[Federal Register Volume 85, Number 105 (Monday, June 1, 2020)]
[Notices]
[Pages 33454-33491]
[FR Doc No: 2020-11651]

Vol. 85

Monday,

No. 105

June 1, 2020

Part IV

Securities and Exchange Commission

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Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of
Proposed Rule Change 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. 85, No. 105 / Monday, June 1, 2020 /
Notices

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88946; File No. SR-BOX-2020-14]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Proposed Rule Change 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

May 26, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 21, 2020, BOX Exchange LLC (the ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) of the Securities
Exchange Act of 1934 as amended (``Exchange Act''),\3\ 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 ``security tokens,'' which would be equity securities that
meet BSTX listing standards and for which ancillary records of
ownership would be able to be created and maintained using distributed
ledger (or ``blockchain'') technology. The proposed additions to the
Exchange's Rules setting forth new Rule Series 17000-28000 are included
as Exhibit 5A [sic]. All text set forth in Exhibit 5A [sic] 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, are included as Exhibits 3A through 3N [sic].
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    \3\ 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,
12030, and 12140. These proposed changes are set forth in Exhibit 5B
[sic]. 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.\4\
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    \4\ 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 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 securities that will be considered
``security tokens'' under the proposed rules. The ``security tokens''
under the proposed rules would be equity securities that meet BSTX
listing standards, and that trade on the BSTX System, and for which
ancillary records of ownership would be able to be created and
maintained using distributed ledger technology. These ancillary records
of ownership that would be maintained using distributed ledger
technology would not be official records of security token ownership.
Instead, as described further herein, such records would be ancillary
records that would reflect certain end-of-day security token position
balance information as reported by market participants. 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 that wish to issue their registered securities as security
tokens. Security tokens would trade as NMS stock.\5\ The Exchange is
not proposing rules that would support its extension of unlisted
trading privileges to other NMS stock, and accordingly the Exchange
does not intend to extend any such unlisted trading privileges in
connection with this proposal. The Exchange would therefore only trade
security tokens 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 unlisted
trading privileges to other NMS stock. A guide to the structure of the
proposed rule change is described immediately below.
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    \5\ 17 CFR 242.600(b)(48).
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I. Guide to the Scope of the Proposed Rule Change

    The proposal for trading of securities that will be ``security
tokens'' (under the BSTX Rules, as defined below) through BSTX
generally involves changes to existing BOX Rules and new BOX Rules
pertaining specifically to BSTX (``BSTX Rules''). In addition, BSTX
corporate governance documents as well as certain discrete changes to
existing BOX corporate governance documents are necessary, which the
Exchange has submitted to the Commission through separate proposed rule
changes. To support the trading of security tokens through BSTX,
certain conforming changes are proposed to existing BOX Rules and
entirely new BSTX Rules are also proposed as Rule Series 17000 through
28000.\6\ 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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    \6\ The proposed changes to BOX Rules and the proposed BSTX
Rules are attached as Exhibits 5B and 5A [sic], 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;
     Section 27000--Suspension and Delisting;
     Section 27100--Guide to Filing Requirements;
     Section 27200--Procedures for Review of Exchange Listing
Determinations; and
     Section 28000--Dues, Fees, Assessments and Other Charges.

II. Overview of BSTX and Considerations Related to the Listing, Trading
and Clearance and Settlement of Security Tokens

A. 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 security tokens on the Exchange.\7\ 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 and accompanying
changes to the Exchange's current governance documents and bylaws, will
be the subject of a separate proposed rule change that the Exchange
plans to submit to the Commission.
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    \7\ See tZERO and BOX Digital Markets Sign Deal to Create Joint
Venture, Business Wire (June 19, 2018), available at https://www.businesswire.com/news/home/20180619005897/en/tZERO-BOX-Digital-Markets-Sign-Deal-Create.
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B. BSTX Is a Facility of BOX That Would Support Trading in the New
Asset Class of Security Tokens

    BSTX would operate as a facility \8\ 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.\9\ Currently, BOX functions as an exchange only for
standardized options. While BSTX may eventually support a wider variety
of securities, subject to Commission approval, at the time that BSTX
commences operations it would only support trading in security tokens
that are equity securities. Accordingly, this represents a new asset
class for BOX, and this proposal sets forth the changes and additions
to the Exchange's rules to support the trading of equity securities as
security tokens on BSTX.
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    \8\ 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 is a facility of the Exchange.
    \9\ 15 U.S.C. 78f; 15 U.S.C. 78s.
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    The Exchange proposes to use the term ``security token'' \10\ to
describe the BSTX-listed securities that would use blockchain
technology as an ancillary recordkeeping mechanism, as described in
further detail below. However, ownership of securities that are
security tokens under the BSTX rules would still be able to be
transferred without regard to the blockchain-based ancillary
recordkeeping functionality (as also described further below).
Notwithstanding this, the Exchange believes that it is appropriate to
describe these securities as ``security tokens'' to distinguish them
from other securities for which there is no related legal and
regulatory structure that is designed to use blockchain technology as
an ancillary recordkeeping mechanism and as a way of indicating the
additional proposed obligations of BSTX Participants trading security
tokens to obtain a wallet address and report end-of-day security token
balances to BSTX.\11\ The legal significance, therefore, of a security
token is that a ``security token'' will be an equity security that is
approved for listing on BSTX, and that trades on the BSTX System, and
for which BSTX Participants are therefore required under BSTX Rule
17020 to obtain a whitelisted wallet address and report certain end-of-
day security token position balance information to BSTX. A security
that is offered by an issuer with the intent of it becoming listed on
BSTX would therefore not become a ``security token'' under the proposed
BSTX Rules unless and until it actually does become listed on BSTX and
trades on the BSTX System. The Exchange believes that the obligations
on a BSTX Participant under the proposal to obtain a wallet address and
to report certain end-of-day security token position balance
information to BSTX are the only legal rights or obligations associated
with security tokens that would differ from how NMS stock is generally
traded by market participants today.\12\
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    \10\ The Exchange proposes to define the term ``security token''
to mean a NMS stock, as defined in Rule 600(b)(47) of the Exchange
Act, trading on the BSTX System. References to a ``security'' or
``securities'' in the Rules include security tokens. See proposed
Rule 17000(a)(30).
    \11\ See Part II, Sections G and J for further description of
these obligations.
    \12\ The Exchange notes that its proposed Rule 17000(a)(30)
defines ``security token'' to mean an ``NMS stock, as defined in
Rule 600(b)(47) of the Exchange Act, trading on the BSTX System.''
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C. Security Tokens Would Be NMS Stocks

    The security tokens would qualify as NMS stocks pursuant to
Regulation NMS,\13\ 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 . . . .'' \14\ The
Exchange plans to join existing transaction reporting plans, as
discussed in Part VIII below, for the purposes of security token
quotation and transaction reporting.\15\ The term ``NMS stock'' means
``any NMS security other than an option'' \16\ and therefore security
tokens traded on BSTX that

represent equity securities will be classified as NMS stock.
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    \13\ 17 CFR 242.600 through 613.
    \14\ 17 CFR 242.600(b)(47).
    \15\ 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 . . . .''
    \16\ 17 CFR 242.600(b)(47).
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D. BSTX Would Support Trading of Registered Securities

    All security tokens traded on BSTX would generally be required to
be registered with the Commission under both Section 12 of the Exchange
Act \17\ and Section 6 of the Securities Act of 1933 (``Securities
Act'').\18\ BSTX would not support trading of security tokens 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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    \17\ 15 U.S.C. 78l.
    \18\ 15 U.S.C. 77f.
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E. Clearance and Settlement of Security Tokens

