[Federal Register Volume 87, Number 128 (Wednesday, July 6, 2022)]
[Notices]
[Pages 40321-40324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14289]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95174; File No. SR-BOX-2022-19]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Proposed Rule Change To Amend Article 4 of the Exchange's Bylaws To 
Establish a Staggered Board

June 29, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 17, 2022, BOX Exchange LLC (the ``Exchange'') filed with 
the Securities and Exchange Commission (the ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to

[[Page 40322]]

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 proposes to amend Article 4 of the Exchange's Bylaws 
to establish a staggered board. 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.

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 proposes to amend its Bylaws to establish a staggered 
Board. Specifically, the Exchange proposes to amend Section 4.03 (Term 
of Directors) of the Exchange Bylaws to provide that Exchange Directors 
shall be divided into three classes, designated Class I, Class II and 
Class III, which shall be as nearly equal in number and classification 
as the total number of such Directors then serving on the Board 
permits.\3\ Section 4.03 of the Bylaws would further provide that each 
class of newly elected Directors shall serve staggered three-year 
terms, with the term of office of one class expiring each year.\4\
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    \3\ The current Exchange Board expects to initially designate: 
in Class I, one Non-Industry Director and one Participant Director; 
in Class II, two Non-Industry Directors, one of which is a Public 
Director; and in Class III, one Non-Industry Director and one 
Participant Director. These initial class designations are intended 
to balance, to the extent possible, the various categories of 
Directors among the three classes. Board actions are taken by 
majority vote in accordance with Section 4.11(j) of the Exchange 
Bylaws.
    \4\ Currently under the Exchange's Bylaws, Directors serve one-
year terms and all Directors are nominated and begin serving each 
year at the annual meeting of Members. This provision in Section 
4.03 of the Exchange Bylaws is proposed to be changed to delete 
``Directors shall serve terms of one year each beginning each year 
at the annual meeting of the Members.''
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    In order to commence such staggered three-year terms, the Exchange 
proposes to amend Section 4.03 of the Bylaws to provide that Class I 
Directors serving when amended Section 4.03 is adopted shall serve 
until the first annual meeting of Members following the adoption of 
amended Section 4.03; Class II Directors serving when amended Section 
4.03 is adopted shall serve until the second annual meeting of Members 
following the adoption of amended Section 4.03; and Class III Directors 
serving when amended Section 4.03 is adopted shall serve until the 
third annual meeting of Members following the adoption of amended 
Section 4.03. The 2022 annual meeting of the Members of the Exchange 
has not yet occurred. Accordingly, if this proposed rule change is 
approved before the 2022 annual meeting of Members, the term of Class I 
Directors would end at the 2022 annual meeting of Members, a new slate 
of Class I Directors would be nominated and selected in 2022 in 
accordance with the Bylaws.\5\
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    \5\ In this circumstance, the term of Class II and Class III 
directors would end at the Members annual meeting in 2023 and 2024, 
respectively.
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    The Exchange also proposes to amend Section 4.03 of the Bylaws to 
provide that, in the case of any new Director as contemplated by 
Article IV, Section 4.02, such Director shall be added to a class, as 
determined by the Board at the time of such Director's initial election 
or appointment, and shall have an initial term expiring at the same 
time as the term of the class to which such Director has been added. In 
making such determinations, the Board shall balance the categories of 
Directors (e.g. Non-Industry, Public, Participant and Facility 
Directors) among the classes to the extent possible. Pursuant to 
Section 4.02 of the Bylaws, the total number of Directors is determined 
by the Board and must be between five and eleven directors. 
Accordingly, the Exchange is adding this provision to specify that if a 
new Director is added to the Board, the term of that Director shall 
correspond to the class to which that Director is assigned at the time 
of election or appointment.
    In addition, the Exchange proposes to amend Section 4.02 to specify 
that no decrease in the number of Directors shall have the effect of 
shortening the term of any incumbent Director.\6\ The purpose of this 
provision is to provide that, in the event that the Board determines to 
reduce the number of overall Directors, the term of any incumbent 
Director will not be cut short because of such determination. The 
Exchange could not, for example, determine to reduce the size of the 
Board by eliminating the Director seat for a Director who had two years 
of his or her term remaining.
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    \6\ This provision is substantially similar to a comparable 
provision in the bylaws of another national securities exchange that 
provides for a staggered board. See Amended and Restated By-Laws of 
Miami International Securities Exchange LLC, Section 2.2(a).
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    The Exchange also proposes to make certain other conforming edits 
to other provisions of the Bylaws to clarify the responsibilities of 
the Board's Nominating Committee and to address Director vacancies that 
may arise. Specifically, the Exchange proposes to amend Section 4.06 
(Nominating Committee) of the Bylaws to specify that the Board's 
Nominating Committee will nominate individuals in advance of each 
annual meeting of the Members to begin service as Directors ``for the 
applicable class term then expiring (i.e., Class I, Class II or Class 
III)'' at such annual meeting of the Members.\7\ The Exchange also 
proposes to amend Section 4.06(d) (Selection of Directors) of the 
Bylaws to provide that, prior to each annual meeting of the Members, 
the Nominating Committee shall select nominees for each Director 
position ``for the class with its term then expiring'' to begin service 
as Directors.\8\ Finally, the Exchange proposes to amend Section 4.10 
(Vacancies) by deleting the language ``until the next annual meeting or 
until his or her successor is elected and qualified'' and inserting the 
language ``for the remainder of the applicable class term'' to provide 
that a Director who is elected by the Board to fill a vacancy (e.g., as 
a result of the death, resignation, removal or increase in the 
authorized number of Directors), shall serve for the remainder of the 
applicable class term. For example, if a Director in Class II resigns, 
the Director elected to fill the vacancy would serve for the remainder 
of the term of Class II Directors.\9\
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    \7\ Similarly, the Exchange also proposes to amend the final 
sentence of Section 4.06 to specify that at each annual meeting of 
the Members, the individuals selected ``for the applicable class 
term'' pursuant to Section 4.06 of the Bylaws shall begin serving as 
Directors.
    \8\ The Exchange proposes to amend Section 4.06(d)(i) to include 
the same conforming edits to specify that the Nominating Committee 
shall meet for the purposes of selecting proposed Director nominees 
``for the class then expiring'' and that the Nominating Committee 
shall provide the names of all proposed Director nominees ``for the 
class then expiring'' to the Exchange's Secretary not later than 
sixty days prior to the date of the annual meeting of the Members.
    \9\ With respect to a vacancy arising from an increase in the 
number of authorized Directors, pursuant to proposed Section 4.03 of 
the Bylaws, the Director filling such vacancy would be assigned to a 
class by the Board and would have an initial term expiring at the 
same time as the term of the class to which such Director has been 
added.

