[Federal Register Volume 87, Number 22 (Wednesday, February 2, 2022)]
[Notices]
[Pages 5881-5901]
[FR Doc No: 2022-02086]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94092; File No. SR-BOX-2021-06]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Amendment Nos. 2 and 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, To Adopt
Rules Governing the Trading of Equity Securities on the Exchange
Through a Facility of the Exchange Known as BSTX LLC

January 27, 2022.

Introduction

    On May 12, 2021, BOX Exchange LLC (``Exchange'' or ``BOX'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
adopt rules governing the listing and trading of equity securities on
the Exchange through a facility of the Exchange to be known as BSTX LLC
(``BSTX''). The proposed rule change was published for comment in the
Federal Register on June 2, 2021.\3\ On July 13, 2021, the Commission
extended the time period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to approve or disapprove the proposed rule change,
to August 31, 2021.\4\ On August 18, 2021, the Exchange filed Amendment
No. 1 to the proposed rule change, which replaced and superseded the
proposed rule

change as originally filed.\5\ On August 27, 2021, the Commission
published notice of Amendment No. 1 and instituted proceedings pursuant
to Section 19(b)(2)(B) of the Exchange Act \6\ to determine whether to
approve or disapprove the proposed rule change, as modified by
Amendment No. 1.\7\ On November 23, 2021, the Commission designated a
longer period for Commission action on the proposed rule change, as
modified by Amendment No. 1.\8\ On December 20, 2021, the Exchange
filed Amendment No. 2, which replaced and superseded the proposed rule
change, as modified by Amendment No. 1.\9\ On January 20, 2022, the
Exchange filed partial Amendment No. 3 to the proposed rule change.\10\
The Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment Nos. 2 and 3, from
interested persons and is approving the proposed rule change, as
modified by Amendment Nos. 2 and 3, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92017 (May 25,
2021), 86 FR 29634 (``Notice''). Comments on the proposed rule
change can be found at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106.htm.
    \4\ See Securities Exchange Act Release No. 92387 (July 13,
2021), 86 FR 38140 (July 19, 2021).
    \5\ In Amendment No. 1, the Exchange revised the proposal to:
(i) Eliminate the proposed suspension of unlisted trading privileges
for thinly traded securities; (ii) modify proposed rule text
regarding the order parameter that would allow participants to
indicate a preference for same day or next day settlement to clarify
that, based on how the preferences of the two sides of an executed
trade compare, the Exchange will transmit matched order information
to a registered clearing agency for settlement as indicated to the
extent that such settlement timing may be permitted under the rules,
policies, and procedures of the registered clearing agency; (iii)
modify aspects of the proposed market data blockchain to remove the
Exchange's ability to change the content of the market data
blockchain through a regulatory circular, remove the unique
identification number from the types of member-specific market data,
specify that anonymized, general market data will pertain to
displayed orders, and add that the Exchange may provide permission
for non-members to view the anonymized, general market data; (iv)
add rule text regarding the Exchange's proposed market data
products; (v) eliminate a proposed rule regarding issuer conversion
of a security to listing on BSTX; (vi) provide additional
description of several aspects of the proposal, including the market
data blockchain and the possibility to settle on a same-day or next-
day basis; and (vii) make technical and conforming changes.
Amendment No. 1 is available on the Commission's website at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106-9159349-247726.pdf.
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 92796, 86 FR 49416
(September 2, 2021) (``OIP'').
    \8\ See Securities Exchange Act Release No. 93649, 86 FR 68023
(November 30, 2021).
    \9\ In Amendment No. 2, the Exchange revised the proposal to:
(i) Provide additional information regarding the connectivity and
co-location services that will be offered at the Exchange's primary
data center, including equidistant cabling arrangements; (ii) state
that, pursuant to its authority under proposed BSTX Rule 26101, the
Exchange would not permit an issuer to list a new class of
securities on BSTX that is not distinct from an existing class of
securities of the issuer; (iii) modify proposed rule text regarding
the proposed market data blockchain to clarify that non-members will
have access to anonymized, general market data and specify what
fields are included in this data, to specify that the market data
will apply to trading activity for regular trading hours, and to
clarify that users will view the data through an application
programming interface; (iv) modify proposed rule text related to the
proposed order parameter that would be used to preference same-day
settlement to add a cut-off time by which an execution must occur to
be eligible for same-day settlement; (v) modify certain proposed
rules to bring them into closer alignment with the rules of other
national securities exchanges on which equity securities are traded,
including rules regarding securities eligible for trading,
prohibitions against trading ahead of customer orders, round lots,
minimum price variants, auctions used to open or reopen trading, the
dissemination of market data concerning such auctions, risk
controls, market maker registration process and obligations,
business conduct, trading practices, maintaining books and records,
off-exchange transactions, scope of the minor rule violation plan,
trade reporting and the dissemination of quotations, clearly
erroneous executions, and locking and crossing quotations; (vi)
eliminate a proposed rule regarding an audit trail that has been
superseded by rules pertaining to the Consolidated Audit Trail;
(vii) modify certain proposed listing standards to comply with the
thresholds in Rule 3a51-1, and bring the proposed listing standards
into closer alignment with the rules of other national securities
exchanges on which equities securities are traded, including with
respect to the listing of secondary classes and preferred stock, the
required number of market makers, requirements for securities of
foreign issuers that would apply to the listing of Canadian issuers,
the listing of securities that are subject to an exemption from
Exchange Act registration, the method of computing the payment of
cash in lieu of fractional shares, the settlement timing of
securities transactions, requirements to notify the Exchange before
engaging in activities relating to a proxy contest, requirements
that listed companies establish and maintain an internal audit
function, the calculation of regulatory transaction fees under
Section 31 of the Exchange Act, and the distribution of funds in the
event of liquidation of the Exchange; (viii) eliminate a proposed
listing requirement that an applicant provide a legal opinion that
its security qualifies as a security under applicable United States
securities laws; (ix) provide additional description to clarify
operation of the proposed market data blockchain and proposed order
parameter that would be used to preference same-day or next-day
settlement; and (x) make technical and conforming changes. Amendment
No. 2 is available on the Commission's website at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106-20110109-264393.pdf
(``Amendment No. 2'').
    \10\ In Amendment No. 3, the Exchange revised the proposal to
make certain changes to the proposed listing rules in proposed BSTX
Rule 26000 to promote consistency with the definition of ``penny
stock'' under Exchange Act Rule 3a51-1, including by defining
``public distribution'' and ``public shareholder'' consistently with
Rule 3a51-1, changing references to ``Market Value of Listed
Securities'' to ``Total Value of Market Capitalization,'' and
eliminating initial listing standards for preferred stock that were
based on the rules of NYSE American. Amendment No. 3 is available on
the Commission's website at: https://www.sec.gov/comments/sr-box-2021-06/srbox202106-20112225-265310.pdf (``Amendment No. 3'').
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II. Description of the Proposal, as Modified by Amendment Nos. 2 and 3

    As set forth in the OIP and Amendment Nos. 2 and 3,\11\ the
Exchange proposes to adopt listing standards for certain equity
securities (``Securities'') along with rules governing the trading of
Securities through a facility of the Exchange known as BSTX.\12\ BSTX
would operate a fully automated, price/time priority execution system
(``BSTX System'') for the trading of Securities.\13\ Under the proposed
rules, Securities would be NMS stocks, as defined in Rule
600(b)(54),\14\ that meet BSTX listing standards and that trade on the
BSTX System.\15\ BSTX would serve as the listing market for eligible
companies and issuers of exchange traded products (``ETPs'').\16\ The
Exchange states that it is not proposing rules that would support the
extension of unlisted trading privileges (``UTP'') to NMS stocks listed
on other national securities exchanges.\17\
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    \11\ See OIP, supra note 7; Amendment No. 2, supra note 9;
Amendment No. 3, supra note 10.
    \12\ See OIP, supra note 7, 86 FR at 49416. Pursuant to a
separate proposed rule change, the Exchange proposes to establish
BSTX as a facility of the Exchange that will operate a market for
the trading of securities (``BSTX Market'') and adopt the BSTX Third
Amended and Restated LLC Agreement. See Securities Exchange Act
Release No. 93094 (September 21, 2021), 86 FR 53365 (September 27,
2021) (SR-BOX-2021-14) (Notice of Filing of Amendment No. 1 and
Order Instituting Proceedings to Determine Whether to Approve or
Disapprove a Proposed Rule Change, as Modified by Amendment No. 1,
in Connection with the Proposed Establishment of BSTX as a Facility
of the Exchange) (``Amended BSTX Governance Proposal''); Amendment
No. 2, supra note 9, at 7. Among other things, the Amended BSTX
Governance Proposal sets forth the proposed ownership structure for
BSTX. The Exchange states that without Commission approval of the
trading rules, the Exchange would not permit BSTX to commence
operations of the BSTX Market, and that the Exchange's regulatory
oversight responsibilities with respect to BSTX would not be
triggered unless SR-BOX-2021-14 is approved by the Commission. See
Amended BSTX Governance Proposal, 86 FR at 53366. The Exchange also
states that without approved rules pertaining to the governance
structure of BSTX as a facility of the Exchange, the Exchange will
not commence operation of BSTX. See Amendment No. 2, supra note 9,
at 9.
    \13\ See OIP, supra note 7, 86 FR at 49416.
    \14\ 17 CFR 242.600(b)(54).
    \15\ See OIP, supra note 7, 86 FR at 49417. The Exchange
proposes listing standards that, according to the Exchange, are
similar to the listing standards of NYSE American LLC (``NYSE
American''). See id. at 49439.
    \16\ See id. at 49417.
    \17\ See id. The Exchange also states that, therefore, it would
only trade Securities listed on BSTX unless and until it proposes
and receives Commission approval for rules that would support
trading in other types of securities, including through the
extension of UTP to other NMS stocks. See id.
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    The Exchange proposes rules for participation on BSTX, business
conduct for BSTX Participants,\18\

financial and operational provisions for BSTX Participants,
supervision, trading practices, discipline, trading on the BSTX System,
market making, and listing Securities on BSTX.\19\ The Exchange
proposes to offer several proprietary market data products that are
similar to those offered by other national securities exchanges, as
well as a historical market data product that utilizes blockchain
technology.\20\ Specifically, the Exchange proposes to record and
disseminate certain information regarding orders and executions on BSTX
on a proprietary market data feed that BSTX would operate using a
proprietary blockchain system (``BSTX Market Data Blockchain'').\21\
The Exchange states that the BSTX Market Data Blockchain would be
accessible through an application program interface (``API'') available
through the internet, and the Exchange would control all aspects of the
BSTX Market Data Blockchain and the associated API.\22\
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    \18\ ``BSTX Participant'' would be defined as a Participant or
Options Participant that is authorized to trade securities on the
Exchange. See proposed BSTX Rule 17000(a)(12). See also proposed BOX
Rules 100(a)(41) (defining ``Options Participant'' to mean a
Participant registered with the Exchange for purposes of
participating in options trading on the Exchange); and 100(a)(42)
(defining ``Participant'' to mean a firm or organization that is
registered with the Exchange pursuant to BOX Rule 2000 Series for
purposes of participating in trading on a facility of the Exchange,
including an Options Participant and BSTX Participant).
    \19\ See OIP, supra note 7, 86 FR at 49417.
    \20\ See proposed BSTX Rule 22060. The Exchange states that its
rule concerning market data products is substantially similar to
that of MEMX LLC (``MEMX''). See OIP, supra note 7, 86 FR at 49424 &
n.154.
    \21\ See proposed BSTX Rules 17000(a)(9) and 17020.
    \22\ See OIP, supra note 7, 86 FR at 49420. The Exchange states
that only the Exchange would have direct access to the underlying
data on the private blockchain. See id.
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    The Exchange states that two types of information would be
available on the BSTX Market Data Blockchain. Each BSTX Participant
would be able to see its own order and transaction information related
to its own trading activity on BSTX (``Participant Proprietary
Data'').\23\ In addition, all BSTX Participants and non-BSTX
Participants with permission to view the BSTX Market Data Blockchain
would be able to see anonymized, general market data related to all
trading activity occurring on BSTX (``General Market Data'').\24\ The
Exchange states that information would be posted to the BSTX Market
Data Blockchain on a delayed basis of at least five minutes.\25\ The
Exchange states that the General Market Data that would be available on
the BSTX Market Data Blockchain would contain substantively similar
information as would be available through the Exchange's proprietary
market data feeds.\26\ The Exchange further states that the BSTX Market
Data Blockchain would not impact the ability of Securities to trade on
other national securities exchanges or over-the-counter (``OTC'').\27\
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    \23\ See id.
    \24\ See id.
    \25\ See id. at 49421. See also infra note 156 (describing that
by ``five minute delay,'' the Exchange means that market data would
be uploaded once every five minutes).
    \26\ See OIP, supra note 7, 86 FR at 49421.
    \27\ See id. at 49423. The Exchange states that it is proposing
to use blockchain technology for purposes of the BSTX Market Data
Blockchain and that, to the extent the Exchange proposes future
applications of blockchain technology to the Exchange's business,
the Exchange would file such proposal with the Commission. See
Amendment No. 2, supra note 9, at 29 n.52. The Commission notes that
the Exchange's current proposal does not involve the trading of
digital tokens and such a proposal, or any other additional use of
blockchain technology, would require that the Exchange file a
proposed rule change pursuant to Section 19(b) and Rule 19b-4 of the
Exchange Act.
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    According to the Exchange, all transactions in Securities would
clear and settle in accordance with the rules, policies, and procedures
of registered clearing agencies.\28\ The Exchange states that BSTX
anticipates that The Depository Trust Company (``DTC'') would serve as
the securities depository for Securities and that confirmed trades in
Securities on BSTX would be transmitted to National Securities Clearing
Corporation (``NSCC'') for clearing.\29\ The Exchange proposes to
introduce an optional order parameter that would allow BSTX
Participants to indicate a preference for settlement on a shorter
settlement cycle than the standard two business day (``T+2'')
settlement cycle. Specifically, the Exchange proposes that BSTX
Participants would be able to utilize an order parameter that would
indicate a preference for settlement on a same day (``T+0'') or next
day (``T+1'') basis when certain conditions are met.\30\ The Exchange
states that orders in a Security that include a parameter indicating a
preference for settlement on a T+0 basis or on a T+1 basis would only
result in executions that would actually settle more quickly than on a
T+2 basis if, and only if, all of the specified conditions are met and
the execution that is transmitted by BSTX to NSCC is eligible for T+0
or T+1 settlement under the rules, policies, and procedures of a
registered clearing agency.\31\ The Exchange states that any such
preference would only become operative if the order happened to execute
against another order that also includes a parameter indicating a
preference for settlement on a T+0 or T+1 basis.\32\ According to the
Exchange, an order with a preference for faster settlement would
continue to interact with any other order against which it is
marketable, and a resulting execution would always settle using the
latest settlement timing associated with the two matching orders.\33\
The Exchange also states that the possibility of a shortened settlement
time would have no impact on the Exchange's proposed price/time
priority structure for order matching.\34\
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    \28\ See OIP, supra note 7, 86 FR at 49418. The Exchange also
states that the operation of the BSTX Market Data Blockchain would
have no impact or effect on the manner in which a Security clears
and settles. See id.
    \29\ See id.
    \30\ See id. at 49423; proposed BSTX Rule 25060(h).
    \31\ See OIP, supra note 7, 86 FR at 49424.
    \32\ See id.
    \33\ See id. at 49425.
    \34\ See id. at 49424.
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III. Discussion and Commission Findings

