duly admitted holders thereof to participate in the 
Company's allocations and distributions. Voting Class A Units are held 
50/50 by BOX Digital and tZERO with each having an economic interest of 
over 45% in the Company. Non-voting Class B Units are held by various 
employees and directors of the Company, each of whom holds less than 5% 
economic interest in the Company. Pursuant to Section 1.1 of the LLC 
Agreement, a record of the Members is maintained by the Secretary of 
the Company and updated from time to time as necessary and as provided 
in the LLC Agreement (``Membership Record'').\14\ These provisions are 
substantially the same as those in the BOX Holdings LLC Agreement.\15\
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    \10\ ``Units'' mean Class A Units and Class B Units. For the 
avoidance of doubt, the ownership or possession of Units shall not 
in and of itself entitle the owner or holder thereof to vote or 
consent to any action with respect to the Company (which rights 
shall be vested only in duly admitted Members of the Company), or to 
exercise any right of a Member of the Company under the LLC 
Agreement, the LLC Act, or other applicable law. See Section 1.1, 
LLC Agreement.
    \11\ ``Class A Units'' shall mean equal units of limited 
liability company interest in the Company, including an interest in 
the ownership and profits and losses of the Company and the right to 
receive distributions from the Company as set forth in the LLC 
Agreement. See Section 1.1, LLC Agreement.
    \12\ ``Class B Units'' shall be identical to Class A Units 
except that Class B Members shall not have the right to vote on any 
matter related to the Company as a result of holding Class B Units. 
See Section 1.1, LLC Agreement.
    \13\ Pursuant to Section 2.5(b) of the LLC Agreement, upon the 
consummation of any sale or transfer of a majority of the Class A 
Units or a majority of the assets of the Company, directly or 
indirectly, to any party or group of related parties, including 
through a series of transactions, all then outstanding Class B Units 
shall automatically convert into an equal number of Class A units 
without the need of any action by any person. For the avoidance of 
doubt, a Class B Member's Capital Account does not change as a 
result of the conversion of the Class B Units.
    \14\ The Membership Record shall include the name and address of 
each Member and the number of Units of each class held by each 
Member.
    \15\ See BOX Holdings LLC Agreement Sections 1.1 and 2.5.
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    BOX Digital is a subsidiary of BOX Holdings and an affiliate of the 
Exchange and, therefore, the Company will be an affiliate of the 
Exchange. BOX Holdings owns 98% of BOX Digital and 2% of BOX Digital is 
held by Lisa Fall. BOX Holdings already owns one subsidiary that is an 
existing facility of the Exchange. The existing facility--BOX Options--
operates a market for trading option contracts on U.S. equities. BOX 
Holdings is the parent company for both BOX Digital and BOX Options. 
BOX Holdings has nine separate, unaffiliated owners, including MX US 2, 
Inc., a wholly owned, indirect subsidiary of TMX Group Limited 
(``TMX''), which holds 42.62% of the outstanding units of BOX Holdings, 
and IB Exchange Corp., which holds 22.69% of the outstanding units of 
BOX Holdings. The other seven owners of BOX Holdings, Citadel 
Securities Principal Investments LLC, Citigroup Financial Products 
Inc., UBS Americas Inc., CSFB Next Fund Inc., LabMorgan Corp., 
Wolverine Trading, LLC and Aragon Solutions Ltd, each hold less than 
15% of the outstanding units of BOX Holdings.
    Medici Ventures, Inc. (``Medici''), a Delaware corporation, owns 
80.07% of the outstanding shares of tZERO, Joseph Cammarata holds 
7.53%, and each of the following owns less than 3% of the outstanding 
shares of tZERO: Todd Tobacco, Newer Ventures LLC, Schalk Steyn, Raj 
Karkara, Alec Wilkins, Dohi Ang, Brian Capuano, Trent Larson, Eric 
Fish, Kristen Anne Bagley, Kirstie Dougherty, SpeedRoute Technologies 
Inc., Tommy McSherry, Rob Collucci, John Gilchrist, John Paul DeVito, 
Jimmy Ambrose, Jason Heckler, Max Melmed, Alex Vlastakis, Olalekan 
Abebefe, Samson Arubuola, Ryan Mitchell, Zachary Wilezol, Anthony Bove, 
Ralph Daiuto, Rob Christiansen, Amanda Gervase, Derek Tobacco, Steve 
Bailey, and Dinosaur Financial. Overstock.com, Inc. (``Overstock''), a 
publicly held corporation organized under the laws of the state of 
Delaware, owns 100% of the outstanding shares of Medici. Therefore, 
both tZERO and the Company are affiliates of Overstock.
    Pursuant to Section 7.4(g)(ii) of the LLC Agreement, any 
Controlling Person \16\ is required to become a party to the LLC 
Agreement and abide by its provisions, to the same extent and as if 
they were Members. Related Persons that are otherwise Controlling 
Persons are not required to become parties to the LLC Agreement if they 
are only under common control of an upstream owner but are not in the 
upstream ownership chain above a Company owner because they will not 
have the ability to exert any control over the Company. BOX Holdings, 
Medici, and Overstock are indirect owners of the Company. Overstock 
owns 100% of Medici Ventures, Inc., which owns more than 80% of tZERO 
Group, Inc., which owns 50% of the voting class of equity of BSTX. 
Medici and Overstock will be required to become parties to the 
Company's LLC Agreement by executing an instrument of accession 
substantially in the form attached hereto as Exhibit 5B [sic] and abide 
by its provisions, to the same extent and as if they were Members, 
because they are Controlling Persons of the Company. Similarly, BOX 
Digital, BOX Holdings, MX US 2, Inc., MX US 1, Inc., Bourse de Montreal 
Inc., and TMX Group Limited will also each be required to become 
parties to the LLC Agreement by executing an instrument of accession 
and abide by its provisions to the same extent and as if they were 
Members because they are Controlling Persons of the Company. TMX Group 
Limited owns 100% of Bourse de Montreal Inc., which owns 100% of MX US 
1, Inc., which owns 100% of MX US 2, Inc., which owns more than 40% of 
BOX Holdings. BOX Holdings owns 98% of BOX Digital, which owns 50% of 
the voting class of equity of BSTX.
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    \16\ A ``Controlling Person'' is defined as ``a Person who, 
alone or together with any Related Persons of such Person, holds a 
Controlling Interest in a Member.'' See Section 7.4(g)(v)(B), LLC 
Agreement. A ``Controlling Interest'' is defined as ``the direct or 
indirect ownership of 25% or more of the total voting power of all 
equity securities of a Member (other than voting rights solely with 
respect to matters affecting the rights, preferences, or privileges 
of a particular class of equity securities), by any Person, alone or 
together with any Related Persons of such Person.'' See Section 
7.4(g)(v)(A), LLC Agreement. A ``Related Person'' is defined as 
``with respect to any Person: (A) Any Affiliate of such Person; (B) 
any other Person with which such first Person has any agreement, 
arrangement or understanding (whether or not in writing) to act 
together for the purpose of acquiring, voting, holding or disposing 
of Units; (C) in the case of a Person that is a company, corporation 
or similar entity, any executive officer (as defined under Rule 3b-7 
under the [Act]) or director of such Person and, in the case of a 
Person that is a partnership or limited liability company, any 
general partner, managing member or manager of such Person, as 
applicable; (D) in the case of any BSTX Participant who is at the 
same time a broker-dealer, any Person that is associated with the 
BSTX Participant (as determined using the definition of ``person 
associated with a member'' as defined under Section 3(a)(21) of the 
[Act]); (E) in the case of a Person that is a natural person and a 
BSTX Participant, any broker or dealer that is also a BSTX 
Participant with which such Person is associated; (F) in the case of 
a Person that is a natural person, any relative or spouse of such 
Person, or any relative of such spouse who has the same home as such 
Person or who is a director or officer of the Exchange or any of its 
parents or subsidiaries; (G) in the case of a Person that is an 
executive officer (as defined under Rule 3b-7 under the [Act]) or a 
director of a company, corporation or similar entity, such company, 
corporation or entity, as applicable; and (H) in the case of a 
Person that is a general partner, managing member or manager of a 
partnership or limited liability company, such partnership or 
limited liability company, as applicable.''
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    Any BSTX Participant that holds, directly or indirectly, more than 
20% of the Company will have its voting power capped at 20% pursuant to 
Section 7.4(h) of the LLC Agreement, a limitation designed to prevent a 
market participant from exerting undue influence on an Exchange 
facility.\17\ Related Persons will be grouped together when applying 
these limits. The Exchange believes the proposed voting cap provision 
is consistent with the Act, including Section 6(b)(1), which requires, 
in part, an exchange to be so organized and have the capacity to carry 
out the purposes of the Act.\18\ In particular, the voting cap is 
designed to minimize the ability of a BSTX Participant to improperly 
interfere with or restrict the ability of the Exchange to effectively 
carry out its regulatory oversight responsibilities under the Act.
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    \17\ LLC Agreement Section 7.4(h) is based on Section 7.4(h) of 
the BOX Holdings LLC Agreement.
    \18\ 15 U.S.C. 78f(b)(1).
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    The SEC will be required to be notified if an owner exceeds 5%, 10% 
or 15% ownership in the Company pursuant to Section 7.4(e) of the LLC