    BSTX would maintain certain rules, as described below, to address
custody, clearance and settlement in connection with security tokens.
All transactions in security tokens 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, security tokens 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 \19\ for such security tokens. It is also
expected that confirmed trades in security tokens 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 security tokens, the relevant securities will 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. This is because the tokenized ancillary recordkeeping
process that will be implemented through the operation of the proposed
BSTX Rules will occur separate and apart from the clearance and
settlement process and the security itself will not exist in tokenized
form. Rather, the security will be an ordinary equity security for
NSCC's and DTC's purposes. The tokenized feature in connection with the
security that will be implemented through the operation of BSTX's Rules
is that there will also be a separate, ancillary recordkeeping process
that will use distributed ledger technology to record BSTX Participant
end-of-day position balance information for the relevant security.
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    \19\ 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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1. Issuance of Equity Securities Eligible to Become a Security Token
    With the exception of certain offerings under Regulation A that
meet the proposed BSTX listing standards, all security tokens traded on
BSTX will have been offered and sold in registered offerings under the
Securities Act, which means that purchasers of the security tokens 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 is a facility of a national
securities exchange, all security tokens will 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
security tokens on BSTX will 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 security
tokens) will thereafter commence on BSTX. The ancillary recordkeeping
function associated with the security token will not commence until the
conclusion of the first day of the security token's secondary trading
on BSTX pursuant to proposed BSTX Rule 17020.\20\
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    \20\ Although the smart contract that would be used to carry out
the ancillary recordkeeping function related to the security would
need to be built by or at the direction of the issuer prior to the
commencement of the security's trading on BSTX, the corresponding
smart contract would effectively remain dormant until the ancillary
recordkeeping process contemplated under the proposed BSTX Rules is
activated due to trading on the BSTX System in that security token.
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    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. BSTX does not intend for security tokens listed, or intended to
be listed, on BSTX to be fungible with any other class of securities
from the same issuer. 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,
pursuant to BSTX's authority under BSTX Rule 26101. At the commencement
of BSTX's operations, only equity securities would be eligible for
listing as security tokens. This would be addressed by BSTX Rules 26102
(Equity Issues), 26103 (Preferred Security Tokens) and 26105 (Warrant
Security Tokens), 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.
2. Securities Depository Eligibility
    BSTX would maintain rules that would promote a structure in which
security tokens would be held in ``street name'' with DTC.\21\ BSTX
Rule 26136 would require that for an equity security to be eligible to
be a security token 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.\22\ In
practice, BSTX Rule 26136 requires the

security token 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.\23\
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    \21\ 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 26135 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.
    \22\ Proposed BSTX Rule 26136 is based on current NYSE Rule 777.
    \23\ 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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3. Book-Entry Settlement at a Securities Depository
    BSTX would also maintain Proposed BSTX Rule 26137 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.\24\
Proposed BSTX Rule 26137 is based on the depository eligibility rules
of other equities exchanges and Financial Industry Regulatory Authority
(``FINRA'').\25\ 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.\26\
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    \24\ FINRA is currently the only national securities association
registered with the SEC.
    \25\ See e.g., FINRA Rule 11310. Book-Entry Settlement and NYSE
Rule 776. Book-Entry Settlement of Transactions.
    \26\ 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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4. 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 token 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 token
transaction that is executed through BSTX would be required to remain
anonymous or may be revealed; and (iii) certain circumstances under
which a security token 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.\27\
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    \27\ 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
security tokens 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, security tokens would be securities that have been made
eligible for services by DTC, including book-entry settlement services.
5. Settlement Cycle
    Proposed BSTX Rule 25100(d) would address settlement cycle
considerations regarding trades in security tokens. Security token
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.
Additionally, Rule 25100(d) would provide that such security token
transactions occurring through BSTX would settle one business day after
the trade date (i.e., T+1) where that settlement cycle timing is
permitted under the rules, policies and procedures of the relevant
registered clearing agency. This creates a presumption of T+1
settlement for security token trades because, as described below, NSCC
already processes trades for T+1 settlement pursuant to the authority
in its approved rules, policies and procedures. However, market
participants, including BSTX Participants, that are parties to a
security token trade that occurs away from BTSX would have the ability
to agree to a shorter or longer settlement cycle for the settlement of
the security token trade as is permitted by applicable law, including
under the rules, policies and procedures of a relevant registered
clearing agency.
    As noted above in connection with the description of proposed BSTX
Rule 25140, BSTX expects at the commencement of its operations that it
would transmit confirmed trade details to NSCC regarding security token
trades that occur on BSTX and that NSCC would be the registered
clearing agency that clears security token trades. 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.\28\ Furthermore, BSTX understands that NSCC
does already clear trades in accordance with this authority. For
example, based on information provided by a representative of DTCC to
outside counsel for BSTX, BSTX 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.\29\ As described above regarding BSTX
Rules 26136 and 26137, all security token trades occurring on BSTX that
are cleared by NSCC, including those for which the T+1 settlement
presumption would apply, would be settled through book-entry settlement
at DTC pursuant to its rules, policies and procedures.
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    \28\ 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.
    \29\ 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.

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    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 \30\ (``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.'' \31\ 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[.]''
\32\ 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[.]'' \33\
BSTX agrees with these statements by the Commission and has therefore
proposed BSTX Rule 25100(d) in a form that would promote the benefits
of a T+1 settlement cycle regarding security token trades where T+1
settlement is already permitted pursuant to the rules, policies and
procedures of NSCC and DTC today.
---------------------------------------------------------------------------

    \30\ 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'').
    \31\ Exchange Act Release No. 80295 (March 22, 2017), 82 FR
15564, 15570-71 (March 29, 2017).
    \32\ Id. at 15571.
    \33\ Id. at 15582.
---------------------------------------------------------------------------

F. Compatibility With the BSTX Security Token Protocol for BSTX-Listed
Security Tokens to Facilitate Ancillary Recordkeeping

    BSTX would maintain listing standards that would enable security
tokens to have an ancillary record of ownership recorded on the
Ethereum blockchain using a protocol standard determined by BSTX (the
``BSTX Security Token Protocol'' or the ``Protocol'').\34\ In this way,
the Ethereum blockchain would serve as a complementary recordkeeping
mechanism to official records of security token ownership maintained by
market participants.
---------------------------------------------------------------------------

    \34\ While BSTX initially intends to support only the trading of
eligible security tokens that are compatible with the Ethereum
public blockchain, BSTX may support tokens compatible with other
blockchains that support smart contract functionality in the future.
---------------------------------------------------------------------------

1. Background on Blockchain Technology
    In general, a blockchain is an open, decentralized ledger that can
maintain digital records of assets and transactions that are accessible
to anyone running the same protocol.\35\ The blockchain's central
function is to encode transitions or changes to the ledger, such as the
movement of an asset from one person to another person. Whenever one
change to the blockchain ledger occurs to record a state transition,
the entire blockchain is immutably changed to reflect the state
transition. The purpose of requiring security tokens to adopt the BSTX
Security Token Protocol is to enable security token ownership to be
recorded on the public Ethereum blockchain as an ancillary
recordkeeping mechanism and to ensure uniformity among security tokens
rather than permitting each security token to have its own unique
specifications that might complicate updates to the blockchain and add
unnecessary complexity.
---------------------------------------------------------------------------

    \35\ A ``protocol'' for this purpose is a set of rules governing
the format of messages that are exchanged between the participants.
---------------------------------------------------------------------------

2. Background on the Ethereum Blockchain
    The Ethereum blockchain is an open-source, public blockchain that
operates as a computing platform and operating system that supports
smart contract functionality.\36\ Smart contracts are computer
protocols designed to digitally facilitate, verify, and enforce the
performance of a contract. Ethereum-based smart contracts are executed
on the Ethereum Virtual Machine, which can be thought of as a global
computer network upon which the smart contracts run. Ether is the
digital currency used to pay fees associated with operating smart
contracts (known as ``gas'') on the Ethereum networks. This is because
there are costs involved in performing the computations necessary to
execute a smart contract and to record any state transitions onto the
Ethereum blockchain.\37\ Thus, moving tokens from one address to
another address (i.e., a state transition) requires some amount of
Ether to pay the fee (i.e., ``gas'') associated with recording the
movement of tokens to the Ethereum blockchain. Parties to a transaction
in Ethereum-based smart contracts can determine what those gas costs
are depending on how quickly they would like the transaction to be
reflected on the Ethereum blockchain.
---------------------------------------------------------------------------

    \36\ See Ethereum White Paper (last updated Aug. 1, 2018)
available at https://github.com/ethereum/wiki/wiki/White-Paper.
    \37\ See What Is Gas, MyEtherWallet (2018) available at https://kb.myetherwallet.com/posts/transactions/what-is-gas/.
---------------------------------------------------------------------------

3. Background on Smart Contracts
    The term ``smart contract'' is commonly used to describe computer-
coded functions in connection with the Ethereum blockchain. An Ethereum
smart contract is neither ``smart'' nor a legal contract in the
traditional sense. Smart contracts in this context refer to immutable
\38\ computer programs that run deterministically \39\ in the context
of the Ethereum Virtual Machine. Smart contracts operate within a very
limited execution context. They can access their own state, the context
of the transaction that called them, and some information about the
most recent blocks (i.e., the most recent recording of transactions and
other events recorded to the Ethereum blockchain).
---------------------------------------------------------------------------

    \38\ Smart contracts are immutable in that, once deployed, the
code of a smart contract cannot change. Unlike with traditional
software, the only way to modify a smart contract is to deploy a new
instance.
    \39\ Deterministic in this context means that the outcome of the
execution of a smart contract is the same for everyone who runs it,
given the context of the transaction that initiated its execution.
---------------------------------------------------------------------------