    After careful review of the proposed rule change, as modified by
Amendment Nos. 2 and 3, the Commission finds that the proposal is
consistent with the requirements of the Exchange Act and the rules and
regulations thereunder applicable to a national securities
exchange.\35\ Specifically, the Commission finds that the proposed rule
change, as amended, is consistent with Section 6(b)(5) of the Exchange
Act,\36\ which requires, among other things, that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices; to promote just and equitable
principles of trade; to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, and processing
information with respect to, and facilitating transactions in
securities; to remove impediments to and perfect the mechanism of a
free and open market and a national market system; and, in general, to
protect investors and the public interest. Section 6(b)(5) also
requires that the rules of a national securities exchange not be
designed to permit unfair discrimination among customers, issuers,
brokers, or dealers. Further, the Commission finds that the proposed
rule change, as amended, is consistent with Section 6(b)(1) of the
Exchange Act,\37\ which requires, among other things, that a national
securities exchange be so organized and have the capacity to carry out
the purposes of the Exchange Act, and to comply and enforce compliance
by its members and

persons associated with its members, with the provisions of the
Exchange Act, the rules and regulations thereunder, and the rules of
the exchange, and with Sections 6(b)(6) and 6(b)(7) of the Exchange
Act,\38\ which require a national securities exchange to provide fair
procedures for the disciplining of members and persons associated with
members. The Commission also finds that the proposed rule change, as
amended, is consistent with Section 11A of the Exchange Act,\39\ and,
consistent with Section 6(b)(8) of the Exchange Act, does not impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Exchange Act.\40\ The Commission further finds
that the proposed rule change, as amended, is consistent with the
public interest, the protection of investors, or otherwise in
furtherance of the purposes of the Exchange Act, as required by Rule
19d-1(c)(2) under the Exchange Act,\41\ which governs minor rule
violation plans.
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    \35\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
    \36\ 15 U.S.C. 78f(b)(5).
    \37\ 15 U.S.C. 78f(b)(1).
    \38\ 15 U.S.C. 78f(b)(6) and (b)(7).
    \39\ 15 U.S.C. 78k-1.
    \40\ 15 U.S.C. 78f(b)(8).
    \41\ 17 CFR 240.19d-1(c)(2).
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    The Exchange proposes to adopt rules governing the trading of
Securities under the proposed rules through a facility of the Exchange
known as BSTX, which will function in a manner similar to equities
trading platforms that the Commission has approved for other national
securities exchanges.\42\ With the exception of the proposed BSTX
Market Data Blockchain and optional order parameter for preferencing
settlement on a T+0 or T+1 basis, the Exchange's proposed rules for
BSTX are substantively similar to the corresponding rules of other
equities exchanges. As discussed below, the Commission believes that
the proposed rule change, as modified by Amendment Nos. 2 and 3, is
consistent with the Exchange Act.
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    \42\ BSTX's rules, including its rules relating to participation
on BSTX and business conduct, financial and operational,
supervisory, and trading practice rules, and certain trading, market
making, and listing rules, are similar to existing national
securities exchanges' trading and listing rules. See, e.g., Rules of
the Cboe BZX Exchange, Inc. (``Cboe BZX''), Investors Exchange LLC
(``IEX''), and NYSE American.
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A. BSTX Participants

    The Exchange proposes to adopt BSTX Rule 18000, which will set
forth requirements for participation on BSTX. A ``BSTX Participant''
will be a new category of Exchange participant for effecting
transactions on the BSTX System. All BOX Participants would be eligible
to participate in BSTX provided that they become a BSTX Participant
pursuant to the proposed rules.\43\ A BSTX Participant must complete
the BSTX Participation Application, Participation Agreement, and User
Agreement; \44\ be an existing Participant or Options Participant or
become a Participant or Options Participant of the Exchange pursuant to
BOX Rule 2000 Series and continue to abide by all applicable provisions
in BOX Rule 2000 Series; \45\ and provide such other information as
required by the Exchange.\46\ BSTX Participants would be required to
comply with, among other things, financial responsibility requirements
established by Rule 15c3-1 under the Exchange Act and applicable books
and records requirements, and be a member or participant of a
registered clearing agency or clear security transactions through
another BSTX Participant that is a member or participant of a
registered clearing agency.\47\ In addition, proposed BSTX Rule 18020
would require associated persons of a BSTX Participant to be bound by
the rules of the Exchange to the same extent as each BSTX Participant
and allow the Exchange to discipline, suspend, or terminate the
registration with the Exchange of any person associated with a BSTX
Participant for violation of the Exchange rules.\48\
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    \43\ See OIP, supra note 7, 86 FR at 49417. The Exchange
proposes defined terms for use in the BSTX Rules, and states that
terms defined elsewhere in the BOX Rules shall have the same
meaning. See proposed BSTX Rule 17000. The Exchange also proposes to
specify that the proposed BSTX Rules apply to the trading of
securities by BSTX Participants approved for such trading, the
listing of securities, and related matters pertaining to the trading
of securities, and that unless specific BSTX Rules related to
securities govern or the context otherwise requires, the provisions
of the existing BOX Rules shall be applicable to BSTX Participants
and the trading of securities on the BSTX System. See proposed BSTX
Rule 17010. Further, the Exchange proposes to make conforming
changes to certain existing BOX Rules that would apply to BSTX
Participants, but currently only contemplate trading in options. See
Amendment No. 2, supra note 9, at 123; proposed BOX Rules 100, 2020,
2060, 3180, 7130, 7150, 7230, 7245, IM-8050-3, 11010, 11030, and
12140.
    \44\ See Exhibits 3A, 3B, and 3C, respectively.
    \45\ The BOX Rule 2000 Series requires, among other things, that
a Participant (including a BSTX Participant) remain a member of
another registered national securities exchange or national
securities association. See OIP, supra note 7, 86 FR at 49448 n.320.
    \46\ See proposed BSTX Rule 18000.
    \47\ See proposed BSTX Rule 18010(b). See also Exhibits 3F and
3G.
    \48\ See proposed BSTX Rule 18020(b).
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    The Exchange also proposes rules for business conduct for BSTX
Participants, financial and operational provisions for BSTX
Participants, and rules for supervision, trading practices, discipline,
and market making.\49\ According to the Exchange, the proposed BSTX
Rule 19000 Series would specify business conduct requirements that are
substantially similar to those of other national securities
exchanges,\50\ which pertain to: Just and equitable principles of
trade; adherence to law; use of fraudulent devices; false statements;
know your customer; fair dealing with customers; suitability; prompt
receipt and delivery of securities; charges for services performed; use
of information obtained in a fiduciary capacity; publication of
transactions and quotations; offers at stated prices; payments
involving publications that influence the market price of a security;
customer confirmations; disclosure of a control relationship with an
issuer of securities; discretionary accounts; improper use of
customers' securities or funds and a prohibition against guarantees and
sharing in accounts; the extent to which sharing in accounts is
permissible; communications with customers and the public; gratuities;
telemarketing; mandatory systems testing; and short interest reporting.
The Exchange states that the proposed business conduct rules are
identical to those of other national securities exchanges, other than
changes to defined terms and certain other provisions that would not
apply to the trading of Securities on the BSTX System.\51\
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    \49\ See proposed BSTX Rule Series 19000, 20000, 21000, 23000,
24000, 25000, and 25200.
    \50\ See Amendment No. 2, supra note 9, at 48 (citing to Cboe
BZX Rules Chapter III and IEX Rules Chapter 3).
    \51\ See OIP, supra note 7, 86 FR at 49427. For example, the
Exchange is not proposing to adopt a rule contained in other
national securities 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 Regular Trading Hours because executions may only occur during
Regular Trading Hours on the BSTX System. See id. at 49427 n.113
(citing to IEX Rule 3.290 and Cboe BZX Rule 3.21). ``Regular Trading
Hours'' would mean the time between 9:30 a.m. and 4:00 p.m. Eastern
Time (``ET''). See proposed BSTX Rule 17000(a)(29).
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    According to the Exchange, the proposed BSTX Rule 20000 Series
would specify financial and operational rules for BSTX Participants
associated with maintenance and furnishing of books and records,
financial reports, net capital compliance, early warning notifications
pursuant to Rule 17a-11 under the Exchange Act, authority of the Chief
Regulatory Officer to impose certain restrictions, margin, day-trading
margin, customer account information, maintaining records of customer
complaints, and disclosure of financial

condition.\52\ The Exchange represents that the financial and
operational requirements are substantially similar to those of other
national securities exchanges.\53\ Further, the Exchange proposes to
adopt supervisory requirements for BSTX Participants in the proposed
BSTX Rule 21000 Series, which, according to the Exchange, are
substantially similar to those of other national securities
exchanges.\54\ The proposed supervisory requirements pertain to
enforcing written procedures to appropriately supervise the BSTX
Participant's conduct and compliance with applicable regulatory
requirements, designation of an individual to carry out written
supervisory procedures, maintenance and keeping of records carrying out
the BSTX Participant's written supervisory procedures, review of
activities of each BSTX Participant's offices, including periodic
examination of customer accounts to detect and prevent irregularities
or abuses, prevention of the misuse of material non-public information,
and implementation of an anti-money laundering compliance program.\55\
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    \52\ See OIP, supra note 7, 86 FR at 49428.
    \53\ See id. at 49428 & n.116 (citing to Cboe BZX Rules Chapter
VI and IEX Rules Chapter 5). The Exchange states that the proposed
BSTX Rule 20000 Series also incorporates existing rules of the
Exchange or another self-regulatory organization (``SRO'') by
reference. See id. at 49428.
    \54\ See id.
    \55\ See id. at 49428 & n.128 (citing to Cboe BZX Rules Chapter
V and IEX Rule 5.150).
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    The proposed BSTX Rule 22000 Series would provide, among other
things, that BSTX Participants must comply with requirements with
respect to comparison and settlement, borrowing and deliveries in
accordance with Rule 203 of Regulation SHO, forwarding of proxy and
other issuer-related materials, commissions, regulatory services
agreements, and conditions and limitations on transactions involving
Exchange employees.\56\ Proposed BSTX Rule 22070 would generally
provide that the rules of the Exchange would not prohibit, condition,
or limit the ability of any BSTX Participant, including a BSTX
Participant acting as an agent, to effect any transaction otherwise
than on the Exchange with another person in any security listed on the
Exchange or to which UTP on the Exchange has been extended.\57\ The
Exchange represents that these miscellaneous requirements are
substantially similar to rules of other national securities
exchanges.\58\ The Exchange also proposes to adopt the BSTX Rule 23000
Series relating to trading practice requirements for BSTX Participants,
including prohibiting forms of market manipulation and specifying
certain obligations broker-dealers have to their customers, such as the
duty of best execution.\59\ The Exchange represents that the trading
practice rules are substantially similar to those of other national
securities exchanges.\60\
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    \56\ See proposed BSTX Rule 22000 Series.
    \57\ See Amendment No. 2, supra note 9, at 58; proposed BSTX
Rule 22070. The Exchange states that the proposed rule is consistent
with the requirements of Rules 19c-1 and 19c-3 under the Exchange
Act and substantially similar to rules of other national securities
exchanges. See Amendment No. 2, supra note 9, at 58 (citing to, for
example, Cboe BZX Rule 13.6).
    \58\ See OIP, supra note 7, 86 FR at 49429 & n.138 (citing to
Cboe BZX Rules Chapter XIII and IEX Rule 6.180).
    \59\ According to the Exchange, the proposed BSTX Rule 23000
Series would specify trading practice requirements related to: (i)
Market manipulation; (ii) fictitious transactions; (iii) excessive
sales by a BSTX Participant; (iv) manipulative transactions; (v)
dissemination of false information; (vi) prohibition against trading
ahead of customer orders; (vii) joint activity; (viii) influencing
data feeds; (ix) trade shredding; (x) best execution; (xi)
publication of transactions and changes; (xii) trading ahead of
research reports; (xiii) front running of block transactions; and
(xiv) a prohibition against disruptive quoting and trading activity.
See id. at 49429.
    \60\ See id. at 49429 & n.155 (citing to Cboe BZX Rules Chapter
XII). The Exchange states that the proposed minimum price
improvement standards in proposed BSTX Rule 23050(h) are consistent
with those of other national securities exchanges and the Financial
Industry Regulatory Authority (``FINRA''). See Amendment No. 2,
supra note 9, at 62 (citing to Cboe BZX Rule 12.6.06).
---------------------------------------------------------------------------