[[Page 33261]]

Agreement.\19\ Further, rule filings are required when an owner crosses 
above 20% or any subsequent 5% increment, pursuant to Section 7.4(f) of 
the LLC Agreement.\20\ Related Persons are grouped together when 
applying these limits. These are the same provisions as are contained 
in the BOX Holdings LLC Agreement. The Exchange believes the proposed 
notification provisions are consistent with the Act, including Section 
6(b)(1), which requires, in part, an exchange to be so organized and 
have the capacity to carry out the purposes of the Act.\21\ In 
particular, SEC notification of ownership interests exceeding certain 
percentage thresholds can help improve the Commission's ability to 
effectively monitor and surveil for potential undue influence and 
control over the operation of the Exchange.
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    \19\ LLC Agreement Section 7.4(e) is based on Section 7.4(e) of 
the BOX Holdings LLC Agreement.
    \20\ LLC Agreement Section 7.4(f) is based on Section 7.4(f) of 
the BOX Holdings LLC Agreement.
    \21\ 15 U.S.C. 78f(b)(1).
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    The Exchange notes that existing ownership limits applicable to 
owners of the Exchange, the entity that will have regulatory oversight 
of BSTX, are not changing.\22\ The Exchange believes the existing 
ownership limits will help to ensure the independence of the Exchange's 
regulatory oversight of BSTX and facilitate the ability of the Exchange 
to carry out its regulatory responsibilities and operate in a manner 
consistent with the Act, and are appropriate and consistent with the 
requirements of the Act, particularly with Section 6(b)(1), which 
requires, in part, an exchange be so organized and have the capacity to 
carry out the purposes of the Act.\23\
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    \22\ See Securities Exchange Act Release No. 34-66871 (April 27, 
2012) 77 FR 26323 (May 3, 2012) (Order granting approval of BOX 
Exchange).
    \23\ 15 U.S.C. 78f(b)(1).
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    The Company does not have the same ownership as BOX Options or BOX 
Holdings; therefore, the Members of the Company differ from those of 
BOX Options and BOX Holdings. The Exchange believes that the structure 
of the Company will promote just and equitable principles of trade, 
and, in general, protect investors and the public interest, consistent 
with Section 6(b)(5) of the Act.\24\
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    \24\ 15 U.S.C. 78f(b)(5).
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Term and Termination
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to the term and termination of the Company, 
highlighting areas that vary in comparison to the BOX Options LLC 
Agreement and/or BOX Holdings LLC Agreement and provides the statutory 
basis for such variation.
    Pursuant to Section 2.3 of the LLC Agreement, the Company will have 
a perpetual legal existence unless it is sooner dissolved as a result 
of an event specified in the Delaware Limited Liability Company Act, as 
amended and in effect from time to time, and any successor statute (the 
``LLC Act'') or by agreement of the Members. The term is the same as 
the provision in the BOX Options LLC Agreement,\25\ but also provides 
that the Company can be dissolved by agreement of the Members. In 
addition, Section 10.1 of the LLC Agreement provides that the Company 
shall be dissolved upon (i) the election to dissolve the Company made 
by the Board pursuant to Section 4.4(b)(v) of the LLC Agreement; (ii) 
the entry of a decree of judicial dissolution under Sec.  18-802 of the 
LLC Act; (iii) the resignation, expulsion, bankruptcy or dissolution of 
the last remaining Member, or the occurrence of any other event which 
terminates the continued membership of the last remaining Member in the 
Company, unless the business of the Company is continued without 
dissolution in accordance with the LLC Act; or (iv) the occurrence of 
any other event that causes the dissolution of a limited liability 
company under the LLC Act unless the Company is continued without 
dissolution in accordance with the LLC Act. The dissolution events are 
generally the same as those in the BOX Options LLC Agreement; \26\ 
however, the Company may also be dissolved by the affirmative vote of 
Members holding a majority of all of the then outstanding Percentage 
Interests \27\ (excluding any Percentage Interests held directly or 
indirectly by tZERO and its Affiliates from the numerator and the 
denominator for such calculation) taken within 180 calendar days after 
the occurrence of any ``Trigger Event'' as such term is defined in the 
IP License and Services Agreement entered into by and between tZERO and 
the Company (the ``LSA'') and described in more detail below.\28\ The 
Exchange believes that the addition of such dissolution events will 
promote just and equitable principles of trade, and, in general, 
protect investors and the public interest, consistent with Section 
6(b)(5) of the Act.\29\
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    \25\ See BOX Options LLC Agreement Section 2.3.
    \26\ See BOX Options LLC Agreement Section 8.1.
    \27\ ``Percentage Interests'' are defined as ``with respect to a 
Member, means the ratio of the number of Unit held by the Member to 
the total of all of the issued Units, expressed as a percentage and 
determined with respect to each class of Units whenever 
applicable.'' See Section 1.1, LLC Agreement.
    \28\ The LSA defines a ``Trigger Event'' as meaning ``any of the 
following events: (a) A material breach by tZERO of any of its 
obligations under this LSA (being either a single event which is a 
material breach or a series of breaches which taken together are a 
material breach) which material breach or failure is not cured by 
tZERO within 90 days after Company gives written notice of such 
breach or failure to tZERO hereunder, except for Critical Functions 
in which case the cure period shall be 10 days; (b) any bankruptcy, 
reorganization, debt arrangement, or other case or proceeding under 
any bankruptcy or insolvency Law or any non-frivolous dissolution or 
liquidation proceedings commenced by or against tZERO; and if such 
case or proceeding is not commenced by tZERO, it is acquiesced by 
tZERO in or remains undismissed for 30 days; (c) tZERO ceasing 
active operation of its business without a successor or 
discontinuing any of the Base Services; (d) tZERO becomes judicially 
declared insolvent or admits in writing its inability to pay its 
debts as they become due; or (e) tZERO applies for or consents to 
the appointment of a trustee, receiver or other custodian for tZERO, 
or makes a general assignment for the benefit of its creditors.''
    \29\ 15 U.S.C. 78f(b)(5).
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    Upon the occurrence of any of the events set forth in Section 
10.1(a) of the LLC Agreement, the Company will be dissolved and 
terminated in accordance with the provisions of Article 10 of the LLC 
Agreement.
Governance of the Company
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to the governance of the Company, highlighting 
areas that vary in comparison to the BOX Options LLC Agreement and/or 
BOX Holdings LLC Agreement and provides the statutory basis for such 
variation.
    Section 4.1 of the LLC Agreement establishes a board of directors 
of the Company (the ``Board of Directors'' or the ``Board'') to manage 
the development, operations, business and affairs of the Company 
without the need for any approval of the Members or any other person. 
Section 4.10 of the LLC Agreement provides that, except and only to the 
extent expressly provided for in the LLC Agreement and the Related 
Agreements and as delegated by the Board of Directors to committees of 
the Board of Directors or to duly appointed Officers or agents of the 
Company, neither a Member nor any other Person other than the Board of 
Directors shall be an agent of the Company or have any right, power or 
authority to transact any business in the name of the Company or to act 
for or on behalf of or to bind the Company. Section 4.12(a) of the LLC 
Agreement provides that each of the Members and the Directors, 
Officers, employees and agents of the Company (a) shall give due regard 
to the preservation of the independence of the self-regulatory function 
of the Exchange and to its obligations to investors and

