[Federal Register Volume 86, Number 104 (Wednesday, June 2, 2021)]
[Notices]
[Pages 29634-29674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11410]



[[Page 29633]]

Vol. 86

Wednesday,

No. 104

June 2, 2021

Part II





 Securities and Exchange Commission





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Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of 
Proposed Rule Change To Adopt Rules Governing the Trading of Equity 
Securities on the Exchange Through a Facility of the Exchange Known as 
Boston Security Token Exchange LLC; Notice

  Federal Register / Vol. 86 , No. 104 / Wednesday, June 2, 2021 / 
Notices  

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92017; File No. SR-BOX-2021-06]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Proposed Rule Change To Adopt Rules Governing the Trading of Equity 
Securities on the Exchange Through a Facility of the Exchange Known as 
Boston Security Token Exchange LLC

May 25, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 12, 2021, BOX Exchange LLC (the ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 as amended (``Exchange Act''),\3\ BOX Exchange LLC 
(``BOX'' or the ``Exchange'') is filing with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') a proposed rule change 
to adopt rules to govern the trading of equity securities on the 
Exchange through a facility of the Exchange known as Boston Security 
Token Exchange LLC (``BSTX''). As described more fully below, BSTX 
would operate a fully automated, price/time priority execution system 
for the trading of ``Securities,'' which would be equity securities 
that meet BSTX listing standards and for which certain information 
regarding orders and executions on BSTX would be recorded and 
disseminated on a proprietary market data feed that BSTX operates using 
a proprietary blockchain system (``BSTX Market Data Blockchain''). The 
proposed additions to the Exchange's Rules setting forth new Rule 
Series 17000-29000 have been submitted with the proposal as Exhibit 5A. 
All text set forth in Exhibit 5A would be added to the Exchange's rules 
and therefore underlining of the text is omitted to improve 
readability. Forms proposed to be used in connection with the proposed 
rule change, such as the application to become a BSTX Participant, have 
been submitted with the proposal as Exhibits 3A through 3L.
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    \3\ 15 U.S.C. 78s(b)(1).
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    In addition, the Exchange proposes to make certain amendments to 
several existing BOX Rules to facilitate trading on BSTX. The proposed 
changes to the existing BOX Rules would not change the core purpose of 
the subject Rules or the functionality of other BOX trading systems and 
facilities. Specifically, the Exchange is seeking to amend BOX Rules 
100, 2020, 2060, 3180, 7130, 7150, 7230, 7245, IM-8050-3, 11010, 11030 
and 12140. These proposed changes are set forth in Exhibit 5B. Material 
proposed to be added to the Rule as currently in effect is underlined 
and material proposed to be deleted is bracketed.
    All capitalized terms not defined herein have the same meaning as 
set forth in the Exchange's Rules.\4\
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    \4\ The Exchange's Rules can be found on the Exchange's public 
website: https://boxoptions.com/regulatory/rulebook-filings/.
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    The text of the proposed rule change is available from the 
principal office of the Exchange, at the Commission's Public Reference 
Room and also on the Exchange's internet website at http://
http://boxoptions.com">boxoptions.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to adopt a series of rules to govern the 
trading of certain equity securities through a facility of the Exchange 
known as BSTX and make certain amendments to the existing BOX rules to 
facilitate trading on BSTX. As described more fully below, BSTX would 
operate a fully automated, price/time priority execution system (``BSTX 
System'') for the trading of certain equity securities that would be 
considered ``Securities'' under the proposed rules. The ``Securities'' 
\5\ under the proposed rules would be equity securities that meet BSTX 
listing standards and that trade on the BSTX System. The Exchange would 
operate the BSTX Market Data Blockchain, which would record certain 
information regarding orders and transactions occurring on BSTX with 
respect to Securities. All BOX Participants would be eligible to 
participate in BSTX provided that they become a BSTX Participant 
pursuant to the proposed rules. Under the proposed rules, BSTX would 
serve as the listing market for eligible companies and issuers of 
exchange traded products (``ETPs'') that wish to issue their registered 
securities as Securities. Securities would trade as NMS stock.\6\ The 
Exchange is not proposing rules that would support its extension of 
unlisted trading privileges (``UTP'') to other NMS stock, and 
accordingly the Exchange does not intend to extend any such UTP in 
connection with this proposal. The Exchange would therefore only trade 
Securities listed on BSTX unless and until it proposes and receives 
Commission approval for rules that would support trading in other types 
of securities, including through any extension of UTP to other NMS 
stock. A guide to the structure of the proposed rule change is 
described immediately below.
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    \5\ As discussed further below, BSTX proposes to use the term 
``Security'' to refer to BSTX-listed securities to distinguish them 
from other securities issued by an issuer that the issuer does not 
list on BSTX.
    \6\ 17 CFR 242.600(b)(48).
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Guide to the Scope of the Proposed Rule Change
    The proposal for trading of Securities through BSTX generally 
involves changes to existing BOX Rules and new BOX Rules pertaining 
specifically to BSTX (``BSTX Rules''). In addition, the Exchange plans 
to submit a separate proposed rule change pertaining to BSTX's 
corporate governance documents. To support the trading of Securities 
through BSTX, certain conforming changes are proposed to existing BOX 
Rules and entirely new BSTX Rules are also proposed as Rule Series 
17000 through 29000.\7\ Each of those new Rule Series and the 
provisions thereunder are described in greater detail below. Where the 
BSTX Rules are based on existing rules of another national securities 
exchange, the source rule from the relevant exchange is noted along 
with a

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discussion of notable differences between the source rule and the 
proposed BSTX Rule. The proposed BSTX Rules are addressed in Part III 
below and they generally cover the following areas:
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    \7\ The proposed changes to BOX Rules and the proposed BSTX 
Rules have been submitted with this proposal as Exhibits 5B and 5A, 
respectively.
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     Section 17000--General Provisions of BSTX;
     Section 18000--Participation on BSTX;
     Section 19000--Business Conduct for BSTX Participants;
     Section 20000--Financial and Operational Rules for BSTX 
Participants;
     Section 21000--Supervision;
     Section 22000--Miscellaneous Provisions;
     Section 23000--Trading Practice Rules;
     Section 24000--Discipline and Summary Suspension;
     Section 25000--Trading Rules;
     Section 25200--Market Making on BSTX;
     Section 26000--BSTX Listing Rules Other Than for Exchange 
Traded Products;
     Section 27000--Suspension and Delisting;
     Section 27100--Guide to Filing Requirements;
     Section 27200--Procedures for Review of Exchange Listing 
Determinations; and
     Section 28000--Trading and Listing of Exchange Traded 
Products;
     Section 29000--Dues, Fees, Assessments and Other Charges.
Overview of BSTX and Considerations Related to the Listing, Trading and 
Clearance and Settlement of Securities
The Joint Venture and Ownership of BSTX
    On June 19, 2018, t0.com Inc. (``tZERO'') and BOX Digital Markets 
LLC (``BOX Digital'') announced a joint venture to facilitate the 
trading of Securities on the Exchange.\8\ As part of the joint venture, 
BOX Digital, which is a subsidiary of BOX Holdings Group LLC, and tZERO 
each own 50% of the voting class of equity and over 45% economic 
interest of BSTX LLC. Pursuant to the BSTX LLC Agreement, BOX Digital 
and tZERO will perform certain specified functions with respect to the 
operation of BSTX. As noted, these details, as well as the proposed 
governance structure of the joint venture will be the subject of a 
separate proposed rule change that the Exchange will submit to the 
Commission.
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    \8\ See tZERO and BOX Digital Markets Sign Deal to Create Joint 
Venture, Business Wire (June 19, 2018), https://www.businesswire.com/news/home/20180619005897/en/tZERO-and-BOX-Digital-Markets-Sign-Deal-to-Create-Joint-Venture.
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BSTX Would Be a Facility of BOX That Would Support Trading in the New 
Asset Class of Securities for BOX
    BSTX would operate as a facility \9\ of BOX, which is a national 
securities exchange registered with the SEC. As a facility of BOX, 
BSTX's operations would be subject to applicable requirements in 
Sections 6 and 19 of the Exchange Act, among other applicable rules and 
regulations.\10\ Currently, BOX functions as an exchange only for 
standardized options. At the time that BSTX commences operations it 
would support trading in Securities that are equity securities 
(including certain ETPs), as descried in more detail below. 
Accordingly, the proposal represents a new asset class for BOX, and the 
discussion below sets forth the changes and additions to the Exchange's 
Rules to support the trading of equity securities as Securities on 
BSTX.
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    \9\ 15 U.S.C. 78c(a)(2). Section 3(a)(2) of the Exchange Act, 
provides that ``the term `facility' when used with respect to an 
exchange includes its premises, tangible or intangible property 
whether on the premises or not, any right to the use of such 
premises or property or any service thereof for the purpose of 
effecting or reporting a transaction on an exchange (including, 
among other things, any system of communication to or from the 
exchange, by ticker or otherwise, maintained by or with the consent 
of the exchange), and any right of the exchange to the use of any 
property or service.'' Because BSTX will share certain systems of 
the Exchange, BSTX would be a facility of the Exchange.
    \10\ 15 U.S.C. 78f; 15 U.S.C. 78s.
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    The Exchange proposes to use the term ``Security'' \11\ to describe 
a NMS stock trading on the BSTX system. The legal significance, 
therefore, of a ``Security'' is that it would be an equity security 
that is approved for listing on BSTX and that trades on the BSTX 
System. A security that is offered by an issuer with the intent of it 
becoming listed on BSTX would therefore not become a ``Security'' under 
the proposed BSTX Rules unless and until it actually does become listed 
on BSTX and trades on the BSTX System.\12\
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    \11\ The Exchange proposes to define the term ``Security'' to 
mean a NMS stock, as defined in Rule 600(b)(47) of the Exchange Act, 
trading on the BSTX System. See proposed Rule 17000(a)(31).
    \12\ Id.
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Securities Would Be NMS Stocks
    The Securities would qualify as NMS stocks pursuant to Regulation 
NMS,\13\ which defines the term ``NMS security'' in relevant part to 
mean ``any security or class of securities for which transaction 
reports are collected, processed and made available pursuant to an 
effective transaction reporting plan . . . .'' \14\ The Exchange plans 
to join existing transaction reporting plans, as discussed in Part VIII 
below, for the purposes of Security quotation and transaction 
reporting.\15\ The term ``NMS stock'' means ``any NMS security other 
than an option'' \16\ and therefore Securities traded on BSTX would be 
classified as NMS stock.
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    \13\ 17 CFR 242.600 through .613.
    \14\ 17 CFR 242.600(b)(47).
    \15\ 17 CFR 242.601(a)(1). The Rule states in relevant part that 
``every national securities exchange shall file [with the SEC] a 
transaction reporting plan regarding transactions in listed equity 
and Nasdaq securities executed through its facilities . . . .''
    \16\ 17 CFR 242.600(b)(47).
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    Securities would meet the definition of NMS stock and would trade, 
clear, and settle in the same manner as all other NMS stocks traded 
today. As described in further detail below, the operation of the BSTX 
Market Data Blockchain would in no way modify or alter market 
participants' obligations under Regulation NMS.
BSTX Would Support Trading of Registered Securities
    All Securities traded on BSTX would generally be required to be 
registered with the Commission under both Section 12 of the Exchange 
Act \17\ and Section 6 of the Securities Act of 1933 (``Securities 
Act'').\18\ BSTX would not support trading of Securities offered under 
an exemption from registration for public offerings, with the exception 
of certain offerings under Regulation A that meet the proposed BSTX 
listing standards.
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    \17\ 15 U.S.C. 78l.
    \18\ 15 U.S.C. 77f.
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Issuance and Clearance and Settlement of Securities
    BSTX would maintain certain rules, as described below, to address 
custody, clearance and settlement in connection with Securities. All 
transactions in Securities would clear and settle in accordance with 
the rules, policies and procedures of registered clearing agencies. 
Specifically, BSTX anticipates that at the time it commences 
operations, Securities that are listed and traded on BSTX would be 
securities that have been made eligible for services by The Depository 
Trust Company (``DTC'') and that DTC would serve as the securities 
depository \19\ for such