    In the context of security tokens, smart contracts generally may
have three components: (i) Functions, (ii) configurations; (iii) and
events.\40\ Functions describe the basic operations of a smart
contract, such as the ability to query a particular address to
determine how many tokens belong to that address.\41\ Configurations
are

attributes of a smart contract that are typically set at the launch of
a smart contract, such as designating the name of the smart contract
(e.g., as XYZ security token). Events describe the functions of a smart
contract that, when executed, result in a log or record being recorded
to the Ethereum blockchain, such as the transfer of tokens from one
address to another. Not all functions of a smart contract result in a
log or record being recorded to the Ethereum blockchain. Smart
contracts only run if they are called by a transaction.\42\
---------------------------------------------------------------------------

    \40\ However, a smart contract need not necessarily have each of
these components. Some smart contracts may simply be used to support
the functioning of other smart contracts and may not itself result
in events being recorded to the Ethereum blockchain.
    \41\ An ``address'' in this context refers to a number that is
associated with a particular market participant within the smart
contract that can be updated to reflect changes in ownership of
tokens.
    \42\ The term ``transaction'' in this context refer not to an
actual execution or transaction occurring on BSTX or in the
marketplace, but rather to an operation triggering a smart contract
to carry out its specified function, which must ultimately originate
from a human source.
---------------------------------------------------------------------------

    Smart contracts can call another smart contract, which can call
another contract, and so on. Smart contracts never run ``on their own''
or ``in the background,'' but rather lie dormant until a transaction
triggers them to carry out a specified operation pursuant to the
protocol on which they operate. All transactions execute in their
entirety or not at all, regardless of how many smart contracts they
call or what those smart contracts do. Only if a transaction
successfully executes in its entirety is there an ``event''
representing a change to the state of the blockchain with respect that
transaction. If an execution of a smart contract's operation fails due
to an error, all of its effects (e.g., events) are rolled back as if
the transaction never ran.
4. Background on Tokens
    Tokens historically referred to privately issued, special-purpose
coin-like items (e.g., laundry tokens or arcade game tokens). In the
context of blockchain technology, tokens generally mean blockchain-
based abstractions that can be owned and that represent assets,
currency, or access rights. A security token on the blockchain used for
ancillary recordkeeping of ownership can be thought of as a digital
representation of shareholder equity in a legal entity organized under
the authority of state or federal law and that meet BSTX's listing
standards. Having a security token attributed to a particular address,
however, would not convey ownership of shareholder equity in the issuer
because the official records of ownership would be maintained by
participants at DTC.\43\
---------------------------------------------------------------------------

    \43\ Rather, a digital representation of a security token
associated with a particular address reflects an ancillary record of
security token ownership based on data provided to BSTX by BSTX
Participants. The records reflected on the Ethereum blockchain
regarding security tokens may not be current to reflect the most
recent transactions in the marketplace and may not reflect ownership
by all market participants.
---------------------------------------------------------------------------

    To create a new token on Ethereum, including for purposes of
facilitating ancillary recordkeeping of security token ownership, one
must create a new smart contract. The smart contract would be
configured to detail, among other things, the name of the issuer and
the total supply of the tokens. Smart contracts can be designed to
carry out any event that one wants, but using a set standard or
protocol allows for participants transacting in those smart contracts
to have uniform expectations and functionality with respect to the
tokens.
5. Background on Protocols
    A protocol (also sometimes referred to as a ``standard'' or
``protocol standard'') defines the functions, events, configurations,
and other features of a given smart contract. The most common protocol
used with Ethereum is the ERC-20 protocol, which describes the minimum
functions that are necessary to be considered an ERC-20 token.\44\ The
ERC-20 protocol offers basic functionalities to transfer tokens, obtain
account balances, and query the total supply of tokens, among other
features. The BSTX Security Token Protocol is compliant with the ERC-20
protocol but adds additional requirements and functionality, as
described below.
---------------------------------------------------------------------------

    \44\ See e.g., Jesus Najera, Understanding ERC20, Coin Central
(Jan. 8, 2018), available at https://coincentral.com/understanding-erc20/; Alfonso de la Rocha, Anatomy of an ERC: An Exhaustive
Survey, Medium (May 7, 2018), available at https://medium.com/coinmonks/anatomy-of-an-erc-an-exhaustive-survey-8bc1a323b541.
---------------------------------------------------------------------------

    As noted above, Ether is the digital currency used to pay fees
associated with operating smart contracts (known as ``gas'') on the
Ethereum network. Payment of gas is required to operate smart contracts
because there are costs involved in performing the computations
necessary to execute a smart contract and to record any state
transitions onto the Ethereum blockchain.
    There is an important conceptual distinction between ERC-20 tokens,
including security tokens, and Ether itself. Where Ether is transferred
by a transaction that has a recipient address as its destination, token
transfers occur within the specific token contract state and have the
token smart contract as their destination, not the recipient's address.
The token smart contract tracks balances and issues events to the
Ethereum blockchain. In a token transfer,\45\ no transaction is
actually sent to the recipient of the token. Instead, the recipient's
address is added to a map within the token smart contract itself. In
contrast, a transaction sending Ether to an address changes the state
of an address. A transaction transferring a token to an address only
changes the state of the token contract, not the state of the recipient
address. Thus, an address is not really full of tokens; rather it is
the token smart contract that has the addresses and balances associated
with each address in it.
---------------------------------------------------------------------------

    \45\ A ``transfer'' in the context of the BSTX Security Token
Protocol regarding a security token refers to a reallocation of the
digital representation of a security token on the Ethereum
blockchain as an ancillary recordkeeping mechanism to reflect
corresponding changes in ownership of the security token.
---------------------------------------------------------------------------

6. BSTX Security Token Protocol
    BSTX Rule 26138 requires that a BSTX listed company's security
tokens must comply with the Protocol to trade on BSTX. The purpose of
this requirement is to ensure that all security tokens are governed by
the same set of specifications and controls that allow for ownership of
security tokens to be recorded to the Ethereum blockchain as an
ancillary recordkeeping mechanism.
    The Protocol involves three smart contracts. The Asset Smart
Contract is the primary smart contract that contains the balances of
security tokens associated with each address and carries out the
functions necessary to reflect changes in ownership. There are two
ancillary smart contracts that are called by the Asset Smart Contract
in executing transactions. The first of these is the Registry Smart
Contract (``Registry''), which contains the list of permissioned (or
``whitelisted'') addresses, and the second is the Compliance Smart
Contract, which includes a variable list of additional compliance
related rules that the Asset Smart Contract must comply with in
executing a transaction. Each of these three smart contracts are
described in greater detail below:
    (1) Asset Smart Contract--The Asset Smart Contract defines and
establishes the security tokens (e.g., the maximum number of security
tokens available for a particular issuance) for purposes of the
Ethereum blockchain ancillary recordkeeping function and records a list
of market participant addresses and the security tokens associated with
each address.
    (2) Registry Smart Contract--The Registry Smart Contract (or
``Registry'') defines the permissions available to different types of
market participants to perform certain functions. Under the

Protocol, there are five different types of market participants
connected with the Registry, each with different abilities and
permissions (as detailed below): \46\ (1) Contract Owner, (2)
Custodian, (3) Broker Dealer, (4) Custodial-Account, and (5) Investor.
The Registry also contains the list of whitelisted addresses to which
security tokens may be sent and additional information associated with
each address (e.g., whether an address has been suspended).
---------------------------------------------------------------------------

    \46\ There are additional roles that are not technically part of
the Registry and are instead specific to certain smart contracts.
For example, an ``Issuer'' is an Asset Smart Contract-specific role.
Also, an ``Administrator'' is a Compliance Smart Contract-specific
role that allows such a user to, for example, freeze the transfer of
tokens for purposes of the ancillary recordkeeping function under
certain circumstances and modify or add compliance rules to govern a
security token.
---------------------------------------------------------------------------