    With respect to the imposition of suspension and disciplinary
actions, the Exchange states that it proposes to adopt the BSTX Rule
24000 Series, which would provide that the Exchange rules \61\
pertaining to discipline and suspension of Exchange Participants that
have been approved by the Commission shall be applicable to BSTX
Participants and trading on the BSTX System.\62\
---------------------------------------------------------------------------

    \61\ See BOX Rule 11000 Series (Summary Suspension), 12000
Series (Discipline), 13000 Series (Review of Certain Exchange
Actions), and 14000 Series (Arbitration).
    \62\ See OIP, supra note 7, 86 FR at 49430-31; proposed BSTX
Rule 24000. In addition, the Exchange proposes to amend its Minor
Rule Violation Plan to add certain rules relating to BSTX to the
list of rules eligible for minor rule violation plan treatment, by
amending BOX Rule 12140 and adopting proposed BSTX Rule 24010
(Penalty for Minor Rule Violations). See Amendment No. 2, supra note
9, at 121.
---------------------------------------------------------------------------

    The Exchange proposes to allow firms to register as Market Makers
and Designated Market Makers (``DMMs'') \63\ with affirmative and
negative market making obligations.\64\ A BSTX Participant registered
as a BSTX Market Maker, including a DMM, would be required to engage in
a course of dealing for its own account in the maintenance of a fair
and orderly market.\65\ Among other things, each Market Maker must
maintain two-sided quotes during the regular market session for each
Security in which it is registered as a Market Maker.\66\ A non-DMM
Market Maker may temporarily withdraw its Market Maker status,\67\ and
any BSTX Market Maker, other than a DMM, may voluntarily terminate its
registration with the Exchange.\68\ If the Exchange finds any
substantial or continued failure by a BSTX Market Maker to engage in a
course of dealings specified in proposed BSTX Rule 25220(a),\69\ the

Exchange would subject the Market Maker to disciplinary action or
suspension or revocation of the registration by the Exchange in one or
more of the Securities in which the Market Maker is registered.\70\
---------------------------------------------------------------------------

    \63\ ``Designated Market Maker'' or ``DMM'' would be defined as
a BSTX Participant registered as a DMM pursuant to the BSTX Rule
25200 Series. See proposed BSTX Rule 17000(a)(20).
    \64\ See proposed BSTX Rule 25200 Series. The Exchange states
that rules relating to market makers are similar to the rules of
other national securities exchanges. See Amendment No. 2, supra note
9, at 95-102 (citing to IEX Rules 11.150 and 11.151 and NYSE
American Rules 7.20E through 7.26E). The Exchange states that
proposed BSTX Rule 25200 differs from IEX Rule 11.150 in that IEX
makes the registration effective on the trading day after the
request is entered, whereas the Exchange would have discretion to
make registration effective the day the request is entered with
notice provided to the prospective BSTX Market Maker. See id. at 95
n.277.
    \65\ See proposed BSTX Rule 25220. The Exchange states that
proposed BSTX Rule 25220 is substantially similar to NYSE American
Rule 7.23E, with certain exceptions, and IEX Rule 11.151. According
to the Exchange, the proposed BSTX rule differs from NYSE American
Rule 7.23E in that, among other things, the proposed BSTX rule
specifies the minimum quotation increment for securities priced
above $1.00 per share and below $1.00 per share and requires Market
Maker quotations to be firm for their displayed size and
automatically executable. See Amendment No. 2, supra note 9, at 97-
98. See also infra note 66.
    \66\ See proposed BSTX Rule 25220(a)(1). The Exchange proposes
that the quotes must be entered within the ``Designated
Percentage,'' which according to the Exchange would be the same as
that required of market makers on other national securities
exchanges. See Amendment No. 2, supra note 9, at 96 (citing to IEX
Rule 11.151). The Exchange notes, however, that the Defined
Percentage and ``Defined Limit,'' which is the percentage by which
price movements cause a Market Maker or DMM's quotations to fall
outside of the national best bid and offer (``NBBO'') or last sale
price, differ from NYSE American Rule 7.23E in that the Exchange
specifies Defined Percentage and Defined Limit with reference to
securities that are part of the S&P500 Index, Russell 1000 Index, or
a pilot list of exchange traded products. The Exchange states its
belief that the difference does not pose any novel requirements and
is similar to the market maker requirements of IEX. See id. at 98
(citing to IEX Rules 11.151(a)(6), (7), (11), and 11.151(b)(1)).
    \67\ See proposed BSTX Rule 25220(d). According to the Exchange,
the process by which a DMM may temporarily withdraw from its DMM
status is similar to the process applicable to a non-DMM Market
Maker. See proposed BSTX Rule 25240(b)(4); OIP, supra note 7, 86 FR
at 49438.
    \68\ See proposed BSTX Rule 25210(d).
    \69\ See supra note 66; proposed BSTX Rule 25220(a).
    \70\ See proposed BSTX Rule 25220(c).
---------------------------------------------------------------------------

    Proposed BSTX Rule 25230 sets forth certain requirements for Market
Maker Authorized Traders (``MMATs''), which are individuals permitted
to enter orders only for the account of the Market Maker or DMM for
which they are registered.\71\ The proposed rule specifies, among other
things, eligibility for registration as a MMAT, the Exchange's ability
to suspend an individual's registration as a MMAT, and the process for
voluntary withdrawal of a MMAT via written request of the BSTX
Participant for which the MMAT is registered.\72\ The Exchange
represents that the proposed provisions related to MMATs are
substantially similar to those of other national securities
exchanges.\73\ Proposed BSTX Rule 25240 sets forth the registration and
obligations of DMMs.\74\ Among other things, a DMM must be registered
as a Market Maker and, in addition to meeting the obligations of Market
Makers set forth in proposed BSTX Rule 25220,\75\ the DMM must maintain
a bid or offer at the NBBO at least 25% of the day as measured across
all Securities that have been assigned to the DMM.\76\ Proposed BSTX
Rule 25240 further provides that all BSTX-listed Securities may be
assigned to a DMM and there would be no more than one DMM per BSTX-
listed Security.\77\ A BSTX Participant registered as a DMM in a
Security may also be registered as a Market Maker in that Security only
if the BSTX Participant maintains information barriers between the
trading unit operating as a DMM and the trading unit operating as a
non-DMM Market Maker in the same Security.\78\ Proposed BSTX Rule 25250
would set forth the allocation and reallocation of Securities to
DMMs.\79\ Among other things, the proposed rule would set forth when a
Security is eligible for allocation or reallocation, as well as the
eligibility of DMMs to participate in the allocation process.\80\ The
proposed rule further sets forth the allocation process--whether the
issuer selects the DMM directly, delegates the selection to the
Exchange, or opts to proceed with listing without a DMM, in which case
a minimum of four non-DMM Market Makers must be assigned to its
Security.\81\
---------------------------------------------------------------------------

    \71\ See proposed BSTX Rule 25230.
    \72\ See id.
    \73\ See Amendment No. 2, supra note 9, at 98 (citing to NYSE
American Rule 7.21E and Cboe BZX Rule 11.6).
    \74\ See proposed BSTX Rule 25240. The Exchange represents that
proposed BSTX Rule 25240 is substantially similar to NYSE American
Rule 7.24E, except the Exchange would not be required to assign a
DMM if the Security has an adequate number of BSTX Market Makers
assigned to such Security. The Exchange states that the purpose of
this requirement is to acknowledge the possibility that a Security
need not necessarily have a DMM, provided that each Security has
been assigned at least four active Market Makers, consistent with
proposed the Market Maker requirement in BSTX Rule 26106. See
Amendment No. 2, supra note 9, at 99-100.
    \75\ See supra notes 65-66.
    \76\ See proposed BSTX Rule 25240(c).
    \77\ See proposed BSTX Rule 25240(a).
    \78\ See proposed BSTX Rule 25240(b)(3).
    \79\ See proposed BSTX Rule 25250.
    \80\ See proposed BSTX Rule 25250(a). The Exchange states that
the process by which the Exchange would handle a DMM that fails to
meet its obligations, as proposed in BSTX Rule 25250(a)(4), is
substantially similar to NYSE American Rule 7.25E(a)(4). See OIP,
supra note 7, 86 FR at 49438 & n.254.
    \81\ See proposed BSTX Rule 25250(b). See also Exhibit 3D. The
Exchange states that the proposed rule is similar to NYSE American
Rule 7.25E(b). See Amendment No. 2, supra note 9, at 101.
---------------------------------------------------------------------------

    In the event that a listed company wishes to change its DMM,
proposed BSTX Rule 25250(c) sets forth the reallocation process.\82\
Should a DMM lose its registration or voluntarily withdraw its
registration, the DMM would be ineligible, under the Exchange's
``Allocation Freeze Policy,'' for future allocations for a six-month
period.\83\ For companies that list Securities through an initial
public offering, the allocation decision would remain effective for 18
months.\84\ The proposed rule also sets forth criteria the Exchange may
consider for applicants that are not currently DMMs to be allocated a
Security as a DMM.\85\
---------------------------------------------------------------------------

    \82\ See proposed BSTX Rule 25250(c). The Exchange represents
that the proposed reallocation policy is substantially similarly to
corresponding provisions in NYSE American Rule 7.25E(c). See OIP,
supra note 7, 86 FR at 49439.
    \83\ See proposed BSTX Rule 25250(d); OIP, supra note 7, 86 FR
at 49439 (stating that the proposed rule is substantially similar to
NYSE American Rule 7.25E(d)).
    \84\ See proposed BSTX Rule 25250(e); OIP, supra note 7, 86 FR
at 49439 (stating that the proposed rule is substantially similar to
NYSE American Rule 7.25E(e)).
    \85\ See proposed BSTX Rule 25250(f); OIP, supra note 7, 86 FR
at 49439 (stating that the proposed rule is substantially similar to
NYSE American Rule 7.25E(f)).
---------------------------------------------------------------------------

    The Exchange proposes the DMM combination review policy in BSTX
Rule 25260.\86\ A DMM combination would require proponents of the
combination to make a written submission to the Office of the Corporate
Secretary of the Exchange addressing certain enumerated factors for the
Exchange to consider in reviewing the proposed combination, and as well
as the procedures the Exchange would follow in approving or
disapproving a combination.\87\ The proposed rule also sets forth the
timeline for the Exchange to approve or disapprove a combination, the
ability of the Exchange to grant conditional approvals, and the ability
to have the Exchange's board of directors to review a disapproval
decision.\88\
---------------------------------------------------------------------------

    \86\ See proposed BSTX Rule 25260.
    \87\ See id.
    \88\ See id. The Exchange represents that the proposed rule is
substantially similar to NYSE American Rule 7.26E. See OIP, supra
note 7, 86 FR at 49439.
---------------------------------------------------------------------------

    The Exchange's rules with respect to participation on BSTX,
including the proposed affirmative and negative obligations for Market
Makers and DMMs, and the proposed business conduct, financial and
operational, supervision, and trading practice rules, raise no novel
regulatory issues. The Commission finds that these proposed rules are
consistent with the Exchange Act, and Section 6(b)(5) of the Exchange
Act in particular,\89\ because by setting forth these requirements for
different types of participants, they establish a framework for what
entities will participate in BSTX and how they will interact with other
BSTX Participants and fulfill their obligations, which should help to
promote just and equitable principles of trade, perfect the mechanism
of a national market system and, in general, protect investors and the
public interest. The Commission also finds that these proposed rules
subject BSTX Participants, including BSTX Market Makers and DMMs, to
appropriate discipline for improper conduct, consistent with Sections
6(b)(6) and 6(b)(7) of the Exchange Act.\90\
---------------------------------------------------------------------------