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Securities. It is also expected that confirmed trades in Securities on 
BSTX would be transmitted to National Securities Clearing Corporation 
(``NSCC'') for clearing such that NSCC would clear the trades through 
its systems to produce settlement obligations that would be due for 
settlement between participants at DTC. BSTX believes that this 
custody, clearance and settlement structure is the same general 
structure that exists today for other exchange-traded equity 
securities. Importantly, for purposes of NSCC's clearing activities and 
DTC's settlement activities in respect of the Securities, the relevant 
Securities would be cleared and settled by NSCC and DTC in exactly the 
same manner as those activities are performed by NSCC and DTC currently 
regarding a class of NMS Stock.
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    \19\ 15 U.S.C. 78c(a)(23)(A). Section 3(a)(23)(A) of the 
Exchange Act defines the term ``clearing agency'' to include ``any 
person, such as a securities depository, who (i) acts as a custodian 
of securities in connection with a system for the handling of 
securities whereby all securities of a particular class or series of 
any issuer deposited within the system are treated as fungible and 
may be transferred, loaned, or pledged by bookkeeping entry without 
physical delivery of securities certificates, or (ii) otherwise 
permits or facilitates the settlement of securities transactions or 
the hypothecation or lending of securities without physical delivery 
of securities certificates.''
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    The operation of the BSTX Market Data Blockchain will have no 
impact or effect on the manner in which a Security clears and settles. 
The BSTX Market Data Blockchain would be implemented through the 
operation of the proposed BSTX Rules and would occur separate and apart 
from the clearance and settlement process. The Security would be an 
ordinary equity security for NSCC's and DTC's purposes. The BSTX Market 
Data Blockchain would be a separate set of market data that uses 
distributed ledger technology to record certain order and transaction 
information regarding orders and transactions in Securities on BSTX.
Issuance of Equity Securities Eligible To Become a Security
    With the exception of certain offerings under Regulation A that 
meet the proposed BSTX listing standards, all Securities traded on BSTX 
will have been offered and sold in registered offerings under the 
Securities Act, which means that purchasers of the Securities will 
benefit from all of the protections of registration. The Division of 
Corporation Finance will need to make a public interest finding in 
order to accelerate the effectiveness of the registration statements 
for these offerings. Because BSTX would be a facility of a national 
securities exchange, all Securities would be registered under Section 
12(b) of the Exchange Act, thereby subjecting all of these issuers to 
the reporting regime in Section 13(a) of the Exchange Act.
    All offerings of securities that are intended to be listed as 
Securities on BSTX would be conducted in the same general manner in 
which offerings of exchange-listed equity securities are conducted 
today under the federal securities laws. An issuer will enter into a 
firm commitment or best efforts underwriting agreement with a sole 
underwriter or underwriting syndicate; the underwriter(s) will market 
the securities and distribute them to purchasers; and secondary trading 
in the securities (that are intended to trade on BSTX as Securities) 
will thereafter commence on BSTX.
    Issuers on BSTX could include both (1) new issuers who do not 
currently have any class of securities registered on a national 
securities exchange, and (2) issuers who currently have securities 
registered on a national securities exchange and who are seeking 
registration of a separate class of equity securities for listing on 
BSTX as Securities. BSTX does not intend for Securities listed, or 
intended to be listed, on BSTX to be fungible with any other class of 
securities from the same issuer.\20\ If an issuer sought to list 
securities on BSTX that are not a separate class of an issuer's 
securities, BSTX does not intend to approve such a class of security 
for listing on BSTX as a Security, pursuant to BSTX's authority under 
BSTX Rule 26101. At the commencement of BSTX's operations, certain 
equities (including ETPs) would be eligible for listing as Securities. 
This would be addressed by BSTX Rules 26102 (Equity Issues), 26103 
(Preferred Securities), 26105 (Warrant Securities) and the Rule 28000 
Series (Trading and Listing of Exchange Traded Products), which would 
be part of BSTX's listing rules and would contemplate that only those 
specified types of equity securities would be eligible for listing.
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    \20\ The Exchange notes that distinct classes of securities 
issued by an issuer that are Securities would not be fungible with 
another class of securities of the same issuer because no class of 
an issuer's securities is fungible with a separate class of its 
securities--otherwise they would be the same class of security. To 
the extent that two classes of an issuer's shares had identical 
voting and economic rights but were registered with the Commission 
as separate classes (e.g., Class A shares and Class B shares), the 
two classes of shares could be economically fungible with one 
another insofar as they convey the same economic and beneficial 
rights and interests to investors, but this would not mean that 
ownership of a Class A share is the same as ownership of a Class B 
share notwithstanding that each class provides the same economic 
benefits. In any case, nothing herein proposes any change to the 
existing framework for different classes of securities.
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Securities Depository Eligibility
    BSTX would maintain rules that would promote a structure in which 
Securities would be held in ``street name'' with DTC.\21\ BSTX Rule 
26137 would require that for an issuer's security to be eligible to be 
a Security, BSTX must have received a representation from the issuer 
that a CUSIP number that identifies the security is included in a file 
of eligible issues maintained by a securities depository that is 
registered with the SEC as a clearing agency. This is based on rules 
that are currently maintained by other equities exchanges.\22\ In 
practice, BSTX Rule 26137 requires the Security to have a CUSIP number 
that is included in a file of eligible securities that is maintained by 
DTC because the Exchange believes that DTC currently is the only 
clearing agency registered with the SEC that provides securities 
depository services.\23\
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    \21\ The term ``street name'' refers to a securities holding 
structure in which DTC, through its nominee Cede & Co., would be the 
registered holder of the securities and, in turn, DTC would grant 
security entitlements in such securities to relevant accounts of its 
participants. Proposed BSTX Rule 26136 would also provide, with 
certain exceptions, that securities listed on BSTX must be eligible 
for a direct registration program operated by a clearing agency 
registered under Section 17A of the Exchange Act. DTC operates the 
only such program today, known as the Direct Registration System, 
which permits an investor to hold a security as the registered owner 
in electronic form on the books of the issuer.
    \22\ Proposed BSTX Rule 26137 is based on current NYSE Rule 777.
    \23\ See Exchange Act Release No. 78963 (September 28, 2016), 81 
FR 70744, 70748 (October 13, 2016) (footnote 46 and the accompanying 
text acknowledge that DTC is the only registered clearing agency 
that provides securities depository services for the U.S. securities 
markets).
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Book-Entry Settlement at a Securities Depository
    BSTX would also maintain Proposed BSTX Rule 26135 regarding uniform 
book-entry settlement. The rule would require each BSTX Participant to 
use the facilities of a securities depository for the book-entry 
settlement of all transactions in depository eligible securities with 
another BSTX Participant or a member of a national securities exchange 
that is not BSTX or a member of a national securities association.\24\ 
Proposed BSTX Rule 26135 is based on the depository eligibility rules 
of other equities exchanges and Financial Industry Regulatory Authority 
(``FINRA'').\25\ Those rules were first adopted as part of a 
coordinated industry effort in 1995 to promote book-entry settlement 
for the vast majority of initial public offerings

