[Federal Register Volume 86, Number 168 (Thursday, September 2, 2021)]
[Notices]
[Pages 49416-49456]
[FR Doc No: 2021-18947]

Vol. 86

Thursday,

No. 168

September 2, 2021

Part II

Securities and Exchange Commission

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Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of
Amendment No. 1 and Order Instituting Proceedings To Determine Whether
To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 1, To Adopt Rules Governing the Trading of Equity
Securities on the Exchange Through a Facility of the Exchange Known as
the Boston Security Token Exchange LLC; Notice

Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 /
Notices

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92796; File No. SR-BOX-2021-06]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Amendment No. 1 and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 1, To Adopt Rules Governing the Trading of Equity
Securities on the Exchange Through a Facility of the Exchange Known as
the Boston Security Token Exchange LLC

August 27, 2021.
    On May 12, 2021, BOX Exchange LLC (``Exchange'' or ``BOX'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to adopt rules
governing the listing and trading of equity securities that would be
NMS stocks on the Exchange through a facility of the Exchange known as
the Boston Security Token Exchange LLC (``BSTX''). The proposed rule
change was published for comment in the Federal Register on June 2,
2021.\3\ On July 13, 2021, pursuant to Section 19(b)(2) of the Act,\4\
the Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ On August 18, 2021, the Exchange filed Amendment No. 1 to
the proposed rule change, which replaced and superseded the proposed
rule change as originally filed.\6\ The Commission is publishing this
notice and order to solicit comments on the proposed rule change, as
modified by Amendment No. 1, from interested persons, and to institute
proceedings pursuant to Section 19(b)(2)(B) of the Act \7\ to determine
whether to approve or disapprove the proposed rule change, as modified
by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92017 (May 25,
2021), 86 FR 29634 (``Notice''). Comments on the proposed rule
change can be found at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92387 (July 13,
2021), 86 FR 38140 (July 19, 2021). The Commission designated August
31, 2021 as the date by which the Commission shall approve or
disapprove, or institute proceedings to determine whether to approve
or disapprove, the proposed rule change.
    \6\ In Amendment No. 1, the Exchange revised the proposal to:
(i) Eliminate the proposed suspension of unlisted trading privileges
for thinly traded securities; (ii) modify proposed rule text
regarding the order parameter that would allow participants to
indicate a preference for same day (``T+0'') or next day (``T+1'')
settlement to clarify that, based on how the preferences of the two
sides of an executed trade compare, the Exchange will transmit
matched order information to a registered clearing agency for
settlement as indicated to the extent that such settlement timing
may be permitted under the rules, policies, and procedures of the
registered clearing agency; (iii) modify aspects of the proposed
market data blockchain to remove the Exchange's ability to change
the content of the market data blockchain through a regulatory
circular, remove the unique identification number from the types of
member-specific market data, specify that anonymized, general market
data will pertain to displayed orders, and add that the Exchange may
provide permission for non-members to view the anonymized, general
market data; (iv) add rule text regarding the Exchange's proposed
market data products; (v) eliminate a proposed rule regarding issuer
conversion of a security to listing on BSTX; (vi) provide additional
description of several aspects of the proposal, including the market
data blockchain and the possibility to settle on a T+0 or T+1 basis;
and (vii) make technical and conforming changes. Amendment No. 1 is
available on the Commission's website at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106-9159349-247726.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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I. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 1

    Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 as amended (``Exchange Act''),\8\ BOX Exchange LLC
(``BOX'' or the ``Exchange'') is filing with the Securities and
Exchange Commission (``SEC'' or ``Commission'') a proposed rule change
to adopt rules to govern the trading of equity securities on the
Exchange through a facility of the Exchange known as Boston Security
Token Exchange LLC (``BSTX''). As described more fully below, BSTX
would operate a fully automated, price/time priority execution system
for the trading of ``Securities,'' which would be equity securities
that meet BSTX listing standards and for which certain information
regarding orders and executions on BSTX would be recorded and
disseminated on a proprietary market data feed that BSTX operates using
a proprietary blockchain system (``BSTX Market Data Blockchain''). The
proposed additions to the Exchange's Rules setting forth new Rule
Series 17000-29000 have been submitted with the proposal as Exhibit 5A.
All text set forth in Exhibit 5A would be added to the Exchange's rules
and therefore underlining of the text is omitted to improve
readability. Forms proposed to be used in connection with the proposed
rule change, such as the application to become a BSTX Participant, have
been submitted with the proposal as Exhibits 3A through 3L.
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    \8\ 15 U.S.C. 78s(b)(1).
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    In addition, the Exchange proposes to make certain amendments to
several existing BOX Rules to facilitate trading on BSTX. The proposed
changes to the existing BOX Rules would not change the core purpose of
the subject Rules or the functionality of other BOX trading systems and
facilities. Specifically, the Exchange is seeking to amend BOX Rules
100, 2020, 2060, 3180, 7130, 7150, 7230, 7245, IM-8050-3, 11010, 11030
and 12140. These proposed changes are set forth in Exhibit 5B. Material
proposed to be added to the Rule as currently in effect is underlined
and material proposed to be deleted is bracketed.
    All capitalized terms not defined herein have the same meaning as
set forth in the Exchange's Rules.\9\
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    \9\ The Exchange's Rules can be found on the Exchange's public
website: https://boxoptions.com/regulatory/rulebook-filings/.
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    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://
http://boxoptions.com">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 is proposing to adopt a series of rules to govern the
trading of certain equity securities through a facility of the Exchange
known as BSTX and make certain amendments to the existing BOX rules to
facilitate trading on BSTX. As described more fully below, BSTX would
operate a fully automated, price/time priority execution system (``BSTX
System'') for the trading of certain equity securities that would be
considered ``Securities'' under the proposed rules. The

``Securities'' \10\ under the proposed rules would be equity securities
that meet BSTX listing standards and that trade on the BSTX System. The
Exchange would operate the BSTX Market Data Blockchain, which would
record certain information regarding orders and transactions occurring
on BSTX with respect to Securities. All BOX Participants would be
eligible to participate in BSTX provided that they become a BSTX
Participant pursuant to the proposed rules. Under the proposed rules,
BSTX would serve as the listing market for eligible companies and
issuers of exchange traded products (``ETPs'') that wish to issue their
registered securities as Securities. Securities would trade as NMS
stock.\11\ The Exchange is not proposing rules that would support its
extension of unlisted trading privileges (``UTP'') to other NMS stock,
and accordingly the Exchange does not intend to extend any such UTP in
connection with this proposal. The Exchange would therefore only trade
Securities listed on BSTX unless and until it proposes and receives
Commission approval for rules that would support trading in other types
of securities, including through any extension of UTP to other NMS
stock. A guide to the structure of the proposed rule change is
described immediately below.
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    \10\ As discussed further below, BSTX proposes to use the term
``Security'' to refer to BSTX-listed securities to distinguish them
from other securities issued by an issuer that the issuer does not
list on BSTX.
    \11\ 17 CFR 242.600(b)(48).
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Guide to the Scope of the Proposed Rule Change
    The proposal for trading of Securities through BSTX generally
involves changes to existing BOX Rules and new BOX Rules pertaining
specifically to BSTX (``BSTX Rules''). In addition, the Exchange plans
to submit a separate proposed rule change pertaining to BSTX's
corporate governance documents. To support the trading of Securities
through BSTX, certain conforming changes are proposed to existing BOX
Rules and entirely new BSTX Rules are also proposed as Rule Series
17000 through 29000.\12\ Each of those new Rule Series and the
provisions thereunder are described in greater detail below. Where the
BSTX Rules are based on existing rules of another national securities
exchange, the source rule from the relevant exchange is noted along
with a discussion of notable differences between the source rule and
the proposed BSTX Rule. The proposed BSTX Rules are addressed in Part
III below and they generally cover the following areas:
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    \12\ The proposed changes to BOX Rules and the proposed BSTX
Rules have been submitted with this proposal as Exhibits 5B and 5A,
respectively.
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     Section 17000--General Provisions of BSTX;
     Section 18000--Participation on BSTX;
     Section 19000--Business Conduct for BSTX Participants;
     Section 20000--Financial and Operational Rules for BSTX
Participants;
     Section 21000--Supervision;
     Section 22000--Miscellaneous Provisions;
     Section 23000--Trading Practice Rules;
     Section 24000--Discipline and Summary Suspension;
     Section 25000--Trading Rules;
     Section 25200--Market Making on BSTX;
     Section 26000--BSTX Listing Rules Other Than for Exchange
Traded Products;
     Section 27000--Suspension and Delisting;
     Section 27100--Guide to Filing Requirements;
     Section 27200--Procedures for Review of Exchange Listing
Determinations; and
     Section 28000--Trading and Listing of Exchange Traded
Products;
     Section 29000--Dues, Fees, Assessments and Other Charges.
Overview of BSTX and Considerations Related to the Listing, Trading and
Clearance and Settlement of Securities
The Joint Venture and Ownership of BSTX
    On June 19, 2018, t0.com Inc. (``tZERO'') and BOX Digital Markets
LLC (``BOX Digital'') announced a joint venture to facilitate the
trading of Securities on the Exchange.\13\ As part of the joint
venture, BOX Digital, which is a subsidiary of BOX Holdings Group LLC,
and tZERO each own 50% of the voting class of equity and over 45%
economic interest of BSTX LLC. Pursuant to the BSTX LLC Agreement, BOX
Digital and tZERO will perform certain specified functions with respect
to the operation of BSTX. As noted, these details, as well as the
proposed governance structure of the joint venture will be the subject
of a separate proposed rule change that the Exchange will submit to the
Commission.
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    \13\ See tZERO and BOX Digital Markets Sign Deal to Create Joint
Venture, Business Wire (June 19, 2018), https://www.businesswire.com/news/home/20180619005897/en/tZERO-and-BOX-Digital-Markets-Sign-Deal-to-Create-Joint-Venture.
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BSTX Would Be a Facility of BOX That Would Support Trading in the New
Asset Class of Securities for BOX
    BSTX would operate as a facility \14\ of BOX, which is a national
securities exchange registered with the SEC. As a facility of BOX,
BSTX's operations would be subject to applicable requirements in
Sections 6 and 19 of the Exchange Act, among other applicable rules and
regulations.\15\ Currently, BOX functions as an exchange only for
standardized options. At the time that BSTX commences operations it
would support trading in Securities that are equity securities
(including certain ETPs), as descried in more detail below.
Accordingly, the proposal represents a new asset class for BOX, and the
discussion below sets forth the changes and additions to the Exchange's
Rules to support the trading of equity securities as Securities on
BSTX.
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    \14\ 15 U.S.C. 78c(a)(2). Section 3(a)(2) of the Exchange Act,
provides that ``the term `facility' when used with respect to an
exchange includes its premises, tangible or intangible property
whether on the premises or not, any right to the use of such
premises or property or any service thereof for the purpose of
effecting or reporting a transaction on an exchange (including,
among other things, any system of communication to or from the
exchange, by ticker or otherwise, maintained by or with the consent
of the exchange), and any right of the exchange to the use of any
property or service.'' Because BSTX will share certain systems of
the Exchange, BSTX would be a facility of the Exchange.
    \15\ 15 U.S.C. 78f; 15 U.S.C. 78s.
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    The Exchange proposes to use the term ``Security'' \16\ to describe
a NMS stock trading on the BSTX system. The legal significance,
therefore, of a ``Security'' is that it would be an equity security
that is approved for listing on BSTX and that trades on the BSTX
System. A security that is offered by an issuer with the intent of it
becoming listed on BSTX would therefore not become a ``Security'' under
the proposed BSTX Rules unless and until it actually does become listed
on BSTX and trades on the BSTX System.\17\
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    \16\ The Exchange proposes to define the term ``Security'' to
mean a NMS stock, as defined in Rule 600(b)(47) of the Exchange Act,
trading on the BSTX System. See proposed Rule 17000(a)(31).
    \17\ Id.
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Securities Would Be NMS Stocks
    The Securities would qualify as NMS stocks pursuant to Regulation
NMS,\18\ which defines the term ``NMS security'' in relevant part to
mean ``any security or class of securities for which transaction
reports are collected, processed and made available pursuant to an
effective transaction reporting plan