    \89\ 15 U.S.C. 78f(b)(5).
    \90\ 15 U.S.C. 78f(b)(6) and (7).
---------------------------------------------------------------------------

B. BSTX System

    The Exchange proposes that BSTX would operate the BSTX System as a
fully automated, price-time priority execution system.\91\ The BSTX
System would operate as an ``automated trading center'' under Rule
600(b)(7) of Regulation NMS and would display ``automated quotations''
under Rule 600(b)(6) of Regulation NMS at all times, except in the
event that a system malfunction renders the BSTX System incapable of
displaying automated quotations.\92\ BSTX's best-priced quotation in an
NMS stock would be a

``protected quotation'' under Rules 600(b)(70) and 600(b)(71) of
Regulation NMS.\93\ Only a BSTX Participant approved for trading on the
BSTX System or a person associated with such a BSTX Participant would
be able to effect any transactions on the BSTX System.\94\
---------------------------------------------------------------------------

    \91\ See OIP, supra note 7, 86 FR at 49416.
    \92\ 17 CFR 242.600(b)(6) and (b)(7). See Amendment No. 2, supra
note 9, at 86; proposed BSTX Rule 25100(c).
    \93\ 17 CFR 242.600(b)(70) and (b)(71). See OIP, supra note 7,
86 FR at 49435 & n.210.
    \94\ See OIP, supra note 7, 86 FR at 49431; proposed BSTX Rule
25000(a). The Exchange represents that proposed BSTX Rule 25000 is
substantially similar to IEX Rule 11.140. See Amendment No. 2, supra
note 9, at 65 n.175.
---------------------------------------------------------------------------

Order Types and Instructions
    Proposed BSTX Rule 25060(c) provides that BSTX Participants may
enter orders to the BSTX System as limit orders or Inter-Market Sweep
Orders (``ISOs'').\95\ The BSTX System would only support two time-in-
force (``TIF'') designations: DAY and IOC.\96\ Under proposed BSTX Rule
25060(d), all orders would be given a default TIF of DAY.\97\ DAY
orders may queue during the Pre-Opening Phase \98\ or before the
resumption of trading following a trading halt, may trade only during
Regular Market Hours, and, if unexecuted at the close of the trading
day (4:00 p.m. ET), would be cancelled by the BSTX System.\99\ BSTX
Participants may also designate orders as IOC, which overrides the
default TIF of DAY.\100\ IOC orders are not accepted by the BSTX System
during the Pre-Opening Phase, and during Regular Trading Hours, IOC
orders will execute in whole or in part immediately upon receipt by the
BSTX System.\101\ The BSTX System would not support modification of
resting orders, and to change the price or quantity of an order resting
on the BSTX Book,\102\ a BSTX Participant must cancel the resting order
and submit a new order, which would result in a new time stamp for
purposes of BSTX Book priority.\103\ The Exchange states that all
orders on BSTX would be displayed.\104\ With the exception of the order
parameter to preference faster settlement,\105\ the order types and
instructions the Exchange has proposed for the BSTX System are similar
to those approved by the Commission and currently available on other
national securities exchanges \106\ and raise no new regulatory issues.
The Commission finds these proposed rules are consistent with the
Exchange Act, and Section 6(b)(5) \107\ of the Exchange Act in
particular, because they establish the types of orders and modifiers
that all BSTX Participants may use and provide transparency regarding
how orders would operate on the BSTX System, which should help promote
just and equitable principles of trade, foster coordination with
persons engaged in facilitating transactions in securities, and remove
impediments to and perfect the mechanism of a national market system.
---------------------------------------------------------------------------

    \95\ See proposed BSTX Rule 25060(c). The Exchange states that
if a BSTX Participant fails to specify a limit price with respect to
its limit order, such order shall be rejected. ISOs must be limit
orders, are ineligible for routing, may be submitted with a limit
price during Regular Trading Hours, and must have a time-in-force of
immediate-or-cancel (``IOC''). See OIP, supra note 7, 86 FR at 49434
& n.202.
    \96\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule
25060(d).
    \97\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule
25060(d)(1).
    \98\ ``Pre-Opening Phase'' would mean the time between 8:30 a.m.
and 9:30 a.m. ET. See proposed BSTX Rule 17000(a)(28).
    \99\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule
25060(d)(1).
    \100\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule
25060(d)(2).
    \101\ See id.
    \102\ ``BSTX Book'' would mean the electronic book of orders on
each Security maintained by the BSTX System. See proposed BSTX Rule
17000(a)(10).
    \103\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule
25060(f).
    \104\ See OIP, supra note 7, 86 FR at 49434. The Exchange states
that the BSTX System will not support hidden orders, undisplayed
liquidity, price sliding, pegged orders, or other order type
features that add complexity upon the initial launch of BSTX. See
id.
    \105\ See infra notes 190-207 and accompanying text.
    \106\ See, e.g., Cboe BZX Rule 11.9(d).
    \107\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Auctions
    The Exchange proposes that order entry in BSTX-listed Securities
\108\ may commence at 8:30 a.m. ET during the Pre-Opening Phase, in
which orders are placed on the BSTX Book but do not generate executions
until Regular Trading Hours begin at 9:30 a.m. ET.\109\ The Exchange
states that, similar to how its opening process works for options
trading, BSTX would calculate and disseminate a theoretical opening
price (``TOP'') from the time that the BSTX System commences accepting
orders to BSTX Participants for the current orders resting on the BSTX
Book during the Pre-Opening Phase.\110\ The Exchange proposes to
disseminate the TOP and other Broadcast Information pursuant to
proposed BSTX Rule 25040(a)(3) during the Pre-Opening Phase.\111\
Broadcast Information would be recalculated and disseminated via
electronic means (i.e., market data feeds) every five seconds.\112\
---------------------------------------------------------------------------

    \108\ Although the Exchange initially plans to only support
trading in securities listed on BSTX, the Exchange states that it
may in the future propose to trade securities listed on other
national securities exchanges, subject to any necessary changes to
its rules to support its trading pursuant to Section 19(b) and Rule
19b-4 of the Exchange Act. The Exchange also states that for such
reason it proposes to adopt an opening process for non-BSTX-listed
securities as a placeholder for potential trading of securities
listed on other national securities exchanges in the future. The
Exchange states that the proposed process for opening securities
listed on other national securities exchanges is similar to the
existing rules of another national securities exchange. See proposed
BSTX Rule 25040(e); Amendment No. 2, supra note 9, at 74-75 (citing
to Cboe BZX Rule 11.24).
    \109\ See OIP, supra note 7, 86 FR at 49431. During the Pre-
Opening Phase, orders may not be cancelled or modified from 9:28
a.m. to 9:30 a.m. Orders received during the 10 seconds prior to the
Opening Auction would be rejected. See proposed BSTX Rule
25040(a)(1). ``Opening Auction'' would be defined as the process of
crossing orders in BSTX-listed Securities to open the market. See
proposed BSTX Rule 25040(a)(6). The Exchange states that these
provisions are consistent with the rules of other equities
exchanges. See Amendment No. 2, supra note 9, at 68 n.185 (citing to
IEX Rules 11.350(c)(1)(B) and (C)).
    \110\ See OIP, supra note 7, 86 FR at 49431; proposed BSTX Rule
25040(a)(2). The TOP is the price at which the Opening Auction would
occur at the current time, if that time were the opening, according
to the Opening Auction procedures in proposed BSTX Rule 25040(a)(6).
See proposed BSTX Rule 25040(a).
    \111\ See OIP, supra note 7, 86 FR at 49431-32. Specifically, in
addition to the TOP, ``Broadcast Information'' would include: (i)
``Paired Orders,'' which is the quantity of shares that would
execute at the TOP; (ii) the ``Imbalance Quantity,'' which is the
number of shares that may not be matched with other orders at the
TOP at the time of dissemination; and (iii) the ``Imbalance Side,''
which is the buy/sell direction of any imbalance at the time of
dissemination. See Amendment No. 2, supra note 9, at 68-69.
    \112\ See Amendment No. 2, supra note 9, at 69; proposed BSTX
Rule 25040(a)(4). The Exchange states that Cboe BZX similarly
broadcasts opening auction information every five seconds. See
Amendment No. 2, supra note 9, at 69 n.189 (citing to Cboe BZX Rule
11.23(b)(2)(A)).
---------------------------------------------------------------------------

    At the time of the opening match (i.e., 9:30 a.m. ET), the BSTX
System would establish a single price at which the BSTX-listed Security
would be opened (``BSTX Official Opening Price''), which would be the
TOP at the moment of the Opening Auction, provided that the resulting
price must be within the Collar Price Range.\113\ The Exchange states
that the BSTX System would determine a single price at which a BSTX-
listed Security would be opened by calculating the optimum number of
shares that could be matched at a price, taking into consideration all
the orders

on the BSTX Book.\114\ The Exchange states that the requirement that
the BSTX Official Opening Price must be within the Collar Price Range
is designed to ensure that a Security opens in a fair and orderly
manner and under market conditions where there is sufficient quotation
interest (e.g., a NBBO), the market is not crossed, and where the
opening price will not drastically depart from the market at the time
of the auction or the preceding day's closing price.\115\ The Exchange
proposes that when the BSTX System cannot determine an opening price
from the Opening Auction, BSTX would nevertheless open the Security for
trading and move all trading interest received during the Pre-Opening
Phase to the BSTX Book, and that in such case, the BSTX Official
Opening Price would be the Final Last Sale Eligible Trade.\116\
---------------------------------------------------------------------------

    \113\ See Amendment No. 2, supra note 9, at 69-70. See proposed
BSTX Rule 25040(a)(5) for a definition of the ``Collar Price
Range.'' As the BSTX Official Opening Price is determined and the
matched shares are executed in the Opening Auction, the BSTX System
would proceed to move the Security from the Pre-Opening Phase to the
continuous or regular trading phase and disseminate the opening
trade price, if any. Any orders that remain unexecuted in the
Opening Auction, including any remaining portion of a partially
executed order, would be moved onto the BSTX Book for the regular
trading phase and would retain their price/time priority consistent
with proposed BSTX Rule 25080. See proposed BSTX Rule 25040(a)(7).
    \114\ See Amendment No. 2, supra note 9, at 69; proposed BSTX
Rule 25040(a)(6)(ii). The Exchange states that the determination of
the opening match price is consistent with the manner in which the
Exchange opens options trading. See Amendment No. 2, supra note 9,
at 69. Proposed BSTX Rule 25040(a)(6)(ii) would further provide that
the BSTX Official Opening Price is the price which results in the
matching of the highest number of shares. If two or more prices
would satisfy this maximum quantity criteria, the price leaving the
fewest resting shares in the BSTX Book would be selected as the BSTX
Official Opening Price. Where two or more prices would satisfy the
maximum quantity criteria and leave the fewest shares in the BSTX
Book, the price closest to the previous day's last round lot trade
occurring during Regular Trading Hours on the Exchange (``BSTX
Official Closing Price'') will be selected as the BSTX Official
Opening Price. See proposed BSTX Rules 25040(a)(5)(ii) and (6)(ii).
    \115\ See OIP, supra note 7, 86 FR at 49432; proposed BSTX Rule
25040(a)(5).
    \116\ See Amendment No. 2, supra note 9, at 70; proposed BSTX
Rule 25040(a)(7). See also proposed BSTX Rule 25040(a)(5)(ii)
(defining ``Final Last Sale Eligible Trade'').
---------------------------------------------------------------------------

    The Exchange states that the opening process for initial public
offerings of Securities (``Initial Security Offerings'') would be
generally the same as regular market openings.\117\ However, in advance
of an Initial Security Offering auction (``Initial Security Offering
Auction''), the Exchange would announce a ``Quote-Only Period'' of
between 15 and 30 minutes plus a short random period prior to the
Initial Security Offering Auction.\118\ Orders may not be submitted to
participate in an Initial Security Offering Auction until the beginning
of the Quote-Only Period.\119\ All orders associated with the Initial
Security Offering Auction must be received prior to the end of the
Quote-Only Period in order to participate in the auction.\120\ Limit
orders with TIF of DAY submitted during the Quote-Only Period would be
eligible to participate in the Initial Security Offering Auction.\121\
According to the Exchange, it would disseminate Broadcast Information
at the commencement of the Quote-Only Period as with regular market
openings, and Broadcast Information would be re-calculated and
disseminated via electronic means every five seconds.\122\ Orders would
be matched and executed at the conclusion of the Quote-Only Period,
rather than at 9:30 a.m. ET.\123\ Following the initial cross at the
end of the Quote-Only Period wherein orders will execute based on
price/time priority, consistent with proposed BSTX Rule 25080, the
Exchange would transition to normal trading pursuant to proposed BSTX
Rule 25040(a)(6).\124\
---------------------------------------------------------------------------