[[Page 29637]]

and ``thereby reduce settlement risk'' in the U.S. national market 
system.\26\
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    \24\ FINRA is currently the only national securities association 
registered with the SEC.
    \25\ See e.g., FINRA Rule 11310. Book-Entry Settlement and NYSE 
Rule 776. Book-Entry Settlement of Transactions.
    \26\ These coordinated depository eligibility rules resulted 
from proposed listing rules amendments developed by the Legal and 
Regulatory Subgroup of the U.S. Working Committee, Group of Thirty 
Clearance and Settlement Project. See Securities Exchange Act 
Release Nos 35774 (May 26, 1995) (SR-NASD-95-24), 60 FR 28813 (June 
2, 1995); 35773 (May 26, 1995), 60 FR 28817 (June 2, 1995) (SR-NYSE-
95-19).
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Participation in a Registered Clearing Agency That Uses a Continuous 
Net Settlement System
    Under proposed BSTX Rule 25140, each BSTX Participant would be 
required to either (i) be a member of a registered clearing agency that 
uses a continuous net settlement (``CNS'') system, or (ii) clear 
transactions executed on BSTX through a member of such a registered 
clearing agency. The Exchange believes that today NSCC is the only 
registered clearing agency that uses a CNS system to clear equity 
securities, and proposed BSTX Rule 25140 further specifies that BSTX 
will maintain connectivity and access to the Universal Trade Capture 
system of NSCC to transmit confirmed trade details to NSCC regarding 
trades executed on BSTX. The proposed rule would also address the 
following: (i) A requirement that each Security transaction executed 
through BSTX must be executed on a locked-in basis for automatic 
clearance and settlement processing; (ii) the circumstances under which 
the identity of contra parties to a Security transaction that is 
executed through BSTX would be required to remain anonymous or may be 
revealed; and (iii) certain circumstances under which a Security 
transaction may be cleared through arrangements with a member of a 
foreign clearing agency. Proposed BSTX Rule 25140 is based on a 
substantially identical rule of the Investor's Exchange, LLC (``IEX''), 
which, in turn, is consistent with the rules of other equities 
exchanges.\27\
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    \27\ See IEX Rule 11.250 (Clearance and Settlement; Anonymity), 
which was approved by the Commission in 2016 as part of its approval 
of IEX's application for registration as a national securities 
exchange. Exchange Act Release No. 78101 (June 17, 2016); 81 FR 
41142 (June 23, 2016); see also Cboe BZX Rule 11.14 (Clearance and 
Settlement; Anonymity).
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    BSTX believes that the operation of its depository eligibility rule 
and its book-entry services rule would promote a framework in which 
Securities that would be eligible to be listed and traded on BSTX would 
be equity securities that have been made eligible for services by a 
registered clearing agency that operates as a securities depository and 
that are settled through the facilities of the securities depository by 
book-entry. The Exchange believes that because DTC currently is the 
only clearing agency registered with the SEC that provides securities 
depository services, at the commencement of BSTX's operations, 
Securities would be securities that have been made eligible for 
services by DTC, including book-entry settlement services.
Settlement Cycle
    Proposed BSTX Rule 25100(d) would address settlement cycle 
considerations regarding trades in Securities. Security trades that 
result from orders matched against the electronic order book of BSTX 
would be required to clear and settle pursuant to the rules, policies 
and procedures of a registered clearing agency. As noted above in 
connection with the description of proposed BSTX Rule 25140, the 
Exchange expects that at the commencement of operations by BSTX it 
would transmit confirmed trade details to NSCC regarding Security 
trades that occur on BSTX and that NSCC would be the registered 
clearing agency that clears Security trades.
    As described in greater detail below in Part II.I, the Exchange is 
also proposing that BSTX Participants would be able to include 
parameters in orders submitted to BSTX to indicate a preference to use 
faster settlement cycles that are currently available through NSCC and 
DTC under certain circumstances. BSTX believes that allowing BSTX 
Participants to use these faster settlement cycles where consistent 
with the rules, policies and procedures of a registered clearing agency 
would mitigate settlement risk for transactions in such Securities due 
to faster settlement. BSTX believes that NSCC already has authority 
under its rules, policies and procedures to clear certain trades on a 
T+1 or T+0 basis, which are shorter settlement cycles than the longest 
settlement cycle of T+2 that is generally permitted under SEC Rule 
15c6-1 for a security trade that involves a broker-dealer.\28\ 
Furthermore, BSTX understands that NSCC does already clear trades in 
accordance with this authority.
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    \28\ 17 CFR 240.15c6-1. Under SEC Rule 15c6-1, with certain 
exceptions, a broker-dealer is not permitted to enter a contract for 
the purchase or sale of security that provides for payment of funds 
and delivery of securities later than the second business day after 
the date of the contract unless otherwise expressly agreed to by the 
parties at the time of the transaction.
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The BSTX Market Data Blockchain
    BSTX will make available to BSTX Participants certain market data 
related to trading activity occurring on BSTX through the use of a 
private, permissioned blockchain maintained by the Exchange. As 
described further below, a BSTX Participant would have the ability to 
see detailed information about its trading activity on BSTX but only 
anonymized information with respect to the trading activity of other 
BSTX Participants. BSTX Participants would have no obligations with 
respect to providing information to, accessing, maintaining, or using 
the BSTX Market Data Blockchain. The Exchange believes that the 
information made available on the BSTX Market Data Blockchain would be 
generally similar to Daily Trade and Quote (``TAQ'') data made 
available by New York Stock Exchange LLC except that the Exchange would 
use distributed ledger or ``blockchain'' technology to record such 
information, a BSTX Participant would be able to see non-anonymized 
information about its own trading activity on BSTX, and the market data 
would pertain only to trading activity on BSTX and not the broader 
market (e.g., an over-the-counter (``OTC'') \29\ transaction in a 
Security reported to the consolidated tape).\30\
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    \29\ OTC in this context refers to trading occurring otherwise 
than on a national securities exchange.
    \30\ See e.g., NYSE, Daily TAQ Fact Sheet, https://www.nyse.com/publicdocs/nyse/data/Daily_TAQ_Fact_Sheet.pdf.
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Background on Blockchain Technology
    In general, a blockchain is essentially a ledger that can maintain 
digital records of assets, transactions, or other information. A 
blockchain's central function is to encode transitions or changes to 
the ledger. Whenever one change to the blockchain ledger occurs to 
record a state transition, the entire blockchain is immutably changed 
to reflect the state transition.
    There are broadly two types of blockchains: (i) Public blockchains 
that are decentralized, open to anyone running the same protocol; \31\ 
and (ii) a private, permission-based blockchains where only those 
granted access may view or take other actions with respect to the 
blockchain.
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    \31\ A ``protocol'' in this context generally means a set of 
rules governing the format of messages that are exchanged between 
the participants.
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BSTX Market Data Blockchain as a Private Permissioned Network
    The BSTX Market Data Blockchain would operate as a private, 
permission-based blockchain accessible only to BSTX Participants. The 
Exchange would control all aspects of the BSTX Market Data Blockchain. 
Pursuant to proposed Rule 17020(b), each BSTX Participant would be 
assigned a BSTX Market Data Blockchain address that corresponds to the 
BSTX Participant's trading activity

[[Page 29638]]

on BSTX. The Exchange will also issue login credentials to each BSTX 
Participant through which the BSTX Participant may access the BSTX 
Market Data Blockchain to see its order and transaction information on 
BSTX as well as certain anonymized market data from other BSTX 
Participants, as discussed further below.
    The BSTX Market Data Blockchain would generally operate by 
collecting information from two sources, which the Exchange would then 
translate into information capable of being recorded to the BSTX Market 
Data Blockchain. Specifically, the data inputs for the BSTX Market Data 
Blockchain would come from (i) the BSTX System \32\ to capture 
information such as executed transactions and (ii) each BSTX 
Participant's order/message information passing through the financial 
information exchange (``FIX'') gateway through which all orders and 
messages pass in order to connect to the BSTX System. For example, if a 
BSTX Participant sends an order to buy 100 shares of Security XYZ, when 
that order is sent to the Exchange, the Exchange would capture this 
information as it passes through the FIX gateway in an automated 
process that results in the BSTX Participant being able to see that 
order on the BSTX Market Data Blockchain through its login credentials.
---------------------------------------------------------------------------

    \32\ The ``BSTX System'' refers to the automated trading system 
used by BSTX for the trading of Securities. See proposed Rule 
17000(a)(15).
---------------------------------------------------------------------------