. . . .'' \19\ The Exchange plans to join existing transaction
reporting plans, as discussed in Part VIII below, for the purposes of
Security quotation and transaction reporting.\20\ The term ``NMS
stock'' means ``any NMS security other than an option'' \21\ and
therefore Securities traded on BSTX would be classified as NMS stock.
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    \18\ 17 CFR 242.600 through 613.
    \19\ 17 CFR 242.600(b)(47).
    \20\ 17 CFR 242.601(a)(1). The Rule states in relevant part that
``every national securities exchange shall file [with the SEC] a
transaction reporting plan regarding transactions in listed equity
and Nasdaq securities executed through its facilities . . . .''
    \21\ 17 CFR 242.600(b)(47).
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    Securities would meet the definition of NMS stock and would trade,
clear, and settle in the same manner as all other NMS stocks traded
today. As described in further detail below, the operation of the BSTX
Market Data Blockchain would in no way modify or alter market
participants' obligations under Regulation NMS.
BSTX Would Support Trading of Registered Securities
    All Securities traded on BSTX would generally be required to be
registered with the Commission under both Section 12 of the Exchange
Act \22\ and Section 6 of the Securities Act of 1933 (``Securities
Act'').\23\ BSTX would not support trading of Securities offered under
an exemption from registration for public offerings, with the exception
of certain offerings under Regulation A that meet the proposed BSTX
listing standards.
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    \22\ 15 U.S.C. 78l.
    \23\ 15 U.S.C. 77f.
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Issuance and Clearance and Settlement of Securities
    BSTX would maintain certain rules, as described below, to address
custody, clearance and settlement in connection with Securities. All
transactions in Securities would clear and settle in accordance with
the rules, policies and procedures of registered clearing agencies.
Specifically, BSTX anticipates that at the time it commences
operations, Securities that are listed and traded on BSTX would be
securities that have been made eligible for services by The Depository
Trust Company (``DTC'') and that DTC would serve as the securities
depository \24\ for such Securities. It is also expected that confirmed
trades in Securities on BSTX would be transmitted to National
Securities Clearing Corporation (``NSCC'') for clearing such that NSCC
would clear the trades through its systems to produce settlement
obligations that would be due for settlement between participants at
DTC. BSTX believes that this custody, clearance and settlement
structure is the same general structure that exists today for other
exchange-traded equity securities. Importantly, for purposes of NSCC's
clearing activities and DTC's settlement activities in respect of the
Securities, the relevant Securities would be cleared and settled by
NSCC and DTC in exactly the same manner as those activities are
performed by NSCC and DTC currently regarding a class of NMS Stock.
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    \24\ 15 U.S.C. 78c(a)(23)(A). Section 3(a)(23)(A) of the
Exchange Act defines the term ``clearing agency'' to include ``any
person, such as a securities depository, who (i) acts as a custodian
of securities in connection with a system for the handling of
securities whereby all securities of a particular class or series of
any issuer deposited within the system are treated as fungible and
may be transferred, loaned, or pledged by bookkeeping entry without
physical delivery of securities certificates, or (ii) otherwise
permits or facilitates the settlement of securities transactions or
the hypothecation or lending of securities without physical delivery
of securities certificates.''
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    The operation of the BSTX Market Data Blockchain will have no
impact or effect on the manner in which a Security clears and settles.
The BSTX Market Data Blockchain would be implemented through the
operation of the proposed BSTX Rules and would occur separate and apart
from the clearance and settlement process. The Security would be an
ordinary equity security for NSCC's and DTC's purposes. The BSTX Market
Data Blockchain would be a separate set of market data that uses
distributed ledger technology to record certain order and transaction
information regarding orders and transactions in Securities on BSTX.
Issuance of Equity Securities Eligible To Become a Security
    With the exception of certain offerings under Regulation A that
meet the proposed BSTX listing standards, all Securities traded on BSTX
will have been offered and sold in registered offerings under the
Securities Act, which means that purchasers of the Securities will
benefit from all of the protections of registration. The Division of
Corporation Finance will need to make a public interest finding in
order to accelerate the effectiveness of the registration statements
for these offerings. Because BSTX would be a facility of a national
securities exchange, all Securities would be registered under Section
12(b) of the Exchange Act, thereby subjecting all of these issuers to
the reporting regime in Section 13(a) of the Exchange Act.
    All offerings of securities that are intended to be listed as
Securities on BSTX would be conducted in the same general manner in
which offerings of exchange-listed equity securities are conducted
today under the federal securities laws. An issuer will enter into a
firm commitment or best efforts underwriting agreement with a sole
underwriter or underwriting syndicate; the underwriter(s) will market
the securities and distribute them to purchasers; and secondary trading
in the securities (that are intended to trade on BSTX as Securities)
will thereafter commence on BSTX.
    Issuers on BSTX could include both (1) new issuers who do not
currently have any class of securities registered on a national
securities exchange, and (2) issuers who currently have securities
registered on a national securities exchange and who are seeking
registration of a separate class of equity securities for listing on
BSTX as Securities.
    BSTX does not intend for Securities listed, or intended to be
listed, on BSTX to be fungible with any other class of securities from
the same issuer.\25\ If an issuer sought to list securities on BSTX
that are not a separate class of an issuer's securities, BSTX does not
intend to approve such a class of security for listing on BSTX as a
Security, pursuant to BSTX's authority under BSTX Rule 26101. However,
an issuer would be free to pursue listing of the same class of the
Security on another national securities exchange if it so chose, just
as the Exchange understands issuers are able to do in respect of their
securities today. At the commencement of BSTX's operations, certain
equities (including ETPs) would be eligible for listing as Securities.
This would be addressed by BSTX Rules 26102 (Equity Issues), 26103
(Preferred Securities), 26105 (Warrant Securities) and the Rule 28000
Series (Trading and Listing of Exchange Traded Products), which would
be part of BSTX's listing rules and would contemplate that only

those specified types of equity securities would be eligible for
listing.
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    \25\ The Exchange notes that distinct classes of securities
issued by an issuer that are Securities would not be fungible with
another class of securities of the same issuer because no class of
an issuer's securities is fungible with a separate class of its
securities--otherwise they would be the same class of security. To
the extent that two classes of an issuer's shares had identical
voting and economic rights but were registered with the Commission
as separate classes (e.g., Class A shares and Class B shares), the
two classes of shares could be economically fungible with one
another insofar as they convey the same economic and beneficial
rights and interests to investors, but this would not mean that
ownership of a Class A share is the same as ownership of a Class B
share notwithstanding that each class provides the same economic
benefits. In any case, nothing herein proposes any change to the
existing framework for different classes of securities.
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Securities Depository Eligibility
    BSTX would maintain rules that would promote a structure in which
Securities would be held in ``street name'' with DTC.\26\ BSTX Rule
26137 would require that for an issuer's security to be eligible to be
a Security, BSTX must have received a representation from the issuer
that a CUSIP number that identifies the security is included in a file
of eligible issues maintained by a securities depository that is
registered with the SEC as a clearing agency. This is based on rules
that are currently maintained by other equities exchanges.\27\ In
practice, BSTX Rule 26137 requires the Security to have a CUSIP number
that is included in a file of eligible securities that is maintained by
DTC because the Exchange believes that DTC currently is the only
clearing agency registered with the SEC that provides securities
depository services.\28\
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    \26\ The term ``street name'' refers to a securities holding
structure in which DTC, through its nominee Cede & Co., would be the
registered holder of the securities and, in turn, DTC would grant
security entitlements in such securities to relevant accounts of its
participants. Proposed BSTX Rule 26136 would also provide, with
certain exceptions, that securities listed on BSTX must be eligible
for a direct registration program operated by a clearing agency
registered under Section 17A of the Exchange Act. DTC operates the
only such program today, known as the Direct Registration System,
which permits an investor to hold a security as the registered owner
in electronic form on the books of the issuer.
    \27\ Proposed BSTX Rule 26137 is based on current NYSE Rule 777.
    \28\ See Exchange Act Release No. 78963 (September 28, 2016), 81
FR 70744, 70748 (October 13, 2016) (footnote 46 and the accompanying
text acknowledge that DTC is the only registered clearing agency
that provides securities depository services for the U.S. securities
markets).
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Book-Entry Settlement at a Securities Depository
    BSTX would also maintain Proposed BSTX Rule 26135 regarding uniform
book-entry settlement. The rule would require each BSTX Participant to
use the facilities of a securities depository for the book-entry
settlement of all transactions in depository eligible securities with
another BSTX Participant or a member of a national securities exchange
that is not BSTX or a member of a national securities association.\29\
Proposed BSTX Rule 26135 is based on the depository eligibility rules
of other equities exchanges and Financial Industry Regulatory Authority
(``FINRA'').\30\ Those rules were first adopted as part of a
coordinated industry effort in 1995 to promote book-entry settlement
for the vast majority of initial public offerings and ``thereby reduce
settlement risk'' in the U.S. national market system.\31\
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    \29\ FINRA is currently the only national securities association
registered with the SEC.
    \30\ See e.g., FINRA Rule 11310. Book-Entry Settlement and NYSE
Rule 776. Book-Entry Settlement of Transactions.
    \31\ These coordinated depository eligibility rules resulted
from proposed listing rules amendments developed by the Legal and
Regulatory Subgroup of the U.S. Working Committee, Group of Thirty
Clearance and Settlement Project. See Securities Exchange Act
Release Nos 35774 (May 26, 1995) (SR-NASD-95-24), 60 FR 28813 (June
2, 1995); 35773 (May 26, 1995), 60 FR 28817 (June 2, 1995) (SR-NYSE-
95-19).
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Participation in a Registered Clearing Agency That Uses a Continuous
Net Settlement System
    Under proposed BSTX Rule 25140, each BSTX Participant would be
required to either (i) be a member of a registered clearing agency that
uses a continuous net settlement (``CNS'') system, or (ii) clear
transactions executed on BSTX through a member of such a registered
clearing agency. The Exchange believes that today NSCC is the only
registered clearing agency that uses a CNS system to clear equity
securities, and proposed BSTX Rule 25140 further specifies that BSTX
will maintain connectivity and access to the Universal Trade Capture
system of NSCC to transmit confirmed trade details to NSCC regarding
trades executed on BSTX. The proposed rule would also address the
following: (i) A requirement that each Security transaction executed
through BSTX must be executed on a locked-in basis for automatic
clearance and settlement processing; (ii) the circumstances under which
the identity of contra parties to a Security transaction that is
executed through BSTX would be required to remain anonymous or may be
revealed; and (iii) certain circumstances under which a Security
transaction may be cleared through arrangements with a member of a
foreign clearing agency. Proposed BSTX Rule 25140 is based on a
substantially identical rule of the Investor's Exchange, LLC (``IEX''),
which, in turn, is consistent with the rules of other equities
exchanges.\32\
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    \32\ See IEX Rule 11.250 (Clearance and Settlement; Anonymity),
which was approved by the Commission in 2016 as part of its approval
of IEX's application for registration as a national securities
exchange. Exchange Act Release No. 78101 (June 17, 2016); 81 FR
41142 (June 23, 2016); see also Cboe BZX Rule 11.14 (Clearance and
Settlement; Anonymity).
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    BSTX believes that the operation of its depository eligibility rule
and its book-entry services rule would promote a framework in which
Securities that would be eligible to be listed and traded on BSTX would
be equity securities that have been made eligible for services by a
registered clearing agency that operates as a securities depository and
that are settled through the facilities of the securities depository by
book-entry. The Exchange believes that because DTC currently is the
only clearing agency registered with the SEC that provides securities
depository services, at the commencement of BSTX's operations,
Securities would be securities that have been made eligible for
services by DTC, including book-entry settlement services.
Settlement Cycle
    Proposed BSTX Rule 25100(d) would address settlement cycle
considerations regarding trades in Securities. Security trades that
result from orders matched against the electronic order book of BSTX
would be required to clear and settle pursuant to the rules, policies
and procedures of a registered clearing agency. As noted above in
connection with the description of proposed BSTX Rule 25140, the
Exchange expects that at the commencement of operations by BSTX it
would transmit confirmed trade details to NSCC regarding Security
trades that occur on BSTX and that NSCC would be the registered
clearing agency that clears Security trades for settlement at DTC.
    As described in greater detail below in Part II.H, the Exchange is
also proposing that BSTX Participants would be able to include
parameters in orders submitted to BSTX to indicate a preference to use
faster settlement cycles that are currently available through NSCC and
DTC under certain circumstances. BSTX believes that allowing BSTX
Participants to use these faster settlement cycles where consistent
with the rules, policies and procedures of a registered clearing agency
would mitigate settlement risk for transactions in such Securities due
to faster settlement. BSTX believes that NSCC already has authority
under its rules, policies and procedures to clear certain trades on a
T+1 or T+0 basis, which are shorter settlement cycles than the longest
settlement cycle of T+2 that is generally permitted under SEC Rule
15c6-1 for a security trade that involves a broker-dealer.\33\
Furthermore, BSTX

understands that NSCC does already clear trades in accordance with this
authority, and supporting data from The Depository Trust & Clearing
Corporation (``DTCC'') regarding clearance and settlement activity on
such shorter settlement cycles is provided in Section II.H. below.
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    \33\ 17 CFR 240.15c6-1. Under SEC Rule 15c6-1, with certain
exceptions, a broker-dealer is not permitted to enter a contract for
the purchase or sale of security that provides for payment of funds
and delivery of securities later than the second business day after
the date of the contract unless otherwise expressly agreed to by the
parties at the time of the transaction.
---------------------------------------------------------------------------