    (3) Compliance Smart Contract--The Compliance Smart Contract is the
set of rules held in a separate smart contract that a security token
can be configured to abide by to ensure compliance with applicable laws
and regulations (e.g., by restricting a movement of security tokens to
an address that has not been added to the Registry for purposes of the
Ethereum blockchain ancillary recordkeeping mechanism). The Compliance
Smart Contract can be modified to add or remove applicable rules in
light of changes to applicable regulatory requirements.
    Each of these three smart contracts work together to facilitate the
ancillary recordkeeping mechanism for Security Tokens using the
Ethereum blockchain. The details of the specific functions,
configurations, and events under the Protocol are set forth in greater
detail in Exhibit 3N [sic].
    The Exchange selected the Ethereum blockchain among other possible
blockchains that support smart contracts as the blockchain upon which
security tokens would be built in accordance with the BSTX Security
Token Protocol for ancillary recordkeeping purposes because of, among
other reasons, its widespread use, the public's familiarity with
Ethereum, and its smart contract functionality. Ethereum has maintained
the second largest market capitalization behind Bitcoin among
blockchain-based digital assets for at least two years and is widely
recognized by the public.\47\ Over 200,000 different ERC-20 tokens have
been built on the Ethereum blockchain, demonstrating its wide-spread
use and functionality. The Exchange believes that the Ethereum
blockchain is able to support all of the necessary functions of the
BSTX Security Token Protocol to carry out the security token ancillary
recordkeeping function. The Exchange also believes that using a widely-
known smart contract platform as opposed to a lesser-known smart
contract platform may help issuers become more comfortable with the
ancillary recordkeeping process as well as allow them to more-readily
locate service providers as necessary to assist them in building their
security tokens in accordance with the BSTX Security Token Protocol. As
noted, the Exchange may consider the use of other blockchains
supporting smart contract functionality in the future, subject to
applicable rule filing requirements with the Commission pursuant to
Section 19 of the Exchange Act.\48\
---------------------------------------------------------------------------

    \47\ The Commission has also publicly recognized Ethereum and
its native currency Ether. See William Hinman, Director, Division of
Corporation Finance, Digital Asset Transactions: When Howey Met Gary
(Plastic) (June 14, 2018) available at https://www.sec.gov/news/speech/speech-hinman-061418.
    \48\ 15 U.S.C. 78s.
---------------------------------------------------------------------------

G. Obtaining a Whitelisted Wallet Address

    Pursuant to proposed Rule 17020(a), a BSTX Participant must, either
directly or through its carrying firm, establish a wallet address to
which its end-of-day security token balances may be recorded by
contacting BSTX.\49\ A BSTX Participant that is a carrying broker-
dealer for other BSTX Participants would be assigned the wallet address
with the status of a Custodian, which would allow that BSTX Participant
to request wallet addresses on behalf of other BSTX Participants (for
which it serves as the carrying broker-dealer) as either a Custodial
Account or Broker-Dealer wallet address, as described above. A BSTX
Participant that is not a carrying broker-dealer could request a
Broker-Dealer wallet address, a Custodial Account wallet address in
coordination with its carrying firm, and an Investor wallet address on
behalf of a customer that would like its ownership of security tokens
to be reflected at its own address for purposes of the Ethereum
blockchain as an ancillary recordkeeping mechanism.\50\
---------------------------------------------------------------------------

    \49\ Multiple security token issuances can be attributed to a
BSTX Participant's wallet address. A BSTX Participant would not need
a separate wallet address for each security token issuance that it
trades.
    \50\ A BSTX Participant that is a carrying broker-dealer, and
which therefore has a Custodial Account address, could also request
Investor wallet addresses on behalf of customers.
---------------------------------------------------------------------------

    Contact information for BSTX for the purpose of establishing a
wallet address will be published on the BSTX website. Proposed BSTX
Rule 17020(a) requires a BSTX Participant to establish a wallet address
by contacting BSTX directly or through its carrying firm acting on its
behalf. BSTX expects that this process (i.e., contacting the Exchange
and establishing a wallet address) would occur contemporaneously with
the application by a market participant to become a BSTX Participant.
However, under proposed BSTX Rule 17020(a), a BSTX Participant would
have up until five business days from the date that the Exchange
approves the application of the BSTX Participant to satisfy the
obligation to obtain a wallet address. In the event that a BSTX
Participant has not obtained a wallet address prior to the Exchange's
approval of its application, the BSTX Participant would become subject
to the end-of-day security token balance reporting requirements in
proposed BSTX Rules 17020(b) and (c). However, because the BSTX
Participant would not yet have a wallet address to which the position
balance information could be attributed by a Wallet Manager, any
security token position balances of such BSTX Participant would be
attributed to the omnibus wallet address for the security token (as
described below) until the time the BSTX Participant obtains a wallet
address. For the avoidance of doubt, having end-of-day position balance
information related to a security token attributed to a particular
wallet address would not convey ownership of shareholder equity in the
issuer to the person or entity with whom such wallet address is
associated. BSTX-listed security tokens will be cleared and settled in
the same manner as other NMS stocks through the facilities of a
registered clearing agency, and the official records of ownership would
be maintained as discussed above in Part II.E. Therefore, any lack of a
wallet address would not affect the official records of ownership of
the BSTX-listed security token.
    Once a BSTX Participant has been assigned a particular wallet
address, the only further obligation of that BSTX Participant is to
report its end-of-day security token position balances to BSTX, as
described below. Non-BSTX Participants that may trade security tokens
are not subject to the requirement that they obtain a wallet address
prior to trading a security token or to the end-of-day security token
balance position reporting requirements. The Exchange will not accept
voluntary reports of end-of-day security token balances from non-BSTX
Participants, but may consider doing so in the future, subject to any
applicable or necessary rule filing requirements with the Commission.
The Exchange believes that the proposed requirement in Rule

17020(a) to obtain a wallet address is consistent with the Exchange Act
and Section 6(b)(5) \51\ in particular because it would help foster
cooperation and coordination with persons engaged in regulating and
facilitating transactions in security tokens by setting forth a process
through which BSTX Participants may obtain a wallet address to which
their end-of-day security token balances may be recorded to the
Ethereum blockchain as an ancillary recordkeeping mechanism. The
Exchange believes that the proposed requirement is similar to obtaining
a market participant identifier (``MPID'') in that it establishes an
identifier that can be attributed to a particular BSTX Participant for
reporting purposes. The proposed requirement to obtain a wallet address
is the same for all BSTX Participants, and is therefore not unfairly
discriminatory, and the Exchange does not propose to charge a fee for
obtaining a wallet address.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

H. Wallet Manager 52
---------------------------------------------------------------------------

    \52\ A ``Wallet Manager'' is defined as a party approved by BSTX
to operate software compatible with the BSTX Protocol. See proposed
Rule 17000(a)(31). A Wallet Manager would be a third-party service
provider for the Exchange that will help facilitate establishing
wallet addresses for BSTX Participants and facilitate updates to the
Ethereum blockchain as an ancillary recordkeeping mechanism
regarding changes in ownership resulting from trading. Approved
Wallet Managers will be listed on the Exchange's website.
---------------------------------------------------------------------------

