[Federal Register Volume 86, Number 182 (Thursday, September 23, 2021)]
[Notices]
[Pages 52937-52940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20552]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93045; File No. SR-BOX-2021-22]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee 
Schedule on the BOX Options Market LLC Facility To Reduce the Amount of 
the Options Regulatory Fee (``ORF'')

September 17, 2021.
    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 September 14, 2021, BOX Exchange LLC (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Exchange filed the proposed rule 
change pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ and Rule 19b-
4(f)(2) thereunder,\4\ which renders the proposal effective upon filing 
with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to amend the Fee Schedule on 
the BOX Options Market LLC (``BOX'') options facility. 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://boxexchange.com.

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 Exchange 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 Exchange 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
    Currently, the Exchange assesses ORF in the amount of $0.0038 per 
contract side. The Exchange proposes to reduce the amount of ORF from 
$0.0038 per contract side to $0.00295 per contract side in order to 
help ensure that revenue collected from the ORF, in combination with 
other regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. The Exchange's proposed change to the ORF should 
balance the Exchange's regulatory revenue against the anticipated 
regulatory costs.
Collection of ORF
    Currently, the Exchange assesses the per-contract ORF to each 
Participant \5\ for all options transactions, including Mini Options, 
cleared or ultimately cleared by the Participant, which are cleared by 
the Options Clearing Corporation (``OCC'') in the ``customer'' 
range,\6\ regardless of the exchange on which the transaction occurs. 
The ORF is collected by OCC on behalf of the Exchange from either: (1) 
A Participant that was the ultimate clearing firm for the transaction; 
or (2) a non-Participant that was the ultimate clearing firm where a 
Participant was the executing clearing firm for the transaction. The 
Exchange uses reports from OCC to determine the identity of the 
executing clearing firm and ultimate clearing firm.
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    \5\ The term ``Participant'' or ``Options Participant'' means a 
firm, or organization that is registered with the Exchange pursuant 
to the Rule 2000 Series for purposes of participating in trading on 
a facility of the Exchange. See BOX Rule 100(a)(41).
    \6\ Exchange Participants must record the appropriate account 
origin code on all orders at the time of entry in order. The 
Exchange represents that it has surveillances in place to verify 
that Participants mark orders with the correct account origin code.
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    To illustrate how the Exchange assesses and collects ORF, the 
Exchange provides the following set of examples. For a transaction that 
is executed on the Exchange and the ORF is assessed, if there is no 
change to the clearing account of the original transaction, then the 
ORF is collected from the Participant that is the executing clearing 
firm for the transaction (the Exchange notes that, for purposes of the 
Fee Schedule, when there is no change to the clearing account of the 
original transaction, the executing clearing firm is deemed to be the 
ultimate clearing firm). If there is a change to the clearing account 
of the original transaction (i.e., the executing clearing firm ``gives-
up'' or ``CMTAs'' \7\ the transaction to another clearing firm), then 
the ORF is collected from the clearing firm that ultimately clears the 
transaction--the ``ultimate clearing firm.'' The ultimate clearing firm 
may be either a Participant or non-Participant of the Exchange. If the 
transaction is executed on an away exchange and the ORF is assessed, 
then the ORF is collected from the ultimate clearing firm for the 
transaction. Again, the ultimate clearing firm may be either a 
Participant or non-Participant of the Exchange. The Exchange notes, 
however, that when the transaction is executed on an away exchange, the 
Exchange does not assess the ORF when neither the executing clearing 
firm nor the ultimate clearing firm is a Participant (even if a 
Participant is ``given-up'' or ``CMTAed'' and then such Participant 
subsequently ``gives-up'' or ``CMTAs'' the transaction to another non-
Participant via a CMTA reversal). Finally, the Exchange does not assess 
the ORF on outbound linkage trades, whether executed at the Exchange or 
an away exchange. ``Linkage trades'' are tagged in the Exchange's 
system, so the Exchange can readily tell them apart from other trades. 
A customer order routed to another exchange results in two customer 
trades, one from the originating exchange and one from the recipient 
exchange. Charging ORF on both trades could result in double-billing of 
ORF for a single customer order; thus, the Exchange does not assess ORF 
on outbound linkage trades in a linkage scenario.
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    \7\ ``CMTA'' or Clearing Member Trade Assignment is a form of 
``give-up'' whereby the position will be assigned to a specific 
clearing firm at OCC.
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    As a practical matter, when a transaction that is subject to the 
ORF is not executed on the Exchange, the Exchange lacks the information 
necessary to identify the order-entering market participant for that 
transaction. There are a multitude of order-entering market 
participants throughout the industry, and such participants can make 
changes to the market centers to which they connect, including dropping 
their connection to one market center and establishing themselves as 
participants on another. For these reasons, it is not possible for the