The BSTX Market Data Blockchain
    BSTX will make available to BSTX Participants certain market data
related to trading activity occurring on BSTX through the use of a
private, permissioned blockchain maintained by the Exchange. As
described further below, a BSTX Participant would have the ability to
see through an online portal provided by the Exchange the market data
information on the private blockchain consisting of detailed
information about its trading activity on BSTX and anonymized
information with respect to the trading activity of other BSTX
Participants.\34\ BSTX Participants would have no obligations with
respect to providing information to, accessing, maintaining, or using
the BSTX Market Data Blockchain. The Exchange believes that the
information made available on the BSTX Market Data Blockchain would be
generally similar to Daily Trade and Quote (``TAQ'') data made
available by New York Stock Exchange LLC except that the Exchange would
use distributed ledger or ``blockchain'' technology to record such
information, a BSTX Participant would be able to see non-anonymized
information about its own trading activity on BSTX, and the market data
would pertain only to trading activity on BSTX and not the broader
market (e.g., an over-the-counter (``OTC'') \35\ transaction in a
Security reported to the consolidated tape).\36\
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    \34\ Additionally, as also explained below, non-BSTX
Participants would have the ability to see the anonymized market
data relating to trading on BSTX.
    \35\ OTC in this context refers to trading occurring otherwise
than on a national securities exchange.
    \36\ See e.g., NYSE, Daily TAQ Fact Sheet, https://www.nyse.com/publicdocs/nyse/data/Daily_TAQ_Fact_Sheet.pdf.
---------------------------------------------------------------------------

Background on Blockchain Technology
    In general, a blockchain is essentially a ledger that can maintain
digital records of assets, transactions, or other information. A
blockchain's central function is to encode transitions or changes to
the ledger. Whenever one change to the blockchain ledger occurs to
record a state transition, the entire blockchain is immutably changed
to reflect the state transition.
    There are broadly two types of blockchains: (i) Public blockchains
that are decentralized, open to anyone running the same protocol; \37\
and (ii) a private, permission-based blockchains where only those
granted access may view or take other actions with respect to the
blockchain.
---------------------------------------------------------------------------

    \37\ A ``protocol'' in this context generally means a set of
rules governing the format of messages that are exchanged between
the participants.
---------------------------------------------------------------------------

BSTX Market Data Blockchain As a Private Permissioned Network
    The BSTX Market Data Blockchain would operate as a private,
permission-based blockchain that would be accessible through an
application program interface (``API'') available through the internet.
The Exchange would control all aspects of the BSTX Market Data
Blockchain and the associated API. Pursuant to proposed Rule 17020(b),
each BSTX Participant would be assigned a BSTX Market Data Blockchain
address that corresponds to the BSTX Participant's trading activity on
BSTX. The Exchange will also issue login credentials to each BSTX
Participant through which the BSTX Participant may access the BSTX
Market Data Blockchain through the API to see its order and transaction
information on BSTX as well as certain anonymized market data from
other BSTX Participants, as discussed further below. Similarly, the
Exchange has the ability to issue login credentials to any non-BSTX
Participant to allow access to the BSTX Market Data Blockchain through
the API, but a non-BSTX Participant accessing the Market Data
Blockchain would be limited to viewing only anonymized market data, as
also explained below. BSTX Participants (and any non-BSTX Participants
to which the Market Data Blockchain is made available by the Exchange)
would only be able to access the information contained on the BSTX
Market Data Blockchain through the API, and only the Exchange would
have direct access to the underlying data on the private blockchain.
    The BSTX Market Data Blockchain would generally operate by
collecting information from two sources, which the Exchange would then
translate into information capable of being recorded to the BSTX Market
Data Blockchain. Specifically, the data inputs for the BSTX Market Data
Blockchain would come from (i) the BSTX System \38\ to capture
information such as executed transactions and (ii) each BSTX
Participant's order/message information passing through the financial
information exchange (``FIX'') gateway through which all orders and
messages pass in order to connect to the BSTX System.\39\ For example,
if a BSTX Participant sends an order to buy 100 shares of Security XYZ,
when that order is sent to the Exchange, the Exchange would capture
this information as it passes through the FIX gateway in an automated
process that results in the BSTX Participant being able to see that
order on the BSTX Market Data Blockchain through its login credentials
once the information is recorded on the BSTX Market Data Blockchain.
---------------------------------------------------------------------------

    \38\ The ``BSTX System'' refers to the automated trading system
used by BSTX for the trading of Securities. See proposed Rule
17000(a)(15).
    \39\ The Exchange notes that the FIX Gateway and the BSTX System
are the same sources of information from which information is taken
to be provided as part of consolidated market data.
---------------------------------------------------------------------------

    The BSTX Market Data Blockchain does not require any affirmative
action on the part of a BSTX Participant in order for its information
to be recorded to the BSTX Market Data Blockchain. Rather, the BSTX
Market Data Blockchain captures trading activity that occurs on BSTX in
the normal course and is made available to BSTX Participants as an
additional resource that they may choose to use in their discretion in
the same general manner that a market participant might use TAQ data.
Information Available on the BSTX Market Data Blockchain
    As set forth in proposed Rule 17020(c), there are two types of
information that would be available on the BSTX Market Data Blockchain:
(i) A BSTX Participant's own order and transaction information related
to its trading activity on BSTX (``Participant Proprietary Data''); and
(ii) anonymized, general market data available to all BSTX Participants
and non-BSTX Participants permissioned by the Exchange (``General
Market Data'').\40\ With respect to Participant Proprietary Data, a
BSTX Participant would be able to see the following information with
respect to all orders and messages and executions submitted to and
occurring on BSTX:
---------------------------------------------------------------------------

    \40\ The Exchange notes that the BSTX Market Data Blockchain is
effectively just the repository for these two categories of
information (i.e., Participant Proprietary Data and General Market
Data), and it is through the Exchange-provided API that this
information is able to be viewed and searched.
---------------------------------------------------------------------------

    (1) Symbol, side (buy/sell), limit price, quantity, time-in-force
    (2) Order type (e.g., limit order, ISO)
    (3) Order capacity (principal/agent)
    (4) Short/long sale order marking
    (5) Message type (e.g., order, modification, cancellation)
    Participant Proprietary Data would effectively contain a record of
all of a

BSTX's Participant's trading activity on BSTX. Participant Proprietary
Data would only be available to the BSTX Participant from which such
data derived. That is, a BSTX Participant would not have access to the
Participant Proprietary Data of another BSTX Participant, nor would any
non-BSTX Participant provided access to the Market Data Blockchain have
access to Participant Proprietary Data. As a result, no BSTX
Participant (or non-BSTX Participant) would be provided with access to
trading information of another BSTX Participant in a manner that would
allow for reverse engineering of trading strategies or otherwise
compromise the confidential nature of each BSTX Participant's trading
information. Through the API, a BSTX Participant can run searches of
its previous order and trading activity. The Participant Proprietary
Data would be visible to the BSTX Participant to which it corresponds
in sequential order of when each action occurred, though the BSTX
Participant would have the ability to filter the different information
fields or run searches for particular items (e.g., only showing cancel
orders or only showing activity in a particular symbol).
    General Market Data is the second type of information that would be
available on the BSTX Market Data Blockchain, which would consist of:
    (1) All displayed orders,\41\ modifications, cancellations, and
executions occurring on BSTX in an anonymized format.
---------------------------------------------------------------------------

    \41\ The Exchange notes that it is not proposing any non-
displayed or hidden order functionality for BSTX.
---------------------------------------------------------------------------

    (2) Administrative data and other information from the Exchange
(e.g., trading halts, or technical messages).
    General Market Data would allow viewers to be able to observe the
historical orders, executions, and other events (e.g., cancellations)
received by and occurring on BSTX. Similar to the format and
presentation of Participant Proprietary Data, the General Market Data
would generally be visible in sequential order of when each action
occurred, though viewers would have the ability to filter the different
information fields or run searches for particular items (e.g., only
showing cancel orders or only showing activity in a particular symbol).
The Exchange notes that the General Market Data that would be available
on the BSTX Market Data Blockchain would contain substantively similar
information as would be available through the Exchange's proprietary
market data feeds, so access to the BSTX Market Data Blockchain would
not provide substantive information that is not otherwise available
through the Exchange's proprietary market data feeds.\42\ In other
words, accessing General Market Data on the BSTX Market Data Blockchain
would not provide any informational advantage over proprietary market
data that could be used to make trading decisions in real time. The
Exchange believes that this is particularly true given that market data
(both Participant Proprietary Data and General Market Data) will be
posted to the BSTX Market Data Blockchain on a delay of at least five
minutes, as discussed further below. Similar to Participant Proprietary
Data, persons accessing the General Market Data through the Exchange-
provided API could run configurable searches of the available
information.
---------------------------------------------------------------------------

    \42\ General Market Data would differ from the Exchange's
proprietary market data feed in that the proprietary market data
feed provides real time snapshots of the order book, including depth
of book quotations and the quantity of shares available at each
price point. In contrast, General Market Data would generally show
sequential events occurring on the Exchange for each symbol (e.g.,
order posted to order book, then the order is executed in part, then
the remaining amount of the order executed, then a new order posts
to the order book etc.). In addition, proprietary market data
generally does not show each individual newly posted order or
cancellation of a resting order, but rather shows subscribers an
updated snapshot that increases or decreases the available quantity
at a given price point as new orders come in and modifications or
executions of existing orders occur. In contrast, General Market
Data available on the Market Data Blockchain would show viewers, in
an anonymized format, the sequential entry of each order,
modification, or cancellation in the order book in each symbol as
historical order and transaction information rather than real time
snap shots. In this respect, General Market Data is more akin to a
historical market data product like TAQ data, except that it
pertains only to activity occurring on BSTX rather than the entire
market.
---------------------------------------------------------------------------

    General Market Data would be anonymized, meaning that a BSTX
Participant would not be able to determine the identity of another BSTX
Participant's orders, quotes, cancellations, or other messages. For the
avoidance of doubt, the alphanumeric address assigned to each BSTX
Participant to facilitate the BSTX Market Data Blockchain would not be
visible as part of General Market Data.\43\ As a result, there should
not be cause for concern regarding potential trading information
leakage or the ability to reverse engineer another BSTX Participant's
trading strategies given the anonymous nature of General Market Data.
BSTX Participants (and any non-BSTX Participant provided access to
General Market Data by the Exchange) would generally have available to
them via the BSTX Market Data Blockchain the same information they
would have today with respect to other BSTX Participants' trading
activity in subscribing to proprietary data feeds of other exchanges.
---------------------------------------------------------------------------

    \43\ For example, in looking at General Market Data, BSTX
Participant X would not be able to determine by name, address, or
otherwise that a particular order, modification to an existing
order, or executed transaction involved BSTX Participant Y or any
other BSTX Participant.
---------------------------------------------------------------------------

    The Exchange proposes to append timestamps to the information made
available. Timestamps related to all information on the BSTX Market
Data Blockchain would indicate the time to the microsecond at which an
order posted to the BSTX Book or that the BSTX System took other action
with respect to an order (e.g., effects a cancellation, execution,
modification). As noted above, information would be posted to the BSTX
Market Data Blockchain on a delayed basis of at least five minutes.\44\
As a result, the BSTX Market Data Blockchain would not function as a
substitute for real-time market data, and, accordingly the Exchange
does not believe that market participants with access to the delayed
market data available on the BSTX Market Data Blockchain would have any
real time trading advantage over participants that continue to use
real-time market data to make trading decisions.\45\ A BSTX Participant
would

have the ability to download market data from the BSTX Market Data
Blockchain, which it could use to, for example, back test trading
strategies or evaluate executions received on BSTX.
---------------------------------------------------------------------------