    The BSTX Market Data Blockchain does not require any affirmative 
action on the part of a BSTX Participant in order for its information 
to be recorded to the BSTX Market Data Blockchain. Rather, the BSTX 
Market Data Blockchain captures trading activity that occurs on BSTX in 
the normal course and is made available to BSTX Participants as an 
additional resource that they may choose to use in their discretion in 
the same general manner that a market participant might use TAQ data.
Information Available on the BSTX Market Data Blockchain
    As set forth in proposed Rule 17020(c), there are two types of 
information that would be available on the BSTX Market Data Blockchain: 
(i) A BSTX Participant's own order and transaction information related 
to its trading activity on BSTX (``Participant Proprietary Data''); and 
(ii) anonymized, general market data available to all BSTX Participants 
(``General Market Data''). With respect to Participant Proprietary 
Data, a BSTX Participant would be able to see the following information 
with respect to all orders and messages and executions submitted to and 
occurring on BSTX:
    (1) Symbol, side (buy/sell), limit price, quantity, time-in-force
    (2) Order type (e.g., limit order, ISO)
    (3) Order capacity (principal/agent)
    (4) Short/long sale order marking
    (5) Message type (e.g., order, modification, cancellation)
    (6) A unique identification number attributable to each order, 
execution, or other message (e.g., cancelation or modification)
    (7) Such other information regarding a BSTX Participant's trading 
activity on BSTX as the Exchange may determine and set forth via 
Regulatory Circular.
    Participant Proprietary Data would effectively contain a record of 
all of a BSTX's Participant's trading activity on BSTX. Participant 
Proprietary Data would only be available to the BSTX Participant from 
which such data derived. That is, a BSTX Participant would not have 
access to the Participant Proprietary Data of another BSTX Participant. 
As a result, no BSTX Participant would be provided with access to 
trading information of another BSTX Participant in a manner that would 
allow for reverse engineering of trading strategies or otherwise 
compromise the confidential nature of each BSTX Participant's trading 
information. The Exchange proposes to allow for flexibility to provide 
additional Participant Proprietary Data to each BSTX Participant via 
Regulatory Circular in order to provide the Exchange with the ability 
to enhance the content of Participant Proprietary Data based on 
feedback from BSTX Participants.
    General Market Data is the second type of information that would be 
available on the BSTX Market Data Blockchain, which would consist of:
    (1) All orders, modifications, cancellations, and executions 
occurring on BSTX in an anonymized format.
    (2) Administrative data and other information from the Exchange 
(e.g., trading halts, or technical messages).
    (3) Such other anonymized trading activity or general information 
as the Exchange may determine and set forth via Regulatory Circular.
    General Market Data is intended to allow BSTX Participants to be 
able to observe the BSTX Order Book, changes thereto, and executions 
occurring on BSTX in generally the same manner that a market 
participant can today see order and transaction information on an 
exchange by subscribing to an exchange's proprietary market data feed. 
The Exchange notes that the General Market Data that would be available 
on the BSTX Market Data Blockchain would be the same substantive 
information that would be available through the Exchange's proprietary 
market data feeds, so access to the BSTX Market Data Blockchain would 
not provide additional information that could not otherwise be obtained 
through the Exchange's proprietary market data feed.\33\ The Exchange 
proposes to allow for flexibility to provide additional, anonymized 
trading activity or general information to BSTX Participants via 
Regulatory Circular in order to provide the Exchange with the ability 
to enhance the content of General Market Data based on feedback from 
BSTX Participants or in the event that new data elements become 
relevant in the future.
---------------------------------------------------------------------------

    \33\ The BSTX Market Data Blockchain may include certain non-
material information, such as a unique order identification number 
specific to the blockchain that would not be available through 
proprietary market data products.
---------------------------------------------------------------------------

    General Market Data would be anonymized, meaning that a BSTX 
Participant would not be able to determine the identity of another BSTX 
Participant's orders, quotes, cancellations, or other messages. For the 
avoidance of doubt, the alphanumeric address assigned to each BSTX 
Participant to facilitate the BSTX Market Data Blockchain would not be 
visible as part of General Market Data.\34\ As a result, there should 
not be cause for concern regarding potential trading information 
leakage or the ability to reverse engineer another BSTX Participant's 
trading strategies given the anonymous nature of General Market Data. 
BSTX Participants would generally have available to them via the BSTX 
Market Data Blockchain the same information they would have today with 
respect to other BSTX Participants trading activity in subscribing to 
an exchange's proprietary data feed.
---------------------------------------------------------------------------

    \34\ For example, in looking at General Market Data, BSTX 
Participant X would not be able to determine by name, address, or 
otherwise that a particular order, modification to an existing 
order, or executed transaction involved BSTX Participant Y or any 
other BSTX Participant.
---------------------------------------------------------------------------

    The Exchange proposes to append timestamps to the information made 
available. Timestamps related to all information on the BSTX Market 
Data Blockchain would indicate the time to the microsecond at which an 
order posted to the BSTX Book or that the BSTX System took other action 
with respect to an order (e.g., effects a cancellation, execution, 
modification). Information would be posted to the BSTX Market Data 
Blockchain on a delayed basis of at least 5 minutes. As a result, the 
BSTX Market Data Blockchain would not function as a

[[Page 29639]]

substitute for real-time market data. A BSTX Participant would have the 
ability to download market data from the BSTX Market Data Blockchain, 
which it could use to, for example, back test trading strategies or 
evaluate executions received on BSTX.
    Finally, in order to promote clarity with respect to how a BSTX 
Participant may use the BSTX Market Data Blockchain, the Exchange 
proposes to provide in Rule 17020(c)(3) that the information available 
on the BSTX Market Data Blockchain does not act as a substitute for any 
recordkeeping obligations of a BSTX Participant. The Exchange notes 
that broker-dealers recordkeeping obligations generally require a much 
broader set of records covering the entirety of a broker-dealers 
trading activity across all trading centers.\35\ As a result, the 
Exchange would not expect that a BSTX Participant would ever rely on 
the BSTX Market Data Blockchain, which would contain only its trading 
activity on BSTX, as a substitute for its independent recordkeeping 
obligations.
---------------------------------------------------------------------------

    \35\ See e.g., 17 CFR 240.17a-3.
---------------------------------------------------------------------------

Periodic Audit of the BSTX Market Data Blockchain by the Exchange
    To help ensure the proper functioning of the BSTX Market Data 
Blockchain and accuracy of information thereon, the Exchange proposes 
in Rule 17020(c)(3) to periodically audit the BSTX Market Data 
Blockchain. Specifically, the Exchange proposes to perform the audit at 
least bi-annually to ensure that the BSTX Market Data Blockchain 
accurately captures order and transaction data on BSTX. The Exchange 
expects that it will initially audit the BSTX Market Data Blockchain 
more frequently (e.g., monthly) during the first year of operation to 
make sure the BSTX Market Data Blockchain operates as intended during 
the period of time when the Exchange expects BSTX Participants to be 
familiarizing themselves with the BSTX Market Data Blockchain.
Benefits of the BSTX Market Data Blockchain
    The Exchange believes that there are two primary benefits related 
to the BSTX Market Data Blockchain. First, the Exchange believes that a 
BSTX Participant may find the information useful to them for a variety 
of purposes such as to review the BSTX Participant's trading activity 
on BSTX, determine what the market was at a particular point in time on 
BSTX for a given Security, evaluate execution quality on BSTX, or 
download the data to back-test trading strategies. As proposed, the 
BSTX Market Data Blockchain requires no affirmative obligation on the 
part of the BSTX Participant. As a result, if a BSTX Participant does 
not find the BSTX Market Data Blockchain to be of use to it, it could 
simply ignore it without cost or penalty.
    Second, the Exchange believes that the BSTX Market Data Blockchain 
will help familiarize BSTX Participants with the use and capabilities 
of blockchain technology in a manner that does not impose any burden on 
them or other market participants. The Commission has stated that it is 
``mindful of the benefits of increasing use of new technologies for 
investors and the markets, and has encouraged experimentation and 
innovation . . .'' \36\ stating further that ``[i]nformation and 
communications technologies are critical to healthy and efficient 
primary and secondary markets.'' \37\ Regarding the judgment of whether 
the benefits of certain technologies are meritorious, the Commission 
has explained its view that ``[t]he market will ultimately prove the 
worth of technology--whether the benefits to the industry and its 
investors of developing and using new services are greater than the 
associated costs.'' \38\ Consistent with these statements, the Exchange 
believes that promoting use of blockchain technology through the BSTX 
Market Data Blockchain will allow BSTX Participants to observe and 
increase their familiarity with the capabilities and potential benefits 
of blockchain technology in a context that operates within the current 
equity market infrastructure and that the proposal will thereby advance 
and protect the public's interest in the use and development of new 
data processing techniques that may create opportunities for more 
efficient, effective and safe securities markets.\39\ Moreover, the 
Exchange believes that new technology, such as blockchain technology, 
may be able to help perfect the mechanism of a free and open market and 
a national market system, consistent with Section 6(b)(5) of the 
Exchange Act.\40\
---------------------------------------------------------------------------

    \36\ Securities and Exchange Commission, The Impact of Recent 
Technological Advances on the Securities Markets (Sep. 1997), 
https://www.sec.gov/news/studies/techrp97.htm.
    \37\ Id.
    \38\ Id.
    \39\ Report of the Senate Committee on Banking, Housing & Urban 
Affairs, S. Rep. No. 94-75, at 8 (1975) (expressing Congress' 
finding that new data processing and communications systems create 
the opportunity for more efficient and effective markets). While the 
Exchange believes that its proposal represents an introductory step 
in pairing the benefits of blockchain technology with the current 
equity market infrastructure, other market participants and FINRA 
have recognized additional potential benefits to blockchain 
technology in various applications related to the securities 
markets. FINRA has stated ``[o]ne of the proposed benefits of 
[blockchain technology] is the ability to offer a timestamped, 
sequential, audit trail of transaction records. This may provide 
regulators and other interested parties (e.g., internal audit, 
public auditors) with the opportunity to leverage the technology to 
view the complete history of a transaction where it may not be 
available today and enhance existing records related to securities 
transactions.'' Financial Industry Regulatory Authority, Distributed 
Ledger Technology: Implications of Blockchain for the Securities 
Industry (January 2017), available at: https://www.finra.org/sites/default/files/FINRA_Blockchain_Report.pdf. Further, Paxos Trust 
Company echoed similar themes in connection with its receipt of no-
action relief from the Commission staff, and explained in its 
request letter certain benefits of blockchain technology including 
``greater data accuracy and transparency, advanced security, and 
increased levels of availability and operational efficiency . . . 
.'' See Letter from Jeffrey S. Mooney, Division of Trading and 
Markets, Securities and Exchange Commission to Charles Cascarilla 
and Daniel Burstein, Paxos Trust Company, LLC re: Clearing Agency 
Registration Under Section 17A(b)(1) of the Securities Exchange Act 
of 1934 (October 28, 2019), https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf. The Exchange 
believes such benefits may be generally relevant to future potential 
applications of blockchain technology.
    \40\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In the event of any disruption to the BSTX Market Data Blockchain 
or a BSTX Participant's access to the BSTX Market Data Blockchain, 
there would be no impact on the ability of market participants to trade 
Securities, which the Exchange believes furthers the protection of 
investors and the public interest, consistent with Section 6(b)(5) of 
the Exchange Act.\41\ There would also be no disruption in the 
distribution of market data related to Securities because the BSTX 
Market Data Blockchain operates as a separate and distinct service of 
the Exchange.
---------------------------------------------------------------------------