[[Page 52938]]

Exchange to identify, and thus assess fees such as ORF, on order-
entering participants on away markets on a given trading day. Clearing 
members, however, are distinguished from order-entering participants 
because they remain identified to the Exchange on information the 
Exchange receives from OCC regardless of the identity of the order-
entering participant, their location, and the market center on which 
they execute transactions. Therefore, the Exchange believes it is more 
efficient for the operation of the Exchange and for the marketplace as 
a whole to collect the ORF from clearing members.
ORF Revenue and Monitoring of ORF
    The Exchange monitors the amount of revenue collected from the ORF 
to ensure that it, in combination with other regulatory fees and fines, 
does not exceed regulatory costs. In determining whether an expense is 
considered a regulatory cost, the Exchange reviews all costs and makes 
determinations if there is a nexus between the expense and a regulatory 
function. The Exchange notes that fines collected by the Exchange in 
connection with a disciplinary matter offset ORF.
    As discussed below, the Exchange believes it is appropriate to 
charge the ORF only to transactions that clear as customer at the OCC. 
The Exchange believes that its broad regulatory responsibilities with 
respect to a Participant's activities supports applying the ORF to 
transactions cleared but not executed by a Participant. The Exchange's 
regulatory responsibilities are the same regardless of whether a 
Participant enters a transaction or clears a transaction executed on 
its behalf. The Exchange regularly reviews all such activities, 
including performing surveillance for position limit violations, 
manipulation, front-running, contrary exercise advice violations and 
insider trading. These activities span across multiple exchanges.
    Revenue generated from ORF, when combined with all of the 
Exchange's other regulatory fees and fines, is designed to recover a 
material portion of the regulatory costs to the Exchange of the 
supervision and regulation of Participants' customer options business 
including performing routine surveillances, investigations, 
examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities. Unlike other options 
exchanges, all of the Exchange's expenses support the regulatory 
function as BOX Exchange LLC (the ``Exchange'') is a fully separate 
legal entity from BOX Options Market LLC, the equity options facility 
of the Exchange. The Exchange fulfills the regulatory functions and 
responsibilities as a national securities exchange registered with the 
SEC under Section 6 of the Securities Exchange Act of 1934, and 
oversees the BOX Options Market. Exchange expenses are solely 
regulatory in nature because, due to the unique structure between the 
Exchange and the BOX Options Market facility, the Exchange expenses are 
separate from the BOX Options Market facility expenses and there can be 
no commingling of the funds. Put another way, all of the Exchange's 
expenses support the regulatory function of BOX Exchange because the 
Exchange expenses are completely separate from the BOX Options Market 
facility expenses. The ORF is designed to recover a material portion of 
these regulatory costs to the Exchange, including the supervision and 
regulation of its participants, including performing routine 
surveillances, investigations, examinations, financial monitoring, and 
policy, rulemaking, interpretive, and enforcement activities.
Proposal
    Based on the Exchange's most recent review, the Exchange proposes 
to reduce the amount of ORF that will be collected by the Exchange from 
$0.0038 per contract side to $0.00295 per contract side. The Exchange 
issued an Informational Circular detailing the Options Regulatory Fee 
Announcement on July 27, 2021, indicating the proposed rate change for 
September 1, 2021.\8\
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    \8\ See https://boxoptions.com/assets/IC-2021-32-Options-Regulatory-Fee-Announcement.pdf.
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    The proposed decrease is based on recent options volumes, which 
included an increase in retail investors. With respect to options 
volume, the Exchange, and the options industry as a whole, experienced 
a significant increase between 2020 and 2021. For example, total 
options contract volumes in April, May and June 2021 were 29.7%, 32.7% 
and 25.6% higher than the total options contract volumes in April, May 
and June 2020, respectively.\9\
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    \9\ See data from OCC at: OCC April 2021 Total Volume Up 29.7 
Percent from a Year Ago [bond]Business Wire, OCC May 2021 Total 
Volume Up 32.7 Percent from a Year Ago [bond] Business Wire, and OCC 
June 2021 Total Volume Up 25.6 Percent from a Year Ago (apnews.com).
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    There can be no assurance that the Exchange's final costs for 2021 
will not differ materially from these expectations, nor can the 
Exchange predict with certainty whether options volume will remain at 
the current level going forward. The Exchange notes however, that when 
combined with regulatory fees and fines, the revenue being generated 
utilizing the current ORF rate may result in revenue that will run in 
excess of the Exchange's estimated regulatory costs for the year.\10\ 
Particularly, as noted above, the options market has seen a substantial 
increase in volume throughout 2020 and 2021, due in large part to the 
extreme volatility in the marketplace as a result of the COVID-19 
pandemic. This unprecedented spike in volatility resulted in 
significantly higher volume than was originally projected by the 
Exchange (thereby resulting in substantially higher ORF revenue than 
projected). The Exchange therefore proposes to decrease the ORF in 
order to ensure it does not exceed its regulatory costs for the year. 
Particularly, the Exchange believes that decreasing the ORF when 
combined with all of the Exchange's other regulatory fees and fines, 
would allow the Exchange to continue covering a material portion of its 
regulatory costs, while lessening the potential for generating excess 
revenue that may otherwise occur using the current rate.\11\
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    \10\ The Exchange notes that notwithstanding the potential 
excess ORF revenue the Exchange anticipates it would collect 
utilizing the current rate, it has not used such revenue for non-
regulatory purposes.
    \11\ The Exchange notes that its regulatory responsibilities 
with respect to Participant compliance with options sales practice 
rules have been allocated to the Financial Industry Regulatory 
Authority (``FINRA'') under a 17d-2 Agreement. The ORF is not 
designed to cover the cost of options sales practice regulation.
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    The Exchange will continue to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed the Exchange's total 
regulatory costs. The Exchange will continue to monitor BOX regulatory 
costs and revenues at a minimum on a semi-annual basis. If the Exchange 
determines regulatory revenues exceed or are insufficient to cover a 
material portion of its regulatory costs, the Exchange will adjust the 
ORF by submitting a fee change filing to the Commission. The Exchange 
will notify Participants of adjustments to the ORF via Informational 
Circular at least 30 days prior to the effective date of the change.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act, in general, and Section 
6(b)(4) and 6(b)(5)of the Act,\12\ in particular, in that