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[[Page 40323]]

    The Exchange notes that it is not proposing any change to the 
composition of the Board, such as the requirement that 20% of Directors 
must be a Participant Directors or that a majority of Directors must be 
Non-Industry Directors.\10\ All nominations and elections of Directors 
under the proposed staggered Board structure must be consistent with 
the existing composition requirements in the Bylaws. In addition, 
consistent with the existing Bylaws, Directors may serve consecutive 
terms.\11\
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    \10\ See Section 4.02 of the Bylaws.
    \11\ See Section 4.03 of the Bylaws.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of the Exchange Act,\12\ in general, and furthers 
the objective of Section 6(b)(5) of the Exchange Act,\13\ in 
particular, because it is designed 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; and it is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by this 
Exchange Act matters not related to the purposes of the Exchange Act or 
the administration of the Exchange.
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    \12\ 15 U.S.C. 78a et seq.
    \13\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that the governance and 
administration of the Exchange would benefit from a Board structure in 
which Directors each serve staggered three-year terms in at least two 
ways. First, the Exchange believes that shifting from one-year terms 
for Exchange Directors to staggered three-year terms will help preserve 
institutional knowledge among Exchange Directors. Under the Exchange's 
current Bylaws, an entirely new set of Directors can be selected each 
year, which can potentially disrupt ongoing initiatives by the Exchange 
or result in a complete loss of institutional knowledge if all of the 
new Directors have no prior experience serving on the Exchange's Board. 
The Exchange believes that it benefits from the previous experience of 
those who have previously served as Exchange Directors and that 
ensuring some continuity among Directors promotes fair and orderly 
transitions to new Board leadership. By increasing the term length of 
each Director from one to three years, the Exchange can eliminate the 
possibility that an entirely new slate of Directors with no prior 
experience as a Director occurs. And, by staggering the election of 
Directors by dividing Directors into three classes with only one class 
elected each year, the Exchange can preserve institutional knowledge 
among a majority of the Directors over time. This change will ensue 
that at the time of every annual meeting of the Members, there will 
remain veteran leadership on the Board. In turn, the Exchange believes 
that these changes will help to improve the administration of the 
Exchange by fostering cooperation and coordination with persons, such 
as Directors, engaged in regulating and facilitating transactions in 
securities and removes impediments to and perfects the mechanism of a 
free and open market and a national market system, consistent with 
Section 6(b)(5) of the Exchange Act.\14\ The Exchange also believes, 
consistent with Section 6(b)(5) of the Exchange Act, that these changes 
will also further the protection of investors and the public interest, 
which benefit from a governance structure that is designed to preserve 
institutional knowledge gained by incumbent Directors and through 
orderly transitions to new leadership among Directors.\15\
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    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
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    Second, the Exchange believes that the proposed staggered Board 
structure would help prevent any one Member or group of Members acting 
in coordination from exercising an undue influence over the Board 
through the election of Board Directors. As noted, currently the entire 
Board of Directors can be replaced each year. As a result, although no 
one Member has more than a 20% voting interest in the election of 
Directors, two or more Members acting in coordination could potentially 
exercise an outsized influence in the selection of Directors. 
Establishing a staggered Board would make it more difficult for such 
Members to take control of the Board, and therefore control of the 
Exchange, through a single election of the Board. By reducing the risk 
of coordinated Members taking control of the Board, the Board will be 
better positioned to address difficult, longer-term considerations 
related to management of the Exchange, rather than focusing on shorter-
term considerations of certain Members. For example, a coordinated 
group of Members might seek to elect a slate of Directors that are more 
heavily focused on increasing Exchange profits without appropriate 
consideration of the longer-term growth of the Exchange. A staggered 
Board structure would make it more challenging for such Members to 
effect such a directional change by preventing the replacement of the 
entire Board of Directors in a given year. In turn, the Exchange 
believes that this would, consistent with Section 6(b)(5) of the 
Exchange Act, further the protection of investors and the public 
interest who are likely to benefit from an Exchange that is able to 
focus on longer-term goals rather than shorter-term interests of 
certain Members.\16\
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    \16\ Id.
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    In addition, the Exchange notes that, consistent with Section 
6(b)(5), the proposed rule change is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.\17\ The 
existing composition requirements related to Directors would remain the 
same under the proposed rule change, so there would not be, for 
example, any reduction in the representation of Exchange Participants 
on the Board. Moreover, all Directors would be subject to the same 
requirements under the proposed rule change (i.e., all Directors, 
regardless of type, would be divided into one of three classes, each 
serving three-year terms).
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    \17\ Id.
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    The Exchange notes that, in order to commence the operation of the 
staggered Board, Directors assigned by the Board to Class I would serve 
for only one year following the adoption of this proposed rule change 
while Class II and Class III Directors would serve for two and three 
years respectively. While this could potentially be viewed as unfairly 
discriminatory against Class I and Class II Directors whose tenure 
would have a shorter duration than a Class III Director, these 
differing tenures are unavoidable to establish a staggered Board. 
Directors may also be re-elected and serve consecutive terms. As a 
result, although a Director assigned to Class I may have an initially 
shorter tenure, if re-elected at the time of the first annual meeting 
of Members following the adoption of this proposed rule change, such 
Director would then serve a three-year term.
    Finally, the Exchange notes that the proposed staggered Board 
structure is substantially similar to the staggered board structure of 
at least two