    \41\ Id.
---------------------------------------------------------------------------

Trading Securities on Other National Securities Exchanges
    Securities would be eligible for trading on other national 
securities exchanges that extend UTP to them, other than with respect 
to Thinly Traded Securities as discussed below in Part II.H. As 
described above in Part II.E, Securities would be held in ``street 
name'' at DTC, have a CUSIP number, and would clear and settle through 
the facilities of a clearing agency registered with the SEC (i.e., NSCC 
and DTC respectively). As a result, Securities would be able to trade 
on other exchanges and OTC in the same manner as other NMS stock. 
Accordingly, other exchanges would generally be able to extend UTP to 
Securities in accordance with Commission rules. The BSTX Market Data 
Blockchain would not

[[Page 29640]]

impact the ability of Securities to trade on other exchanges or OTC.
Qualifying Thinly Traded Securities Trading Only on BSTX
    The Exchange proposes to suspend UTP in Securities that meet the 
proposed definition of a ``Thinly Traded Security'' in order to 
concentrate displayed liquidity for such Securities, make market making 
in such securities more attractive, and thereby improve the market 
quality for such Securities. As proposed, Thinly Traded Securities 
would still be able to trade OTC, but would not be eligible for trading 
on another national securities exchange for as long as the Security 
meets the definition of a Thinly Traded Security, described below.
    The Commission, Commission staff, the U.S. Department of 
Treasury,\42\ academics, and a broad spectrum of market participants 
have recognized that ``the current `one-size-fits-all' equity market 
structure, as largely governed under Regulation NMS, may not be optimal 
for thinly traded securities'' \43\ and that ``more needs to be done to 
promote liquidity and to improve the listing and trading environment 
for thinly traded stocks.'' \44\ The Commission noted that the 
``secondary market for thinly traded securities faces liquidity 
challenges that can have a negative effect on both investors and 
issuers traded securities faces liquidity challenges that can have a 
negative effect on both investors and issuer'' including ``wider 
spreads and less displayed size relative to securities that trade in 
greater volume, often resulting in higher transaction costs for 
investors.'' \45\ These concerns have been echoed in statements by 
former Commission Chairman Jay Clayton,\46\ former Director of the 
Division of Trading and Market Brett Redfearn,\47\ the Commission's 
Small Business Advisory Committee \48\ and demonstrated through 
empirical analyses by the Division of Trading and Market's Office of 
Analytics and Research (``OAR'') \49\ and academics.\50\
---------------------------------------------------------------------------

    \42\ See U.S. Department of the Treasury, ``A Financial System 
That Creates Economic Opportunities: Capital Markets'' (October 
2017), https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-MarketsFINAL-FINAL.pdf 
(``Treasury Report'').
    \43\ Commission Statement on Market Structure Innovation for 
Thinly Traded Securities (Oct. 17, 2019), 84 FR 56956 (Oct. 24, 
2019) (``Commission Statement on Thinly Traded Securities'').
    \44\ See Division of Trading and Markets, Commission, 
``Background Paper on the Market Structure for Thinly Traded 
Securities,'' at 9 (Oct. 17, 2019), https://www.sec.gov/rules/policy/2019/thinly-traded-securities-tm-background-paper.pdf (``TM 
Background Paper'') (summarizing the views of certain participants 
in the Commission staff's Roundtable on the Market Structure for 
Thinly Traded Securities in April 2018).
    \45\ Commission Statement on Thinly Traded Securities at 56956.
    \46\ ``Illiquidity hampers [thinly-traded issuers] in many 
areas, including in their ability to raise additional capital, 
obtain research coverage, engage in mergers and acquisitions, and 
hire and retain personnel.'' Chairman Jay Clayton, Commission, 
Equity Market Structure 2019: Looking Back & Moving Forward, Remarks 
at Gabelli School of Business, Fordham University, New York, New 
York (March 8, 2019) (``2019 Market Structure Remarks''), https://www.sec.gov/news/speech/clayton-redfearn-equity-market-structure-2019.
    \47\ ``I believe there are serious questions, however, about 
whether the current market structure that works relatively well for 
very active stocks is optimal for thinly traded securities.'' Brett 
Redfearn, Director of the Division of Trading and Markets, 
Commission, Modernizing U.S. Equity Market Structure (June 22, 2020) 
(``2020 Market Structure Remarks''), https://www.sec.gov/news/speech/clayton-redfearn-modernizing-us-equity-market-structure-2020-06-22.
    \48\ Advisory Committee on Small and Emerging Companies, 
Commission, Recommendation Regarding Separate U.S. Equity Market for 
Securities of Small and Emerging Companies (February 1, 2013) 
(generally finding that the U.S. equity markets frequently fail to 
offer a satisfactory trading venue for small and emerging companies, 
which (i) has discouraged initial public offerings of the securities 
of such companies, (ii) undermines entrepreneurship, and (iii) 
weakens the broader U.S. economy), https://www.sec.gov/info/smallbus/acsec/acsecrecommendation-032113-emerg-co-ltr.pdf.
    \49\ Division of Trading and Markets, Commission, ``Empirical 
Analysis of Liquidity Demographics and Market Quality,'' (April 10, 
2018) (``OAR Report''), https://www.sec.gov/files/thinly_traded_eqs_data_summary.pdf (finding, among other things, 
that thinly traded securities (i) had, on average, fewer exchanges 
quoting at the national best bid or national best offer than more 
actively traded securities; (ii) had quoted depths at the inside 
(i.e., the volume of shares available at the highest bid and lowest 
offer) were smaller and quoted spreads (i.e., the difference between 
bid and offer prices) and relative quoted spreads were greater for 
these thinly traded securities relative to more actively traded 
securities; and (iii) likely face a trading environment with less 
market making activity at the inside (i.e., the highest bid and 
lowest offer) or in larger order size, which may make finding a 
counterparty to execute a particular trade more difficult). See also 
TM Background Paper at 2-3 (summarizing the findings from the OAR 
Report).
    \50\ See e.g., TM Background Paper at 6-7 (noting that ``the 
economic literature in this area [of liquidity and trading volume] 
has consistently documented that stocks with lower trading volume 
tend to have higher transaction costs'' and ``[n]umerous studies 
have found evidence linking lower liquidity to lower stock prices, 
which suggests that diminished liquidity may also impact stock 
prices. These analyses show that investors must be paid a premium in 
order to hold less liquid stocks. Consequently, thinly traded 
securities may have lower stock prices due to diminished 
liquidity.'') (internal citations omitted).
---------------------------------------------------------------------------

    A frequently discussed potential solution to these liquidity and 
poor market quality issues facing thinly traded securities has been the 
suspension of UTP for such securities, allowing for displayed liquidity 
to be concentrated on a single exchange.\51\ Indeed, as former Chairman 
Jay Clayton noted, the Commission's Statement on Market Structure 
Innovation for Thinly Traded Securities specifically invites ``market 
participants to submit innovative proposals designed to improve the 
secondary market for thinly traded securities, including, in connection 
with such proposals, requests to suspend or terminate unlisted trading 
privileges, known as UTP.'' \52\ In response to the Commission's call 
and to improve the market quality for thinly traded securities, the 
Exchange proposes a suspension of UTP for qualifying ``Thinly Traded 
Securities,'' as detailed further below.
---------------------------------------------------------------------------

    \51\ See e.g., Treasury Report at 60 (``Treasury recommends that 
issuers of less-liquid stocks, in consultation with their 
underwriter and listing exchange, be permitted to partially or fully 
suspend UTP for their securities and select the exchanges and venues 
upon which their securities will trade.''); 2019 Market Structure 
Remarks, at n.13 (noting that several panelists on the Roundtable on 
Market Structure for Thinly-Traded Securities, supported the 
approach of limiting unlisted trading privileges, with some 
suggesting going even farther and considering whether Regulation NMS 
rules should be eliminated in this segment of the market).
    \52\ 2020 Market Structure Remarks. See also Commission 
Statement on Thinly Traded Securities at 56957 (``[t]herefore, for 
thinly traded securities, the Commission is interested in 
considering proposals for market structure innovations in 
conjunction with the potential suspension or termination of UTP and/
or the possibility of exemptive relief from Regulation NMS and other 
rules under the Exchange Act.'').
---------------------------------------------------------------------------

Thinly Traded Securities Defined
    The Exchange proposes in Rule 25150(a) to define ``Thinly Traded 
Securities'' as a Security \53\ of an operating company that meets 
certain market capitalization and average daily volume of trading 
(``ADV'') requirements. The Exchange proposes two separate, but 
similar, types of eligibility criteria depending on if a Security has 
been publicly traded for at least six months or if the Security is just 
beginning to trade publicly (i.e., publicly traded for less than six 
months). Specifically, the Exchange proposes that a Security that has 
been publicly traded for at least six months shall be considered a 
Thinly Traded Security if the Security has (i) market capitalization of 
less than $1 billion, and (ii) an average daily volume of trading of 
100,000 shares or less during at least four (4) of the preceding six 
(6) calendar months (``Ongoing Eligibility Criteria''). For a Security 
that has not been publicly traded for at least six months, the Exchange 
proposes that a Security shall be considered a Thinly Traded Security 
if during the first three

[[Page 29641]]

(3) months of public trading in the Security, the Security has a (i) 
market capitalization of less than $1 billion, and (ii) an average 
daily volume of trading of 100,000 shares or less (``Initial 
Eligibility Criteria'').
---------------------------------------------------------------------------