[[Page 52939]]

it provides for the equitable allocation of reasonable dues, fees, and 
other charges among BOX Participants and other persons using its 
facilities and does not unfairly discriminate between customers, 
issuers, brokers or dealers.
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    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes the proposed fee change is reasonable because 
customer transactions will be subject to a lower ORF fee than the 
current rate. Moreover, the proposed reduction is necessary in order 
for the Exchange to not collect revenue in excess of its anticipated 
regulatory costs, in combination with other regulatory fees and fines, 
which is consistent with the Exchange's practices.
    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Participants' customer options business 
including performing routine surveillances and investigations, as well 
as policy, rulemaking, interpretive and enforcement activities. The 
Exchange will monitor the amount of revenue collected from the ORF to 
ensure that it, in combination with its other regulatory fees and 
fines, does not exceed the Exchange's total regulatory costs. The 
Exchange has designed the ORF to generate revenues that, when combined 
with all of the Exchange's other regulatory fees, will be less than or 
equal to the Exchange's regulatory costs, which is consistent with the 
Commission's view that regulatory fees be used for regulatory purposes 
and not to support the Exchange's business side. In this regard, the 
Exchange believes that the proposed decrease to the fee is reasonable.
    The Exchange believes that continuing to limit changes to the ORF 
to twice a year on specific dates with advance notice is reasonable 
because it gives participants certainty on the timing of changes, if 
any, and better enables them to properly account for ORF charges among 
their customers. The Exchange believes that continuing to limit changes 
to the ORF to twice a year on specific dates is equitable and not 
unfairly discriminatory because it will apply in the same manner to all 
Participants that are subject to the ORF and provide them with 
additional advance notice of changes to that fee.
    The Exchange believes that collecting the ORF from non-Participants 
when such non-Participants ultimately clear the transaction (that is, 
when the non-Participant is the ``ultimate clearing firm'' for a 
transaction in which a Participant was assessed the ORF) is an 
equitable allocation of reasonable dues, fees, and other charges among 
its participants and issuers and other persons using its facilities. 
The Exchange notes that there is a material distinction between 
``assessing'' the ORF and ``collecting'' the ORF. The ORF is only 
assessed to a Participant with respect to a particular transaction in 
which it is either the executing clearing firm or ultimate clearing 
firm. The Exchange does not assess the ORF to non-Participants. Once, 
however, the ORF is assessed to a Participant for a particular 
transaction, the ORF may be collected from the Participant or a non-
Participant, depending on how the transaction is cleared at OCC. If 
there was no change to the clearing account of the original 
transaction, the ORF would be collected from the Participant. If there 
was a change to the clearing account of the original transaction and a 
non-Participant becomes the ultimate clearing firm for that 
transaction, then the ORF will be collected from that non-Participant. 
The Exchange believes that this collection practice continues to be 
reasonable and appropriate, and was originally instituted for the 
benefit of clearing firms that desired to have the ORF be collected 
from the clearing firm that ultimately clears the transaction.
    The Exchange designed the ORF so that revenue generated from the 
ORF, in combination with its other regulatory fees and fines, does not 
exceed regulatory costs, which is consistent with the view of the 
Commission that regulatory fees be used for regulatory purposes and not 
to support the Exchange's business operations. As discussed above, 
however, after review of its regulatory costs and regulatory revenues, 
which includes revenues from ORF and other regulatory fees and fines, 
the Exchange determined that absent a reduction in ORF, it may be 
collecting revenue in excess of its regulatory costs. Indeed, the 
Exchange notes that when taking into account the recent options volume, 
which included an increase in customer options transactions, it 
estimates the ORF will generate revenues that may cover more than the 
approximated Exchange's projected regulatory costs. Moreover, when 
coupled with the Exchange's other regulatory fees and revenues, the 
Exchange estimates ORF to generate over 100% of the Exchange's 
projected regulatory costs. As such, the Exchange believes it is 
reasonable and appropriate to decrease the ORF amount from $0.0038 to 
$0.00295 per contract side.
    The Exchange also believes the proposed fee change is equitable and 
not unfairly discriminatory in that it is charged to all Participants 
on all their transactions that clear in the customer range at the 
OCC,\13\ with an exception.\14\ The Exchange believes the ORF ensures 
fairness by assessing higher fees to those Participants that require 
more Exchange regulatory services based on the amount of customer 
options business they conduct. Regulating customer trading activity is 
much more labor intensive and requires greater expenditure of human and 
technical resources than regulating non-customer trading activity, 
which tends to be more automated and less labor intensive. For example, 
there are costs associated with main office and branch office 
examinations (e.g., staff expenses), as well as investigations into 
customer complaints and the terminations of registered persons. As a 
result, the costs associated with administering the customer component 
of the Exchange's overall regulatory program are materially higher than 
the costs associated with administering the non-customer component 
(e.g., participant proprietary transactions) of its regulatory program. 
Moreover, the Exchange notes that it has broad regulatory 
responsibilities with respect to activities of its Participants, 
irrespective of where their transactions take place. Many of the 
Exchange's surveillance programs for customer trading activity may 
require the Exchange to look at activity across all markets, such as 
reviews related to position limit violations and manipulation. Indeed, 
the Exchange cannot effectively review for such conduct without looking 
at and evaluating activity regardless of where it transpires. In 
addition to its own surveillance programs, the Exchange also works with 
other SROs and exchanges on intermarket surveillance related issues. 
Through its participation in the Intermarket Surveillance Group 
(``ISG'') \15\ the Exchange shares