[[Page 40324]]

exchanges.\18\ Other exchanges have historically also operated with a 
substantially similar staggered board structure, including the BATS 
Exchange Inc. and EDGX Exchange Inc. and EDGA Exchange Inc. prior to 
their business combination with CBOE Holdings Inc.,\19\ as well as 
International Securities Exchange, LLC prior to 2013.\20\ Accordingly, 
the Exchange's proposed staggered Board structure does not present any 
novel considerations that the Commission has not previously considered.
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    \18\ See Amended and Restated By-Laws of Miami International 
Securities Exchange LLC (``MIAX''), Section 2.02(a) and First 
Amended and Restated Bylaws of Long-Term Stock Exchange, Inc. 
(``LTSE''), Section 3.3(b). The bylaws of The Options Clearing 
Corporation (``OCC''), another self-regulatory organization, also 
provide for a similar staggered board consisting of three classes. 
See OCC By-Laws, Article III, Section 3.
    \19\ See Exchange Act Release No. 57322 (File No. 10-182), 
Exhibit A.3 of the BATS Exchange Inc. Form 1 Application, as 
modified by Amendment No. 1, (Amended and Restated By-Laws of BATS 
Exchange Inc. at Section 3(b)) (February 13, 2008), available at 
https://www.sec.gov/rules/other/2008/34-57322_application.htm#exhibit-a, and Exchange Act Release No. 60651 
(File No. 10-193), Exhibit A.3 of the EDGX Exchange Inc. Form 1 
Application, as modified by Amendment No. 1 (Amended and Restated 
Bylaws of EDGX Exchange Inc. at Section 3(b)) (September 11, 2009), 
available at https://www.sec.gov/rules/other/2009/edgx-f1-application.htm#exhibit-a.
    \20\ See Exchange Act Release No. 69164, 78 FR 17727 (March 22, 
2013) (SR-ISE-2013-07).
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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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.\21\ The 
proposed rule change is concerned only with the governance structure 
and internal administration of the Exchange Board and would establish a 
staggered Board structure that is substantially similar to the existing 
board structure of other exchanges and self-regulatory organizations. 
As a result, the Exchange does not believe that the proposed rule 
change would result in any burden on competition or other competition-
related considerations between or among Exchange Participants or 
between different exchanges.
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    \21\ 15 U.S.C. 78f(b)(8).
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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 up to 90 days (i) as the 
Commission may designate 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-2022-19 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-2022-19. 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 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-2022-19, and should be submitted on 
or before July 27, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-14289 Filed 7-5-22; 8:45 am]
BILLING CODE 8011-01-P