    \53\ The Exchange proposes to define a ``Security'' to mean a 
NMS stock, as defined in Rule 600(b)(47) of the Exchange Act, 
trading on the BSTX System. See proposed Rule 17000(a)(31).
---------------------------------------------------------------------------

Thinly Traded Security Criteria Thresholds
    The Exchange believes that the criteria of a market capitalization 
of less than $1 billion and an ADV of 100,000 shares or less are 
appropriate thresholds to determine whether a security is thinly 
traded. The ADV requirement is the primary indicator of whether a 
security is thinly traded as it helps indicate how much liquidity there 
is in a stock and the relative ease through which an investor may get 
into and out of positions in that stock. The Commission staff's OAR 
Report found that NMS stocks with ADV of less than 100,000 ``face a 
trading environment with less market making activity at the inside 
(i.e., the highest bid and lowest offer) or in larger order size, which 
may make finding a counterparty to execute a particular trade more 
difficult.'' The OAR Report also found, among other things, that NMS 
stocks with an ADV of less than 100,000: (i) Have on average, fewer 
exchanges quoting at the national best bid or offer (``NBBO''); (ii) 
more volume executing away from exchange venues indicating that 
exchange venues are a relatively less attractive venue for executions 
in such securities; and (iii) have a smaller number of block trades 
than more actively traded securities.\54\ The Treasury Report also 
recommended the use of ADV as a simple approach ``to differentiate 
between liquid and illiquid stocks.'' \55\ Accordingly, the Exchange 
believes that a threshold of an ADV of trading at or below 100,000 is 
appropriate because it would limit the Securities for which UTP is 
suspended only to those Securities that are in fact thinly traded and 
for which the Commission's OAR found concerns with respect to market 
quality relative to more widely-traded securities.\56\
---------------------------------------------------------------------------

    \54\ See OAR Report and TM Background Paper at 2.
    \55\ Treasury Report at 60.
    \56\ The Exchange notes that OAR's criteria used an ADV of less 
than 100,000 shares while the Exchange proposes to use a criteria of 
100,000 shares or less. The Exchange believes that this de minimis 
difference is immaterial.
---------------------------------------------------------------------------

    The Exchange believes that it is also appropriate to set a maximum 
market capitalization threshold for Thinly Traded Securities to ensure 
that the suspension of UTP (discussed below) is limited to small, 
thinly traded companies. The Exchange believes that companies with a 
market capitalization greater than $1 billion may be more likely to 
have or soon have an ADV above 100,000 shares. The OAR Report indicates 
that the median market capitalization for common stocks with an ADV 
between 50,000 to 100,000 shares is $313 million.\57\ This same figure 
for common stocks with an ADV above 100,000 shares is $1.313 
billion.\58\ Accordingly, the Exchange believes that most, if not all, 
stocks that have an ADV of 100,000 shares or less will also have a 
market capitalization of less than $1 billion. The primary purpose of 
the market capitalization threshold is therefore to limit the 
availability of Thinly Traded Security status to smaller issuers and 
remove companies whose securities may soon reach an ADV of more than 
100,000.
---------------------------------------------------------------------------

    \57\ OAR Report at 4.
    \58\ Id.
---------------------------------------------------------------------------

    The Exchange proposes to set forth how it will calculate market 
capitalization in proposed Rule 25150(a)(4). For Ongoing Eligibility 
Criteria, market capitalization would be determined as the product of 
(a) the number outstanding shares of the Security as reported in the 
most recent quarterly or annual report of the company; and (b) the 
average closing price of the Security over the preceding six (6) full 
calendar months. For Initial Eligibility Criteria, market 
capitalization would be determined as the product of (a) the number of 
outstanding shares of the Security as reported in the most recent 
quarterly or annual report of the company; and (b) the average closing 
price of the Security over the first three months during which the 
Security has been publicly traded. The Exchange believes that this is a 
standard method for calculating the market capitalization of a 
security.
    Average daily volume would be measured in accordance with the terms 
of the proposed Rules--e.g., for Ongoing Eligibility Criteria, the 
analysis would be the average daily share volume of trading in the 
Security over the preceding six months of trading to determine whether 
the ADV is 100,000 shares or less for four out of those six months. The 
Exchange believes the use of a look back of four out of the previous 
six months is a reasonable approach to determine whether a stock is 
thinly traded and is similar to other mechanisms used in Commission 
rules to evaluate differing regulatory treatment.\59\ Under this 
formulation, a Security could have an ADV that exceeded 100,000 shares 
in up to two of the previous six months, but would be required to 
continuously meet the requirement of an ADV at or below 100,000 shares 
for four of the preceding six months on a rolling basis.
---------------------------------------------------------------------------

    \59\ See e.g., 17 CFR 242.301(b)(5) (regarding the triggering of 
fair access requirements under Regulation ATS) and 17 CFR 242.1000 
(defining a SCI ATS with reference to the volume of its trading.
---------------------------------------------------------------------------

Thinly Traded Exchange Traded Products
    Importantly, the Exchange proposes to limit the availability of 
Thinly Traded Security status to operating companies. This means that 
an ETP that is a Security would not be eligible to be considered a 
Thinly Traded Security even if it otherwise meets the criteria. The 
Exchange proposes to exclude ETPs from eligibility because ETPs, even 
those with an ADV of 100,000 shares or less, do not necessarily have 
the same problems of a lack of liquidity as thinly traded shares of an 
operating company. For example, participants in the Commission's 
Roundtable on Market Structure for Thinly-Traded Securities (the 
``Roundtable'') noted that ``as opposed to a corporate stock, an ETP 
that is thinly traded may still be highly liquid, and that therefore 
the level of secondary market trading does not correlate as closely 
with liquidity as it does for corporate stocks.'' \60\ Given that the 
purpose of the Exchange's proposal with respect to Thinly Traded 
Securities is to improve liquidity and market quality for small 
issuers, the Exchange believes that it is appropriate to exclude ETPs 
that, while perhaps thinly traded, do not appear to suffer from the 
same liquidity issues as those faced by the securities of thinly traded 
operating companies.
---------------------------------------------------------------------------

    \60\ Background Paper at 19. Other Roundtable participants 
similarly noted that ``. . . as a practical matter, ETPs have 
`unlimited liquidity' and an ETP can be both thinly traded and very 
liquid at the same time.'' Id.
---------------------------------------------------------------------------

Initial and Ongoing Criteria
    As described above, the Exchange proposes different sets of 
criteria to become a Thinly Traded Security depending on how long a 
Security has been publicly traded. As proposed, the earliest in time 
that a Security could become eligible for status as a Thinly Traded 
Security (and therefore eligible for suspension of UTP, as discussed 
below) would be three months after the initial public offering of the 
Security. The Exchange believes that every Security that undergoes an 
initial public offering should initially be available for UTP because 
there is no way to determine a priori whether or not a Security will be 
thinly traded. Only after there is some empirical evidence based on the 
first three months of public trading that a Security appears to be

[[Page 29642]]