    As described further below, following the end of a trading day,
BSTX Participants (or their carrying firms) will be required to send
security token position balance information to BSTX. Based on the
information that BSTX receives, BSTX will deliver that information to
one or more Wallet Managers who will be responsible for updates to the
security token position balances on the Ethereum blockchain by
allocating balances among the wallet addresses of BSTX Participants and
the omnibus wallet address.
    The Exchange would enter into a contractual arrangement with a
Wallet Manager as a service provider to the Exchange performing the
function described above. The Exchange does not believe that performing
the ancillary recordkeeping process would make a Wallet Manager a
facility of the Exchange because the Wallet Manager's functions do not
meet the definition of ``facility'' under the Exchange Act. 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.'' \53\ A Wallet Manager is neither property of the Exchange
nor does a Wallet Manager provide services for effecting or reporting a
transaction taking place on the Exchange. Rather, a Wallet Manager
performs the function of updating end-of-day security token position
balance information provided by the Exchange as part of an ancillary
recordkeeping mechanism. The Ethereum blockchain would not reflect any
particular transaction(s) that occurred in the marketplace but would
instead record allocations of end-of-day security token position
balances--which may result from a variety of activities in the
marketplace for the relevant security tokens such as trading activity,
lending activity, and free-of-payment transfers between DTC accounts.
The definition of ``facility'' in Section 3(a) of the Exchange Act is
instead focused on ``effecting or reporting a transaction'' as part of
the operations of an exchange, namely the bringing together of orders
for securities of multiple buyers and sellers using non-discretionary
methods under which such orders interact with each other, and the
buyers and sellers entering such orders agree to the terms of a
trade.\54\ Thus, systems of communication to the Exchange used to
effect trades or to receive market data would likely be considered
facilities of the Exchange, but an end-of-day ancillary recordkeeping
reporting process that does not provide any real or near-time
information regarding transactions in the market should not.\55\ The
Commission ``long has recognized that there must be some practical
limitations on entities encompassed within the broad definition of the
term `exchange.' '' \56\ The ancillary recordkeeping process would have
no impact on, or perform a function related to, the bringing together
of buyers and sellers' orders, clearance, settlement, market data or
routing functions of the exchange (i.e., all of these functions can
continue upon any suspension of the ancillary recordkeeping process),
and therefore cannot reasonably be considered a ``facility'' of the
exchange. The Exchange intends to enter into a contractual arrangement
with at least one Wallet Manager.\57\ The Exchange intends to evaluate
each potential Wallet Manager's capability to receive information from
BSTX related to BSTX Participants' end-of-day security token balances
along with its ability to update the Ethereum blockchain upon receipt
of such information. Further, the Exchange intends to perform due
diligence on potential Wallet Managers, including but not limited to
checking the list produced by the U.S. Treasury Department of persons
with whom U.S. citizens are prohibited from doing business (``OFAC
List''). Finally, the Exchange intends to require each Wallet Manager
in its service agreement with the Wallet Manager to agree to comply
with all applicable securities laws. The Exchange believes that using
the criteria listed above for evaluating potential Wallet Managers may
prevent fraudulent and manipulative acts and practices, consistent with
Section 6(b)(5) of the Exchange Act.\58\ The Exchange believes that
requiring every Wallet Manager to act in a manner consistent with
applicable securities laws and not be on the OFAC List would help
ensure that persons reputed to have committed illegal acts and who
violate securities laws, including any such laws meant to prevent fraud
and market manipulation, will not operate as Wallet Managers.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78c(a)(2).
    \54\ 17 CFR 240.3b-16.
    \55\ The Commission has not defined the term ``facility.'' See
Exchange Act Release No. 26708 (Apr. 11, 1989), 54 FR 15429 (Apr.
18, 1989) (noting that the term ``facility'' has not changed since
it was originally adopted and that no hearing testimony referred to
it because ``the Committee felt that the definition was `self-
explanatory' '').
    \56\ Id.
    \57\ The Exchange expects that it will initially operate with
one Wallet Manager, but there is nothing to preclude the use of
another Wallet Manager provided the prospective Wallet Manager is
capable of operating software compatible with the BSTX Security
Token Protocol. The Exchange expects that tZERO would operate as the
initial Wallet Manager. BOX Exchange LLC, the self-regulatory
organization of which BSTX is a facility, neither controls, directly
or indirectly, nor is under common control with tZERO. The voting
class of equity of the BSTX facility is 50% owned by tZERO and BOX
Digital Markets, which is 100% owned by BOX Holdings Group LLC. BOX
Exchange LLC does not have direct or indirect ownership interest in
BOX Holdings LLC or its subsidiaries. As a result, because BOX
Exchange LLC does not exercise control over tZERO or its affiliates,
tZERO would not constitute ``property'' of the Exchange for purposes
of determining whether it is a facility. In any case, it is the
functions of the particular entity that should matter for purposes
of determining whether an entity or function is a facility of an
exchange rather than whether an entity is affiliated or not with an
exchange. See e.g., Exchange Act Release No. 54538 (Sept. 28, 2006),
71 FR 59184 (Oct. 6, 2006) (order approving PHLX's new equity
trading system and operation of optional outbound router as a
facility of PHLX, where PHLX had no ownership interest in the third
party operator).
    \58\ 15 U.S.C. 78f(b)(5).

---------------------------------------------------------------------------

I. Coordination Between BSTX, Registered Clearing Agencies, and Wallet
Managers

    Upon the occurrence of a transaction on BSTX due to the completion
of its order matching process,\59\ BSTX would generate an execution
report, and it would deliver drop copies to its own front-end systems
to update the BSTX Participants and to NSCC.\60\ Where a BSTX
transaction creates a settlement obligation to transfer registered
ownership of a security token, clearance and settlement would be
performed in accordance with the rules, policies and procedures of a
registered clearing agency as described in Part II.E. above. The Wallet
Manager would be provided with end-of-day position balance information
of BSTX Participants necessary to update the Ethereum blockchain
through the end of day reporting mechanism discussed below.
---------------------------------------------------------------------------

    \59\ Order matching would occur through a price-time priority
model, as discussed in greater detail below.
    \60\ The last sale transaction data would also be publicly
disseminated pursuant to the transaction reporting plan, which would
occur before delivery of drop copies to these parties.
---------------------------------------------------------------------------

J. Reporting End-of-Day Security Token Balances To Facilitate Ancillary
Recordkeeping

    To update the Ethereum blockchain to reflect ownership of security
tokens as an ancillary recordkeeping mechanism, the Exchange proposes
to require that each BSTX Participant, either directly or through its
carrying firm, report each business day to BSTX certain end-of-day
security token balances in a manner and form acceptable to BSTX.\61\ A
BSTX Participant that is a participant at DTC would be required to
report to BSTX the total number of security tokens for each class of
security token that is credited to each DTC account of the BSTX
Participant.\62\ For a BSTX Participant that is not a DTC participant,
the BSTX Participant would be required to report the total number of
security tokens for each class of security token that are credited to
the BSTX Participant by its carrying firm.\63\ Pursuant to proposed
Rule 17020(d), upon receipt of the end-of-day security token balances
from BSTX Participants, the Exchange would provide such information to
the Wallet Manager(s) to update the Ethereum blockchain as an ancillary
recordkeeping mechanism to reflect updates in security token
balances.\64\ Proposed Rule 17020(d) would also provide that unreported
security token balances will be determined and allocated to an omnibus
wallet address for each security token as described further below. The
Exchange would determine the number of security tokens to be allocated
to the omnibus wallet address by the Wallet Manager(s) by subtracting
the sum of the security token position balances reported for a
particular security token by BSTX Participants from the total
outstanding number of that particular security token. BSTX expects that
each security token would have a dedicated omnibus wallet address that
the Wallet Manager(s) would use to allocate the resulting balance to
that address.
---------------------------------------------------------------------------

    \61\ See Proposed Rule 17020(b).
    \62\ See Proposed Rule 17020(b)(1). As described above in Part
II.E., BSTX would maintain rules that would promote a structure in
which security tokens would be held in ``street name'' with DTC.
    \63\ See Proposed Rule 17020(b)(2).
    \64\ Notably, because the Ethereum blockchain is updated each
day using the end-of-day security token balance reports, and is, in
any case, only functioning at this time as an ancillary
recordkeeping function, concerns regarding a loss of private keys or
disruption to the Ethereum blockchain are fully mitigated. For
example, assume a BSTX Participant owns 100 security tokens of XYZ
at the end of Day 1 and, as a result of trading on Day 2, ends Day 2
with a balance of 200 security tokens of XYZ. If the BSTX
Participant's wallet address were somehow compromised during the
trading day on Day 2 and the 100 security tokens were moved to
another address (which could only be moved to another whitelisted
address), this would not substantively impact the functioning of the
blockchain as an ancillary recordkeeping tool. At the end of trading
on Day 2, the BSTX Participant would report its ownership of 200
security tokens of XYZ to BSTX, which would then update the Ethereum
blockchain to reflect this end of day balance.
---------------------------------------------------------------------------

    The Exchange proposes that these end-of-day security token balance
reports would be required each business day when DTC is also open for
business, but after such time as DTC has completed its end-of-day
settlement process.\65\ The Exchange believes that once DTC has
completed its end-of-day settlement process, DTC participants would be
able to determine the number of security tokens credited to their DTC
account(s) and to other market participants that settle through that
DTC participant. Thereafter, BSTX Participants, or their carrying
firms, would be able to obtain their security token balance information
and report it to BSTX by the end of the day. The Exchange understands
that DTC typically makes end-of-day security position reports available
to DTC participants at approximately 7:30 p.m. Eastern time. Therefore,
the Exchange will notify BSTX Participants via Regulatory Circular of
the time after 7:30 p.m. Eastern time by which end-of-day security
position balance reports will be required to be provided to BSTX
pursuant to BSTX Rule 17020(c). The Exchange will also notify BSTX
Participants via Regulatory Circular of the time by which it will
provide security token position balance information to the Wallet
Manager(s) so that the Wallet Manager(s) will have sufficient time to
carry out their contractual obligation to update the Ethereum
blockchain as an ancillary recordkeeping mechanism prior to the
commencement of trading on BSTX on the next trading day.
---------------------------------------------------------------------------

    \65\ See Proposed Rule 17020(c).
---------------------------------------------------------------------------

    The Exchange acknowledges that, in certain circumstances, a BSTX
Participant subject to the requirements of proposed Rule 17020 could
fail to report end-of-day security token balances to BSTX in a timely
manner, inaccurately report such balances, or fail to obtain a wallet
address prior to acquiring a position in a security token. Such
failures would impair the ability of the Exchange to report complete
end-of-day security token balance information regarding a security
token to the Wallet Manager(s) who will be responsible for using that
information, in turn, to update the security token balance information
that is reflected on the Ethereum blockchain. The Exchange notes that
BSTX Participants would be required to comply with applicable Exchange
Rules, including the requirement to report their end-of-day security
token balances, and may be subject to disciplinary action for failing
to comply with applicable rules pursuant to proposed Rule Series 24000
(Discipline and Summary Suspension).
    As noted above, to account for instances in which a BSTX
Participant fails to report or to accurately report its end-of-day
security token balance pursuant to proposed Rule 17020, as well as to
account for the positions of security token holders who are not BSTX
Participants and therefore not subject to the end-of-day security token
balance reporting requirement, the Exchange proposes to use an omnibus
wallet address to account for such security tokens in the ancillary
records that would be published on the Ethereum blockchain.
Specifically, the Exchange would know the total number of security
tokens outstanding and would provide information to the Wallet
Manager(s) to allow the Wallet Manager(s) to attribute the unreported
security token balance for a given security token to an omnibus wallet
address for each security token. For example, assume that on Day 1
there are 1,000 security tokens for company XYZ outstanding, 800 are
held at DTC in accounts for the benefit of eight BSTX Participants and
200 are otherwise held at DTC. Assume further that BSTX receives timely
and accurate end-of-day