    \117\ See OIP, supra note 7, 86 FR at 49432.
    \118\ See id.; proposed BSTX Rule 25040(b)(1). The Quote-Only
Period may be extended in certain cases where (i) there is no TOP;
(ii) the underwriter requests an extension; (iii) the TOP moves the
greater of 10% or 50 cents in the 15 seconds prior to the initial
cross; or (iv) in the event of a technical or systems issue at the
Exchange that may impair the ability of BSTX Participants to
participate in the Initial Security Offering Auction or of the
Exchange to complete the Initial Security Offering Auction. See
proposed BSTX Rule 25040(b)(2). In the event of any extension to the
Quote-Only Period or a trading pause, the Exchange proposes to
notify market participants regarding the circumstances and length of
the extension. See OIP, supra note 7, 86 FR at 49432; proposed BSTX
Rule 25040(b)(4).
    \119\ See proposed BSTX Rule 25040(b)(1).
    \120\ See id.
    \121\ See id. Orders marked IOC submitted during the Quote-Only
Period would be rejected. See id.
    \122\ See Amendment No. 2, supra note 9, at 71; proposed BSTX
Rule 25040(b)(3).
    \123\ See OIP, supra note 7, 86 FR at 49432; proposed BSTX Rule
25040(b)(5).
    \124\ See Amendment No. 2, supra note 9, at 71-72; proposed BSTX
Rule 25040(b)(5).
---------------------------------------------------------------------------

    The Exchange also proposes a process for reopening trading
following a ``trading halt,'' a halt or pause in trading initiated by
the Exchange, or a Limit Up-Limit Down Trading Pause \125\ (``Halt
Auctions'').\126\ For Halt Auctions, the Exchange proposes that in
advance of reopening, the Exchange would announce a Quote-Only Period
that would be five minutes prior to the Halt Auction, and that all
orders associated with the Halt Auction must be received prior to the
end of the Quote-Only Period in order to participate in the
auction.\127\ According to the Exchange, it would disseminate the same
Broadcast Information as it does for an Initial Security Offering
Auction, except it would also disseminate to market participants the
applicable Halt Auction Reference Price and the Halt Auction Collars,
and would similarly provide notification of any extension to the Quote-
Only Period as with an Initial Security Offering Auction.\128\ The
transition to normal trading would also occur in the same manner as for
Initial Security Offering Auctions.\129\
---------------------------------------------------------------------------

    \125\ See proposed BSTX Rule 25050(g). The Exchange states that
proposed BSTX Rule 25050 regarding trading halts is substantially
similar to other national securities exchange rules adopted in
connection with the NMS Plan to Address Extraordinary Market
Volatility (``LULD Plan'')--for example, IEX Rule 11.280--with
certain exceptions, such as excluding rules relating to order types
and other aspects of the LULD Plan that would not be supported by
the Exchange, including market orders and auction orders. See
Amendment No. 2, supra note 9, at 78-79. The Exchange would cancel
all resting orders in a non-BSTX listed security subject to a
trading halt, reject any incoming orders in that security, and will
only resume accepting orders following a broadcast message to BSTX
Participants indicating a forthcoming re-opening of trading. See
OIP, supra note 7, 86 FR at 49433; proposed BSTX Rule 25050(d). In
addition, the Exchange proposes to reserve the right to halt or
suspend trading in other circumstances where the Exchange deems it
necessary to do so for the protection of investors and the public
interest, or pursuant to any other Exchange rule or policy. See OIP,
supra note 7, 86 FR at 49434; proposed BSTX Rule 25050(f). Proposed
BSTX Rule 25010(d) would allow for the CEO, President, or Chief
Regulatory Officer, or such person's designee, provided the designee
is a senior officer, to halt or suspend trading in securities. The
Exchange states that while comparable rules of other national
securities exchanges (e.g., IEX Rule 11.110(c) and BOX Rule 7020)
may not currently specify that the Chief Regulatory Officer has the
authority, both of these comparable rules contemplate the CEO or
President delegating the task to a senior officer, which could be
the Chief Regulatory Officer. The Exchange states that it does not
believe that the addition of the Chief Regulatory Officer would
expand the authority of who can declare a trading halt or suspend
trading. See Amendment No. 2, supra note 9, at 65 n.176.
    \126\ See Amendment No. 2, supra note 9, at 72; proposed BSTX
Rule 25040(c).
    \127\ See Amendment No. 2, supra note 9, at 72-73; proposed BSTX
Rule 25040(c)(1). Limit orders with TIF of DAY submitted during the
Quote-Only Period would be eligible to participate in the Halt
Auction, whereas orders marked IOC submitted during the Quote-Only
Period would be rejected. See OIP, supra note 7, 86 FR at 49432;
proposed BSTX Rule 25040(c)(1). In addition, Halt Auctions would be
subject to the proposed Halt Auction Collars, which the Exchange
states are substantially similar to those provided by Cboe BZX, and
are designed to ensure that the Exchange is able to re-open trading
in a Security in a fair and orderly manner. To the extent a Halt
Auction is unable to be performed due to the absence of a TOP or the
TOP is outside the proposed Halt Auction Collars, the Exchange would
extend the period of Halt Auction for an additional five minutes
(``Initial Extension Period''). After the Initial Extension Period,
the Exchange proposes that the Quote-Only Period be extended for
additional five-minute periods, should a Halt Auction be unable to
be performed due to absence of a TOP or because the TOP is outside
the proposed Halt Auction Collars (``Additional Extension Period''),
until a Halt Auction occurs. See Amendment No. 2, supra note 9, at
72 n.206 and n.207; proposed BSTX Rule 25040(c)(2).
    \128\ See Amendment No. 2, supra note 9, at 73; proposed BSTX
Rule 25040(c)(3). In addition, the Exchange represents that if a
trading halt is triggered by the Exchange or if the Exchange is
unable to reopen trading at the end of the trading halt due to a
systems or technology issue, the Exchange will immediately notify
the single plan processor responsible for consolidation of
information for the security pursuant to Rule 603 of Regulation NMS
under the Exchange Act. See proposed BSTX Rule 25040(c)(4).
    \129\ See OIP, supra note 7, 86 FR at 49432.

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

    In the event a disruption occurs that prevents the execution of an
Initial Security Offering Auction or Halt Auction, including any
extensions, the Exchange proposes to apply certain contingency
procedures.\130\ For a disruption in an Initial Security Offering
Auction, the Exchange would publicly announce that the Quote-Only
Period for the Initial Security Offering Auction will reset for the
subject Security, cancel all orders on the BSTX Book, and disseminate a
new scheduled time for the Quote-Only Period and opening match.\131\
Similarly, for a disruption in a Halt Auction, the Exchange would
publicly announce that no Halt Auction will occur and all orders in the
halted Security on the BSTX Book will be cancelled, after which the
Exchange will open the Security for trading without an auction.\132\
---------------------------------------------------------------------------

    \130\ See id. at 49432-33; proposed BSTX Rule 25040(d).
    \131\ See OIP, supra note 7, 86 FR at 49432-33; proposed BSTX
Rule 25040(d)(1).
    \132\ See OIP, supra note 7, 86 FR at 49433; proposed BSTX Rule
25040(d)(2).
---------------------------------------------------------------------------

    The Exchange has not proposed to operate a closing auction.
Instead, the Exchange proposes that the BSTX Official Closing Price
will be the last round lot trade occurring during Regular Trading Hours
on BSTX.\133\ The Exchange states that it believes this method is a
simple and fair way to establish the closing price of a Security, and
is consistent with the overall proposed simplified market structure for
BSTX that does not include order types such as market-on-close or
limit-on-close.\134\
---------------------------------------------------------------------------

    \133\ See Amendment No. 2, supra note 9, at 77-78; proposed BSTX
Rule 25040(a)(5)(ii).
    \134\ See Amendment No. 2, supra note 9, at 78.
---------------------------------------------------------------------------

    The Commission believes that the proposed opening, re-opening, and
closing procedures are reasonably designed to provide for an orderly
opening or re-opening of trading or close of trading on BSTX, and thus
are consistent with the Exchange Act, and in particular the Section
6(b)(5) goals of removing impediments to the mechanism of a national
market system and protecting investors and the public interest.\135\
---------------------------------------------------------------------------

    \135\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Order Priority and Execution
    The Exchange proposes BSTX Rule 25080 to govern the execution of
orders on the BSTX System.\136\ The proposed rule provides that orders
of BSTX Participants shall be ranked and maintained in the BSTX Book
according to price/time priority, such that within each price level,
all orders shall be organized by the time of entry.\137\ Further, the
proposed rule provides that an order would be cancelled back to the
BSTX Participant if, based on market conditions, BSTX Participant
instructions, applicable Exchange Rules, and/or the Exchange Act and
the rules and regulations thereunder, such order is not executable and
cannot be posted to the BSTX Book.\138\ Specifically, proposed BSTX
Rules 25080(b)(1) through (3) provide that executions occurring on BSTX
will comply with Regulation SHO, Regulation NMS, including Rule 611,
and the LULD Plan.\139\ In addition, proposed BSTX Rule 25130 prohibits
BSTX Participants from engaging in a pattern or practice of displaying
quotations that lock or cross a protected quotation, unless an
exception applies, and provides that the BSTX System will reject any
order or quotation that would lock or cross a protected quotation of
another national securities exchange at the time of entry.\140\
---------------------------------------------------------------------------

    \136\ See proposed BSTX Rule 25080.
    \137\ See OIP, supra note 7, 86 FR at 49434; proposed BSTX Rule
25080(a).
    \138\ See proposed BSTX Rule 25080(b). The Exchange states that
sell orders cannot execute at a price below the best bid in the
marketplace and buy orders cannot execute at a price above the best
offer in the marketplace. See OIP, supra note 7, 86 FR at 49434.
    \139\ See proposed BSTX Rules 25080(b)(1)-(3).
    \140\ See OIP, supra note 7, 86 FR at 49437; proposed BSTX Rule
25130. The Exchange states that the proposed rule is substantially
similar to the rules of other national securities exchanges. See
Amendment No. 2, supra note 9, at 93 (citing to IEX Rule 11.310 and
Cboe BZX Rule 11.20).
---------------------------------------------------------------------------

    To meet their regulatory responsibilities under Rule 611(a) of
Regulation NMS, other trading centers will be required to have
sufficient notice of new protected quotations, as well as all necessary
information (such as final technical specifications).\141\ The
Commission believes that it would be a reasonable policy and procedure
under Rule 611(a) to require that industry participants begin treating
BSTX's best bid and best offer as a protected quotation as soon as
possible but no later than 90 days after BOX begins operation of its
equities trading platform. The Commission has taken the same position
with other new equities exchanges.\142\
---------------------------------------------------------------------------

    \141\ See Securities Exchange Act Release No. 53829 (May 18,
2006), 71 FR 30038, 30041 (May 24, 2006) (File No. S7-10-04)
(extending the compliance dates for Rule 610 and Rule 611 of
Regulation NMS under the Exchange Act).
    \142\ See, e.g., Securities Exchange Act Release Nos. 85828 (May
10, 2019), 84 FR 21841 (May 15, 2019) (File No. 10-234) (order
granting registration of Long-Term Stock Exchange, Inc.); and 88806
(May 4, 2020), 85 FR 27451 (May 8, 2020) (File No. 10-237) (order
granting registration of MEMX).
---------------------------------------------------------------------------

    In light of the foregoing, the Commission finds that the proposed
BSTX trading rules are consistent with the Exchange Act and, in
particular, Section 6(b)(5) of the Exchange Act, because they set forth
a fair and transparent process for establishing order priority and are
reasonably designed to ensure compliance with Commission rules
concerning quoting and executions, which should promote just and
equitable principles of trade, remove impediments to and perfect the
mechanisms of a free and open market and a national market system, and
protect investors and the public interest.\143\
---------------------------------------------------------------------------

    \143\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Market Data Products
    The Exchange proposes to offer proprietary market data products,
including BSTX Depth-of-Book, BSTX Top-of-Book, and BSTX Last
Sale.\144\ The Exchange states that its proposed rule regarding market
data product offerings is substantially similar to the rules of another
national securities exchange.\145\
---------------------------------------------------------------------------

    \144\ See proposed BSTX Rule 22060. BSTX Depth-of-Book is a data
feed that contains all displayed orders for securities traded on the
Exchange, order executions, order cancellations, order
modifications, order identification numbers, administrative
messages, and auction information disseminated pursuant to proposed
BSTX Rule 25040 (Auctions). See proposed BSTX Rule 22060(a). BSTX
Top-of-Book is an uncompressed data feed that offers top of book
quotations and execution information based on orders entered into
the BSTX System, as well as auction information disseminated
pursuant to proposed BSTX Rule 25040 (Auctions). See proposed BSTX
Rule 22060(b). BSTX Last Sale is an uncompressed data feed that
offers only execution information based on orders entered into the
BSTX System. See proposed BSTX Rule 22060(c).
    \145\ See OIP, supra note 7, 86 FR at 49429 (citing to MEMX Rule
13.8).
---------------------------------------------------------------------------

    In addition, the Exchange proposes to offer a historical market
data product, known as the BSTX Market Data Blockchain, that would
provide information about trading on the BSTX System.\146\ The BSTX
Market Data Blockchain would operate as a private, permission-based
blockchain that will allow BSTX Participants to see detailed
information on their own trading activity on BSTX and anonymized
information with respect to the trading activity of other BSTX
Participants. According to the Exchange, BSTX Participants would have
no obligations with respect to providing information to, accessing,
maintaining, or using the BSTX Market Data Blockchain.\147\ Each BSTX
Participant would be assigned a BSTX Market Data Blockchain address
that corresponds to the BSTX Participant's trading activity on