[[Page 33262]]

the general public and shall not take any actions which would interfere 
with the effectuation of decisions by the board of directors of the 
Exchange relating to its regulatory functions (including disciplinary 
matters) or which would interfere with the Exchange's ability to carry 
out its responsibilities under the Act; (b) comply with the federal 
securities laws and the rules and regulations promulgated thereunder; 
and (c) cooperate with the Exchange pursuant to its regulatory 
authority and with the SEC. Section 3.2 of the LLC Agreement provides 
that the Exchange will (a) act as the SEC-approved SRO for the BSTX 
Market, (b) have regulatory responsibility for the activities of the 
BSTX Market and provide regulatory services to the Company pursuant to 
the Facility Agreement. These are the same provisions that are 
contained in the BOX Options LLC Agreement.\30\ These provisions ensure 
that the Exchange has full regulatory control over BSTX, which is 
designed to prevent any owner of BSTX from exercising undue influence 
over the regulated activities of the Company.
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    \30\ See BOX Options LLC Agreement Sections 4.1, 4.10, 4.12, and 
3.2.
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    Section 4.1 of the LLC Agreement provides that the Board will 
consist of six (6) directors (each a ``Director''), comprised of two 
(2) Directors appointed by BOX Digital, two (2) Directors appointed by 
tZERO (together with the BOX Digital Directors, each a ``Member 
Director''), one (1) Director (the ``Independent Director'') appointed 
by the unanimous vote of all of the then serving Member Directors, and 
one (1) non-voting Director (the ``Regulatory Director'') appointed by 
the Exchange. As long as the Company is a facility of the Exchange 
pursuant to Section 3(a)(2) of the Act, the Exchange will have the 
right to appoint a Regulatory Director to serve as a Director. The 
Regulatory Director must be a member of the senior management of the 
regulation staff of the Exchange. By comparison, the board of directors 
of BOX Options is the same as BOX Holdings because it is a wholly-owned 
subsidiary of BOX Holdings. The remaining structure of the Board of 
Directors for the Company differs from that of BOX Holdings because the 
ownership of the Company differs from that of BOX Holdings, which has 
no owners with 50% or greater ownership of its voting class of equity. 
The Company has an Independent Director to avoid either Member from 
controlling or creating deadlock on the Board. However, the presence of 
a Regulatory Director selected by the Exchange on the Board is 
identical to the longstanding practice at the Exchange's other 
facility, BOX Options. The Exchange believes that the proposed board 
structure, and in particular, the inclusion of the proposed Independent 
Director and Regulatory Director, will promote just and equitable 
principles of trade, foster cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest, consistent with Section 6(b)(5) of the Act.\31\ 
Further, the Exchange believes that inclusion of the Regulatory 
Director on the BSTX Board would also be consistent with Section 
6(b)(1) of the Act. This is because the Regulatory Director is required 
to be someone who is a member of the senior management of the 
regulation staff of the Exchange and is therefore a person who is 
knowledgeable of the rules of the Exchange and the regulations 
applicable to it and, in turn, is someone who would be well positioned 
to help ensure the Exchange, including in the operation of any 
facilities, continues to be so organized and has the capacity to carry 
out the purposes of the Act, including to prevent inequitable and 
unfair practices.
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    \31\ 15 U.S.C. 78f(b)(5).
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    Section 4.3 of the LLC Agreement provides that the Board will meet 
as often as it deems necessary, but at least four (4) times per 
year.\32\ Meetings of the Board or any committee thereof may be 
conducted in person or by telephone or in any other manner agreed to by 
the Board or, respectively, by the members of a committee. Any of the 
Directors or the Exchange may call a meeting of the Board upon fourteen 
(14) calendar days prior written notice. In any case where the 
convening of a meeting of Directors is a matter of urgency, notice of 
the meeting may be given not less than forty-eight (48) hours before 
the meeting is to be held. No notice of a meeting shall be necessary 
when all Directors are present. The attendance of at least a majority 
of all the Directors shall constitute a quorum for purposes of any 
meeting of the Board. Except as may otherwise be provided by the LLC 
Agreement, each of the Directors will be entitled to one vote on any 
action to be taken by the Board, except that the Regulatory Director 
shall not vote on any action to be taken by the Board or any committee, 
the CEO (if a Director) shall not be entitled to vote on matters 
relating to the CEO's powers, compensation or performance, and a 
Director shall not be entitled to vote on any matter pertaining to that 
Director's removal from office. A Director may vote the votes allocated 
to another Director (or group of Directors) pursuant to a written 
proxy. Except as otherwise provided by the LLC Agreement, any action to 
be taken by the Board shall be considered effective only if approved by 
at least a majority of the votes entitled to be voted on that action. 
Meetings of the Board may be attended by other representatives of the 
Members, the Exchange and other persons related to the Company as the 
Board may approve. Any action required or permitted to be taken at a 
meeting of the Board or any committee thereof may be taken without a 
meeting if written consents, setting forth the action so taken, are 
executed by the members of the Board or committee, as the case may be, 
representing the minimum number of votes that would be necessary to 
authorize or to take that action at a meeting at which all members of 
the Board or committee, as the case may be, permitted to vote were 
present and voted. The Board will determine procedures relating to the 
recording of minutes of its meetings. The Exchange believes that the 
proposed board structure will promote just and equitable principles of 
trade, foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest, consistent with Section 6(b)(5) of the Act.\33\
---------------------------------------------------------------------------

    \32\ LLC Agreement Section 4.3 is based on Section 4.3 of the 
BOX Options LLC Agreement.
    \33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Pursuant to Section 4.4 of the LLC Agreement, no action with 
respect to any major action (each a ``Major Action''), will be 
effective unless approved by the Board, including the affirmative vote 
of all then serving Member Directors, in each case acting at a meeting. 
A vacancy on the Board will not prevent approval of a Major Action. No 
other Member votes are required for a Major Action. For purposes of the 
LLC Agreement, ``Major Action'' means any of the following: (i) A 
merger or consolidation of the Company with any other entity or the 
sale by the Company of any material portion of its assets; (ii) entry 
by the Company into any line of business other than the business 
outlined in Article 3 of the LLC

[[Page 33263]]

Agreement; (iii) conversion of the Company from a Delaware limited 
liability company into any other type of entity; (iv) except as 
expressly contemplated by the LLC Agreement and then existing Related 
Agreements, entering into any agreement, commitment, or transaction 
with any Member or any of its Affiliates other than transactions or 
agreements upon commercially reasonable terms that are no less 
favorable to the Company than the Company would obtain in a comparable 
arms-length transaction or agreement with a third party; (v) to the 
fullest extent permitted by law, taking any action (except pursuant to 
a vote of the Members pursuant to Section 10.1(a)(ii) of the LLC 
Agreement to effect the voluntary, or which would precipitate an 
involuntary, dissolution or winding up of the Company; (vi) operating 
the BSTX Market utilizing any other software system, other than the 
BSTX trading system, except as otherwise provided in the LSA or to the 
extent otherwise required by the Exchange to fulfill its regulatory 
functions or responsibilities or to oversee the BSTX Market as 
determined by the board of the Exchange; (vii) operating the BSTX 
Market utilizing any other regulatory services provider other than the 
Exchange, except as otherwise provided in the Facility Agreement or to 
the extent otherwise required by the Exchange to fulfill its regulatory 
functions or responsibilities or to oversee the BSTX Market as 
determined by the board of the Exchange; (viii) entering into any 
partnership, joint venture or other similar joint business undertaking; 
(ix) making any fundamental change in the market structure of the 
Company from that contemplated by the Members as of the date of the LLC 
Agreement, except to the extent otherwise required by the Exchange to 
fulfill its regulatory functions or responsibilities or to oversee the 
BSTX Market as determined by the board of the Exchange; (x) issuing any 
new Units pursuant to Section 7.6 of the LLC Agreement or admitting 
additional or substitute Members pursuant to Section 7.1(b); (xi) 
altering the provisions for Board membership applicable to any Member, 
except to the extent otherwise required by the Exchange to fulfill its 
regulatory functions or responsibilities or to oversee the BSTX Market 
as determined by the board of the Exchange; and (xii) altering the 
definition of or requirements for approving a Major Action, except to 
the extent otherwise required by the Exchange to fulfill its regulatory 
functions or responsibilities or to oversee the BSTX Market as 
determined by the board of the Exchange. The Major Action events are 
generally the same as those in the BOX Options LLC Agreement and BOX 
Holdings LLC Agreement \34\ with the exception of deletions to 
references to BOX Options affiliates and owners and to include cross 
references to other provisions of the LLC Agreement; however, the 
Company's LLC Agreement also provides that a Major Action also includes 
provisions (viii), (x), and (xi) as described above. The Exchange 
believes that such events should be deemed Major Actions for commercial 
fairness. The Exchange believes that deeming the above referenced 
events as Major Actions will promote just and equitable principles of 
trade, foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest, consistent with Section 6(b)(5) of the Act.\35\
---------------------------------------------------------------------------