XYZ security token balance reports from all eight BSTX Participants in
respect of 800 XYZ security tokens. At the end of Day 1 as part of the
end-of-day reporting process, the Exchange would provide information to
the Wallet Manager(s) allowing the Wallet Manager(s) to allocate the
800 XYZ security tokens among the BSTX Participants consistent with
their end-of-day security token balance reports and to allocate the
remaining balance of 200 security tokens to the omnibus wallet address.
In this same example, assume a BSTX Participant who holds 100 XYZ
security tokens failed to report its XYZ security token balance to
BSTX. In this case, the Exchange would provide information to the
Wallet Manager(s) allowing the Wallet Manager(s) to allocate 300 XYZ
security tokens to the omnibus wallet address for XYZ security token.
The omnibus wallet address in this example would thus reflect the sum
of XYZ security tokens held by non-BSTX Participants who are not
subject to the end-of-day security token balance reporting requirement
as well as any missing end-of-day security token balance reports among
BSTX Participants.\66\ In all cases, the security token balances
displayed on the Ethereum blockchain would reflect end-of-day security
token balances reported to BSTX pursuant to Rule 17020 and an omnibus
wallet address for any type of security token for which the sum of the
reported positions is less than the number of security tokens known by
the Exchange to be issued and outstanding. In this way, it is possible
that the end-of-day balances published on the Ethereum blockchain may
not reflect the precise distribution of a security token among holders
of the security token, even among BSTX Participants.\67\ The Ethereum
blockchain could also reflect information that is not accurate to the
extent that BSTX Participants inaccurately report end-of-day security
token balances to BSTX. There could conceivably be situations where the
number of reported security tokens exceeds the number of outstanding
security tokens of a particular issuance (e.g., if security token XYZ
were held entirely by BSTX Participants and one BSTX Participant over-
reports). There could also be situations in which the Exchange is
unable to communicate end-of-day security token balances to the Wallet
Manager(s) or the Wallet Manager(s) is/are unable to update the
blockchain. Additionally, it is also possible that there could be a
disruption to the website through which security token balances may be
observed (i.e., Etherscan.io, discussed below), to the Ethereum
blockchain itself that prevents the updating of end-of-day security
token balances as an ancillary recordkeeping mechanism, or potentially
to the architecture or functioning of a particular security token.\68\
---------------------------------------------------------------------------

    \66\ The omnibus wallet address for each security token could
also have greater or fewer security tokens as a result of a
misreport by a BSTX Participant. In the case of an under-report by a
BSTX Participant (e.g., owns 100 of XYZ security tokens, but reports
only 90), the omnibus address for XYZ would have an additional 10
XYZ security tokens allocated to it. In the case of an over-report
(e.g., owns 100 of XYZ security tokens, but reports 110), the
omnibus address for XYZ may have 10 additional XYZ security tokens
allocated to it.
    \67\ The Exchange notes, however, that even in such a case, the
total number of shares of the security token outstanding should
still be reflected on the blockchain due to unreported balances
being attributed to the omnibus wallet address. It is also possible
the omnibus wallet address could display the entire outstanding
balance of a security token to the extent only non-BSTX Participants
held the entire outstanding balance of a particular security token.
    \68\ This could potentially occur if, for example, the Ethereum
Virtual Machine were to suffer a ``51% Attack'' whereby an
individual or group acting together gain 51% or more of the
computing power, essentially giving the attackers control over the
Ethereum blockchain and the ability to disrupt or modify
transactions on the Ethereum blockchain. The Exchange believes that
this possibility is remote, but the Exchange will nonetheless
monitor for such possibilities either directly or by using a vendor,
which may include Wallet Managers that agree to perform this
function and promptly alert the Exchange to any compromise of the
Ethereum blockchain or other type of disruption that might impact
the end-of-day security token balance reporting process as an
ancillary recordkeeping mechanism (e.g., inability to access
Etherscan.io).
---------------------------------------------------------------------------

    To account for these types of situations, proposed Rule 17020(e)
provides that the Exchange may suspend the requirements in paragraphs
17020(a) through (d) regarding any BSTX Participant and/or regarding
one or more security tokens, as applicable, in its discretion and in
any such case the Exchange will provide prompt notice thereof and the
reason(s) therefore to BSTX Participants.\69\ The Exchange will notify
the Commission within two hours of its determination to make any such
suspension and the suspension may continue in effect for no more than
thirty calendar days from the date the determination is made unless the
Exchange has submitted a proposed rule change with the Commission
seeking approval of such suspension, in which case the suspension may
continue in effect until the Commission approves or disapproves the
proposed rule change.\70\
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    \69\ The particular details included in such notice to BSTX
Participants will vary based on the facts and circumstances giving
rise to the suspension, but the Exchange expects that such notice
would describe: (i) The impacted security token(s); (ii) the nature
of the disruption; (iii) the anticipated length of the suspension;
and (iv) any changes to BSTX Participants' obligations to report
end-of-day security token balances.
    \70\ See proposed Rule 17020(e). The Exchange believes that
proposed Rule 17020(e) may foster coordination with persons
processing information with respect to securities and is not
designed to permit unfair discrimination because such provision will
allow the Exchange to suspend certain Rule requirements in events
where there may be difficulty coordinating or sharing pertinent
information with BSTX Participants and/or Wallet Manager(s).
Further, Rule 17020(e) is designed to apply to all market
participants equally and to provide notice to affected market
participants and regulators of BSTX, in order to allow such
individuals and entities to coordinate with the Exchange and react
to potential issues as deemed necessary.
---------------------------------------------------------------------------

    In all such cases involving these types of disruptions relating to
the end-of-day security token balance reporting process, there would be
no impact on the ability to trade, clear, or settle security token
transactions in the ordinary course.\71\ This is because the end-of-day
security token balance reporting is solely as an ancillary record-
keeping mechanism and because the actual trading, clearance, and
settlement of security tokens would occur in the same manner as other
NMS stock.
---------------------------------------------------------------------------

    \71\ The Exchange acknowledges, of course, that certain issues
such as a widespread power outage that prevents the Exchange from
being able to transmit information to the Wallet Manager(s) could
also result in a disruption to trading on BSTX and potentially the
declaration of a halt in trading of the security token by the
Exchange.
---------------------------------------------------------------------------

    The Exchange would set forth via Regulatory Circular the precise
manner in which security tokens should be reported. In general, the
report would simply require certain identifying information regarding
the BSTX Participant (e.g., name, carrying firm, MPID) and a list of
the end-of-day security token position balances of the BSTX
Participant.\72\
---------------------------------------------------------------------------

    \72\ Pursuant to the BSTX Listing Rules, BSTX will allow listing
of three types of security tokens: Equity security tokens, preferred
security tokens, and warrant security tokens. These three types of
security tokens will have similar end-of-day reporting processes;
each BSTX Participant will be required to provide end-of-day
security token position balance information to BSTX related to each
security token issuance based on such BSTX Participant's DTC account
balance. The BSTX Listing Rules also discuss paired security tokens,
which are security tokens that may be transferred and traded only in
combination with one another as a single economic unit. For paired
security tokens, BSTX expects that BSTX Participants, when
submitting position balance information to BSTX, will specify the
end-of-day balances for each constituent security token that
comprises a paired security token.
---------------------------------------------------------------------------

    As a result of this process, the Ethereum blockchain would in the
ordinary course reflect for each security token the end-of-day balance
associated with each BSTX Participant's wallet address. Wallet
addresses are essentially just a string of numbers and characters, and
it would not be made public which