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information and coordinates inquiries and investigations with other 
exchanges designed to address potential intermarket manipulation and 
trading abuses. Accordingly, there is a strong nexus between the ORF 
and the Exchange's regulatory activities with respect to customer 
trading activity of its Participants.
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    \13\ The BOX ORF is collected by OCC on behalf of BOX from 
either (1) a Participant that was the ultimate clearing firm for the 
transaction or (2) a non-Participant that was the ultimate clearing 
firm where a Participant was the executing clearing firm for the 
transaction. The Exchange uses reports from OCC to determine the 
identity of the executing clearing firm and ultimate clearing firm.
    \14\ When a transaction is executed on an away exchange, the 
Exchange does not assess the ORF when neither the executing clearing 
firm nor the ultimate clearing firm is a Participant (even if a 
Participant is ``given-up'' or ``CMTAed'' and then such Participant 
subsequently ``gives-up'' or ``CMTAs'' the transaction to another 
non-Participant via a CMTA reversal).
    \15\ ISG is an industry organization formed in 1983 to 
coordinate intermarket surveillance among the SROs by cooperatively 
sharing regulatory information pursuant to a written agreement 
between the parties. The goal of the ISG's information sharing is to 
coordinate regulatory efforts to address potential intermarket 
trading abuses and manipulations.
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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. This proposal does not create 
an unnecessary or inappropriate intra-market burden on competition 
because the ORF applies to all customer activity, thereby raising 
regulatory revenue to offset regulatory expenses. It also supplements 
the regulatory revenue derived from non-customer activity. The Exchange 
notes, however, the proposed change is not designed to address any 
competitive issues. Indeed, this proposal does not create an 
unnecessary or inappropriate inter-market burden on competition because 
it is a regulatory fee that supports regulation in furtherance of the 
purposes of the Act. The Exchange is obligated to ensure that the 
amount of regulatory revenue collected from the ORF, in combination 
with its other regulatory fees and fines, does not exceed regulatory 
costs.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Exchange Act \16\ and Rule 19b-4(f)(2) 
thereunder,\17\ because it establishes or changes a due, or fee.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
would otherwise further the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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-2021-22 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BOX-2021-22. 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 public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such 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-2021-22, and should be submitted on 
or before October 14, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20552 Filed 9-22-21; 8:45 am]
BILLING CODE 8011-01-P