    \44\ The practical purpose behind this five minute delay is for
the Exchange to accrue sufficient data and information to record to
the BSTX Market Data Blockchain. As the name ``blockchain''
suggests, data is recorded onto a ledger in discrete blocks that are
chained together at different intervals. The Exchange could record
information to the BSTX Market Data Blockchain over a shorter time
interval in much smaller blocks, each of which would contain less
data than a longer interval and a larger block. However, as
proposed, the Exchange would only record information to the BSTX
Market Data Blockchain after at least five minutes, and each block
would contain the market data and information that had accrued over
the preceding five minutes on a rolling basis. Accordingly, a viewer
of the BSTX Market Data Blockchain would be able to see the
preceding five minutes of market data (as detailed above) after each
five-minute interval. The Exchange believes that a five minute
interval is appropriate to allow the Exchange to operate the BSTX
Market Data Blockchain efficiently (i.e., sufficient market data
will have accrued over five minutes to publish an update to the
blockchain) and to ensure that the BSTX Market Data Blockchain does
not provide a real-time trading advantage over consumers of
consolidated market data or proprietary market data--both of which
are disseminated on sub-second, or sub-millisecond, timescales. See
e.g., Exchange Act Release No. 90610, 86 FR 18596, 18603 (Apr. 9,
2021) (``Today, markets rely on highly sophisticated electronic
trading systems that can consume many points of data at speeds
measured in sub-second increments.''); see also id. at n.679 (noting
that even the consolidated securities information processors 99th
percentile of quote latency are today below 100 microseconds).
    \45\ According to data available on the Commission's market
structure website, even small capitalization stocks and exchange
traded products generally have quote lifetimes of much shorter
durations than five minutes. For example, 71.32% of executions and
78.7% of cancellations occurred in small capitalization stocks
during Q1 2021 within 100 seconds (1.67 minutes) of being received
by a market center. See Commission, Market Structure Data
Visualizations, Conditional Frequency: Small Stocks (Q1 2021),
https://www.sec.gov/marketstructure/datavis/quotelife_stocks_sm.html#.YP8Q245KhPY. Given that over two-thirds of
orders are executed or canceled within 1.67 minutes (approximately
one-third of the five minutes the Exchange proposes to delay
publication of information to the BSTX Market Data Blockchain), the
Exchange does not believe that there would be any real time trading
advantage provided to those who use the BSTX Market Data Blockchain
over subscribers to the Exchange's proprietary feeds or subscribers
to consolidated market data. The data metrics also reveal that over
11% of executions and nearly 12% of cancellations occurred in small
capitalization stocks during Q1 2021 within 1 second (1/300th of the
duration of the proposed five minute delay). This data makes clear
that the speed of markets is such that using the BSTX Market Data
Blockchain to gain a real time trading advantage would not be
possible as over 10% of trades and cancels occur within one second.
---------------------------------------------------------------------------

    Finally, in order to promote clarity with respect to how a BSTX
Participant may use the BSTX Market Data Blockchain, the Exchange
proposes to provide in Rule 17020(c)(3) that the information available
on the BSTX Market Data Blockchain does not act as a substitute for any
recordkeeping obligations of a BSTX Participant. The Exchange notes
that broker-dealers recordkeeping obligations generally require a much
broader set of records covering the entirety of a broker-dealers
trading activity across all trading centers.\46\ As a result, the
Exchange would not expect that a BSTX Participant would ever rely on
the BSTX Market Data Blockchain, which would contain only its trading
activity on BSTX, as a substitute for its independent recordkeeping
obligations.
---------------------------------------------------------------------------

    \46\ See e.g., 17 CFR 240.17a-3.
---------------------------------------------------------------------------

    With respect to information security considerations, the Exchange
notes that as a system of the Exchange, the BSTX Market Data Blockchain
will be subject to the requirements of the Exchange Act, including
Regulation Systems Compliance and Integrity (``Reg. SCI'') \47\ and
that the Exchange has in place robust safeguards to protect against any
possible systems intrusion to the market data blockchain. To the extent
a BSTX Participant were to share its credentials for accessing the API
with third parties deliberately or inadvertently, it is possible that
those third parties could gain access to its Participant Proprietary
Data.\48\ The Exchange would be able to issue new credentials upon
request from a BSTX Participant (or non-BSTX Participant) that believes
their credentials may have been compromised and implement additional
security controls. In any case, however, unauthorized access to the API
through which data on the BSTX Market Data Blockchain may be accessed
would not allow for any intruder to modify, delete, or otherwise change
any data on the BSTX Market Data Blockchain. As a result, the Exchange
does not believe that the BSTX Market Data Blockchain presents
information security risks and that the Exchange has appropriate
safeguards in place to mitigate any such risks.
---------------------------------------------------------------------------

    \47\ 17 CFR 240.1000-1007.
    \48\ The Exchange notes that any such unauthorized access would
not provide any real time order and transaction information of the
BSTX Participant because of the five minute delay in publishing
information to the BSTX Market Data Blockchain.
---------------------------------------------------------------------------

Periodic Audit of the BSTX Market Data Blockchain by the Exchange
    To help ensure the proper functioning of the BSTX Market Data
Blockchain and accuracy of information thereon, the Exchange proposes
in Rule 17020(c)(3) to periodically audit the BSTX Market Data
Blockchain. Specifically, the Exchange proposes to perform the audit at
least bi-annually to ensure that that the BSTX Market Data Blockchain
accurately captures order and transaction data on BSTX. The Exchange
expects that it will initially audit the BSTX Market Data Blockchain
more frequently (e.g., monthly) during the first year of operation to
make sure the BSTX Market Data Blockchain operates as intended during
the period of time when the Exchange expects BSTX Participants to be
familiarizing themselves with the BSTX Market Data Blockchain. In
particular, the Exchange plans to evaluate whether the information
recorded to the BSTX Market Data Blockchain is accurate (i.e., that it
corresponds to the Exchange's FIX trading logs of the relevant market
data) and captures all of the elements of market data specified in
proposed Rule 17020(c). To the extent any issues or discrepancies are
identified in the course of the audit, the Exchange will promptly
remediate such issues and provide notice, as may be required, to
impacted users of the BSTX Market Data Blockchain and the
Commission.\49\
---------------------------------------------------------------------------

    \49\ See generally Rule 1002 of Regulation SCI (describing
notification requirements related to ``SCI events'' and ``de minimis
SCI events''--i.e., those that would have no or a de minimis impact
on the Exchange's operations or market participants). 17 CFR
242.1002.
---------------------------------------------------------------------------

Benefits of the BSTX Market Data Blockchain
    The Exchange believes that there are two primary benefits related
to the BSTX Market Data Blockchain. First, the Exchange believes that a
BSTX Participant may find the information useful to them for a variety
of purposes such as to review the BSTX Participant's trading activity
on BSTX, determine what the market was at a particular point in time on
BSTX for a given Security, evaluate execution quality on BSTX, help
confirm the accuracy of their internal trading data,\50\ or download
the data to back-test trading strategies. As proposed, the BSTX Market
Data Blockchain requires no affirmative obligation on the part of the
BSTX Participant. As a result, if a BSTX Participant does not find the
BSTX Market Data Blockchain to be of use to it, it could simply ignore
it without cost or penalty. In addition, non-BSTX Participants granted
access to General Market Data may find the data useful for academic
studies. The Commission could also be granted access by the Exchange,
which would allow the Commission to examine how and when orders arrived
at the Exchange, how and when they were modified, and how and when they
were executed.\51\
---------------------------------------------------------------------------

    \50\ As previously discussed, however, the BSTX Market Data
Blockchain could not be used as a substitute for a BSTX
Participant's recordkeeping obligations. See supra note 46 and
proposed Rule 17020(c)(3).
    \51\ The Exchange notes that it is initially proposing a
relatively simple exchange model without hidden orders or the
numerous other types of complex orders available on certain other
exchanges (e.g., peg orders, hide-not-slide, discretionary peg
orders etc.). Consequently, BSTX presents an opportunity to study,
using the data available on the BSTX Market Data Blockchain, how a
more simplified market structure operates as well as the evolution
of this model over time as additional features might be added (or
removed).
---------------------------------------------------------------------------

    Second, the Exchange believes that the BSTX Market Data Blockchain
will help familiarize BSTX Participants with the use and capabilities
of blockchain technology in a manner that does not impose any burden on
them or other market participants. The Commission has stated that it is
``mindful of the benefits of increasing use of new technologies for
investors and the markets, and has encouraged experimentation and
innovation . . .'' \52\ stating further that ``[i]nformation and
communications technologies are critical to healthy and efficient
primary and secondary markets.'' \53\ Regarding the judgment of whether
the benefits of

certain technologies are meritorious, the Commission has explained its
view that ``[t]he market will ultimately prove the worth of
technology--whether the benefits to the industry and its investors of
developing and using new services are greater than the associated
costs.'' \54\ Consistent with these statements, the Exchange believes
that promoting use of blockchain technology through the BSTX Market
Data Blockchain, accessed through an exchange-provided API, will allow
BSTX Participants to observe and increase their familiarity with the
capabilities and potential benefits of blockchain technology in a
context that operates within the current equity market infrastructure
and that the proposal will thereby advance and protect the public's
interest in the use and development of new data processing techniques
that may create opportunities for more efficient, effective and safe
securities markets.\55\ Moreover, the Exchange believes that new
technology, such as blockchain technology, may be able to help perfect
the mechanism of a free and open market and a national market system,
consistent with Section 6(b)(5) of the Exchange Act.\56\ At a minimum,
the Exchange believes that the use of blockchain technology to store
historical market data, accessible through an API, may be a more
efficient and effective mechanism for consuming historical market data.
Rather than having to download a file of historical market data as is
typically the case today, users of the BSTX Market Data Blockchain
would be able to query and search the blockchain for particular
information of interest to them through the API. The Exchange notes
that it is not proposing to offer a separate historical market data
feed other than the BSTX Market Data Blockchain, so the BSTX Market
Data Blockchain would be the Exchange's historical market data product
offering.\57\
---------------------------------------------------------------------------

    \52\ Securities and Exchange Commission, The Impact of Recent
Technological Advances on the Securities Markets (Sep. 1997),
https://www.sec.gov/news/studies/techrp97.htm.
    \53\ Id.
    \54\ Id.
    \55\ Report of the Senate Committee on Banking, Housing & Urban
Affairs, S. Rep. No. 94-75, at 8 (1975) (expressing Congress'
finding that new data processing and communications systems create
the opportunity for more efficient and effective markets). While the
Exchange believes that its proposal represents an introductory step
in pairing the benefits of blockchain technology with the current
equity market infrastructure, other market participants and FINRA
have recognized additional potential benefits to blockchain
technology in various applications related to the securities
markets. FINRA has stated ``[o]ne of the proposed benefits of
[blockchain technology] is the ability to offer a timestamped,
sequential, audit trail of transaction records. This may provide
regulators and other interested parties (e.g., internal audit,
public auditors) with the opportunity to leverage the technology to
view the complete history of a transaction where it may not be
available today and enhance existing records related to securities
transactions.'' Financial Industry Regulatory Authority, Distributed
Ledger Technology: Implications of Blockchain for the Securities
Industry (January 2017), available at: https://www.finra.org/sites/default/files/FINRA_Blockchain_Report.pdf. Further, Paxos Trust
Company echoed similar themes in connection with its receipt of no-
action relief from the Commission staff, and explained in its
request letter certain benefits of blockchain technology including
``greater data accuracy and transparency, advanced security, and
increased levels of availability and operational efficiency . . .
.'' See Letter from Jeffrey S. Mooney, Division of Trading and
Markets, Securities and Exchange Commission to Charles Cascarilla
and Daniel Burstein, Paxos Trust Company, LLC re: Clearing Agency
Registration Under Section 17A(b)(1) of the Securities Exchange Act
of 1934 (October 28, 2019), https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf. The Exchange
believes such benefits may be generally relevant to future potential
applications of blockchain technology.
    \56\ 15 U.S.C. 78f(b)(5).
    \57\ See infra notes 147-152 and accompanying text, describing
the Exchange's proposed market data offerings.
---------------------------------------------------------------------------