BSTX Participant is associated with which wallet address or which
address is the omnibus wallet address.\73\ An observer of security
token balances associated with a particular address would not be able
to determine whether a particular address represented, for example, a
carrying firm reporting end-of-day balances on behalf of multiple BSTX
Participants, an individual BSTX Participant, or the omnibus wallet
address. Neither could an observer determine which underlying
customer(s) of a BSTX Participant associated with a particular wallet
address held the security tokens or whether the BSTX Participant owned
the security tokens proprietarily. In addition, an observer of the
security token balances would not be able to tell whether a particular
wallet address was long or short the shares.\74\ For these reasons, the
Exchange believes that the security token balance information that
would be publicly available on the Ethereum blockchain would be
sufficiently anonymous to address privacy concerns related to such
information. Security token balance information for the Ethereum
blockchain is available at Etherscan.io (``Etherscan''). From
Etherscan.io, an observer would be able to search for the name of the
particular security token and see the holders of tokens and the
associated quantity, as well as other information (e.g., transfers made
as a result of the Wallet Manager(s) reallocation process).\75\
---------------------------------------------------------------------------

    \73\ The Wallet Manager(s) would have information regarding
security token balance information associated with a particular BSTX
Participant. However, as noted in Part II.H, a condition of serving
as a Wallet Manager would include, among other things, a
representation to comply with the federal securities laws, including
trading on the basis of material non-public information.
    \74\ This is because the end-of-day ancillary recordkeeping
process captures only end-of-day balances as reported by DTC to BSTX
Participants or their carrying firms. Thus, if a BSTX Participant
borrowed security tokens and the borrowed security tokens were moved
to its DTC account (or the DTC account of its carrying firm on its
behalf), the borrowed security tokens would appear to be a long
position in the security token, when in fact the BSTX Participant
was taking a short position.
    \75\ This process can be done presently with ERC-20 tokens or
other digital assets built on Ethereum.
---------------------------------------------------------------------------

    The Exchange does not believe that the ancillary records of
security token balance information published on the Ethereum blockchain
would be likely to cause investor confusion because there is no similar
source of information with which an observer of the blockchain data
could be confused. That is, the resting position balances related to
security token ownership of BSTX Participants and other market
participants are not available through another medium (e.g., such as by
DTC making such information available) in a manner that could lead an
investor to be confused as to whether the Ethereum blockchain or some
other source of security token balance information is accurate.
Moreover, security token position balance information as recorded on
the Ethereum blockchain will not reflect legal ownership of security
tokens and the identities of BSTX Participants corresponding to each
wallet address (as well as the omnibus wallet address) would not be
made public. The Exchange believes that the proposed end-of-day
security token balance reporting requirement is consistent with the
Exchange Act, and Section 6(b)(5) \76\ in particular, because it is
designed to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, and processing information with respect
to transactions in security tokens and would not unfairly discriminate
among BSTX Participants, all of whom are subject to the same reporting
requirement. The purpose of the reporting obligation is to allow the
Exchange to receive information from BSTX Participants regarding end-
of-day balances in security tokens so that the Exchange can provide
that information to the Wallet Manager(s) and the Wallet Manager(s)
can, in turn, use the information to update the Ethereum blockchain as
an ancillary recordkeeping mechanism reflecting changes in security
token ownership (i.e., the recording of end-of-day balance
information). Without this information, all of the outstanding balances
regarding a security token would be attributed by the Wallet Manager(s)
to the omnibus wallet address rather than allocated to multiple wallet
addresses belonging to corresponding BSTX Participants. Accordingly, to
the extent that BTSX Participants have end-of-day balances in security
tokens, the allocation of the security token balances to their
respective wallet addresses by the Wallet Manager(s) will reflect a
relatively more robust use of the functionality of the smart contracts
than if the entire outstanding balance of a security token is
attributed to the omnibus wallet address. Promoting this more robust
use of the functionality of the smart contracts and their ability to
allocate and re-allocate security token balances across multiple wallet
addresses will enhance the ability of market participants, including
the Exchange, to observe and evaluate the capabilities of blockchain
technology as an ancillary recordkeeping mechanism. The Exchange notes
that under the existing authority of other equity exchanges, the
exchange is able to request that exchange members/participants furnish
to the exchange records pertaining to transactions executed on or
through the exchange in a time and manner required by such
exchange.\77\ Accordingly, BSTX believes that the proposed end-of-day
security token balance reporting requirement would be consistent with
authority that the Commission has already approved regarding
furnishment of records by members of exchanges.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78f(b)(5).
    \77\ See e.g., BOX Rule 10000(a) and (b), Cboe BZX Rule 4.2, and
IEX Rule 4.540. Broker-dealers are also subject to daily or real-
time reporting obligations in a variety of other contexts. For
example, pursuant to the FINRA Rule 7000 Series. See e.g., FINRA
Rule 7230A(b) (noting that ``Participants shall transmit trade
reports to the System for transactions in Reportable Securities as
soon as practicable but no later than 10 seconds after execution . .
.''). Trades in municipal securities are generally required within
15 minutes of the time of trade. See MSRB Rule G-14(a)(ii).
---------------------------------------------------------------------------

    The Exchange recognizes that there are limitations in what the
Ethereum blockchain will reflect with regard to end-of-day security
token balances as an ancillary recordkeeping mechanism given that all
non-BSTX Participants' balances will be aggregated and reflected in an
omnibus wallet address for each security token.\78\ In addition, the
end-of-day security token balances may be inaccurate or unavailable
such as when a BSTX Participant misreports its balance or under
circumstances in which BSTX is unable to send the balances to the
Wallet Manager or the Wallet Manager is unable to update the Ethereum
blockchain, as discussed above. For these reasons, among others, the
Exchange believes that initially using blockchain technology as an
ancillary recordkeeping mechanism pursuant to which the security tokens
represented on the blockchain would not convey legal ownership is the
appropriate way to explore the potential benefits of blockchain
technology consistent with the protection of investors and the public
interest.\79\ In

the event of any disruption to the blockchain, the architecture of the
security token, or to the end-of-day security token balance reporting
process, there would be no impact on the ability of market participants
to trade security tokens or current balances of security tokens
actually held by each market participant through the facilities of DTC,
which the Exchange believes furthers the protection of investors and
the public interest, consistent with Section 6(b)(5) of the Exchange
Act.\80\ Moreover, the Exchange believes that the public has an
interest in exploring the use of new technology, such as blockchain
technology, and that such 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.\81\ Finally, the
Exchange believes that use of anonymized wallet addresses to track end-
of-day security token balances may prevent fraudulent and manipulative
acts and practices, consistent with Section 6(b)(5) of the Exchange
Act,\82\ because obscuring the identities of the wallet address owners
may make it difficult to misuse any private information associated with
these wallet addresses. The Exchange believes that the proposal is
reasonably designed to introduce blockchain technology in a gradual way
and in coordination and cooperation with the industry, the Commission,
and the existing regulatory framework.
---------------------------------------------------------------------------

    \78\ The Exchange does not believe that imposing the end-of-day
security token reporting requirement on BSTX Participants is
unfairly discriminatory or burdens competition because all market
participants are free to choose whether to become a BSTX Participant
or not and there is no limitation imposed by the Exchange on the
ability to trade security tokens on other markets. Market
participants that voluntarily choose to become BSTX Participants
must comply with the rules of the Exchange, but they remain free to
become a member of another exchange that supports trading of
security tokens or to purchase the security tokens OTC. The Exchange
further notes that it believes the end-of-day security token balance
reporting process would not impose a substantial burden on BSTX
Participants, because it would not require significant resources or
time.
    \79\ 15 U.S.C. 78f(b)(5).
    \80\ Id.
    \81\ Id.
    \82\ Id.
---------------------------------------------------------------------------

K. Trading Security Tokens on Other National Securities Exchanges

    Security tokens would be eligible for trading on other national
securities exchanges that extend unlisted trading privileges (``UTP'')
to them. As described above in Part II.E, security tokens 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, security tokens
would be able to trade on other exchanges and OTC in the same manner as
other NMS stock. Accordingly, other exchanges would be able to extend
unlisted trading privileges to security tokens in accordance with
Commission rules. The end-of-day security token position balance
reporting by BSTX Participants and the publication of such balance
information on the blockchain does not impact the ability of security
tokens to trade on other exchanges or OTC.
    The Exchange proposes to include certain rules that contemplate the
trading of security tokens that may be listed on other national
securities exchanges.\83\ Since there are currently no other national
securities exchanges trading security tokens, these rules would be
implemented in anticipation of other exchanges eventually listing and
trading their own security tokens. BSTX recognizes that another
exchange trading security tokens, or the equivalent thereof, may
require BSTX to adopt certain rules specific to such other exchange in
order to extend unlisted trading privileges to the other exchange's
security tokens consistent with Rule 12f-5.\84\
---------------------------------------------------------------------------

    \83\ See e.g., proposed Rule 25040(e).
    \84\ 17 CFR 240.12f-5.
---------------------------------------------------------------------------