    \34\ See Section 4.4 of the BOX Options LLC Agreement and 
Section 4.4 of the BOX Holdings LLC Agreement.
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Pursuant to Section 4.1(b) of the LLC Agreement, a Member Director 
may be removed by the Member entitled to appoint that Member Director, 
with or without cause. The Independent Director may be removed by a 
majority vote of the then serving Member Directors, with or without 
cause. Any Member Director or Independent Director may be removed by 
the Board if the Board determines, in good faith, that the Director has 
violated any provision of the LLC Agreement or any federal or state 
securities law or that such action is necessary or appropriate in the 
public interest or for the protection of investors. A Director shall 
not participate in any vote regarding that Director's removal. The 
Company shall promptly notify the Exchange in writing of the 
commencement or cessation of service of a Member Director or 
Independent Director. Like BOX Options, Directors may be removed by the 
Board for reasons related to protection of investors and the owners 
with rights to appoint a Member Director have power to remove and 
replace their respective designees. The removal provisions for the 
Company's Independent Director differ from those of BOX Options and BOX 
Holdings because those entities do not have an Independent Director. 
The Exchange believes that the proposed removal provisions will promote 
just and equitable principles of trade, foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, 
protect investors and the public interest, consistent with Section 
6(b)(5) of the Act. Further, the Exchange believes that the ability for 
Member Directors and Independent Directors to be removed from the Board 
in the circumstances described above would be consistent with Section 
6(b)(1) of the Act.\36\ This is because removal of such Directors who 
have violated the LLC Agreement or federal or state laws would help 
ensure that the Exchange, including in its operation of facilities, is 
so organized and has the capacity to be able to carry out the purposes 
of the Act, including the prevention of inequitable and unfair 
practices.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Section 4.1(c) of the LLC Agreement provides that, if a vacancy is 
created on the Board as a result of the death, disability, retirement, 
resignation or removal (with or without cause) of a Member Director or 
otherwise there shall exist or occur any vacancy on the Board, the 
Member whose designee created the vacancy will fill that vacancy by 
written notice to the Company. Each Member shall promptly fill 
vacancies on the Board, and the Board shall consider the advisability 
of taking further action until the vacancies are filled. The vacancy 
provisions are not in the BOX Options LLC Agreement; however, the 
Exchange believes that providing for contingencies in the event of a 
vacancy are important to avoid business disruption and, therefore, this 
proposal will foster cooperation and coordination with persons engaged 
in regulating, clearing, settling, processing information with respect 
to, and facilitating transactions in securities, consistent with 
Section 6(b)(5) of the Act.\37\ Further, the Exchange believes that 
filling Director vacancies, as described above, would provide a 
predetermined and transparent manner for filling Director vacancies and 
therefore help avoid business disruptions at BSTX. The Exchange 
believes that this, in turn, would be consistent with Section 6(b)(1) 
of the

[[Page 33264]]

Act \38\ because it would help ensure that the Exchange, including in 
the operation of facilities, is so organized and has the capacity to be 
able carry out the purposes of the Act, including to remove impediments 
to and perfect the mechanisms of a national market system for 
securities.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b)(5).
    \38\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Section 4.1(d) of the LLC Agreement provides that the Regulatory 
Director may be removed (a) by the Exchange, with or without cause, (b) 
by the Board if the Board determines, in good faith, that the 
Regulatory Director has violated any provision of the LLC Agreement or 
any federal or state securities law, or (c) by the Board if the Board 
determines, in good faith, that the Regulatory Director does not meet 
the requirements of a Regulatory Director as set forth in the LLC 
Agreement. If the Regulatory Director ceases to serve for any reason, 
the Exchange shall appoint a new Regulatory Director in accordance with 
the requirements in the LLC Agreement. The removal provisions in the 
Company's LLC Agreement are substantially the same as those in the BOX 
Options LLC Agreement.\39\
---------------------------------------------------------------------------

    \39\ See Section 4.1(d) of the BOX Options LLC Agreement.
---------------------------------------------------------------------------

    Section 4.12(b) of the LLC Agreement provides that the Company and 
its Members shall comply with the federal securities laws and the rules 
and regulations promulgated thereunder and shall cooperate with the SEC 
and the Exchange pursuant to and to the extent of their respective 
regulatory authority. The Directors, Officers, employees and agents of 
the Company, by virtue of their acceptance of such position, shall 
comply with the federal securities laws and the rules and regulations 
promulgated thereunder and shall be deemed to agree to cooperate with 
the SEC and the Exchange in respect of the SEC's oversight 
responsibilities regarding the Exchange, and the Company shall take 
reasonable steps necessary to cause its Directors, Officers, employees 
and agents to so cooperate. These provisions in the LLC Agreement are 
the same as those in the BOX Options LLC Agreement and BOX Holdings LLC 
Agreement.\40\
---------------------------------------------------------------------------

    \40\ See Section 4.12(b) of the BOX Options LLC Agreement and 
Section 4.12(b) of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

    Section 3.2(a)(ii) of the LLC Agreement provides that the Exchange 
shall receive notice of planned or proposed changes to the Company (but 
not including changes relating solely to one or more of the following: 
Marketing, administrative matters, personnel matters, social or team 
building events, meetings of the Members, communication with the 
Members, finance, location and timing of Board meetings, market 
research, real property, equipment, furnishings, personal property, 
intellectual property, insurance, contracts unrelated to the operation 
of the BSTX Market and de minimis items (``Non-Market Matters'') or the 
BSTX Market (including, but not limited to the BSTX trading system) 
which will require an affirmative approval by the Exchange prior to 
implementation, not inconsistent with the LLC Agreement. Planned 
changes include, without limitation: (a) Planned or proposed changes to 
the BSTX trading system; (b) the sale by the Company of any material 
portion of its assets; (c) taking any action to effect a voluntary, or 
which would precipitate an involuntary, dissolution or winding up of 
the Company; or (d) obtaining regulatory services from a regulatory 
services provider other than the Exchange. Procedures for requesting 
and approving changes shall be established by the mutual agreement of 
the Company and the Exchange. These provisions in the LLC Agreement are 
the same as those in the BOX Options LLC Agreement.\41\
---------------------------------------------------------------------------

    \41\ See Section 3.2(a)(ii) of the BOX Options LLC Agreement.
---------------------------------------------------------------------------

    Section 3.2(a)(iii) of the LLC Agreement provides that in the event 
that the Exchange, in its sole discretion, determines that the proposed 
or planned changes to the Company or the BSTX Market (including, but 
not limited to, the BSTX trading system) set forth in Section 
3.2(a)(ii) of the LLC Agreement could cause a Regulatory Deficiency if 
implemented, the Exchange may direct the Company, subject to approval 
of the Exchange board of directors, to modify the proposal as necessary 
to ensure that it does not cause a Regulatory Deficiency. The Company 
will not implement the proposed change until it, and any required 
modifications, are approved by the Exchange board of directors. The 
costs of modifications undertaken shall be paid by the Company. These 
provisions in the LLC Agreement are the same as those in the BOX 
Options LLC Agreement.\42\ These provisions ensure the Exchange 
maintains full regulatory control and authority over BSTX while it 
operates as a facility of the Exchange. The Exchange believes this 
provision helps guarantee the Exchange's ability to fulfill its 
regulatory responsibilities and operate in a manner consistent with the 
Act, in particular with Section 6(b)(1), which requires, in part, an 
exchange to be so organized and have the capacity to carry out the 
purposes of the Act.\43\
---------------------------------------------------------------------------

    \42\ See Section 3.2(a)(iii) of the BOX Options LLC Agreement.
    \43\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Section 3.2(a)(iv) of the LLC Agreement provides that in the event 
that the Exchange, in its sole discretion, determines that a Regulatory 
Deficiency exists or is planned, the Exchange may direct the Company, 
subject to approval of the Exchange board of directors, to undertake 
such modifications to the Company (but not to include Non-Market 
Matters) or the BSTX Market (including, but not limited to, the BSTX 
trading system), as are necessary or appropriate to eliminate or 
prevent the Regulatory Deficiency and allow the Exchange to perform and 
fulfill its regulatory responsibilities under the Act.\44\ The costs 
and modifications undertaken shall be paid by the Company. These 
provisions in the LLC Agreement are substantially the same as those in 
the BOX Options LLC Agreement, with the exception of a reference to an 
agreement that is not applicable to the Company.\45\
---------------------------------------------------------------------------

    \44\ As discussed above, the Exchange will appoint a Regulatory 
Director who may, among other things, serve as a Director of any 
regulatory committee(s). Such individual will also have insight and 
access to important information related to the Company; for example, 
while the Regulatory Director may not serve as a Director on Board 
committees other than authorized regulatory committees, the 
Regulatory Director nevertheless shall (A) have the right to attend 
all meetings of the Board and committees thereof; (B) receive 
equivalent notice of meetings as other Directors; and (C) receive a 
copy of the meeting materials provided to other Directors, including 
agendas, action items and minutes for all meetings. (See LLC 
Agreement Sec.  4.2(c).)
    \45\ See Section 3.2(a)(iv) of the BOX Options LLC Agreement.
---------------------------------------------------------------------------

Regulatory Funds
    Pursuant to Section 9 of the Facility Agreement, the Company will 
agree that the Exchange has the right to receive all fees, fines and 
disgorgements imposed upon BSTX Participants with respect to the 
Company's trading system (``Regulatory Funds'') and all market data 
fees, tape and other revenues (``Non-regulatory Funds''). All 
Regulatory Funds and Non-regulatory Funds collected by the Exchange 
with respect to the Company may be used by the Exchange for regulatory 
purposes, which will be determined in the sole discretion of the 
Exchange. To the extent the Company incurs costs and expenses for 
regulatory purposes, the Exchange may reimburse the Company using 
Regulatory Funds. In the event the Exchange, at any time, determines 
that it does not hold sufficient funds to meet all regulatory purposes, 
the Company will reimburse the Exchange for any such additional costs 
and expenses. All Regulatory Funds collected by the