    Currently, the Exchange believes that market participants, such as
prospective BSTX Participants, are able to obtain and review their own
order and trade information as well as historical market data on one or
more exchanges through a combination of using their own books and
records and through acquiring historical market data products (e.g.,
TAQ data). Depending on how a market participant might organize these
sources of data or use historical market data, they may be able to run
searches or filters to examine the market data in a manner similar to
what will be available using the BSTX Market Data Blockchain. The BSTX
Market Data Blockchain is essentially an Exchange-offered tool
accessible through an API that provides the features of searching and
filtering of BSTX market data to a BSTX Participant (and non-BSTX
Participants with respect to anonymized data only). In other words,
market participants have available to them today through other
resources (i.e., their books and records and historical data products
where available) the same data elements that the Exchange proposes to
make available through the BSTX Market Data Blockchain, but they may
not have the information readily accessible or searchable in the same
manner that it would be available using the BSTX Market Data
Blockchain. In the event of any disruption to the BSTX Market Data
Blockchain or a BSTX Participant's access to the BSTX Market Data
Blockchain, there would be no impact on the ability of market
participants to trade Securities, which the Exchange believes furthers
the protection of investors and the public interest, consistent with
Section 6(b)(5) of the Exchange Act.\58\ There would also no be
disruption in the distribution of market data related to Securities
because the BSTX Market Data Blockchain operates as a separate and
distinct service of the Exchange independently of the Exchange's other
market data products.
---------------------------------------------------------------------------

    \58\ Id.
---------------------------------------------------------------------------

Trading Securities on Other National Securities Exchanges
    Securities would be eligible for trading on other national
securities exchanges that extend UTP to them. As described above in
Part II.E, Securities would be held in ``street name'' at DTC, have a
CUSIP number, and would clear and settle through the facilities of a
clearing agency registered with the SEC (i.e., NSCC and DTC
respectively). As a result, Securities would be able to trade on other
exchanges and OTC in the same manner as other NMS stock. Accordingly,
other exchanges would generally be able to extend UTP to Securities in
accordance with Commission rules. The BSTX Market Data Blockchain would
not impact the ability of Securities to trade on other exchanges or
OTC.
Ability for BSTX Participants To Include a Parameter for a Preference
for Settlement of Transactions in Securities Faster Than T+2
    As described above in Section II.E.5., and based on discussions
with representatives from DTCC, BSTX believes that NSCC already has
authority under its rules, policies and procedures to clear certain
trades on a T+1 or T+0 basis, which are shorter settlement cycles than
the longest settlement cycle of T+2 that is generally permitted under
SEC Rule 15c6-1 for a security trade that involves a broker-dealer.\59\
Furthermore, BSTX understands from representatives of DTCC that NSCC
does already clear trades in accordance with this authority.
---------------------------------------------------------------------------

    \59\ See supra note 33.
---------------------------------------------------------------------------

    The Exchange proposes that BSTX Participants would be able to
include in their orders in Securities that are submitted to BSTX
certain parameters to indicate a preference for settlement on a same
day (T+0) or next trading day (T+1) basis when certain conditions are
met.\60\ Any such orders would at the time of order entry represent
orders that would be regular-way and would be presumed to settle on a
T+2 basis just like any other order submitted by a BSTX Participant
that does not include a parameter indicating a preference for faster
settlement. As described in greater

detail below, however, orders in a Security that include a parameter
indicating a preference for settlement on a T+0 basis (``Order with a
T+0 Preference'') or on a T+1 basis (``Order with a T+1 Preference'')
would only result in executions that would actually settle more quickly
than on a T+2 basis if, and only if, all of the conditions in Rule
25060(h) are met and the execution that is transmitted by BSTX to NSCC
is eligible for T+0 or T+1 settlement under the rules, policies and
procedures of a registered clearing agency.\61\ Any such preference
included by a BSTX Participant would only become operative if the order
happens to execute against another order from a BSTX Participant that
also includes a parameter indicating a preference for settlement on a
T+0 or T+1 basis, as described in more detail below. This means that at
the time of order entry all orders in Securities would be regular-way
orders that would be presumed to settle on a T+2 basis. Faster
settlement consistent with the rules, policies and procedures of a
registered clearing agency would occur if and only if two orders
execute against each other in a manner that meets the conditions in
Rule 25060(h).
---------------------------------------------------------------------------

    \60\ See proposed Rule 25060(h).
    \61\ See proposed Rule 25100(d). For example, the Exchange
understands that under its current rules, policies and procedures
NSCC accepts trades for T+0 settlement through its continuous net
settlement system provided that they are received by NSCC before a
cut-off time of 11:30 a.m. ET. Matched T+0 trades on BSTX that are
not received by NSCC prior to that cut-off time would not be
eligible for T+0 clearance and settlement through NSCC's continuous
net settlement system. DTCC provides on its website an overview of
the cut-off times and other procedural considerations under its
rules, policies and procedures that are associated with processing
trades for accelerated settlement on a T+0 or T+1 basis. The
overview can be accessed here: https://www.dtcc.com/sds.
---------------------------------------------------------------------------

    As proposed, an Order with a T+0 Preference will execute against
any order against which it is marketable and BSTX will transmit the
matched order information to a registered clearing agency for
settlement on a standard settlement cycle (T+2) except where: (i) The
Order with a T+0 Preference executes against another Order with a T+0
Preference, in which case BSTX will transmit the matched order
information to a registered clearing agency for settlement on the trade
date as may be permitted by the rules, policies and procedures of the
registered clearing agency, or (ii) the Order with a T+0 Preference
executes against an Order with a T+1 Preference, in which case BSTX
will transmit the matched order information to a registered clearing
agency for settlement on the next trading day after the trade date
(i.e., T+1) as may be permitted by the rules, policies and procedures
of the registered clearing agency. Similarly, as proposed, an Order
with a T+1 Preference will execute against any order against which it
is marketable and BSTX will transmit the matched order information to a
registered clearing agency for settlement on a standard settlement
cycle (T+2) except where: (i) The Order with a T+1 Preference executes
against another Order with a T+1 Preference or an Order with a T+0
Preference, in which case BSTX will transmit the matched order
information to a registered clearing agency for settlement on the next
trading day after the trade date (i.e., T+1) as may be permitted by the
rules, policies and procedures of the registered clearing agency. In
all cases, an order not marked with a preference for either T+0 or T+1
settlement would be assured under the settlement timing logic in
proposed Rule 25060(h) of settlement on T+2. The possibility of a
shortened settlement time would have no impact on the Exchange's
proposed price time priority structure for order matching.\62\
---------------------------------------------------------------------------

    \62\ For example, assume Order A is marked as an Order with a
T+0 Preference and it is sent to BSTX and is marketable against both
resting Order B (standard T+2 settlement, with time priority over
Order C) and resting Order C (marked as an Order with a T+0
Preference but with priority second to that of Order B). Order A
will interact first with Order B, notwithstanding that Order C is
also marketable against Order A and is also marked as an Order with
a T+0 Preference.
---------------------------------------------------------------------------

    As a result of this structure, all orders in Securities would be
eligible to match and execute against any order against which they are
marketable with settlement to occur at the later settlement date of any
two matching orders. Only where an Order with a T+1 Preference or an
Order with a T+0 Preference match with another Order with a T+1
Preference or Order with a T+0 Preference will those orders (or
matching portions thereof) be eligible to settle more quickly than the
standard settlement cycle of T+2.
    As previously noted in Part II.E above, the Exchange expects at the
commencement of its operations that it would transmit confirmed trade
details to NSCC regarding trades in Securities that occur on BSTX and
that NSCC would be the registered clearing agency that clears trades in
Securities and produces related settlement obligations for settlement
at DTC. The Exchange believes that NSCC and DTC already have
appropriate approvals from the SEC for authority in their rules,
policies and procedures to be able to clear and settle settlement
obligations using such shortened settlement times. Furthermore, the
Exchange understands that NSCC and DTC in fact already are using this
authority for shortened settlement times. For example, based on
information provided by representatives of DTCC to outside counsel for
BSTX, the Exchange understands that on average for each business day
for the months of November and December 2019, NSCC cleared over 19,000
trades designated for T+1 settlement and over 2,000 trades designated
for T+0 settlement.\63\ In addition, the Exchange understands that DTCC
makes data regarding T+0 and T+1 clearance and settlement through NSCC
and DTC available on the DTCC website for review by the public.\64\ As
provided in proposed Rules 26136 and 26137, all trades in Securities
occurring on BSTX that are cleared by NSCC, including those that BSTX
transmits to NSCC for T+0 or T+1 settlement as may be permitted
pursuant to NSCC's rules, policies and procedures, will be settled
through book-entry settlement at DTC pursuant to its rules, policies
and procedures.
---------------------------------------------------------------------------

    \63\ Mike McClain, Managing Director and General Manager of
Equity Clearing and DTC Settlement Services at DTCC provided this
information to BSTX's outside counsel, Andrew Blake, Partner, Sidley
Austin LLP during a telephone conference on February 13, 2020.
    \64\ See DTCC website, Settlement by the Numbers, https://www.dtcc.com/ust1/by-the-numbers.
---------------------------------------------------------------------------

    The Exchange is also aware of the recent announcement by DTCC, the
Securities Industry and Financial Markets Association (``SIFMA'') and
the Investment Company Institute (``ICI'') that they plan to
collaborate to help the industry reduce the standard settlement cycle
from T+2 to T+1, identify a target timeframe for that transition (e.g.,
by 2023 as recently suggested by DTCC),\65\ and support market
participants in their efforts to obtain requisite regulatory approvals
for such a reduction in the standard settlement cycle, including from
the SEC.\66\ The Exchange fully supports this collaboration by SIFMA,
DTCC and ICI and efforts by market participants and regulators,
including the SEC, to move the standard settlement cycle to T+1. The
time frame for the transition, however, remains uncertain and is likely
to take years, as suggested by DTCC. The Exchange strongly believes
that this proposal to allow BSTX Participants for trades in

Securities on BSTX to access the shorter settlement cycles of T+1 and
T+0 that are already being used by NSCC and DTC today represents a
change that is both entirely consistent with and in furtherance of
broader industry efforts to move the standard settlement cycle to T+1
and that could also incrementally and immediately provide market
participants with the benefit of shorter settlement cycles that T+2
where BSTX Participants seek those benefits as provided in proposed
Rule 25060(h). The Exchange agrees with DTCC representatives who have
recently stated that ``[t]he time to settlement equals counterparty
risk which can become elevated during market shocks. It can also lead
to the need for higher margin requirements, which are critical to
protecting the financial system and investors against a firm default.''
\67\ The Exchange believes that BSTX Participants should be permitted
to manage these settlement and margin risks through the structure that
is provided in proposed Rule 25060(h). The Exchange also believes, as
described in more detail below, that the structure in proposed Rule
25060(h) would allow them to do so in a manner that is consistent with
Section 6(b)(5) of the Exchange Act and the requirement for the rules
of the Exchange to be designed to perfect the mechanism of a free and
open market \68\ because under proposed Rule 25060(h), any Order with a
T+1 Preference or Order with a T+0 Preference will continue to interact
with any other order in the Security against which it is marketable
(including any order in the Security that does not include a parameter
indicating a preference for settlement faster than T+2) and a resulting
execution will always settle using the latest settlement timing
associated with two matching orders.
---------------------------------------------------------------------------

    \65\ DTCC White Paper, Advancing Together: Leading the Industry
to Accelerated Settlement (February 2021) (``DTCC Accelerated
Settlement White Paper''), https://www.dtcc.com/-/media/Files/PDFs/White%20Paper/DTCC-Accelerated-Settle-WP-2021.pdf.
    \66\ Sifma Press Release, Sifma, ICI and DTCC Leading Effort to
Shorten U.S. Securities Settlement Cycle to T+1, Collaborating with
the Industry on Next Steps (April 28, 2021), https://www.sifma.org/resources/news/sifma-ici-and-dtcc-leading-effort-to-shorten-u-s-securities-settlement-cycle-to-t1-collaborating-with-the-industry-on-next-steps/.
    \67\ DTCC Press Release, DTCC Proposes Approach to Shortening
U.S. Settlement Cycle to T+1 Within 2 Years, (February 24, 2021)
(quoting Murray Pozmanter, Head of Clearing Agency Services and
Global Business Operations at DTCC), https://www.dtcc.com/news/2021/february/24/dtcc-proposes-approach-to-shortening-us-settlement-cycle-to-t1-within-two-years.
    \68\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that facilitating shorter settlement cycles
as permitted under the rules, policies, and procedures of a registered
clearing agency is consistent with Section 6(b)(5) of the Exchange Act
\69\ because it is in the public interest and furthers the protection
of investors as well as helps perfect the mechanism of a free and open
market and the national market system. Specifically, the Exchange
believes that BSTX Participants have an interest in being able to
access risk-reducing market functionality that is presently available
and compatible with market structure, such as shorter settlement
cycles, and that this can reduce costs for market participants settling
trading obligations in that Security and reduce settlement risk. For
example, market participants settling trades in a Security on a T+2
basis must post margin collateral to NSCC for two trading days. The
margin collateral cannot otherwise be used until settlement on T+2. In
addition, and as reflected in statements by DTCC described above, by
shortening the timing of settlement from T+2 to T+1 or T+0, the risk
horizon for a potential default in settling the trade is
correspondingly shortened as well. This means that market participants
engaged in a transaction settling transactions on shorter settlement
cycles than T+2 receive the benefits of not having to encumber
collateral assets for as long and facing a shorter period of settlement
risk. The Exchange believes that these benefits in turn free up assets
to be used elsewhere in financial markets, thereby helping to promote
the efficient allocation of capital and perfecting the mechanism of a
free and open market.\70\ All else being equal, the Exchange believes
that a BSTX Participant may find that between two otherwise identical
stocks, one for which it may be able to settle the transaction more
quickly is more attractive than one that settles over a longer duration
and potentially requires collateral to be held for a longer period.
---------------------------------------------------------------------------