L. Benefits of a Security Token

    As described above, the proposed BSTX Rules contemplate the use of
smart contract functionality to record end-of-day security token
position balance information to the Ethereum blockchain as an ancillary
recordkeeping mechanism. The Exchange's proposal thereby represents an
ancillary pairing of blockchain technology with the existing equities
market infrastructure, in a manner consistent with Section 6(b)(5) and
other relevant provisions of the Exchange Act, as described herein. 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 . . .'' \85\ stating
further that ``[i]nformation and communications technologies are
critical to healthy and efficient primary and secondary markets.'' \86\
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.'' \87\ Consistent with
these statements, the Exchange believes that promoting use of the
functionality of smart contracts and their ability to allocate and re-
allocate security token balances across multiple addresses in
connection with end-of-day security token position balance information
of BSTX Participants will allow market participants to observe and
increase their familiarity with the capabilities and potential benefits
of blockchain technology in a context that parallels current equity
market infrastructure and 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.\88\ As noted, because the blockchain and security
token balances recorded on the Ethereum blockchain do not reflect legal
ownership of the actual securities of BSTX-listed issuers, any
disruption to the Ethereum blockchain, the security token architecture,
or the end-of-day reporting process would have no impact on the ability
of security tokens to trade on BSTX or otherwise, which the Exchange
believes furthers the protection of investors and the public interest,
consistent with Section 6(b)(5) of the Exchange Act.\89\
---------------------------------------------------------------------------

    \85\ Securities and Exchange Commission, The Impact of Recent
Technological Advances on the Securities Markets (Sep. 1997),
available at: https://www.sec.gov/news/studies/techrp97.htm.
    \86\ Id.
    \87\ Id.
    \88\ 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[.]'' the
Exchange believes such benefits may be generally relevant to future
potential applications of blockchain technology. 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),
available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf.
    \89\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

III. Proposed BSTX Rules

    The discussion in this Part III addresses the proposed BSTX Rules
that would be adopted as Rule Series 17000 through 28000.

A. 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 security tokens 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.'' \90\ 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.\91\ The Exchange also proposes to define certain unique terms
relating to the trading of security tokens, including ``security
token,'' \92\ and ``Wallet Manager.'' \93\ The term ``Wallet Manager''
is defined to provide context to the wallet address whitelisting and
end-of-day security token balance reporting processes used to update
the Ethereum blockchain as an ancillary recordkeeping mechanism.\94\
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    \90\ Proposed Rule 17000(a)(16) 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)(28) cf. IEX Rule 1.160(gg) (defining
``Regular Market Hours'' in the same manner).
    \91\ For example, the Exchange proposes to define the term
``BSTX'' to mean the facility of the Exchange for executing
transaction in security tokens, 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 security tokens, and the term ``BSTX System'' to mean the
automated trading system used by BSTX for the trading of security
tokens. See proposed Rule 17000(a)(8), (11), and (14).
    \92\ Proposed Rule 17000(a)(30) provides that the term
``security token'' 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 include security tokens.
    \93\ Proposed Rule 17000(a)(31) defines the term ``Wallet
Manager'' as a party approved by BSTX to operate software compatible
with the BSTX Protocol. See also supra Sections II.G and H. for a
discussion of the role of a Wallet Manager.
    \94\ See supra note 49.
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    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 28000 Series apply to the trading, listing, and related matters
pertaining to the trading of security tokens. Proposed Rule 17010(b)
provides that, unless specific Rules relating to security tokens 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.\95\ 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 security
tokens. The Exchange believes that the proposed definitions set forth
in Rule 17000 are consistent with Section 6(b)(5) of the Exchange Act
\96\ 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.
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    \95\ Proposed Rule 17010 further specifies that to the extent
the provisions of the Rules relating to the trading of security
tokens contained in Rule 17000 Series to Rule 28000 Series are
inconsistent with any other provisions of the Exchange Rules, the
Rules relating to security token trading shall control.
    \96\ 15 U.S.C. 78f(b)(5).
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    Proposed Rule 17020 sets forth the requirements to obtain a
whitelisted wallet address from BSTX, and the end-of-day security token
balance reporting, which are discussed in greater detail above in Parts
II.G through L.

B. 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; \97\ (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.\98\ 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 token transactions through another BSTX
Participant that is a member/participant of a registered clearing
agency.\99\ 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.
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    \97\ The BSTX Participant Application, Participation Agreement,
and User Agreement are attached as Exhibits 3A, 3B, and 3C [sic]
respectively.
    \98\ 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.
    \99\ 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).
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    The Exchange believes that the proposed Rule 18000 Series
(Participation on BSTX) is consistent with Section 6(b)(5) of the
Exchange Act \100\ 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.\101\
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    \100\ 15 U.S.C. 78f(b)(5).
    \101\ 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).
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C. 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.\102\ The proposed Rule 19000 Series
would specify business conduct requirements with respect to: (i) Just
and equitable principles of trade; \103\ (ii) adherence to law;\104\
(iii) use of fraudulent devices; \105\ (iv) false statements; \106\ (v)
know your customer; \107\ (vi) fair dealing with customers; \108\ (vii)
suitability; \109\ (viii) the prompt receipt and delivery of
securities; \110\ (ix) charges for services performed; \111\ (x) use of
information obtained in a fiduciary capacity; \112\ (xi) publication of
transactions and quotations; \113\ (xii) offers at stated prices; \114\
(xiii) payments involving publications that influence the market price
of a security; \115\ (xiv) customer confirmations; \116\ (xv)
disclosure of a control relationship with an issuer of security tokens;
\117\ (xvi) discretionary accounts; \118\ (xvii) improper use of
customers' securities or funds and a prohibition against guarantees and
sharing in accounts; \119\ (xviii) the extent to which sharing in
accounts is permissible; \120\ (xix) communications with customers and
the public; \121\ (xx) gratuities; \122\ (xxi) telemarketing; \123\ and
(xxii) mandatory systems testing.\124\ 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 security tokens on the BSTX System.\125\
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    \102\ 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).
    \103\ 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.
    \104\ Proposed Rule 19010 (Adherence to Law) generally requires
BSTX Participants to adhere to applicable laws and regulatory
requirements.
    \105\ 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.
    \106\ Proposed Rule 19030 (False Statements) generally prohibits
BSTX Participants and their associated persons from making false
statements or misrepresentations in communications with the
Exchange.
    \107\ 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.
    \108\ 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).
    \109\ 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.
    \110\ 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.
    \111\ Proposed Rule 19080 (Charges for Services Performed)
generally requires that charges imposed on customers by broker-
dealers shall be reasonable and not unfairly discriminatory.
    \112\ 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).
    \113\ 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.
    \114\ 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.
    \115\ 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.
    \116\ Proposed Rule 19130 (Customer Confirmations) requires that
BSTX Participants comply with Rule 10b-10 of the Exchange Act. 17
CFR 240.10b-10.
    \117\ 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.
    \118\ 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.
    \119\ 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.
    \120\ 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.
    \121\ 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.
    \122\ Proposed Rule 19200 (Gratuities) requires BSTX
Participants to comply with the requirements set forth in BOX
Exchange Rule 3060 (Gratuities).
    \123\ Proposed Rule 19210 (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.
    \124\ Proposed Rule 19220 (Mandatory Systems Testing) requires
that BSTX Participants comply with Exchange Rule 3180 (Mandatory
Systems Testing).
    \125\ 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 \126\
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.\127\
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    \126\ 15 U.S.C. 78f(b)(5).
    \127\ See supra note 102.
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D. 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.\128\ The proposed
Rule 20000 Series would specify financial and operational requirements
with respect to: (i) Maintenance and furnishing of books

and records; \129\ (ii) financial reports; \130\ (iii) net capital
compliance; \131\ (iv) early warning notifications pursuant to Rule
17a-11 under the Exchange Act; \132\ (v) authority of the Chief
Regulatory Officer to impose certain restrictions; \133\ (vi) margin;
\134\ (vii) day-trading margin; \135\ (viii) customer account
information; \136\ (ix) maintaining records of customer complaints;
\137\ and (x) disclosure of financial condition.\138\
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    \128\ See Cboe BZX Chapter 6 rules and IEX Chapter 5 rules.
    \129\ 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.
    \130\ Proposed Rule 20010 (Financial Reports) provides that BSTX
Participants shall comply with the requirements of current Exchange
Rule 10020 (Financial Reports).
    \131\ 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.
    \132\ 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.
    \133\ 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.
    \134\ Proposed Rule 20050 (Margin) sets forth the required
margin amounts for certain securities held in a customer's margin
account.
    \135\ Proposed Rule 20060 (Day Trading Margin) sets forth
additional requirements with respect to customers that engage in day
trading.
    \136\ 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.
    \137\ 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.
    \138\ 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 \139\ 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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    \139\ 15 U.S.C. 78f(b)(5).
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E. 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.\140\ The Proposed Rule 21000 Series would