[[Page 33265]]

Exchange will be retained by the Exchange and not transferred to the 
Company. Non-regulatory funds collected by the Exchange may be 
transferred to the Company after the Exchange makes adequate provision 
for all regulatory purposes. These provisions ensure that the Exchange 
has full control over BSTX with respect to its regulated functions and 
is designed to prevent any owner of BSTX from exercising undue 
influence over the regulated activities of the Company.
Capital Contributions and Distributions
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to capital contributions and distributions by the 
Company, highlighting areas that vary in comparison to the BOX Options 
LLC Agreement and/or BOX Holdings LLC Agreement and provides the 
statutory basis for such variation.
    Pursuant to Section 6.1 of the LLC Agreement, all capital 
contributions contributed to the Company by holders of Units shall be 
reflected on the books and records of the Company. No interest will be 
paid on any capital contribution to the Company. No Member will have 
any personal liability for the repayment of the capital contribution of 
any Member, and no Member will have any obligation to fund any deficit 
in its Capital Account. Each Member waived any right to partition the 
property of the Company or to commence an action seeking dissolution of 
the Company under the LLC Act. These provisions are substantially the 
same as those in the BOX Holdings LLC Agreement.\46\
---------------------------------------------------------------------------

    \46\ See Section 6.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

    Under Section 6.2 of the LLC Agreement, the Board, in its sole 
discretion, will determine the capital needs of the Company. If at any 
time the Board determines that additional capital is required in the 
interests of the Company, additional working capital shall be raised in 
such manner as determined by a vote of the Board, including the 
affirmative vote of at least one Member Director appointed by each 
Member, but the Board will not have the power to require the Members to 
make any additional capital contributions. These provisions in the LLC 
Agreement are substantially the same as those in the BOX Options LLC 
Agreement, with the exception of the requirement for at least one 
Member Director appointed by each Member to affirmatively vote on the 
manner to raise additional working capital.\47\ The Exchange believes 
that this added provision exists for purposes of commercial fairness 
and is necessary due to the ownership structure of the Company and that 
it will foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, consistent with Section 
6(b)(5) of the Act.\48\
---------------------------------------------------------------------------

    \47\ See Section 6.2 of the BOX Options LLC Agreement.
    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Pursuant to Section 8.1 of the LLC Agreement, if at any time and 
from time to time the Board determines that the Company has cash that 
is not required for the operations of the Company, the payment of 
liabilities or expenses of the Company, or the setting aside of 
reserves to meet the anticipated cash needs of the Company 
(``Distributable Cash''), then the Company shall make cash 
distributions to its Members in the following manner and priority: 
First, the Company shall make tax distributions (``Tax Distributions'') 
to the Members to cover each Member's estimated income tax for that 
period (or in the event that Distributable Cash is less than the total 
of all such Tax Amounts, the Company shall distribute the Distributable 
Cash in proportion to such Tax Amounts). All tax distributions to a 
Member will be treated as advances against any subsequent distributions 
to be made to that Member. Subsequent distributions made to the Member 
shall be adjusted so that when aggregated with all prior distributions 
to the Member pursuant to those provisions, and with all prior Tax 
Distributions to the Member, the amount distributed will be equal, as 
nearly as possible, to the aggregate amount that would have been 
distributable to that Member pursuant to the LLC Agreement if the LLC 
Agreement contained no provision for Tax Distributions; second, when, 
as and if declared by the Board, the Company shall make cash 
distributions to each of the Members pro rata in accordance with that 
Member's respective Percentage Interest. Since the Company does not 
have the same ownership as BOX Options, the distribution provisions in 
the LLC Agreement differ from the BOX Options LLC Agreement and BOX 
Holdings LLC Agreement. These provisions relate to tax and accounting 
rules to which the Company is subject, due to its ownership structure. 
As such, these provisions are standard or not novel for a similarly 
situated commercial business registered as a limited liability company 
under the laws of the state of Delaware.
    Section 8.2 of the LLC Agreement provides that the Company, and the 
Board on behalf of the Company, shall not make a distribution to any 
Member on account of its ownership interest in the Company if, and to 
the extent, such distribution would violate the LLC Act or other 
applicable law. This provision in the LLC Agreement is the same as the 
provision in the BOX Options LLC Agreement and BOX Holdings LLC 
Agreement.\49\
---------------------------------------------------------------------------

    \49\ See Section 7.1 of the BOX Options LLC Agreement and 
Section 8.2 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

    Section 9.1 of the LLC Agreement provides that all profits, losses 
and credits of the Company (for both accounting and tax purposes) for 
each fiscal year shall be allocated to the Members from time to time 
(but no less often than once annually and before making any 
distribution to the Members) pro rata among the Members based on that 
Member's respective Percentage Interest, subject to limitations, 
offsets, chargebacks, deductions and revaluations. Since the Company 
does not have the same ownership as BOX Options, the allocation of 
profits and losses provisions in the LLC Agreement differ from the BOX 
Options LLC Agreement. These provisions relate to tax and accounting 
rules to which the Company is subject, due to its ownership structure. 
As such, these provisions are standard or not novel for a similarly 
situated commercial business registered as a limited liability company 
under the laws of the state of Delaware.
    Under Section 9.9 of the LLC Agreement, any profits or losses 
resulting from a liquidation, merger or consolidation of the Company, 
the sale of substantially all the assets of the Company in one or a 
series of related transactions, or any similar event (and, if 
necessary, specific items of gross income, gain, loss or deduction 
incurred by the Company in the fiscal year of the transaction(s)) shall 
be allocated among the Members so that after those allocations and the 
allocations required pursuant to capital account adjustments, and 
immediately before the making of any liquidating distributions to the 
Members, the Members' Capital Accounts equal, as nearly as possible, 
the amounts of the respective distributions to which they are entitled 
in a winding up. Since the Company does not have the same ownership as 
BOX Options, the termination and special allocation provisions in the 
LLC Agreement differ from the BOX Options LLC Agreement. These 
provisions relate to tax and accounting rules to which the Company is 
subject, due to its ownership structure. As such, these provisions are 
standard or not novel for

[[Page 33266]]

a similarly situated commercial business registered as a limited 
liability company under the laws of the state of Delaware.
    Pursuant to Section 10.2 of the LLC Agreement, the assets of the 
Company in winding up shall be applied or distributed as follows: 
First, to creditors of the Company, including Members who are 
creditors, to the extent otherwise permitted by law, whether by payment 
or the making of reasonable provisions for the payment thereof, and 
including any contingent, conditional and unmatured liabilities of the 
Company, taking into account the relative priorities thereof; second, 
to the Members and former Members in satisfaction of liabilities under 
the LLC Act for distributions to those Members and former Members; and 
third, to the Members in proportion to their respective Percentage 
Interests. A reasonable reserve for contingent, conditional and 
unmatured liabilities in connection with the winding up of the business 
of the Company shall be retained by the Company until the winding up is 
completed or the reserve is otherwise deemed no longer necessary by the 
liquidator. These provisions are substantially the same as those in the 
BOX Holdings LLC Agreement, with the exception of certain provisions 
that were not included in the LLC Agreement because they are 
inapplicable to the Company's structure.\50\
---------------------------------------------------------------------------

    \50\ See Section 10.2 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

Intellectual Property
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to intellectual property of the Company, 
highlighting areas that vary in comparison to the BOX Options LLC 
Agreement and/or BOX Holdings LLC Agreement and provides the statutory 
basis for such variation.
    Pursuant to Section 3.2(b) of the LLC Agreement, tZERO will provide 
to the Company the intellectual property license and services necessary 
to operate the BSTX trading system as set forth in the LSA and will 
make the necessary arrangements with any applicable third parties which 
will permit the Company to be an authorized sublicensee of any required 
third-party software necessary for Trading on the BSTX trading system. 
The intellectual property provisions in the LLC Agreement are similar 
to those in the BOX Options LLC Agreement, but contain certain 
differences reflecting the license and services of tZERO pursuant to 
the LSA rather than the software and technology provided by MX pursuant 
to the TOSA in connection with the BOX Options LLC Agreement.\51\
---------------------------------------------------------------------------