    \69\ Id.
    \70\ Id.
---------------------------------------------------------------------------

    The Exchange notes that the proposed potential for shortened
settlement timing for an Order with a T+0 Preference or an Order with a
T+1 Preference will in no way impact or prevent any market participant
that desires to effect a trade in a Security on BSTX from doing so.
This is because under proposed Rule 25060(h), any Order with a T+1
Preference or Order with a T+0 Preference will continue to interact
with any other order in the Security against which it is marketable
(including any order in the Security that does not include a parameter
indicating a preference for settlement faster than T+2) and a resulting
execution will always settle using the latest settlement timing
associated with two matching orders. Accordingly, non-BSTX Participants
seeing a quote in a Security on BSTX will remain able to execute
against that quote posted on BSTX even if that quote includes a latent
parameter for a preference for T+0 or T+1 settlement where consistent
with the rules, policies and procedures of a registered clearing
agency. In this way, the Exchange believes that the proposal is fully
compatible with the current market structure and would help perfect the
mechanism of a free and open market consistent with the requirement in
Section 6(b)(5) of the Exchange Act \71\ by allowing for shorter
settlement times than T+2 where consistent with the rules, policies and
procedures of a registered clearing agency and where both parties to a
transaction in a Security indicate a preference for faster settlement
than T+2.
---------------------------------------------------------------------------

    \71\ Id.
---------------------------------------------------------------------------

    Finally, because all orders in Securities submitted to BSTX would
at the time of the order entry be presumed to settle on a regular way
T+2 basis and would interact with any other order against which the
order is marketable, the Exchange believes that Orders with a T+0
Preference and Orders with a T+1 Preference would be considered
``protected'' within the meaning of Rule 611 of the Exchange Act.\72\
Orders with a T+0 Preference and Orders with a T+1 Preference would not
fall within the exception for protected quotation status set forth in
Rule 611(b)(2) of the Exchange Act because they will only settle more
quickly than T+2 where all of the conditions in Rule 25060(h) are met,
as described above, where settlement faster than T+2 is consistent with
the rules, policies and procedures of a registered clearing agency.\73\
---------------------------------------------------------------------------

    \72\ 17 CFR 242.611.
    \73\ 17 CFR 242.611(b)(2).
---------------------------------------------------------------------------

    In adopting amendments to SEC Rule 15c6-1 in 2017 to shorten the
standard settlement cycle for most broker-dealer transactions in
securities from T+3 to T+2, the Commission stated its belief that the
shorter settlement cycle would have positive effects regarding the
liquidity risks and costs faced by members in a clearing agency, like
NSCC, that performs central counterparty \74\ (``CCP'') services, and
that it would also have positive effects for other market participants.
Specifically, the Commission stated its belief that the resulting
``reduction in the amount of unsettled trades and the period of time
during which the CCP is exposed to risk would reduce the amount of
financial resources that the CCP members may have to provide to support
the CCP's risk management process . . .'' and that ``[t]his reduction

in the potential need for financial resources should, in turn, reduce
the liquidity costs and capital demands clearing broker-dealers face .
. . and allow for improved capital utilization.'' \75\ The Commission
went on to state its belief that shortening the settlement cycle
``would also lead to benefits to other market participants, including
introducing broker-dealers, institutional investors, and retail
investors'' such as ``quicker access to funds and securities following
trade execution'' and ``reduced margin charges and other fees that
clearing broker-dealers may pass down to other market participants[.]''
\76\ The Commission also ``noted that a move to a T+1 standard
settlement cycle could have similar qualitative benefits of market,
credit, and liquidity risk reduction for market participants[.]'' \77\
BSTX agrees with these statements by the Commission and has therefore
proposed BSTX Rules 25060(h) and 25100(d) in a form that would promote
the benefits of available, shorter settlement cycles.\78\
---------------------------------------------------------------------------

    \74\ See 17 CFR 240.17Ad-22(a)(2) (defining the term ``central
counterparty'' to mean ``a clearing agency that interposes itself
between the counterparties to securities transactions, acting
functionally as the buyer to every seller and the seller to every
buyer'').
    \75\ Exchange Act Release No. 80295 (March 22, 2017), 82 FR
15564, 15570-71 (March 29, 2017).
    \76\ Id. at 15571.
    \77\ Id. at 15582.
    \78\ As described in this Part II.I, an order for a Security
marked for T+0 or T+1 could still interact with any other order,
including an order with the default T+2 settlement, with settlement
to occur at the later of any two matched orders (e.g., if a T+1
order matches with a T+2 order, the orders would settle T+2). Only
where an order marked for a shorter settlement time matches with
another order similarly marked would a shorter settlement time
occur. Consequently, the proposed use of shorter settlement times
would not adversely impact any market participant seeking T+2
settlement in a transaction for a Security.
---------------------------------------------------------------------------

Proposed BSTX Rules
    The discussion in this Part III addresses the proposed BSTX Rules
that would be adopted as Rule Series 17000 through 29000.
General Provisions of BSTX and Definitions (Rule 17000 Series)
    The Exchange proposes to adopt as its Rule 17000 Series (General
Provisions of BSTX) a set of general provisions relating to the trading
of Securities and other rules governing participation on BSTX. Proposed
Rule 17000 sets forth the defined terms used throughout the BSTX Rules.
The majority of the proposed definitions are substantially similar to
defined terms used in other equities exchange rulebooks, such as with
respect to the term ``customer.'' \79\ The Exchange proposes to set
forth new definitions for certain terms to specifically identify
systems, agreements, or persons as they relate to BSTX and as distinct
from other Exchange systems, agreements, or persons that may be used in
connection with the trading of other options on the Exchange.\80\ The
Exchange also proposes to define certain unique terms relating to the
trading of Securities, including the term ``Security'' itself,\81\ as
well as for other features of BSTX such as the ``BSTX Market Data
Blockchain.'' \82\
---------------------------------------------------------------------------

    \79\ Proposed Rule 17000(a)(17) defines the term ``customer'' to
not include a broker or dealer, which parallels the same definition
in other exchange rulebooks. See e.g., IEX Rule 1.160(j). Similarly,
the Exchange proposes to define the term ``Regular Trading Hours''
as the time between 9:30 a.m. and 4:00 p.m. Eastern Time. See
proposed Rule 17000(a)(29) cf. IEX Rule 1.160(gg) (defining
``Regular Market Hours'' in the same manner).
    \80\ For example, the Exchange proposes to define the term
``BSTX'' to mean the facility of the Exchange for executing
transaction in Securities, the term ``BSTX Participant'' to mean a
Participant or Options Participant (as those terms are defined in
the Exchange's Rule 100 Series) that is authorized to trade
Securities, and the term ``BSTX System'' to mean the automated
trading system used by BSTX for the trading of Securities. See
proposed Rule 17000(a)(8), (11), and (15).
    \81\ Proposed Rule 17000(a)(31) provides that the term
``Security'' means a NMS stock, as defined in Rule 600(b)(47) of the
Exchange Act, trading on the BSTX System. The proposed definition
further specifies that references to a ``security'' or
``securities'' in the Rules may include Securities.
    \82\ Proposed Rule 17000(a)(9) provides that the term ``BSTX
Market Data Blockchain'' means the private, permissioned blockchain
network through which a BSTX Participant may access certain order
and transaction data related to trading activity on BSTX. See Part
II.F for further discussion of the BSTX Market Data Blockchain.
---------------------------------------------------------------------------

    In addition to setting forth proposed definitions used throughout
the proposed Rules, the Exchange proposes to specify in proposed Rule
17010 (Applicability) that the Rules set forth in the Rule 17000 Series
to Rule 29000 Series apply to the trading, listing, and related matters
pertaining to the trading of Securities. Proposed Rule 17010(b)
provides that, unless specific Rules relating to Securities govern or
unless the context otherwise requires, the provisions of any Exchange
Rule (i.e., including Exchange Rules in the Rule 100 through 16000
Series) shall be applicable to BSTX Participants.\83\ This is intended
to make clear that BSTX Participants are subject to all of the
Exchange's Rules that may be applicable to them, notwithstanding that
their trading activity may be limited solely to trading Securities. The
Exchange believes that the proposed definitions set forth in Rule 17000
are consistent with Section 6(b)(5) of the Exchange Act \84\ because
they protect investors and the public interest by setting forth clear
definitions that help BSTX Participants understand and apply Exchange
Rules. Without clearly defining terms used in the Exchanges Rules and
providing clarity as to the Exchange Rules that may apply, market
participants could be confused as to the application of certain rules,
which could cause harm to investors.
---------------------------------------------------------------------------

    \83\ Proposed Rule 17010 further specifies that to the extent
the provisions of the Rules relating to the trading of Securities
contained in Rule 17000 Series to Rule 29000 Series are inconsistent
with any other provisions of the Exchange Rules, the Rules relating
to Security trading shall control.
    \84\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Participation on BSTX (Rule 18000 Series)
    The Exchange proposes to adopt as its Rule 18000 Series
(Participation on BSTX), three rules setting forth certain requirements
relating to participation on BSTX. Proposed Rule 18000 (BSTX
Participation) establishes ``BSTX Participants'' as a new category of
Exchange participation for effecting transactions on the BSTX System,
provided they: (i) Complete the BSTX Participant Application,
Participation Agreement, and User Agreement; \85\ (ii) be an existing
Options Participant or become a Participant of the Exchange pursuant to
the Rule 2000 Series; and (iii) provide such other information as
required by the Exchange.\86\ Proposed Rule 18010 (Requirements for
BSTX Participants) sets forth certain requirements for BSTX
Participants including requirements that each BSTX Participant comply
with Rule 15c3-1 under the Exchange Act, comply with applicable books
and records requirements, and be a member of a registered clearing
agency or clear Security transactions through another BSTX Participant
that is a member/participant of a registered clearing agency.\87\
Finally, proposed Rule 18020 (Associated Persons) provides that
associated persons of a BSTX Participant are bound by the Rules of the
Exchange to the same extent as each BSTX Participant.
---------------------------------------------------------------------------

    \85\ The BSTX Participant Application, Participation Agreement,
and User Agreement have been submitted as Exhibits 3A, 3B, and 3C to
the proposal respectively.
    \86\ Proposed Rule 18000 also sets forth the Exchange's review
process regarding BSTX Participation Agreements and certain
limitations on the ability to transfer BSTX Participant status
(e.g., in the case of a change of control). In addition proposed
Rule 18000(b)(2) provides that a BSTX Participant shall continue to
abide by all applicable requirements of the Rule 2000 Series, which
would include, for example, IM-2040-5, which specifies continuing
education requirements of Exchange Participants and their associated
persons.
    \87\ Proposed Rule 18010(b) is similar to the rules of existing
exchanges. See e.g., IEX Rule 2.160(c). Proposed Rule 18010(a) is
also similar to the rules of existing exchanges. See e.g., IEX Rule
1.160(s) and Cboe BZX Rule 17.2(a).
---------------------------------------------------------------------------

    The Exchange believes that the proposed Rule 18000 Series
(Participation on BSTX) is consistent

with Section 6(b)(5) of the Exchange Act \88\ because these proposed
rules are designed to promote just and equitable principles of trade,
and protect investors and the public interest by setting forth the
requirements to become a BSTX Participant and specifying that
associated persons of a BSTX Participant are bound by Exchange Rules.
Under proposed Rule 18000, a BSTX Participant must first become an
Exchange Participant pursuant to the Exchange Rule 2000 Series which
the Exchange believes would help assure that BSTX Participants meet the
appropriate standards for trading on BSTX in furtherance of the
protection of investors.\89\
---------------------------------------------------------------------------