BSTX.\148\ The Exchange would issue login credentials to each user,
including any non-BSTX Participant that chooses to subscribe.\149\ The
BSTX Market Data Blockchain would generally operate by collecting
information from two sources, which the Exchange would then translate
into information capable of being recorded to the BSTX Market Data
Blockchain.\150\ Specifically, the data provided would be collected
from (i) the BSTX System, with respect to information such as executed
transactions; and (ii) each BSTX Participant's order/message passing
through the financial information exchange (``FIX'') gateway through
which all orders and messages pass to connect to the BSTX System.\151\
The Exchange states that the BSTX Market Data Blockchain does not
require any affirmative action on the part of the BSTX Participants in
order for the information to be recorded, but rather captures trading
activity that occurs on BSTX in the normal course of trading.\152\
---------------------------------------------------------------------------

    \146\ See proposed BSTX Rule 22060(d); OIP, supra note 7, 86 FR
at 49420.
    \147\ See OIP, supra note 7, 86 FR at 49420.
    \148\ See proposed BSTX Rule 17020(b).
    \149\ See Amendment No. 2, supra note 9, at 19 & n.36; proposed
BSTX Rule 17020(b).
    \150\ See OIP, supra note 7, 86 FR at 49420.
    \151\ See id. The Exchange states that BSTX Participants (and
non-BSTX Participants to which the BSTX Market Data Blockchain is
made available by the Exchange) would only be able to access the
information contained on the BSTX Market Data Blockchain through the
API, and only the Exchange would have direct access to the
underlying data on the private blockchain. See id. The Exchange
further states that the FIX gateway and the BSTX System are the same
sources of information used to generate consolidated market data.
See id. at 49420 n.39.
    \152\ See id. at 49420.
---------------------------------------------------------------------------

    The BSTX Market Data Blockchain would provide two types of
information for Regular Trading Hours: (i) Participant Proprietary Data
with respect to the specific BSTX Participant; \153\ and (ii) General
Market Data made available to all BSTX Participants and non-BSTX
Participants that subscribe.\154\ The Exchange represents that no BSTX
Participant, or non-BSTX Participant, would have access to the
Participant Proprietary Data of another BSTX Participant.\155\ Both
types of data would be available on a delayed basis of at least five
minutes, with each new block of market data showing market data for the
preceding five minutes.\156\ According to the Exchange, the BSTX Market
Data Blockchain would not function as a substitute for real-time market
data.\157\
---------------------------------------------------------------------------

    \153\ See id. Under proposed BSTX Rule 17020(c)(1), a BSTX
Participant would be able to see the following information with
respect to all orders and messages submitted by the BSTX Participant
and any executions of such orders: (i) Symbol, side (buy/sell),
limit price, quantity, time-in-force; (ii) order type (e.g., limit
order, ISO); (iii) order capacity (principal/agent); (iv) short/long
sale order marking; and (v) message type (e.g., order, modification,
cancelation).
    \154\ See id. Under proposed BSTX Rule 17020(c)(2), this would
include, in an anonymized format, all displayed orders,
modifications, cancelations, and executions occurring on BSTX (i.e.,
the user may see the symbol, side (buy/sell), limit price, quantity,
and message type), along with administrative data and other
information from the Exchange (e.g., trading halts or technical
messages). See Amendment No. 2, supra note 9, at 22-23; proposed
BSTX Rule 17020(c)(2). The Exchange states that the BSTX Market Data
Blockchain would not include details regarding the T+0 or T+1 order
matching preference or matched trades bound for shorter settlement.
See Amendment No. 2, supra note 9, at 41 n.73.
    \155\ See OIP, supra note 7, 86 FR at 49421. The Exchange states
that since no BSTX Participant, or non-BSTX Participant, would be
provided with access to trading information of another BSTX
Participant, it would not allow for reverse engineering of trading
strategies or otherwise compromise the confidential nature of each
BSTX Participant's trading information. See id.
    \156\ See Amendment No. 2, supra note 9, at 25. The Exchange
specifies that the market data uploaded as part of each block would
contain the most recent transactions on the Exchange, aged only a
few seconds, as well as market data for the preceding five minutes,
such that the oldest market data on each new block would be aged at
least five minutes. See id. at 25 n.44.
    \157\ See OIP, supra note 7, 86 FR at 49421. The Exchange states
that consolidated market data or proprietary market data are
disseminated on a sub-second, or sub-millisecond, timescale and that
even the consolidated securities information processor's 99th
percentile of quote latency today is below 100 microseconds. See id.
at 49421 n.44. The Exchange also states that, to promote clarity
with respect to how a BSTX Participant may use the BSTX Market Data
Blockchain, proposed BSTX Rule 17020(c)(3) would provide that
information available on the BSTX Market Data Blockchain does not
act as a substitute for any recordkeeping obligations of a BSTX
Participant. See id. at 49422.
---------------------------------------------------------------------------

    A BSTX Participant, through the API, would be able to run searches
of its previous orders and trading activity using the BSTX Market Data
Blockchain. The Participant Proprietary Data would be visible to the
specific BSTX Participant in sequential order of when each action
occurred \158\ and the General Market Data, available to both BSTX
Participants and non-BSTX Participants, would allow viewers to observe
the historical orders, executions, and other events (e.g.,
cancelations) received by and occurring on BSTX, which is generally the
same information available through subscribing to proprietary data
feeds of other exchanges.\159\ The Exchange also proposes to append
timestamps to the information made available through the BSTX Market
Data Blockchain, which would indicate the time to the microsecond at
which an order posted to the BSTX Book or that the BSTX System took
other actions with respect to an order.\160\ A BSTX Participant would
have the ability to download market data from the BSTX Market Data
Blockchain and could potentially use the data to back test trading
strategies or evaluate executions received on BSTX.\161\
---------------------------------------------------------------------------

    \158\ The BSTX Participant would be able to filter the different
information fields or run searches for a particular item (e.g., only
showing cancel orders or only showing activity in a particular
symbol). See id. at 49421.
    \159\ Similar to the Participant Proprietary Data, the General
Market Data would generally be visible in sequential order of when
each action occurred, although viewers would also have the ability
to filter the different information fields or run searches for a
particular symbol. The Exchange states that the General Market Data
would differ from the Exchange's propriety market data feed, which
provides real-time snapshots of the order book, including depth-of-
book quotations and quantity of shares available at each price
point. Additionally, the General Market Data would show viewers, in
an anonymized format, the sequential entry of each order,
modification, or cancelation in the order book in each symbol as
historical orders and transaction information, rather than real-time
snapshots. See id. at 49421 n.42.
    \160\ See id. at 49421.
    \161\ See id. at 49422.
---------------------------------------------------------------------------

    The Exchange also proposes to periodically audit, at least bi-
annually, the BSTX Market Data Blockchain to help ensure the proper
functioning of the BSTX Market Data Blockchain and the accuracy of the
information thereon.\162\ The Exchange states that it expects to
initially audit the BSTX Market Data Blockchain more frequently, likely
monthly, during the first year of operations to ensure the BSTX Market
Data Blockchain operates as intended.\163\
---------------------------------------------------------------------------

    \162\ See id.; proposed BSTX Rule 17020(d). See also proposed
BSTX Rule 17020(c)(3) (stating that information available on the
BSTX Market Data Blockchain does not act as a substitute for any
recordkeeping obligations of a BSTX Participant).
    \163\ See OIP, supra note 7, 86 FR at 49422.
---------------------------------------------------------------------------

    The Exchange states that as a system of the Exchange, the BSTX
Market Data Blockchain will be subject to the requirements of the
Exchange Act, including Regulation Systems Compliance and Integrity
(``Regulation SCI'') and that the Exchange has in place, among other
requirements of Regulation SCI, robust safeguards to protect against
any possible system intrusion to the market data blockchain.\164\ The
Exchange states that any unauthorized access to the API through which
data on the BSTX Market Data Blockchain may be accessed would not allow
for any intruder to modify, delete, or otherwise change any data on the
BSTX Market Data Blockchain.\165\
---------------------------------------------------------------------------

    \164\ See Amendment No. 2, supra note 9, at 27. The Exchange
states that it has classified the BSTX Market Data Blockchain as an
``SCI system'' and not as an ``indirect SCI system.'' See id.
    \165\ See OIP, supra note 7, 86 FR at 49422.
---------------------------------------------------------------------------

    The Exchange states that the benefits of the BSTX Market Data
Blockchain are twofold: (1) BSTX Participants may find the information
useful to them for a

variety of purposes, such as to review the BSTX Participant's trading
activity on BSTX, determine what the market was at a particular point
in time on BSTX for a given Security, evaluate equation quality, help
confirm the accuracy of their internal trading data, or download the
data to back-test trading strategies; and (2) help familiarize BSTX
Participants with the use and capabilities of blockchain technology in
a manner that does not impose any burden on them or other market
participants.\166\ The Exchange also states that BSTX Securities would
be eligible for trading on other national securities exchanges that
extend UTP to them and that the BSTX Market Data Blockchain would not
impact the ability of Securities to trade on other national securities
exchanges or OTC.\167\
---------------------------------------------------------------------------

    \166\ See id.
    \167\ See id. at 49423.
---------------------------------------------------------------------------

    One commenter states that the United States should support
blockchain technologies like BSTX to be competitive globally, and that
blockchain affords more efficiency and transparency.\168\ Another
commenter states that blockchain will bring the advantages of better
security, higher transparency, more trust, and a fairer marketplace to
the sector.\169\ This commenter also states that blockchain would
afford savings in time and money, make the market safer against fraud,
and help United States markets keep up with other global systems.\170\
Another commenter states that the proposed five minute delay is not
problematic given delays in other market data products.\171\
---------------------------------------------------------------------------

    \168\ See Letter from Anonymous (June 15, 2021) (``Anonymous
Letter II'').
    \169\ See Letter from Anonymous (June 21, 2021) (``Anonymous
Letter III'').
    \170\ See id. See also Letter from Jonathan Seeley (September
20, 2021) (``Seeley Letter'') (stating that the proposed BSTX
facility is designed to promote just and equitable principles of
trade and remove impediments to a free and open national market
system in a transparent and secure manner through the proposed use
of blockchain technology and would not inappropriately burden
competition); Letter from Tyler Hess (June 17, 2021) (stating that
the commenter would like to see the development of financial
institutions and securities exchanges that allow access to financial
instruments and investments without the burdens and controls placed
by traditional exchanges, and that the proposal represents the first
steps in a free and equitable publicly auditable financial system).
    \171\ See Letter from Anonymous (September 6, 2021) (``Anonymous
Letter IV'').
---------------------------------------------------------------------------

    The Commission finds that the Exchange's proposed market data
products are consistent with the Exchange Act. The Commission believes
that the proposed BSTX Depth-of-Book, BSTX Top-of-Book, and BSTX Last
Sale data products do not raise any novel regulatory issues.\172\ The
Commission also believes that the BSTX Market Data Blockchain would not
result in the disclosure of novel information about trading activity on
the BSTX System. A BSTX Participant viewing the Participant Proprietary
Data would access the same underlying information that the BSTX
Participant would already have from FIX messages sent to and received
from the Exchange.\173\ Further, the General Market Data would contain
the same substantive information that could be found in BSTX's
proprietary market data feeds and this information would be comparable
to the proprietary market data distributed by other national securities
exchanges. At the same time, the Commission believes that the BSTX
Market Data Blockchain is reasonably designed to prevent other market
participants from learning BSTX Participants' sensitive trading
information. The BSTX Market Data Blockchain would not be a real-time
market data product and would contain historical market data posted in
five-minute increments. In addition, the Participant Proprietary Data
accessible to each BSTX Participant would be specific to that BSTX
Participant's orders and executions, and the General Market Data would
be anonymized by displaying only the symbol, side (buy/sell), limit
price, quantity, and message type. As an SCI system operated by an SCI
entity, the BSTX Market Data Blockchain would also be subject to the
requirements of Regulation SCI.\174\
---------------------------------------------------------------------------

    \172\ See supra notes 144-145 and accompanying text.
    \173\ The Commission has previously approved proposals by
national securities exchanges to offer a data product to a member of
the exchange consisting of information regarding the member's own
trading activity on the exchange. See, e.g., Securities Exchange Act
Release Nos. 78886 (September 20, 2016), 81 FR 66113 (September 26,
2016) (approving Nasdaq ``Trading Insights'' product); 91787 (May 6,
2021), 86 FR 26111 (May 12, 2021) (approving MIAX Emerald
``Liquidity Taker Event Report'').
    \174\ See, e.g., 17 CFR 242.1001(a)(1) (requiring each SCI
entity to establish, maintain, and enforce written policies and
procedures reasonably designed to ensure that its SCI systems have
levels of capacity, integrity, resiliency, availability, and
security adequate to maintain the SCI entity's operational
capability and promote the maintenance of fair and orderly markets).
---------------------------------------------------------------------------