    \51\ See Article 13 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------

    Under the LSA, tZERO will provide the Company and the Exchange with 
a perpetual, fully paid up, royalty-free license to use its 
intellectual property comprising the BSTX trading system. In addition, 
the LSA provides that tZERO will provide services to the Company, 
including services related to implementing, administering, maintaining, 
supporting, hosting, developing, testing and securing the trading 
system. These services to be provided by tZERO relate to the 
specialized trading system operated by BSTX and are separate from any 
administrative or office technology services provided to BSTX by the 
Exchange discussed above.
    Pursuant to the LSA, tZERO retains its ownership of the BSTX 
trading system and tZERO's trademarks and service marks; provided, 
however, that the Company will own deliverables, enhancements and other 
technology that are developed or created by tZERO for the Company, 
including any related documentation and intellectual property.
Non-Competition
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to non-competition, highlighting areas that vary 
in comparison to the BOX Options LLC Agreement and/or BOX Holdings LLC 
Agreement and provides the statutory basis for such variation.
    Section 16.1 of the LLC Agreement provides that, for so long as it 
holds, directly or indirectly, a combined Percentage Interest in the 
Company of five percent (5%) or more, a Member will not hold or invest 
in more than five percent (5%) of, or participate in the creation and/
or operation of, any U.S.-based market for the secondary trading of 
security tokens or in any person engaged in the creation and/or 
operation of any U.S.-based market for the secondary trading of 
security tokens. The non-competition provision is substantially the 
same as the non-competition provision in the BOX Holdings LLC 
Agreement.\52\
---------------------------------------------------------------------------

    \52\ See Section 16.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

Changes in Ownership of the Company
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to changes in ownership of the Company, 
highlighting areas that vary in comparison to the BOX Options LLC 
Agreement and/or BOX Holdings LLC Agreement and provides the statutory 
basis for such variation.
    Section 7.1(a) of the LLC Agreement provides that no person will 
directly or indirectly, whether voluntarily, involuntarily, by 
operation of law or otherwise, dispose of, sell, alienate, assign, 
exchange, participate, subparticipate, encumber, or otherwise transfer 
in any manner (each, a ``Transfer'') its Units unless prior to that 
Transfer the transferee is approved by a vote of the Board. To be 
eligible for Board approval, a proposed transferee must be of high 
professional and financial standing, be able to carry out its duties as 
a Member hereunder, if admitted as a Member, and be under no regulatory 
or governmental bar or disqualification. Notwithstanding the foregoing, 
registration as a broker-dealer or self-regulatory organization is not 
required to be eligible for Board approval. However, the following will 
not be included in the definition of ``Transfer'': Transfers among 
Members, transfers to any person directly or indirectly owning, 
controlling or holding with power to vote all of the outstanding voting 
securities of and equity or beneficial interests in that Member, or 
transfers to any person that is a wholly owned Affiliate of a 
transferring Member. A holder of Units will provide prior written 
notice to the Exchange of any proposed Transfer. Any Transfer which 
violates the Transfer restrictions in the LLC Agreement will be void 
and ineffectual and will not bind or be recognized by the Company.
    Section 7.1(b) of the LLC Agreement establishes that a person will 
be admitted to the Company as an additional or substitute Member of the 
Company only upon that person's execution of a counterpart of the LLC 
Agreement to evidence its written acceptance of the terms and 
provisions of the LLC Agreement, and acceptance thereof by resolution 
of the Board, which acceptance may be given or withheld in the sole 
discretion of the Board; if that person is a transferee, its agreement 
in writing to its assumption of the obligations under the LLC Agreement 
of its assignor, and acceptance thereof by resolution of the Board; if 
that person is a transferee, a determination by the Board that the 
Transfer was permitted by the LLC Agreement; and approval of the Board. 
Whether or not a transferee who acquired any Units has accepted in 
writing the terms and provisions of the LLC Agreement and assumed in 
writing

[[Page 33267]]

the obligations hereunder of its predecessor in interest, that 
transferee will be deemed, by the acquisition of those Units, to have 
agreed to be subject to and bound by all the obligations of the LLC 
Agreement with the same effect and to the same extent as any 
predecessor in interest of that transferee. Notwithstanding the 
foregoing, any Person to which the Company issues new Class B Units 
shall be automatically admitted as a Member upon such Person's 
execution of a counterpart of this Agreement. Pursuant to Section 
7.1(c) of the LLC Agreement, all costs incurred by the Company in 
connection with the admission of a substituted Member will be paid by 
the transferor Member. The transfer provisions in Section 7.1 of the 
LLC Agreement are not contained in the BOX Options LLC Agreement; 
however, the Exchange notes that the provisions of Section 7.1 are 
substantially based on provisions in the BOX Holdings Group LLC 
Agreement.\53\
---------------------------------------------------------------------------

    \53\ See Section 7.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

    Pursuant to Section 7.2 of the LLC Agreement, the Company will have 
a right of first refusal if a Member desires to Transfer its Units, and 
obtains a bona fide offer therefor from a third-party transferee. 
Further, Section 7.3 of the LLC Agreement provides that, if the Company 
does not elect to exercise its right of first refusal, the non-
transferring Member(s) next have a right of first refusal. The 
provisions in Sections 7.2 and 7.3 of the LLC Agreement are 
substantially based on provisions found in the BOX Holdings LLC 
Agreement, with certain variations to account for differences in 
corporate and ownership structure.\54\ The Exchange believes that such 
variations are necessary to ensure proper application of the LLC 
Agreement's provisions to the Company, which serve to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, consistent with Section 6(b)(5) of the 
Act.\55\ Further, the Exchange believes that the variations in Sections 
7.2 and 7.3 of the LLC Agreement that tailor those provisions to the 
corporate and ownership structure of BSTX would help ensure that 
persons subject to the Exchange's jurisdiction are able to navigate and 
more readily understand the LLC Agreement. The Exchange believes that 
this, in turn, would be consistent with Section 6(b)(1) of the Act \56\ 
because it would help ensure that the Exchange, including in its 
operation of facilities, is so organized and has the capacity to be 
able to carry out the purposes of the Act.
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    \54\ See Sections 7.2 and 7.3 of the BOX Holdings LLC Agreement.
    \55\ 15 U.S.C. 78f(b)(5).
    \56\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Pursuant to Section 7.4 of the LLC Agreement, no Transfer may occur 
if the Transfer could cause a termination of the Company, could cause a 
termination of the Company's status as a partnership or cause the 
Company to be treated as a publicly traded partnership for federal 
income tax purposes, is prohibited by any securities laws, is 
prohibited by the LLC Agreement, or is to a minor or incompetent 
person.
    Section 7.4(e) of the LLC Agreement requires that a Member will 
provide the Company with written notice fourteen (14) days prior, and 
the Company will provide the Commission and the Exchange with written 
notice ten (10) days prior, to the closing date of any acquisition that 
results in that Member's Percentage Interest, alone or together with 
any related person of that Member, meeting or crossing the threshold 
level of 5% or the successive 5% Percentage Interest levels of 10% and 
15%. Any person that, either alone or together with its related 
persons, owns, directly or indirectly, of record or beneficially, five 
percent (5%) or more of the then outstanding Units will, immediately 
upon acquiring knowledge of its ownership of five percent (5%) or more 
of the then outstanding Units, give the Company written notice of that 
ownership. In addition, Section 7.4(f) of the LLC Agreement provides 
that any Transfer that results in the acquisition and holding by any 
person, alone or together with its related persons, of an aggregate 
Percentage Interest level which meets or crosses the threshold level of 
20% or any successive 5% Percentage Interest level (i.e., 25%, 30%, 
etc.) is also subject to the rule filing process pursuant to Section 19 
of the Act.
    Under Section 7.4(g) of the LLC Agreement, unless it does not 
directly or indirectly hold any interest in a Member, a Controlling 
Person (as defined below) of a Member will be required to execute an 
amendment to the LLC Agreement upon establishing a Controlling Interest 
(as defined below) in any Member that, alone or together with any 
related persons of that Member, holds a Percentage Interest in the 
Company equal to or greater than 20%. This amendment will be 
substantially in the form of the instrument of accession attached as 
Exhibit 5B hereto [sic] and provide that the Controlling Person will 
agree to become a party to the LLC Agreement and to abide by all of its 
provisions, to the same extent and as if they were Members. These 
amendments to the LLC Agreement will be subject to the rule filing 
process pursuant to Section 19 of the Act. The rights and privileges, 
including all voting rights, of the Member in whom a Controlling 
Interest is held, directly or indirectly, under the LLC Agreement and 
the LLC Act will be suspended until the amendment has become effective 
pursuant to Section 19 of the Act or the Controlling Person no longer 
holds, directly or indirectly, a Controlling Interest in the 
Member.\57\ As a result, any new Member or other direct or indirect 
owner of an equity interest in BSTX, whether by transfer of such equity 
interest from an existing owner or otherwise, will be subject to the 
same requirements as all other Members, namely that it will be required 
to execute an instrument of accession to the LLC Agreement and be 
subject to the rule filing process if the new Member holds, directly or 
indirectly, a Controlling Interest in BSTX.
---------------------------------------------------------------------------

    \57\ See supra note 16.
---------------------------------------------------------------------------