    \88\ 15 U.S.C. 78f(b)(5).
    \89\ The Exchange notes that the approach of requiring members
of a facility of an exchange to first become members of the exchange
is consistent with the approach used by another national securities
exchange. See Cboe BZX Rule 17.1(b)(3) (requiring that a Cboe BZX
options member be an existing member or become a member of the Cboe
BZX equities exchange pursuant to the Cboe BZX Chapter II Series).
---------------------------------------------------------------------------

Business Conduct for BSTX Participants (Rule 19000 Series)
    The Exchange proposes to adopt as its Rule 19000 Series (Business
Conduct for BSTX Participants), twenty two rules relating to business
conduct requirements for BSTX Participants that are substantially
similar to business conduct rules of other exchanges.\90\ The proposed
Rule 19000 Series would specify business conduct requirements with
respect to: (i) Just and equitable principles of trade; \91\ (ii)
adherence to law; \92\ (iii) use of fraudulent devices; \93\ (iv) false
statements; \94\ (v) know your customer; \95\ (vi) fair dealing with
customers; \96\ (vii) suitability; \97\ (viii) the prompt receipt and
delivery of securities; \98\ (ix) charges for services performed; \99\
(x) use of information obtained in a fiduciary capacity; \100\ (xi)
publication of transactions and quotations; \101\ (xii) offers at
stated prices; \102\ (xiii) payments involving publications that
influence the market price of a security; \103\ (xiv) customer
confirmations; \104\ (xv) disclosure of a control relationship with an
issuer of Securities; \105\ (xvi) discretionary accounts; \106\ (xvii)
improper use of customers' securities or funds and a prohibition
against guarantees and sharing in accounts; \107\ (xviii) the extent to
which sharing in accounts is permissible; \108\ (xix) communications
with customers and the public; \109\ (xx) gratuities; \110\ (xxi)
telemarketing; \111\ and (xxii) mandatory systems testing.\112\ The
Exchange notes that the proposed financial responsibility rules are
virtually identical to those of other national securities exchanges
other than changes to defined terms and certain other provisions that
would not apply to the trading of Securities on the BSTX System.\113\
---------------------------------------------------------------------------

    \90\ See Cboe BZX Chapter 5 rules. See also IEX Rule 5.150 with
respect to proposed Rule 21040 (Prevention of the Misuse of
Material, Non-Public Information).
    \91\ Proposed Rule 19000 (Just and Equitable Principles of
Trade) provides that no BSTX Participant, including its associated
persons, shall engage in acts or practices inconsistent with just
and equitable principles of trade.
    \92\ Proposed Rule 19010 (Adherence to Law) generally requires
BSTX Participants to adhere to applicable laws and regulatory
requirements.
    \93\ Proposed Rule 19020 (Use of Fraudulent Devices) generally
prohibits BSTX Participants from effecting a transaction in any
security by means of a manipulative, deceptive or other fraudulent
device or contrivance.
    \94\ Proposed Rule 19030 (False Statements) generally prohibits
BSTX Participants and their associated persons from making false
statements or misrepresentations in communications with the
Exchange.
    \95\ Proposed Rule 19040 (Know Your Customer) requires BSTX
Participants to comply with FINRA Rule 2090 as if such rule were
part of the Exchange Rules.
    \96\ Proposed Rule 19050 (Fair Dealing with Customers) generally
requires BSTX Participants to deal fairly with customers and
specifies certain activities that would violate the duty of fair
dealing (e.g., churning or overtrading in relation to the objectives
and financial situation of a customer).
    \97\ Proposed Rule 19060 (Suitability) provides that BSTX
Participants and their associated persons shall comply with FINRA
Rule 2111 as if such rule were part of the Exchange Rules.
    \98\ Proposed Rule 19070 (Prompt Receipt and Delivery of
Securities) would generally prohibit a BSTX Participant from
accepting a customer's purchase order for a security until it can
determine that the customer agrees to receive the securities against
payment.
    \99\ Proposed Rule 19080 (Charges for Services Performed)
generally requires that charges imposed on customers by broker-
dealers shall be reasonable and not unfairly discriminatory.
    \100\ Proposed Rule 19090 (Use of Information Obtained in a
Fiduciary Capacity) generally restricts the use of information as to
the ownership of securities when acting in certain capacities (e.g.,
as a trustee).
    \101\ Proposed Rule 19100 (Publication of Transactions and
Quotations) generally prohibits a BSTX Participant from
disseminating a transaction or quotation information unless the BSTX
Participant believes it to be bona fide.
    \102\ Proposed Rule 19110 (Offers at Stated Prices) generally
prohibits a BSTX Participant from offering to transact in a security
at a stated price unless it is in fact prepared to do so.
    \103\ Proposed Rule 19120 (Payments Involving Publications that
Influence the Market Price of a Security) generally prohibits direct
or indirect payments with the aim of disseminating information that
is intended to effect the price of a security.
    \104\ Proposed Rule 19130 (Customer Confirmations) requires that
BSTX Participants comply with Rule 10b-10 of the Exchange Act. 17
CFR 240.10b-10.
    \105\ Proposed Rule 19140 (Disclosure of Control Relationship
with Issuer) generally requires BSTX Participants to disclose any
control relationship with an issuer of a security before effecting a
transaction in that security for the customer.
    \106\ Proposed Rule 19150 (Discretionary Accounts) generally
provides certain restrictions on BSTX Participants handling of
discretionary accounts, such as by effecting excessive transactions
or obtained authorization to exercise discretionary powers.
    \107\ Proposed Rule 19160 (Improper Use of Customers' Securities
or Funds and Prohibition against Guarantees and Sharing in Accounts)
generally prohibits BSTX Participants from making improper use of
customers securities or funds and prohibits guarantees to customers
against losses.
    \108\ Proposed Rule 19170 (Sharing in Accounts; Extent
Permissible) generally prohibits BSTX Participants and their
associated persons from sharing directly or indirectly in the profit
or losses of the account of a customer unless certain exceptions
apply such as where an associated person receives prior written
authorization from the BSTX Participant with which he or she is
associated.
    \109\ Proposed Rule 19180 (Communications with Customers and the
Public) generally provides that BSTX Participants and their
associated persons shall comply with FINRA Rule 2210 as if such rule
were part of the Exchange Rules.
    \110\ Proposed Rule 19190 (Gratuities) requires BSTX
Participants to comply with the requirements set forth in BOX
Exchange Rule 3060 (Gratuities).
    \111\ Proposed Rule 19200 (Telemarketing) requires that BSTX
Participants and their associated persons comply with FINRA Rule
3230 as if such rule were part of the Exchange's Rules.
    \112\ Proposed Rule 19210 (Mandatory Systems Testing) requires
that BSTX Participants comply with Exchange Rule 3180 (Mandatory
Systems Testing).
    \113\ For example, the Exchange is not proposing to adopt a rule
contained in other exchanges' business conduct rules relating to
disclosures that broker-dealers give to their customers regarding
the risks of effecting securities transactions during times other
than during regular trading hours (e.g., higher volatility, possibly
lower liquidity) because executions may only occur during regular
trading hours on the BSTX System. See e.g., IEX Rule 3.290, Cboe BZX
Rule 3.21.
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    The Exchange believes that the proposed Rule 19000 Series (Business
Conduct) is consistent with Section 6(b)(5) of the Exchange Act \114\
because these proposed rules are designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, and protect investors and the public interest by setting
forth appropriate standards of conduct applicable to BSTX Participants
in carrying out their business activities. For example, proposed Rule
19000 (Just and Equitable Principles of Trade) and 19010 (Adherence to
Law) would prohibit BSTX Participants from engaging in acts or
practices inconsistent with just and equitable principles of trade or
that would violate applicable laws and regulations. Similarly, proposed
Rule 19050 (Fair Dealing with Customers) would require that BSTX
Participants deal fairly with their customers and proposed Rule 19030
(False Statements) would generally prohibit BSTX Participants, or

their associated persons from making false statements or
misrepresentations to the Exchange. The Exchange believes that
requiring that BSTX Participants comply with the proposed business
conduct rules in the Rule 19000 Series would further the protection of
investors and the public interest by promoting high standards of
commercial honor and integrity. In addition, each of the rules in the
proposed Rule 19000 Series (Business Conduct) is substantially similar
to supervisory rules of other exchanges.\115\
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    \114\ 15 U.S.C. 78f(b)(5).
    \115\ See supra note 90.
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Financial and Operational Rules for BSTX Participants (Rule 20000
Series)
    The Exchange proposes to adopt as its Rule 20000 Series (Financial
and Operational Rules), ten rules relating to financial and operational
requirements for BSTX Participants that are substantially similar to
financial and operational rules of other exchanges.\116\ The proposed
Rule 20000 Series would specify financial and operational requirements
with respect to: (i) Maintenance and furnishing of books and records;
\117\ (ii) financial reports; \118\ (iii) net capital compliance; \119\
(iv) early warning notifications pursuant to Rule 17a-11 under the
Exchange Act; \120\ (v) authority of the Chief Regulatory Officer to
impose certain restrictions; \121\ (vi) margin; \122\ (vii) day-trading
margin; \123\ (viii) customer account information; \124\ (ix)
maintaining records of customer complaints; \125\ and (x) disclosure of
financial condition.\126\
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    \116\ See Cboe BZX Chapter 6 rules and IEX Chapter 5 rules.
    \117\ Proposed Rule 20000 (Maintenance, Retention and Furnishing
of Books, Records and Other Information) requires that BSTX
Participants comply with current Exchange Rule 1000 (Maintenance,
Retention and Furnishing of Books, Records and Other Information)
and that BSTX Participants shall submit to the Exchange order,
market and transaction data as the Exchange may specify by
Information Circular.
    \118\ Proposed Rule 20010 (Financial Reports) provides that BSTX
Participants shall comply with the requirements of current Exchange
Rule 10020 (Financial Reports).
    \119\ Proposed Rule 20020 (Capital Compliance) provides that
each BSTX Participant subject to Rule 15c3-1 under the Exchange Act
(17 CFR 240.15c3-1) shall comply with such rule and other financial
and operational rules contained in the proposed Rule 20000 series.
    \120\ 17 CFR 240.17a-11. Proposed Rule 20030 (``Early Warning''
Notification) provides that BSTX Participants subject to the
reporting or notifications requirements of Rule 17a-11 under the
Exchange Act (17 CFR 240.17a-11) or similar ``early warning''
requirements imposed by other regulators shall provide the Exchange
with certain reports and financial statements.
    \121\ Proposed Rule 20040 (Power of CRO to Impose Restrictions)
generally provides that the Exchange's Chief Regulatory Officer may
impose restrictions and conditions on a BSTX Participant subject to
the early warning notification requirements under certain
circumstances.
    \122\ Proposed Rule 20050 (Margin) sets forth the required
margin amounts for certain securities held in a customer's margin
account.
    \123\ Proposed Rule 20060 (Day Trading Margin) sets forth
additional requirements with respect to customers that engage in day
trading.
    \124\ Proposed Rule 20070 (Customer Account Information)
requires that BSTX Participants comply with FINRA Rule 4512 as if
such rule were part of the Exchange Rules and further clarifies
certain cross-references within FINRA Rule 4512.
    \125\ Proposed Rule 20080 (Record of Written Customer
Complaints) requires that BSTX Participants comply with FINRA Rule
4513 as if such rule were part of the Exchange Rules.
    \126\ Proposed Rule 20090 (Disclosure of Financial Condition)
generally requires that BSTX Participants make available certain
information regarding the BSTX Participant's financial condition
upon request of a customer.
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    The Exchange believes that the proposed Rule 20000 (Financial and
Operational Rules) Series is consistent with Section 6(b)(5) of the
Exchange Act \127\ because these proposed rules are designed to prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade, and protect investors and the public
interest by subjecting BSTX Participants to certain recordkeeping,
disclosure, and related requirements designed to ensure that BSTX
Participants conduct themselves in a financially responsible manner.
For example, proposed Rule 20000 would require BSTX Participants to
comply with existing Exchange Rule 1000, which sets forth certain
recordkeeping responsibilities and the obligation to furnish these to
the Exchange upon request so that the Exchange can appropriately
monitor the financial condition of a BSTX Participant and its
compliance with applicable regulatory requirements. Similarly, proposed
Rule 20050 would set forth the margin requirements that BSTX
Participants must retain with respect to customers trading in a margin
account to ensure that BSTX Participants are not extending credit to
customers in a manner that might put the financial condition of the
BSTX Participant in jeopardy. Each of the proposed rules in the Rule
20000 Series (Financial and Operational Rules) is substantially similar
to existing rules of other exchanges or incorporates an existing rule
of the Exchange or another self-regulatory organization (``SRO'') by
reference.
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    \127\ 15 U.S.C. 78f(b)(5).
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Supervision (Rule 21000 Series)
    The Exchange proposes to adopt as its Rule 21000 Series
(Supervision), six rules relating to certain supervisory requirements
for BSTX Participants that are substantially similar to supervisory
rules of other exchanges.\128\ The Proposed Rule 21000 Series would
specify supervisory requirements with respect to: (i) Enforcing written
procedures to appropriately supervise the BSTX Participant's conduct
and compliance with applicable regulatory requirements; \129\ (ii)
designation of an individual to carry out written supervisory
procedures; \130\ (iii) maintenance and keeping of records carrying out
the BSTX Participant's written supervisory procedures; \131\ (iv)
review of activities of each of a BSTX Participant's offices, including
periodic examination of customer accounts to detect and prevent
irregularities or abuses; \132\ (v) the prevention of the misuse of
material non-public information; \133\ and (vi) implementation of an
anti-money laundering (``AML'') compliance program.\134\ These rules
are designed to ensure that BSTX Participants are able to appropriately
supervise their business activities, review and maintain records with
respect to such supervision, and enforce specific procedures relating
insider-trading and AML.
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    \128\ See Cboe BZX Chapter 5 rules. See also IEX Rule 5.150 with
respect to proposed Rule 21040 (Prevention of the Misuse of
Material, Non-Public Information).
    \129\ Proposed Rule 21000 (Written Procedures).
    \130\ Proposed Rule 21010 (Responsibility of BSTX Participants)
would also require that a copy of a BSTX's written supervisory
procedures be kept in each office and makes clear that final
responsibility for proper supervision rests with the BSTX
Participant.
    \131\ Proposed Rule 21020 (Records).
    \132\ Proposed Rule 21030 (Review of Activities).
    \133\ Proposed Rule 21040 (Prevention of the Misuse of Material,
Non-Public Information) generally requires BSTX Participants to
enforce written procedures designed to prevent misuse of material
non-public information and sets forth examples of conduct that would
constitute a misuse of material, non-public information.
    \134\ Proposed Rule 21050 (Anti-Money Laundering Compliance
Program). The Exchange already has rules with respect to Exchange
Participants enforcing an AML compliance program set forth in
Exchange Rule 10070 (Anti-Money Laundering Compliance Program), so
proposed Rule 21050 specifies that BSTX Participants shall comply
with the requirements of that pre-existing rule.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Rule 21000 (Supervision)
Series is consistent with Section 6(b)(5) of the Exchange Act \135\
because these proposed rules are designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, and protect investors