thinly traded would the Security become eligible.
    The Exchange proposes in Rule 25150(a)(3) that a Security that 
becomes a Thinly Traded Security under the Initial Eligibility Criteria 
would be considered a Thinly Traded Security until it has been publicly 
traded for at least six months, at which time the Security would have 
to meet the Ongoing Eligibility Criteria. In effect, the Exchange 
proposes that a Security that meets the Initial Eligibility Criteria 
would be deemed to meet such criteria until it has been publicly traded 
for long enough to determine whether it meets the Ongoing Eligibility 
Criteria. The Exchange notes that any suspension of UTP, as discussed 
further below, would not be effective for at least thirty days after 
publication of a rule filing with the Commission in the Federal 
Register. As a result, a Security that meets the Initial Eligibility 
Criteria for the first three months that it trades publicly could only 
have UTP suspended at the earliest at the commencement of month four 
and more likely at the four and one half month mark.\61\ Thus, a 
Security that meets the Initial Eligibility Requirements and for which 
UTP was suspended would be deemed to be a Thinly Traded Security for 
1.5 to two months before it would have to meet the Ongoing Eligibility 
Criteria.
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    \61\ After a seven business day review period during which the 
Commission may reject a rule filing submitted by the Exchange under 
certain circumstances (15 U.S.C. 78s(b)(10)), the Commission must 
publish a proposed rule change by the Exchange within 15 days after 
the initial submission by the Exchange to the Commission (15 U.S.C. 
78s(b)(2)(E)). As a result, a rule filing seeking suspension of UTP 
for a qualifying Thinly Traded Security would likely only be 
published in the Federal Register at the earliest after the Security 
had been trading for 3.5 months and the suspension of UTP would only 
commence thirty days thereafter (i.e., after the Security had traded 
for 4.5 months). Suspension of UTP would then last for a minimum of 
1.5 months, at which time, the Security would need to meet the 
Ongoing Eligibility requirements to continue to have UTP continue to 
be suspended.
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    The Exchange believes that this approach of initially allowing a 
Security to be eligible for UTP promotes consistency with Section 
6(b)(5) of the Exchange Act \62\ by helping to perfect the mechanism of 
a free and open market and by promoting just and equitable principles 
of trade. Specifically, the Exchange believes that companies engaged in 
an initial public offering should not have UTP suspended until it can 
be determined whether those shares have an ADV of 100,000 shares or 
less and market capitalization of less than $1 billion, thereby 
ensuring that IPOs resulting in a high ADV or market capitalization are 
freely and openly available on all venues and equitably available on 
other exchange venues. The Exchange believes that three months is a 
sufficient amount of time to determine whether a Security that recently 
underwent its IPO is thinly traded given that interest in a Security is 
likely to be highest around the time of its IPO in connection with 
underwriter's selling efforts and the media attention that often 
accompanies an IPO. Thus, if a Security has an ADV of 100,000 shares or 
less during its first three months of trading despite this time period 
being among the most likely to have the highest market interest in the 
Security, the Security is likely to benefit from a suspension of UTP. 
The Exchange therefore proposes the Initial Eligibility Criteria as an 
early on-ramp to the suspension of UTP for a Security that has not yet 
traded for a full four to six months to be able to determine whether it 
meets the Ongoing Eligibility Criteria.
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    \62\ 15 U.S.C. 78f(b)(5).
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Suspension of Unlisted Trading Privileges
    As noted above, the Exchange proposes that a Security that 
qualifies as a Thinly Traded Security would be eligible for a 
suspension of UTP. The Exchange proposes that an issuer of a qualifying 
Thinly Traded Security would have to affirmatively request in writing 
that UTP be suspended. The Exchange believes that issuers should be 
empowered to make the decision as to whether UTP should be suspended 
with respect to the issuer's Thinly Traded Security.
    Thereafter, in order to effectuate a suspension of UTP and to 
provide notice to market participants of the suspension of UTP, the 
Exchange would submit an immediately effective rule filing pursuant to 
Section 19(b)(3)(A) of the Exchange Act,\63\ with the effectiveness of 
such suspension of UTP occurring at least 30 calendar days after 
publication of the rule filing in the Federal Register.\64\ Conversely, 
when a Security no longer meets the definition of a Thinly Traded 
Security under the Exchange's Rules, the Exchange would similarly 
submit a rule filing pursuant to Section 19b(b)(3)(A) within 14 
calendar days of the Thinly Traded Security no longer qualifying as a 
Thinly Traded Security (and therefore no longer eligible to have UTP 
suspended).\65\ The resumption of UTP with respect to the former Thinly 
Traded Security would be effective upon publication of the rule filing 
in the Federal Register.
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    \63\ 15 U.S.C. 78s(b)(3)(A).
    \64\ See proposed Rule 25150(b)(1).
    \65\ See proposed Rule 25150(b)(2).
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    The Exchange believes that these rule filings to effectuate the 
suspension of UTP would be appropriately filed pursuant to Section 
19(b)(3)(A) and Rule 19b-4(f) thereunder as a stated policy, practice, 
or interpretation with respect to the meaning, administration, or 
enforcement of an existing rule.\66\ Specifically, the proposed rule 
change would provide notice of the Exchange's upcoming enforcement of 
proposed Rule 25150 to suspend UTP (or remove a suspension of UTP) with 
respect to a qualifying Thinly Traded Security.
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    \66\ 15 U.S.C. 78s(b)(3)(A). 17 CFR 240.19b-4(f)(1).
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    The Exchange believes that exchanges are readily capable of 
suspending trading in a security that is currently traded on their 
exchange. Exchanges need and provide for the ability to suspend trading 
in securities on their exchange for regulatory halts, triggering of 
market wide or single stock circuit breakers, and to comply with the 
Commission's authority to order a trading halt pursuant to Section 
12(k) of the Exchange Act.\67\ Accordingly, the Exchange believes that 
voluntarily delaying the implementation of the suspension of UTP by 30 
calendar days will provide other exchanges and market participants with 
adequate notice and sufficient time to prepare for a suspension of UTP 
in the relevant Thinly Traded Security. The Exchange also believes that 
exchanges are also readily capable of extending UTP to a Security that 
is not currently traded on the exchange.\68\ Accordingly, the Exchange 
believes that other exchanges would be able to extend UTP to a Security 
for which the suspension of UTP is lifted shortly after the 
effectiveness of the rule filing providing notice of a resumption in 
UTP with respect to the Security.
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    \67\ 15 U.S.C. 78l(k).
    \68\ For example, in November 2000, the Commission adopted 
amendment to Rule 12f-2 lifting a limitation that previously 
prevented an exchange from extending UTP until the day after trading 
commenced on the primary listing exchange. See Exchange Act Release 
No. 43217, 65 FR 53560 (Sept. 5, 2000).
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    The Exchange recognizes that suspending UTP and making BSTX the 
only national securities exchange on which a Thinly Traded Security 
trades would increase both the relative importance of BSTX as a trading 
venue for such Thinly Traded Security and the disruption that might 
arise if access to BSTX were somehow disrupted. Accordingly, the 
Exchange proposes to run a live, parallel system in addition to the 
Exchange's primary system supporting trading in any Thinly Traded

[[Page 29643]]

Securities for which UTP has been suspended in order to guard against a 
potential disruption in trading access. The Exchange would maintain the 
ability to automatically fail over to the other live or ``hot'' 
parallel system in the event of any disruption to the primary system.
    In addition, because Thinly Traded Securities would no longer trade 
on other exchanges via UTP at the election of an issuer and a 
determination by the Exchange that the Security qualifies as a Thinly 
Traded Security, the Exchange plans to remove quotation and trading 
activity in Thinly Traded Securities from the revenue allocation 
formulas of the appropriate NMS plan for consolidated market data 
through an amendment to such plan(s).\69\ The Exchange believes that it 
would be appropriate to exclude such Thinly Traded Securities from the 
revenue allocation formula so that the Exchange does not receive undue 
compensation from the NMS plan for consolidated market data arising 
from the Thinly Traded Securities. The existing and proposed revenue 
allocation formulas apportion revenues from the NMS plan in part based 
on the amount of trading and quoting occurring on each exchange in 
``Eligible Securities'' as defined under the NMS plan.\70\ As a result, 
BSTX might receive additional profits under the revenue allocation 
formula if Thinly Traded Securities were not excluded from ``Eligible 
Securities'' given that BSTX would be the only venue able to quote and 
trade Thinly Traded Securities.
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    \69\ The Exchange notes that certain exchanges have challenged 
the Commission's May 6, 2020, order directing the self-regulatory 
organizations to develop a new NMS plan for consolidated market 
data. Exchange Act Release No. 88827 (May 5, 2020), 85 FR 28702 (May 
13, 2020). The Exchange would seek to amend the new NMS plan or the 
existing NMS plans as appropriate.
    \70\ See e.g., Exchange Act Release No. 90096 (Oct. 6, 2020), 85 
FR 64565, Exhibit D (Oct. 13, 2020) https://www.sec.gov/rules/sro/nms/2020/34-90096.pdf.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to make available each month 
anonymized trade and quotation data relating to Thinly Traded 
Securities to regulators, academics, and others requesting such market 
data from the Exchange for the purpose of studying the effects of the 
suspension of UTP. The Exchange intends to additionally perform its own 
analysis on the impact of the suspension of UTP for Thinly Traded 
Securities to evaluate its efficacy. The Exchange will evaluate market 
quality for Thinly Traded Securities across a variety of metrics 
including an analysis of: (i) Relative trading volumes on BSTX versus 
OTC; (ii) improvements in ADV; (iii) changes in quotation size; (iv) 
changes in the depth of liquidity; (v) changes in spreads (quoted 
spread and realized spread); and (vi) changes in trade size. The 
Exchange will perform this analysis at least annually (provided there 
is sufficient sample data from the preceding year) and make public its 
findings with respect to how the market for Thinly Traded Securities 
has changed as a result of the suspension of UTP.
Request for Exemptive Relief
    The Exchange believes that it is in the public interest and 
consistent with protection of investors, pursuant to Section 6(b)(5) of 
the Exchange Act,\71\ as well as in furtherance of the perfection of a 
free and open market and national market system to suspend UTP under 
this proposal with respect to Thinly Traded Securities to improve 
liquidity and overall market quality for such Securities. Consistent 
with the Department of the Treasury's recommendations, the Exchange 
believes that ``[c]onsolidating trading to fewer venues would simplify 
the process of making markets in those stocks and thereby encourage 
more market makers to provide more liquidity in those issues.'' \72\ 
Also consistent with the Department of the Treasury's recommendations, 
the Exchange proposes that there be no limitation on trading OTC in 
order ``maintain a basic level of competition for execution'' and that 
an issuer would be provided a choice as to whether its qualifying 
Thinly Traded Security have UTP suspended.\73\
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78f(b)(5).
    \72\ Treasury Report at 60.
    \73\ Id.
---------------------------------------------------------------------------

    In addition, the Exchange believes that, consistent with the OAR 
Report which found that NMS stocks with an ADV of less than 100,000 
shares experience more trading on off-exchange venues than on-exchange 
and have less quoted depth at the inside of the market, much of the 
poor market quality is attributable to deficiencies in displayed 
quotations of Thinly Traded Securities. As a result the Exchange 
believes that it is appropriate to suspend trading on other exchanges--
i.e., other venues displaying liquidity--in order to concentrate 
displayed liquidity on a single exchange, while still allowing trading 
to occur in the OTC market.
    The Exchange does not believe that the suspension of UTP for Thinly 
Traded Securities will impose a burden on competition not necessary or 
appropriate in furtherance of the Exchange Act \74\ because other 
exchanges could similarly be granted a suspension of UTP for qualifying 
thinly traded securities listed on their markets. Exchanges can compete 
with each other in attracting issuers of thinly traded securities to be 
singly-listed and traded on their respective exchanges. Exchanges would 
still be able to compete with one another for listings and the market 
for all thinly traded securities could be improved. Moreover, if the 
suspension of UTP has the desired effect of improving the overall 
liquidity of a Thinly Traded Security, such Security should hopefully 
exceed the 100,000 share ADV or $1 billion market capitalization 
thresholds and become available for UTP, thus removing any barrier to 
competition once the purpose for which the suspension of UTP was 
initiated has been fulfilled.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Similarly, consistent with Section 6(b)(5) of the Exchange Act,\75\ 
the Exchange believes that the proposed suspension of UTP for Thinly 
Traded Securities would not permit unfair discrimination between 
customers, issuers, brokers or dealers, because the suspension is for 
the purpose of furthering the regulatory objective of improving market 
quality for securities that are thinly traded. Although non-Thinly 
Traded Securities would not be able to have UTP suspended, this 
discriminatory treatment is not ``unfair'' given the substantial public 
interest, as demonstrated through the Commission's statements and by 
market participants at the Roundtable, in improving market conditions 
for thinly traded securities. The Exchange believes that the proposed 
suspension of UTP would help protect investors and the public interest, 
consistent with Section 6(b)(5), by concentrating displayed liquidity 
on a single venue, thereby providing greater incentives for market 
makers in Thinly Traded Securities and in turn making it easier for 
investors to buy and sell shares of Thinly Traded Securities. The 
Exchange believes that there is a general consensus among members of 
Commission staff, former Commissioners (including former Chairman Jay 
Clayton), the Department of the Treasury, and market participants, as 
well as empirical evidence, making clear that operating company stocks 
with an ADV of less than 100,000 shares suffer significant liquidity 
and market quality challenges not faced by stocks with greater trading 
volume. It is for this reason, the Exchange believes, that the 
Commission specifically solicited requests from