    In accordance with Section 7.4(h) of the LLC Agreement, if a 
Member, or any related person of that Member, is approved by the 
Exchange as a BSTX Participant pursuant to the Exchange Rules, and that 
Member's Percentage Interest is greater than 20%, alone or together 
with any Related Person of that Member, the voting rights of the Member 
and its appointed Member Directors will be limited to 20%; provided, 
however, that the Member's full Percentage Interest will be counted for 
quorum purposes and the portion greater than 20% will be voted by the 
person presiding over quorum and vote matters in the same proportion as 
the Units held by the other Members are voted. The Exchange notes that 
Section 7.4 of the Company's LLC Agreement is identical in substance to 
provisions of the BOX Holdings LLC Agreement.\58\
---------------------------------------------------------------------------

    \58\ See Section 7.4 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

    In addition to the provisions discussed above, Section 5 of the LLC 
Agreement includes provisions that relate to changes in ownership of 
the Company. Because BOX Options is wholly-owned by BOX Holdings, the 
LLC Agreement differs from the BOX Options LLC Agreement. Under Section 
5.5 of the LLC Agreement, a Member will cease to be a Member of the 
Company upon the Bankruptcy or the involuntary dissolution of that 
Member. Further, Section 5.8 of the LLC Agreement allows the Board, by 
unanimous vote and after appropriate notice and opportunity for 
hearing, to suspend or terminate a Member's voting

[[Page 33268]]

privileges or membership in the Company for three potential reasons: 
(i) In the event the Board determines in good faith that such Member is 
subject to a ``statutory disqualification,'' as defined in Section 
3(a)(39) of the Act; (ii) in the event the Board determines in good 
faith that such Member has violated a material provision of this 
Agreement, or any federal or state securities law; or (iii) in the 
event the Board determines in good faith that such action is necessary 
or appropriate in the public interest or for the protection of 
investors. The Exchange believes that limiting the ability to 
participate in the Company for Members who may act in contravention of 
legal or ethical standards may promote just and equitable principles of 
trade, and, in general, protects investors and the public interest, 
consistent with Section 6(b)(5) of the Act.\59\ Further, the Exchange 
believes that the ability to suspend or terminate a Member's voting 
privileges or membership in the Company as described above would be 
consistent with Section 6(b)(1) of the Act.\60\ This is because such 
measures in respect of Members who act in contravention of legal or 
ethical standards would help ensure that the Exchange, including in its 
operation of facilities, is so organized and has the capacity to be 
able to carry out the purposes of the Act, including the prevention of 
inequitable and unfair practices.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78f(b)(5).
    \60\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Finally, the Exchange notes that Section 18.1 of the Company's LLC 
Agreement provides that amendments to the LLC Agreement must be 
approved by the Board, including one Member Director appointed by each 
of BOX Digital and tZERO, and any amendment of a provision specific to 
any Class, Member, or the Exchange requires the consent of holders of a 
majority of the outstanding Units of such Class, or such Member or the 
Exchange (as applicable). In addition, the Company shall provide prompt 
notice to the Exchange of any amendment, modification, waiver or 
supplement to the Agreement formally presented to the Board for 
approval and the Exchange shall review each such amendment, 
modification, waiver or supplement and, if such amendment is required, 
under Section 19 of the Act and the rules promulgated thereunder, to be 
filed with, or filed with and approved by, the SEC before such 
amendment may be effective, then such amendment shall not be effective 
until filed with, or filed with and approved by, the SEC, as the case 
may be.\61\ These provisions are similar to provisions in the BOX 
Holdings LLC Agreement but differ in details related to the different 
ownership structure of the Company.\62\
---------------------------------------------------------------------------

    \61\ A proposed rule change can also become effective by 
operation of law. See 15 U.S.C. 78s(b)(2).
    \62\ See Section 18.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

Regulation of the Company
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to regulation of the Company, highlighting areas 
that vary in comparison to the BOX Options LLC Agreement and/or BOX 
Holdings LLC Agreement and provides the statutory basis for such 
variation.
    Generally, Section 3.2 of the LLC Agreement, which is identical in 
substance to a provision in the BOX Options LLC Agreement, provides 
that the Exchange has authority to act as the SRO for the Company, will 
provide the regulatory framework for the BSTX Market and will have 
regulatory responsibility for the activities of the BSTX Market.\63\ In 
addition, the Exchange will provide regulatory services to the Company 
pursuant to the Facility Agreement. Nothing in the LLC Agreement shall 
be construed to prevent the Exchange from allowing the Company to 
perform activities that support the regulatory framework for the BSTX 
Market, subject to oversight by the Exchange. This provision ensures 
that the Exchange has full regulatory control over BSTX, which is 
designed to prevent any owner of BSTX from exercising undue influence 
over the regulated activities of the Company.
---------------------------------------------------------------------------

    \63\ See Section 3.2 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------

    Section 15 of the LLC Agreement deals with how the Company will 
govern the handling of confidential information, as it relates to the 
securities regulations and otherwise. All of the provisions in Section 
15 of the LLC Agreement are substantively similar to provisions in the 
BOX Options LLC Agreement, except where noted below.\64\ Under Sections 
15.1 and 15.2(a) of the LLC Agreement, subject to certain exceptions 
set forth below, no Member will make any public disclosures concerning 
the LLC Agreement without the prior approval of the Company. Each 
Member and the Exchange may only use confidential information of the 
Company in connection with the activities contemplated by the LLC 
Agreement and other written agreements and pursuant to the Act and the 
rules and regulations thereunder. Furthermore, Section 15.4 of the LLC 
Agreement provides that representatives of the parties will meet to 
institute confidentiality procedures and discuss confidentiality and 
disclosure issues.
---------------------------------------------------------------------------

    \64\ See Article 12 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------

    Pursuant to Section 15.2(b) of the LLC Agreement, each of the 
Members and the Exchange may disclose confidential information of the 
Company only to its respective directors, officers, employees and 
agents who have a reasonable need to know the information. Also, such 
individuals may disclose confidential information of the Company to the 
extent required by applicable securities or other laws, a court or 
securities regulators, including the Commission and the Exchange.
    Section 15.3 of the LLC Agreement requires that each Member and the 
Exchange will hold all non-public information concerning the other 
Members or the Exchange in strict confidence, unless disclosure to an 
applicable regulatory authority is necessary or appropriate or unless 
compelled to disclose by judicial or administrative process or required 
by law. If a Member or the Exchange is compelled to disclose any Member 
Information in connection with any necessary regulatory approval or by 
judicial or administrative process, it will promptly notify the 
disclosing party to allow the disclosing party to seek a protective 
order.
    Pursuant to Section 15.5 of the LLC Agreement, nothing in the LLC 
Agreement will be interpreted as to limit or impede the rights of the 
Commission, pursuant to the federal securities laws and rules and 
regulations thereunder, and the Exchange to access and examine 
applicable confidential information pursuant to the federal securities 
laws and the rules and regulations thereunder, or to limit or impede 
the ability of any directors, officers, employees or agents of the 
Company and any directors, officers, employees or agents of the Members 
to disclose that confidential information to the Commission or the 
Exchange. This is substantially the same provision that is contained in 
the BOX Options LLC Agreement, except that it also provides that the 
SEC can access and examine Confidential Information, pursuant to the 
federal securities laws and rules and regulations thereunder.\65\
---------------------------------------------------------------------------

    \65\ See Section 12.5 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------

    Under Section 15.6 of the LLC Agreement, confidential information 
of the Company or the Exchange

[[Page 33269]]

pertaining to regulatory matters (including but not limited to 
disciplinary matters, trading data, trading practices and audit 
information) will not be made available to any persons other than to 
the Company's Directors, officers, employees and agents that have a 
reasonable need to know the contents thereof; will be retained in 
confidence by the Company and the Directors, officers, employees and 
agents of the Company; and will not be used for any non-regulatory 
purpose. Nothing in the LLC Agreement will be interpreted as to limit 
or impede the rights of the Commission and the Exchange to access and 
examine that confidential information pursuant to the federal 
securities laws and the rules and regulations thereunder, or to limit 
or impede the ability of any Directors, officers, employees and agents 
of the Company to disclose that confidential information to the 
Commission or the Exchange.
    Finally, Section 18.8 of the LLC Agreement establishes that the 
Company will not operate as a facility of the Exchange until this rule 
filing is effective. Upon effectiveness, the Commission and the 
Exchange will then have regulatory oversight responsibilities with 
respect to the Company and references in the LLC Agreement to the 
Exchange, the Commission, any regulation or oversight of the Company by 
the Commission or the Exchange, and any participation in the affairs of 
the Company by the Commission or the Exchange, will take effect. The 
execution of the LLC Agreement by the Exchange will not be required 
until the approval is obtained, at which time the Exchange will become 
a party to the LLC Agreement. This provision is not included in the BOX 
Options LLC Agreement because it would not be applicable. By not 
operating the Company until this rule filing is effective, the Exchange 
believes it is fostering cooperation and coordination with persons 
engaged in regulating (e.g., the Commission), clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, consistent with Section 6(b)(5) of the Act.\66\
---------------------------------------------------------------------------