and the public interest by ensuring that BSTX Participants have
appropriate supervisory controls in place to carry out their business
activities in compliance with applicable regulatory requirements. For
example, proposed Rule 21000 (Written Procedures) would require BSTX
Participants to enforce written procedures which enable them to
supervise the activities of their associated persons and proposed Rule
21010 (Responsibility of BSTX Participants) would require a BSTX
Participant to designate a person in each office to carry out written
supervisory procedures. Requiring appropriate supervision of a BSTX
Participant's business activities and associated persons would promote
compliance with the federal securities laws and other applicable
regulatory requirements in furtherance of the protection of investors
and the public interest.\136\ In addition, each of the rules in the
proposed Rule 21000 Series (Supervision) is substantially similar to
supervisory rules of other exchanges.\137\
---------------------------------------------------------------------------

    \135\ 15 U.S.C. 78f(b)(5).
    \136\ Id.
    \137\ See supra note 128.
---------------------------------------------------------------------------

Miscellaneous Provisions (Rule 22000 Series)
    The Exchange proposes to adopt as its Rule 22000 Series
(Miscellaneous Provisions), six rules relating to a variety of
miscellaneous requirements applicable to BSTX Participants that are
substantially similar to rules of other exchanges.\138\ These
miscellaneous provisions relate to: (i) Comparison and settlement
requirements; \139\ (ii) failures to deliver and failures to receive;
\140\ (iii) forwarding of proxy and other issuer-related materials;
\141\ (iv) commissions; \142\ (v) regulatory services agreements; \143\
and (vi) transactions involving Exchange employees.\144\ These rules
are designed to capture additional regulatory requirements applicable
to BSTX Participants, such as setting forth their obligation to deliver
proxy materials at the request of an issuer and to incorporate by
reference Rule 200-203 of Regulation SHO.\145\ The Exchange believes
that the proposed Rule 22000 (Miscellaneous Provisions) Series is
consistent with Section 6(b)(5) of the Exchange Act \146\ because these
proposed rules are designed to prevent fraudulent and manipulative acts
and practices, promote just and equitable principles of trade, and
protect investors and the public interest by ensuring that BSTX
Participants comply with additional regulatory requirements, such as
Rule 203 of Regulation SHO \147\ as provided in proposed Rule 22010
(Failure to Deliver and Failure to Receive), in connection with their
participation on BSTX. For example, proposed Rule 22030 (Commissions)
prohibits BSTX Participants from charging fixed rates of commissions
for transactions on the Exchange consistent with Section 6(e)(1) of the
Exchange Act.\148\ Similarly, proposed Rule 22050 (Transactions
involving Exchange Employees) sets forth certain requirements and
prohibitions relating to a BSTX Participant providing certain financial
services to an Exchange employee, which the Exchange believes helps
prevent potentially fraudulent and manipulative acts and practices and
furthers the protection of investors and the public interest.
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    \138\ See Cboe BZX Chapter 13 rules. See also IEX Rule 6.180
with respect to proposed Rule 22050 (Transactions Involving BOX
Employees).
    \139\ Proposed Rule 22000 (Comparison and Settlement
Requirements) provides that a BSTX Participant that is a member of a
registered clearing agency shall implement comparison and settlement
procedures as may be required under the rules of such entity. The
proposed rule would further provide that, notwithstanding this
general provision, the Board may extend or postpone the time of
delivery of a BSTX transaction whenever the Board determines that it
is called for by the public interest, just and equitable principles
of trade or to address unusual conditions. In such a case, delivery
will occur as directed by the Board.
    \140\ Proposed Rule 22010 (Failure to Deliver and Failure to
Receive) provides that borrowing and deliveries must be effected in
accordance with Rule 203 of Regulation SHO (17 CFR 242.203) and
incorporates Rules 200-203 of Regulation SHO by reference into the
rule (17 CFR 242.200-203).
    \141\ Proposed Rule 22020 (Forwarding of Proxy and Other
Information; Proxy Voting) generally provides that BSTX Participants
shall forward proxy materials when requested by an issuer and sets
forth certain conditions and limitations for BSTX Participants to
give a proxy to vote stock that is registered in its name.
    \142\ Proposed Rule 22030 (Commissions) provides that the
Exchange Rules or practices shall not be construed to allow a BSTX
Participant or its associated persons to agree or arrange for the
charging of fixed rates commissions for transactions on the
Exchange.
    \143\ Proposed Rule 22040 (Regulatory Service Agreement)
provides that the Exchange may enter into regulatory services
agreements with other SROs to assist in carrying out regulatory
functions, but the Exchange shall retain ultimate legal
responsibility for, and control of, its SRO responsibilities.
    \144\ Proposed Rule 22040 (Transactions Involving Exchange
Employees) sets forth conditions and limitations on a BSTX
Participant providing loans or supporting the account of an Exchange
employee (e.g., promptly obtaining and implementing an instruction
from the employee to provide duplicate account statement to the
Exchange) in order to mitigate any potential conflicts of interest
that might arise from such a relationship.
    \145\ 17 CFR 242.200-203.
    \146\ 15 U.S.C. 78f(b)(5).
    \147\ 17 CFR 242.203.
    \148\ 15 U.S.C. 78f(e)(1).
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    In addition, the Exchange proposes to adopt Rule 22060 to provide a
high-level description of the market data products that the Exchange
will offer. Specifically, proposed Rule 22060 sets forth a brief
description of: (i) BSTX Depth-of Book data,\149\ (ii) BSTX Top-of-
Book,\150\ (iii) BSTX Last Sale,\151\ and (iv) the BSTX Market Data
Blockchain.\152\ The Exchange believes that providing a brief
description of the market data product offerings by the Exchange in the
rulebook promotes clarity to market participants with respect to the
Exchange's different market data product offerings, which the Exchange
believes helps may 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 Exchange Act,\153\ by ensuring
market participants are adequately informed of the Exchange's
offerings. The Exchange notes that proposed Rule 22060 is substantially
similar to a rule of another national securities exchange.\154\
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    \149\ BSTX Depth-of-Book would be a data feed that contains all
displayed orders for Securities trading on the Exchange, order
executions, order cancellations, order modifications, and
administrative messages.
    \150\ BSTX Top-of-Book would be an uncompressed data feed that
offers top of book quotations and execution information based on
orders entered into the BSTX System.
    \151\ BSTX Last Sale would be an uncompressed data feed that
offers only execution information based on orders entered into the
BSTX System.
    \152\ The BSTX Market Data Blockchain is described in proposed
Rule 22060(d) as historical market data with respect to trading on
the BSTX System, as set forth in Rule 17020.
    \153\ 15 U.S.C. 78f(b)(5).
    \154\ See MEMX LLC Rule 13.8.
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Trading Practice Rules (Rule 23000 Series)
    The Exchange proposes to adopt as its Rule 23000 Series (Trading
Practice Rules), 14 rules relating to trading practice requirements for
BSTX Participants that are substantially similar to trading practice
rules of other exchanges.\155\ The proposed Rule 23000 Series would
specify trading practice requirements related to: (i) Market
manipulation; (ii) fictitious transactions; (iii) excessive sales by a
BSTX Participant; (iv) manipulative transactions; (v) dissemination of
false information; (vi) prohibition against trading ahead of customer
orders; (vii) joint activity; (viii) influencing data feeds; (ix) trade
shredding; (x) best execution; (xi) publication of transactions and
changes; (xii) trading ahead of research reports; (xiii) front running
of block transactions; and (xiv) a prohibition against disruptive
quoting and trading activity. The purpose of the trading practice rules
is to set forth standards and rules relating to the

trading conduct of BSTX Participants, primarily with respect to
prohibiting forms of market manipulation and specifying certain
obligations broker-dealers have to their customers, such as the duty of
best execution. For example, proposed Rule 23000 (Market Manipulation)
sets forth a general prohibition against a BSTX Participant purchasing
a security at successively higher prices or sales of a security at
successively lower prices, or to otherwise engage in activity for the
purpose of creating or inducing a false, misleading or artificial
appearance of activity in such security.\156\ Proposed Rule 23010
(Fictitious Transactions) similarly prohibits BSTX Participants from
fictitious transaction activity, such as executing a transaction which
involves no beneficial change in ownership, and proposed Rule 23020
(Excessive Sales by a BSTX Participant) prohibits a BSTX Participant
from executing purchases or sales in any security trading on the
Exchange for any account in which it has an interest, which are
excessive in view of the BSTX Participant's financial resources or in
view of the market for such security.\157\ Proposed Rule 23060 (Joint
Activity) prohibits a BSTX Participant from directly or indirectly
holding any interest or participation in any joint account for buying
or selling a security traded on the Exchange unless reported to the
Exchange with certain information provided and proposed Rule 23090
(Best Execution) reaffirms BSTX Participants best execution obligations
to their customers.\158\
---------------------------------------------------------------------------

    \155\ See Cboe BZX Chapter 12 rules.
    \156\ Proposed Rule 23030 (Manipulative Transactions) specifies
further prohibitions relating to potential manipulation by
prohibiting BSTX Participants from, among other things,
participating or having any direct or indirect interest in the
profits of a manipulative operation or knowingly managing or
financing a manipulative operation.
    \157\ Other proposed rules relating to potential manipulation
include: (i) Rule 23040 (Dissemination of False Information), which
generally prohibits, consistent with Exchange Rule 3080, BSTX
Participants from spreading information that is false or misleading;
(ii) Rule 23070 (Influencing Data Feeds), which generally prohibits
transactions to influence data feeds; (iii) Rule 23080 (Trade
Shredding), which generally prohibits conduct that has the intent or
effect of splitting any order into multiple smaller orders for the
primary purpose of maximizing remuneration to the BSTX Participant;
(iv) Rule 23110 (Trading Ahead of Research Reports), which generally
prohibits BSTX Participants from trading based on non-public advance
knowledge of a research report and requires BSTX Participants to
enforce policies and procedures to limit information flow from
research personnel to trading personnel that might trade on such