    National securities exchanges are not required to offer proprietary
market data, but those that do so must offer such data in a manner that
is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.\175\ The Commission believes that the
proposed dissemination of the Participant Proprietary Data is not
designed to permit unfair discrimination because each BSTX Participant
will have access to information specific to its own orders and
executions through the Participant Proprietary Data. In the OIP, the
Commission states that it was not clear what conditions, if any, the
Exchange may place on non-BSTX Participants before granting access to
the General Market Data.\176\ In Amendment No. 2, the Exchange states
that all BSTX Participants and non-BSTX Participants will have access
to the same anonymized market data on the same terms through the
General Market Data.\177\ In addition, market participants would be
able to obtain the same substantive information contained in the
General Market Data through access to BSTX's other proprietary market
data feeds. Further, the five-minute delay for the BSTX Market Data
Blockchain would be a uniform delay for all BSTX Participants and non-
BSTX Participants that subscribe, and the data on the BSTX Market Data
Blockchain would not be available on a faster basis than other BSTX
data products (and instead would be available on a slower basis).
---------------------------------------------------------------------------

    \175\ See 15 U.S.C. 78f(b)(5).
    \176\ See OIP, supra note 7, 86 FR at 49454.
    \177\ See Amendment No. 2, supra note 9, at 25 (stating that the
Exchange would make the General Market Data available to BSTX
Participants and non-BSTX Participants for the same fee and on the
same subscription terms, once the Exchange establishes a fee
schedule pursuant to the proposed rule change process under the
Exchange Act prior to the launch of BSTX).
---------------------------------------------------------------------------

    For these reasons, the Commission finds that the Exchange's
proposed market data products are consistent with the Exchange Act,
and, in particular, Section 6(b)(5) of the Exchange Act \178\ because
they would prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest, and would not permit unfair discrimination among customers,
issuers, brokers, or dealers; and with Section 6(b)(8) of the Exchange
Act \179\ because they would not impose any burden on competition not
necessary or appropriate in furtherance of the Exchange Act. The
Commission also finds that the proposed BSTX Market Data Blockchain is
consistent with the Exchange Act, and Section 6(b)(7) of the Exchange
Act \180\ in particular, and its requirements that the rules of a
national securities exchange provide a fair procedure for the
prohibition or limitation by the exchange of any access to services,
because the Exchange will

not limit non-BSTX Participants' access to the BSTX Market Data
Blockchain beyond applying the same general terms that apply to BSTX
Participants.
---------------------------------------------------------------------------

    \178\ 15 U.S.C. 78f(b)(5).
    \179\ 15 U.S.C. 78f(b)(8).
    \180\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

Access to BSTX
    The Commission received a comment stating that the proposal does
not specifically address how participants shall access BSTX and that,
by comparison, with respect to the trading of options, the Exchange
does not currently enforce equidistant cabling among and between
participants and its matching engine located in the same data
center.\181\ This commenter states that concerns regarding unfair
discrimination and inappropriate burdens on competition could arise in
the absence of confirmation that BOX will ensure that all co-location
participants will enjoy the same opportunity for order execution
regardless of their location in the data center relative to the BSTX
matching engine.\182\ Absent such confirmation, the commenter urges the
Commission to disapprove the proposal.\183\ In response, the Exchange
states that BSTX will provide for equidistant cabling arrangements to
ensure that all co-located BSTX Participants are on a level playing
field in connecting to the BSTX matching engine.\184\ The Exchange also
states that BSTX plans to have equidistant cabling arrangements within
the area of the data center that it controls, and that it will make
technical details regarding those arrangements available to prospective
BSTX Participants in certain specification documents after approval of
BSTX as a new facility of the Exchange.\185\
---------------------------------------------------------------------------

    \181\ See Letter from Andrew Stevens, General Counsel, IMC
Chicago, LLC and Richard McDonald, Compliance Coordinator,
Susquehanna International Group, LLP (June 28, 2021), at 2.
    \182\ See id.
    \183\ See id. at 3.
    \184\ See Letter from Lisa J. Fall, President, BOX Exchange LLC
(July 1, 2021), at 1.
    \185\ See id. The Exchange also states that its options trading
platform is an entirely separate facility of the Exchange with a
separate ownership structure from BSTX, and BSTX will use separate
data center operations and a different technology provider. See id.
at 2.
---------------------------------------------------------------------------

    In further response, in Amendment No. 2, the Exchange states that
it will offer connectivity services at its primary data center (Equinix
NY4 in Secaucus, NJ) and that connectivity to the Exchange in the
primary data center for both order entry and market data dissemination
is equalized for all Participants with equipment co-located in Equinix
NY4.\186\ Specifically, the Exchange states that all BSTX Participants
co-located in the same data center would connect to BSTX through an
equidistant cabling cabinet, which is a separate cabinet from the
cabinet hosting the BSTX System and market data distribution system.
The cross connects from the equidistant cabling cabinet to the cabinet
hosting BSTX's systems are equidistant.\187\ Additionally, the Exchange
states that all cross connects from the equidistant cabling cabinet to
each BSTX Participant's cabinet, wherever located in the data center,
provide for equidistant connectivity.\188\ As a result, even if BSTX
Participant X's cabinet is closer in physical proximity to the
equidistant cabling cabinet than BSTX Participant Y's cabinet, the
arrangement is such that both BSTX Participant X and BSTX Participant Y
have equidistant connectivity to the equidistant cabling cabinet and in
turn to BSTX's systems.\189\
---------------------------------------------------------------------------

    \186\ See Amendment No. 2, supra note 9, at 6.
    \187\ See id. at 6 n.6.
    \188\ See id. Specifically, the equidistant cabling cabinet
contains equal length spools of fiber that connect to each external
BSTX Participant cabinet in the data center, and all BSTX
Participants must connect to BSTX through the equidistant cabling
cabinet from their own external cabinets. See id.
    \189\ See id. The Exchange states that it believes that this
structure is designed to prevent unfair discrimination between
market participants, consistent with Section 6(b)(5) of the Exchange
Act, by ensuring that all co-located BSTX Participants have
equidistant connections to BSTX irrespective of where their
equipment is located within the data center. See id.
---------------------------------------------------------------------------

    The Commission believes that Amendment No. 2 addresses the
commenter's concern regarding whether all co-location participants will
enjoy the same opportunity for order execution regardless of their
location in the data center relative to the BSTX matching engine. As
described above, the Exchange states in Amendment No. 2 that all BSTX
Participants co-located in the data center would access BSTX's systems
through an equidistant cabling cabinet that connects to each BSTX
Participant's cabinet through fiber connections of equal length and
that the cross connects from the equidistant cabling cabinet to the
cabinet hosting BSTX's systems are also equidistant. This arrangement
would prevent BSTX Participants located in closer proximity to the
cabinet hosting the BSTX System and market data distribution system
from having a shorter path to connect to BSTX's systems.
Clearance and Settlement
    Under the Exchange's proposal, executions occurring as a result of
orders matched against the BSTX Book will be transmitted by BSTX to a
registered clearing agency to clear and settle pursuant to the rules,
policies, and procedures of the registered clearing agency.\190\ The
Exchange states that Securities would be cleared and settled by NSCC
and DTC in the same manner as those activities are performed by NSCC
and DTC currently with respect to a class of NMS stock.\191\ The
Exchange also states that the operation of the BSTX Market Data
Blockchain will have no impact or effect on the manner in which a
Security clears and settles.\192\
---------------------------------------------------------------------------

    \190\ See proposed BSTX Rule 25100(d). See also proposed BSTX
Rule 25140 for additional provisions regarding clearance and
settlement.
    \191\ See OIP, supra note 7, 86 FR at 49418.
    \192\ See id.
---------------------------------------------------------------------------

    The Exchange proposes to allow BSTX Participants to indicate a
preference for settling faster than the standard T+2 settlement
cycle.\193\ Specifically, BSTX Participants would be able to submit an
order with a preference for settlement on a T+0 basis (``Order with a
T+0 Preference'') or on a T+1 basis (``Order with a T+1
Preference'').\194\ The Exchange states that, based on discussions with
representatives from The Depository Trust & Clearing Corporation
(``DTCC''), BSTX believes that NSCC already has the authority under its
rules, policies, and procedures to clear certain trades on T+1 or T+0
basis.\195\ Orders with a T+0 Preference and Orders with a T+1
Preference would result in executions that settle more quickly than on
a T+2 basis if, and only if, all of the conditions in proposed BSTX
Rule 25060(h) are met and the execution that is transmitted by BSTX to
NSCC is eligible for T+0 or T+1 settlement under the rules, policies,
and procedures of the registered clearing agency.\196\ For an

Order with a T+0 Preference to be eligible to be transmitted by BSTX to
NSCC for same-day settlement, the resulting execution must occur on the
BSTX System prior to the ``T+0 Cut-Off Time,'' which would be one
minute before any applicable cut-off time established by NSCC for
inclusion of T+0 settling trades in its continuous net settlement
process established pursuant to its rules, policies, and
procedures.\197\ Any preference for T+0 or T+1 settlement included by a
BSTX Participant would only become operative if the order happens to
execute against another order from a BSTX Participant that also
includes a parameter indicating a preference for settlement on a T+0 or
T+1 basis.\198\ The Exchange states that, at the time of order entry,
any orders that include a parameter indicating a preference for faster
settlement would be regular way orders that would be presumed to settle
on a T+2 basis, just like any orders without such a parameter.\199\
---------------------------------------------------------------------------

    \193\ See id. at 49419.
    \194\ See proposed BSTX Rule 25140(h). The Exchange states that
T+1 and T+0 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. See OIP,
supra note 7, 86 FR at 49419 (citing 17 CFR 240.15c6-1). The
Exchange states that under SEC Rule 15c6-1, with certain exceptions,
a broker-dealer is not permitted to enter a contract for the
purchase or sale of a 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. See id. at 49419 n.33.
    \195\ See OIP, supra note 7, 86 FR at 49423. The Exchange states
that it understands that NSCC and DTC are already using this
authority for shortened settlement times, and that DTCC makes data
regarding T+0 and T+1 clearance and settlement through NSCC and DTC
available on the DTCC website for review by the public. See id. at
49424.
    \196\ See id. at 49423-24; proposed BSTX Rule 25060(h). See also
proposed BSTX Rule 25100(d). The Exchange states that it understands
that under its current rules, policies, and procedures, NSCC accepts
trades for T+0 settlement through its continuous net settlement
system provided that they are received by NSCC before a cut-off time
of 11:30 a.m. ET. DTCC provides on its website an overview of the
cut-off times for participation in the continuous net settlement
system process and other procedural considerations under its rules,
policies, and procedures that are associated with processing trades
for accelerated settlement on a T+0 or T+1 basis. See Amendment No.
2, supra note 9, at 34 n.62.
    \197\ See Amendment No. 2, supra note 9, at 35; proposed BSTX
Rule 25060(h)(3). The BSTX System would not accept any new Orders
with a T+0 Preference after the T+0 Cut-Off Time. See Amendment No.
2, supra note 9, at 36; proposed BSTX Rule 25060(h)(3). However, an
Order with a T+0 Preference resting on the BSTX Book after the T+0
Cut-Off Time would still be able to execute against orders against
which it is marketable, and would remain eligible for potential T+1
settlement to the extent it executed against an Order with a T+1
Preference. See id. According to the Exchange, it believes that a
one minute buffer between its T+0 Cut-Off Time and NSCC's cut-off
time for inclusion of such same-day settling trades in NSCC's
continuous net settlement process would be sufficient time to allow
the Exchange to transmit the relevant execution details to NSCC and
for NSCC to include such same-day settling trades in its continuous
net settlement system. See Amendment No. 2, supra note 9, at 35-36.
The Exchange represents that it will monitor the application of the
one minute buffer and whether it provides the Exchange and NSCC with
sufficient time to prevent executed trades from being transmitted by
the Exchange to NSCC after NSCC's cut-off time for inclusion of
same-day settling trades in NSCC's continuous net settlement system,
and the Exchange will submit additional rule changes in the future
as may be necessary to increase the buffer if appropriate. See id.
at 36. The Exchange also represents that it will post the then-
applicable T+0 Cut-Off Time on the BSTX website to ensure BSTX
Participants are adequately informed. See id. at 36 n.64.
    \198\ See OIP, supra note 7, 86 FR at 49424. Under the proposal,
an Order with a T+0 Preference will execute against any order
against which it is marketable and BSTX will transmit the matched
order information to a registered clearing agency for settlement on
a standard settlement cycle (T+2) pursuant to the rules, policies,
and procedures of the registered clearing agency, except where: (i)
the Order with a T+0 Preference executes against another Order with
a T+0 Preference, in which case BSTX will transmit the matched order
information to a registered clearing agency for settlement on the
trade date as may be permitted by the rules, policies, and
procedures of the registered clearing agency, subject to the
limitations in proposed BSTX Rule 25060(h)(3); or (ii) the Order
with a T+0 Preference executes against an Order with a T+1
Preference, in which case BSTX will transmit the matched order
information to a registered clearing agency for settlement on the
next trading day after the trade date (i.e., T+1) as may be
permitted by the rules, policies, and procedures of the registered
clearing agency. See proposed BSTX Rule 25060(h)(1). An Order with a
T+1 Preference will execute against any order against which it is
marketable and BSTX will transmit the matched order information to a
registered clearing agency for settlement on a standard settlement
cycle (T+2), except where the Order with a T+1 Preference executes
against another Order with a T+1 Preference or an Order with a T+0
Preference, in which case BSTX will transmit the matched order
information to a registered clearing agency for settlement on the
next trading day after the trade date (i.e., T+1) as may be
permitted by the rules, policies, and procedures of the registered
clearing agency. See proposed BSTX Rule 25060(h)(2).
    \199\ See OIP, supra note 7, 86 FR at 49423.
---------------------------------------------------------------------------