    \66\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Regulatory Jurisdiction Over Members
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to regulatory jurisdiction over Members by the 
Company, highlighting areas that vary in comparison to the BOX Options 
LLC Agreement and/or BOX Holdings LLC Agreement and provides the 
statutory basis for such variation.
    Pursuant to Section 11.1 of the LLC Agreement, which is similar in 
substance to a provision in the BOX Holdings LLC Agreement, the Board 
will cause to be entered in appropriate books, kept at the Company's 
principal place of business, all transactions of or relating to the 
Company.\67\ Each Member will have the right to inspect and copy those 
books and records, excluding regulatory and disciplinary information. 
The Board will not have the right to keep confidential from the Members 
any information that the Board would otherwise be permitted to keep 
confidential pursuant to Sec.  18-305(c) of the LLC Act, except for 
information required by law or by agreement with any third party to be 
kept confidential. The Company's independent auditor will be an 
independent public accounting firm selected by the Board. To the extent 
related to the operation or administration of the Exchange or the BSTX 
Market, all books and records of the Company and its Members will be 
maintained at a location within the United States, the books, records, 
premises, directors, officers, employees and agents of the Company and 
its Members will be deemed to be the books, records, premises, 
directors, officers, employees and agents of the Exchange for the 
purposes of, and subject to oversight pursuant to, the Act, and the 
books and records of the Company and its Members will be subject at all 
times to inspection and copying by the Commission and the Exchange.
---------------------------------------------------------------------------

    \67\ See Section 11.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

    Under Section 18.6(a) of the LLC Agreement, to the extent they are 
related to Company activities, the books, records, premises, officers, 
directors, agents, and employees of the Member will be deemed to be the 
books, records, premises, officers, directors, agents, and employees of 
the Exchange for the purpose of and subject to oversight pursuant to 
the Act. Further, pursuant to Section 18.6(b) of the LLC Agreement, the 
Company, the Members and the officers, directors, employees and agents 
of each, by virtue of their acceptance of those positions, will be 
deemed to irrevocably submit to the jurisdiction of the U.S. federal 
courts, the Commission and the Exchange for purposes of any suit, 
action or proceeding pursuant to U.S. federal securities laws, the 
rules or regulations thereunder, arising out of, or relating to, 
activities of the Exchange and the Company, and Delaware state courts 
for any matter relating to the organization or internal affairs of the 
Company, and will be deemed to waive, and agree not to assert by way of 
motion, as a defense or otherwise in any suit, action or proceeding, 
any claims that they are not personally subject to the jurisdiction of 
the U.S. federal courts, the Commission, the Exchange or Delaware state 
courts, as applicable, that the suit, action or proceeding is an 
inconvenient forum or that the venue of the suit, action or proceeding 
is improper, or that the subject matter hereof may not be enforced in 
or by those courts or agencies. The Company, the Members and the 
officers, directors, employees and agents of each, by virtue of their 
acceptance of those positions, also agree that they will maintain an 
agent in the United States for the service of process of a claim 
arising out of, or relating to, the activities of the Exchange and the 
Company. These provisions are substantially similar to provisions of 
the BOX Options LLC Agreement.\68\
---------------------------------------------------------------------------

    \68\ See Section 14.6 of the BOX Options LLC Agreement.
---------------------------------------------------------------------------

    Pursuant to Section 18.6(c) of the LLC Agreement, with respect to 
obligations under the LLC Agreement related to confidentiality 
regulation, jurisdiction and books and records, the Company, the 
Exchange, and each Member will ensure that directors, officers and 
employees of the Company, the Exchange, and each Member consent in 
writing to the applicability of the applicable provisions to the extent 
related to the operation or administration of the Exchange or the BSTX 
Market. This provision is substantially the same as the provision 
contained in the BOX Options LLC Agreement, with the exception of the 
deletion of a reference to privacy rules in Canada, which are not 
applicable to the current Members of the Company.\69\ The Exchange 
believes that allowing only applicable laws to be referenced in the LLC 
Agreement helps to ensure that proper legal standards apply to the 
Company, which may foster cooperation and coordination with persons 
engaged in regulating transactions in securities, consistent with 
Section 6(b)(5) of the Act.\70\ Further, the Exchange believes that 
basing the provisions described above on the BOX Options LLC Agreement 
but omitting terms that are not applicable would help ensure that 
persons subject to the Exchange's jurisdiction are able to navigate and 
more readily understand the LLC Agreement. The Exchange believes that 
this, in turn, would be consistent with

[[Page 33270]]

Section 6(b)(1) of the Act \71\ because it would help ensure that the 
Exchange, including in its operation of facilities, is so organized and 
has the capacity to be able to carry out the purposes of the Act.
---------------------------------------------------------------------------

    \69\ See Section 14.6(c) of the BOX Options LLC Agreement.
    \70\ 15 U.S.C. 78f(b)(5).
    \71\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

Amendments to LLC Agreement
    In the discussion below, the Exchange describes provisions in the 
LLC Agreement related to amendments to the LLC Agreement, highlighting 
areas that vary in comparison to the BOX Options LLC Agreement and/or 
BOX Holdings LLC Agreement and provides the statutory basis for such 
variation.
    Section 18.1 of the LLC Agreement, which is substantially similar 
to a provision in the BOX Holdings LLC Agreement,\72\ provides that the 
LLC Agreement may only be amended by an agreement in writing approved 
by the Board, including at least one Member Director appointed by each 
Member, without the consent of any Member or other person. In addition, 
any terms specific to any Class, or Member or to the Exchange may not 
be altered or adversely affect that Member or the Exchange without the 
prior written consent of holders of a majority of the outstanding Units 
of such Class, or such Member or the Exchange as applicable. The 
Company will provide prompt notice to the Exchange of any amendment, 
modification, waiver or supplement to the LLC Agreement formally 
presented to the Board for approval and the Exchange will review each 
amendment, modification, waiver or supplement and, if that amendment is 
required, under Section 19 of the Act and the rules promulgated 
thereunder, to be filed with, or filed with and approved by, the 
Commission before that amendment may be effective, then that amendment 
will not be effective until filed with, or filed with and approved by, 
the Commission, as the case may be. If the Exchange ceases to be the 
SRO authority of the Company, the Exchange will no longer be a party to 
the LLC Agreement and thereafter the provisions of the LLC Agreement 
will not apply to the Exchange except for the provisions referenced in 
Section 18.12, which will survive.
---------------------------------------------------------------------------

    \72\ See Section 18.1 of the BOX Holdings LLC Agreement.
---------------------------------------------------------------------------

Additional Provisions
    As previously mentioned, BSTX is a Delaware limited liability 
company. As such, the LLC Agreement contains numerous provisions that 
are standard or not novel for a similarly situated commercial business 
registered as a limited liability company under the laws of the state 
of Delaware.\73\ The Exchange believes that these provisions are 
consistent with Section 6(b)(1) of the Act \74\ because they are 
consistent with corporate governance practices, generally, and they 
would help ensure that the Exchange, including in its operation of 
facilities, is so organized and has the capacity to be able to carry 
out the purposes of the Act.
---------------------------------------------------------------------------

    \73\ See LLC Agreement Sections 2.1, 2.2, 2.4, 2.5, 2.6, 2.7, 
3.1, 4.2, 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 5.1, 5.2, 5.3, 5.4, 5.6, 
5.7, 6.3, 6.4, 6.5, 7.5, 7.6, 7.7, 8.3, 9.2, 9.3, 9.4, 9.5, 9.6, 
9.7, 9.8, 10.3, 10.4, 11.2, 11.3, 11.4, 11.5, 11.6, 12, 13.1, 14, 
16.2, 17, 18.2, 18.3, 18.4, 18.5, 18.7, 18.9, 18.10, 18.11, and 
18.12.
    \74\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

2. Statutory Basis
    In addition to the sections above that discuss variations from the 
BOX Options LLC Agreement and/or BOX Holdings LLC Agreement and their 
associated statutory bases, the Exchange believes that the proposal is 
consistent with the requirements of Section 6(b) of the Act,\75\ in 
general, and furthers the objectives of Section 6(b)(1),\76\ in 
particular, in that it enables the Exchange to be so organized so as to 
have the capacity to be able to carry out the purposes of the Act and 
to comply, and to enforce compliance by its exchange members and 
persons associated with its exchange members, with the provisions of 
the Act, the rules and regulations thereunder, and the rules of the 
Exchange. The Exchange also believes that this filing furthers the 
objectives of Section 6(b)(5) of the Act \77\ in that it is designed to 
facilitate transactions in securities, to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and in general, to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78f(b).
    \76\ 15 U.S.C. 78f(b)(5).
    \77\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the Proposed Rule Change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

C . Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2020-16 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2020-16. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the

[[Page 33271]]

public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-BOX-
2020-16 and should be submitted on or before June 22, 2020.
---------------------------------------------------------------------------

    \78\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\78\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11653 Filed 5-29-20; 8:45 am]
 BILLING CODE 8011-01-P