    The Exchange states that, in all cases, an order not marked with a
preference for either T+0 or T+1 settlement would be assured under the
settlement timing logic in proposed BSTX Rule 25060(h) of settlement on
a T+2 basis. The Exchange also states that the possibility of a
shortened settlement time would have no impact on the Exchange's
proposed price/time priority structure for order matching.\200\ The
Exchange states that, as a result of this structure, all orders in
Securities would be eligible to match and execute against any order
against which they are marketable, with settlement to occur at the
later settlement date of any two matching orders.\201\ Therefore,
according to the Exchange, only where an Order with a T+1 Preference or
an Order with a T+0 Preference match with another Order with a T+1
Preference or Order with a T+0 Preference will those orders (or
matching portions thereof) be eligible to settle more quickly than the
standard settlement cycle of T+2.\202\
---------------------------------------------------------------------------

    \200\ See id. at 49424.
    \201\ See id.
    \202\ See id.
---------------------------------------------------------------------------

    The Exchange states that it believes the proposal to allow BSTX
Participants to access the shorter settlement cycles of T+1 and T+0
that are already being used by NSCC and DTC today represents a change
that is both consistent with and in furtherance of broader industry
efforts to move the standard settlement style to T+1.\203\ The Exchange
also states that it believes that providing an optional T+0 or T+1
settlement cycle to BSTX Participants could also incrementally and
immediately provide market participants with the benefits of shorter
settlement cycles.\204\ The Exchange further states that it believes
that BSTX Participants have an interest in being able to assess risk-
reducing market functionality that is presently available and
compatible with market structure and that this can reduce costs for
market participants settling trading obligations in that Security and
reduce settlement risk.\205\
---------------------------------------------------------------------------

    \203\ See id. at 49424-25.
    \204\ See id.
    \205\ See id. at 49425.
---------------------------------------------------------------------------

    According to the Exchange, because all orders in Securities
submitted to BSTX would at the time of order entry be presumed to
settle on a regular way T+2 basis and would interact with any other
order against which the order is marketable, the Exchange believes that
Orders with a T+0 Preference and Orders with a T+1 Preference would be
considered ``protected'' within the meaning of Rule 611 under the
Exchange Act.\206\ The Exchange states that Orders with a T+0
Preference and Orders with a T+1 Preference would not fall within the
exception for protected quotation status set forth in Rule 611(b)(2)
under the Exchange Act, because they will only settle more quickly than
T+2 when all of the conditions in proposed BSTX Rule 25060(h) are met
and where faster settlement is consistent with the rules, policies, and
procedures of a registered clearing agency.\207\
---------------------------------------------------------------------------

    \206\ See id. (citing 17 CFR 242.611(b)(2)).
    \207\ See id.
---------------------------------------------------------------------------

    The Commission has received several comments expressing support for
the proposal's use of a shortened settlement cycle under certain
circumstances.\208\ One commenter states in support of the proposal
that BSTX would provide significant advantages over existing national
securities exchanges by providing fairer conditions to market
participants through reduced settlement times and more
transparency.\209\ This commenter states that T+0 settlement would
improve market conditions for retail investors by reducing risk of
failure to deliver on highly shorted stocks, and would reduce actual
and opportunity costs by eliminating margin lending for the period
before settlement and lost opportunities to reinvest.\210\

Two commenters refer to recent problems that they characterize as
arising from T+2 settlement and short selling,\211\ and state that the
proposal for a shorter settlement cycle would level the playing field
for retail investors.\212\ Another commenter states that if a
particular trade does not meet the criteria or conditions on T+0 or
T+1, the fallback option will be the standard settlement cycle, and
that because shorter settlement will depend on the NSCC clearing
system, addressing any adverse market effects is NSCC's
responsibility.\213\ Another commenter states that uncertainty
regarding whether an order would receive faster settlement at the time
of order entry would not affect the ability of a market participants to
reap the potential benefits of faster settlement.\214\ This commenter
also states that there has been much recent public focus on the
inefficiency of the current settlement system and that there is no
evidence that the proposal would have adverse market effects.\215\
---------------------------------------------------------------------------

    \208\ See Letter from Meagan Darata, Utah Salt Supplements (June
21, 2021) (``Darata Letter''); Letter from Mark Nelson (June 10,
2021); Letter from Robert Shaw (June 11, 2021) (``Shaw Letter'');
Letter from Neil Skinner (June 11, 2021) (``Skinner Letter'').
    \209\ See Skinner Letter, supra note 208.
    \210\ See id. This commenter also states that the commenter
expects the reduced costs of operating the exchange to be passed on
to prospective companies and issuers, thereby creating more
opportunities for companies and asset holders to offer securities,
and resulting in a market boom as new market participants join the
exchange. See id.
    \211\ See Letter from Anonymous (June 15, 2021) (``Anonymous
Letter I''); Skinner Letter, supra note 208. See also Shaw Letter,
supra note 208 (stating that, with the current issues regarding
settlement time, the proposal to offer speedy settlement is one
answer to improving the system).
    \212\ See Anonymous Letter I, supra note 211; Skinner Letter,
supra note 208. See also Darata Letter, supra note 208 (stating that
there is a wide power differential between retail and institutional
traders).
    \213\ See Anonymous Letter IV, supra note 171.
    \214\ See Seeley Letter, supra note 170 (stating also that this
uncertainty would not represent any additional inconsistency with
the Exchange Act compared to current settlement systems and does not
provide an appropriate basis for disapproving the proposal).
    \215\ Id.
---------------------------------------------------------------------------

    The Commission believes that the optional order parameter that
would allow a BSTX Participant to place an Order with a T+0 Preference
or Order with a T+1 Preference would permit BSTX Participants to take
advantage of faster settlement timing provided by DTC and NSCC in
manner that is consistent with fair and orderly markets. Use of the
order parameter would be optional and would not have any effect on
price/time execution priority. Therefore, any order placed by a BSTX
Participant that prefers to settle on a T+2 basis (or any order routed
to BSTX from another national securities exchange) would receive T+2
settlement and that order would not be disadvantaged in obtaining an
execution due to the absence of a preference for faster
settlement.\216\ The Commission also believes that the proposal that
Orders with a T+0 Preference must be executed on the BSTX System prior
to the T+0 Cut-Off Time to be eligible for same-day settlement is
reasonably designed to ensure that when BSTX transmits an order to the
registered clearing agency for same-day settlement, the registered
clearing agency will be able to include that trade in its continuous
net settlement process.
---------------------------------------------------------------------------

    \216\ In the OIP, the Commission raises whether introducing the
possibility for T+0 or T+1 settlement for on-exchange trades in NMS
stocks pursuant to the rules of a single national securities
exchange, at a time when the industry standard is T+2 settlement,
might have any adverse market effects. See OIP, supra note 7, 86 FR
at 49455. The Commission notes that no commenters raised any
potential adverse market effects.
---------------------------------------------------------------------------

    For these reasons, the Commission finds that the proposed order
parameter that BSTX Participants could use to preference faster
settlement is consistent with the Exchange Act and, in particular,
Section 6(b)(5)'s requirement to foster cooperation and coordination
with persons engaged in clearing, settling, and processing information
with respect to transactions in securities; remove impediments to and
perfect the mechanism of a free and open market and a national market
system; and, in general, protect investors and the public
interest.\217\ The Commission also finds that the proposed order
parameter for faster settlement is consistent with Section 6(b)(8)'s
requirement that the proposal not impose any burden on competition not
necessary or appropriate in further of the purposes of the Exchange
Act, because the operation of this order parameter will not impact the
ability of a market participant that instead prefers T+2 settlement to
obtain an execution.\218\
---------------------------------------------------------------------------

    \217\ 15 U.S.C. 78f(b)(5).
    \218\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

C. Eligibility for Listing and Trading on BSTX

    Once BSTX begins operations as a facility of the Exchange, a
security would be considered for listing on BSTX only if such security
is registered under both Section 12 of the Exchange Act \219\ and
Section 6 of the Securities Act of 1933 (``Securities Act''),\220\ or
such security to subject to an exemption under Regulation A.\221\ An
issuer may register a security pursuant to Section 12(b) by submitting
to the Exchange a listing application that provides certain required
information.\222\ The Exchange will review the listing application and,
if the listing application is approved, will certify to the Commission
that it has approved the security for listing and registration.\223\
Registration of the security will become effective thirty days after
the receipt of such certification by the Commission or within a shorter
period of time as the Commission may determine.\224\ Once registration
is effective, the Security would be eligible to be admitted to dealings
on BSTX.\225\
---------------------------------------------------------------------------

    \219\ 15 U.S.C. 78l; proposed BSTX Rule 26210.
    \220\ 15 U.S.C. 78f.
    \221\ See Amendment No. 2, supra note 9, at 10-11. See also 17
CFR 230.251. The Exchange states that IEX similarly allows for
securities subject to an exemption from registration under Section
12(b) of the Exchange Act to be listed on IEX. See Amendment No. 2,
supra note 9, at 11 n.20 (citing to IEX Rule 14.203).
    \222\ See proposed BSTX Rules 26210-26217; 15 U.S.C. 78l(b).
Prior to submitting a listing application to the Exchange, the
issuer would be required to participate in a confidential pre-
application eligibility review, in which the Exchange will determine
whether the issuer meets its listing criteria and is eligible to
submit a listing application. See proposed BSTX Rule 26201.
    \223\ See proposed BSTX Rule 26210(b); 15 U.S.C. 78l(d). See
Exhibits 3G, 3H, 3I, 3J, 3K, and 3L for agreements and forms related
to the listing process.
    \224\ 15 U.S.C. 78l(d).
    \225\ See proposed BSTX Rule 26202. See also 15 U.S.C. 78l(d).
---------------------------------------------------------------------------

    The Exchange proposes that the only securities that will be
eligible for trading on BSTX will be BSTX-listed securities.\226\ The
Exchange states that it is not proposing rules that would support its
extension of UTP to other NMS stock.\227\ However, according to the
Exchange, BSTX-listed Securities would be eligible for trading on other
national securities exchanges that extend UTP to them and would be able
to trade on other national securities exchanges and OTC in the same
manner as other NMS stock.\228\
---------------------------------------------------------------------------

    \226\ See proposed BSTX Rule 25020(a) (providing that any class
of securities listed on the Exchange shall be eligible to become
designated for trading on the Exchange in accordance with the
proposed BSTX Rule 26000 and 28000 Rule Series).
    \227\ See OIP, supra note 7, 86 FR at 49417. The Exchange also
states that it would only trade BSTX-listed Securities on BSTX
unless and until the Exchange proposes and receives Commission
approval for rules that would support trading in other types of
securities, including thorough any extension of UTP to other NMS
stock. See id.
    \228\ See id. at 49423.
---------------------------------------------------------------------------

Classes of Securities Eligible for Listing
    The Exchange states that issuers on BSTX could include both: (i)
New issuers who do not currently have any class of securities
registered on a national securities exchange, and (ii) issuers who
currently have securities registered on a national securities exchange
and who are seeking registration of a new class of equity securities
for listing on BSTX as Securities.\229\ In the original Notice, the
Exchange stated that while BSTX does not intend for Securities listed
on BSTX to be fungible with any other class of securities from the same
issuer, to the

extent that two classes of an issuer's shares had identical voting and
economic rights but were registered with the Commission as separate
classes, the two classes of shares could be ``economically fungible''
with each other.\230\ With respect to the Notice, one commenter states
that BSTX appears to be contemplating that an issuer could list shares
with identical voting and economic rights on BSTX and another exchange
but designate the shares listed on BSTX as a separate class of the
issuer's securities, with the only distinguishing factor between the
two classes of securities being that the BSTX-listed securities would
have the additional blockchain functionality.\231\ The commenter states
that, in the trading context, having two separate classes of an
issuer's securities with identical economic and voting rights trading
at the same time on different exchanges could result in investor and
market confusion.\232\ In Amendment No. 2, the Exchange states that
BSTX does not intend for a Security listed on BSTX to be a unique class
of security due only to the fact that certain trading activity in the
Security on BSTX would be recorded on the BSTX Market Data
Blockchain.\233\ The Exchange also states that if an issuer sought to
list a new class of securities on BSTX that is not distinct from an
existing class of securities of the issuer, the Exchange would not
allow such a class to be listed pursuant to its authority under
proposed BSTX Rule 26101.\234\ The Commission believes that Amendment
No. 2 addresses the commenter's concern that an issuer could list one
class of securities on BSTX and a separate class of securities on
another national securities exchange, with both classes having
identical voting and economic interests. Proposed BSTX Rule 26101
provides that the approval of an application for listing of a security
for trading on BSTX is a matter solely within the discretion of the
Exchange.\235\ The Exchange's use of this discretionary authority to
prevent an issuer from listing a class of securities on BSTX that is