[[Page 29644]]

exchanges for innovative approaches to improve the market for thinly 
traded securities, including requests for suspension of UTP.\76\
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78f(b)(5).
    \76\ Commission Statement on Thinly Traded Securities at 56956.
---------------------------------------------------------------------------

    Accordingly, the Exchange plans to submit an application for the 
suspension of UTP for Thinly Traded Securities, as described above, to 
the Commission pursuant to Rule 12f-3 of the Exchange Act, which rule 
allows issuers, broker-dealers who make markets in a security admitted 
to UTP, ``or any other person having a bona fide interest in the 
question of termination or suspension of such unlisted trading 
privileges'' to submit an application for the suspension of UTP 
consistent with certain specified requirements.\77\ The Exchange 
believes that there is good cause for the suspension of UTP to promote 
efficiency, competition, and capital formation \78\ by facilitating the 
trading of Thinly Traded Securities in a manner that addresses 
structural market quality challenges in today's markets for such 
securities.
---------------------------------------------------------------------------

    \77\ 17 CFR 240.12f-3.
    \78\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

Ability for BSTX Participants To Include a Parameter for a Preference 
for Settlement of Transactions in Securities Faster Than T+2
    As described above in Section II.E.5., BSTX believes that NSCC 
already has authority under its rules, policies and procedures to clear 
certain trades on a T+1 or T+0 basis, which are shorter settlement 
cycles than the longest settlement cycle of T+2 that is generally 
permitted under SEC Rule 15c6-1 for a security trade that involves a 
broker-dealer.\79\ Furthermore, BSTX understands that NSCC does already 
clear trades in accordance with this authority.
---------------------------------------------------------------------------

    \79\ See supra note 28.
---------------------------------------------------------------------------

    The Exchange proposes that BSTX Participants would be able to 
include in their orders in Securities that are submitted to BSTX 
certain parameters to indicate a preference for settlement on a same 
day (T+0) or next trading day (T+1) basis when certain conditions are 
met.\80\ Any such orders would at the time of order entry represent 
orders that would be regular-way and would be presumed to settle on a 
T+2 basis just like any other order submitted by a BSTX Participant 
that does not include a parameter indicating a preference for faster 
settlement. As described in greater detail below, however, orders in a 
Security that include a parameter indicating a preference for 
settlement on a T+0 basis (``Order with a T+0 Preference'') or on a T+1 
basis (``Order with a T+1 Preference'') would only result in executions 
that would actually settle more quickly than on a T+2 basis if, and 
only if, all of the conditions in Rule 25060(h) are met and the 
execution that is transmitted to NSCC is eligible for T+0 or T+1 
settlement under the rules, policies and procedures of a registered 
clearing agency.\81\ Any such preference included by a BSTX Participant 
would only become operative if the order happens to execute against 
another order from a BSTX Participant that also includes a parameter 
indicating a preference for settlement on a T+0 or T+1 basis, as 
described in more detail below. This means that at the time of order 
entry all orders in Securities would be regular way orders that would 
be presumed to settle on a T+2 basis. Faster settlement consistent with 
the rules, policies and procedures of a registered clearing agency 
would occur if and only if two orders execute against each other in a 
manner that meets the conditions in Rule 25060(h).
---------------------------------------------------------------------------

    \80\ See proposed Rule 25060(h).
    \81\ See proposed Rule 25100(d).
---------------------------------------------------------------------------

    As proposed, an Order with a T+0 Preference will execute against 
any order against which it is marketable with settlement occurring on a 
standard settlement cycle (T+2) except where: (i) The Order with a T+0 
Preference executes against another Order with a T+0 Preference, in 
which case settlement shall occur on the trade date, or (ii) the Order 
with a T+0 Preference executes against an Order with a T+1 Preference, 
in which case settlement shall occur the next trading day after the 
trade date (i.e., T+1). Similarly, as proposed, an Order with a T+1 
Preference will execute against any order against which it is 
marketable with settlement occurring on a standard settlement cycle 
(T+2) except where: (i) The Order with a T+1 Preference executes 
against another Order with a T+1 Preference or an Order with a T+0 
Preference, in which case settlement occurs on the next trading day 
after the trade date (i.e., T+1). In all cases, an order not marked 
with a preference for either T+0 or T+1 settlement would be assured 
under the settlement timing logic in proposed Rule 25060(h) of 
settlement on T+2. The possibility of a shortened settlement time would 
have no impact on the Exchange's proposed price time priority structure 
for order matching.\82\
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    \82\ For example, assume Order A is marked as an Order with a 
T+0 Preference and it is sent to BSTX and is marketable against both 
resting Order B (standard T+2 settlement, with time priority over 
Order C) and resting Order C (marked as an Order with a T+0 
Preference but with priority second to that of Order B). Order A 
will interact first with Order B, notwithstanding that Order C is 
also marketable against Order A and is also marked as an Order with 
a T+0 Preference.
---------------------------------------------------------------------------

    As a result of this structure, all orders in Securities would be 
eligible to match and execute against any order against which they are 
marketable with settlement to occur at the later settlement date of any 
two matching orders. Only where an Order with a T+1 Preference or an 
Order with a T+0 Preference match with another Order with a T+1 
Preference or Order with a T+0 Preference will those orders (or 
matching portions thereof) be eligible to settle more quickly than the 
standard settlement cycle of T+2. As previously noted in Part II.E, the 
Exchange believes that the clearance and settlement processes at NSCC 
and DTC are already capable of facilitating such shortened settlement 
times.
    The Exchange believes that facilitating shorter settlement cycles 
as permitted under the rules, policies, and procedures of a registered 
clearing agency is consistent with Section 6(b)(5) of the Exchange Act 
\83\ because it is in the public interest and furthers the protection 
of investors as well as helps perfect the mechanism of a free and open 
market and the national market system. Specifically, the Exchange 
believes that BSTX Participants have an interest in being able to 
access risk-reducing market functionality that is presently available 
and compatible with market structure, such as shorter settlement 
cycles, and that this can reduce costs for market participants settling 
trading obligations in that Security and reduce settlement risk. For 
example, market participants settling trades in a Security on a T+2 
basis must post margin collateral to NSCC for two trading days. The 
margin collateral cannot otherwise be used until settlement on T+2. In 
addition, by shortening the timing of settlement from T+2 to T+1 or 
T+0, the risk horizon for a potential default in settling the trade is 
correspondingly shortened as well. This means that market participants 
engaged in a transaction settling transactions on shorter settlement 
cycles than T+2 receive the benefits of not having to encumber 
collateral assets for as long and facing a shorter period of settlement 
risk. The Exchange believes that these benefits in turn free up assets 
to be used elsewhere in financial markets, thereby helping to promote 
the efficient allocation of capital and perfecting the mechanism of a 
free and

[[Page 29645]]

open market.\84\ All else being equal, the Exchange believes that a 
BSTX participant may find that between two otherwise identical stocks, 
one for which it may be able to settle the transaction more quickly is 
more attractive than one that settles over a longer duration and 
potentially requires collateral to be held for a longer period.
---------------------------------------------------------------------------

    \83\ 15 U.S.C. 78(f)(b)(5).
    \84\ Id.
---------------------------------------------------------------------------

    The Exchange notes that the proposed potential for shortened 
settlement timing for an Order with a T+0 Preference or an Order with a 
T+1 Preference will in no way impact or prevent any market participant 
that desires to effect a trade in a Security on BSTX from doing so. 
This is because under proposed Rule 25060(h), any Order with a T+1 
Preference or Order with a T+0 Preference will continue to interact 
with any other order in the Security against which it is marketable 
(including any order in the Security that does not include a parameter 
indicating a preference for settlement faster than T+2) and a resulting 
execution will always settle using the latest settlement timing 
associated with two matching orders. Accordingly, non-BSTX Participants 
seeing a quote in a Security on BSTX will remain able to execute 
against that quote posted on BSTX even if that quote includes a latent 
parameter for a preference for T+0 or T+1 settlement where consistent 
with the rules, policies and procedures of a registered clearing 
agency. In this way, the Exchange believes that the proposal is fully 
compatible with the current market structure and would help perfect the 
mechanism of a free and open market by allowing for shorter settlement 
times than T+2 where consistent with the rules, policies and procedures 
of a registered clearing agency and where both parties to a transaction 
in a Security indicate a preference for faster settlement than T+2.
    Finally, because all orders in Securities submitted to BSTX would 
at the time of the order entry be presumed to settle on a regular way 
T+2 basis and would interact with any other order against which the 
order is marketable, the Exchange believes that Orders with a T+0 
Preference and Orders with a T+1 Preference would be considered 
``protected'' within the meaning of Rule 611 of the Exchange Act.\85\ 
Orders with a T+0 Preference and Orders with a T+1 Preference would not 
fall within the exception for protected quotation status set forth in 
Rule 611(b)(2) of the Exchange Act because they will only settle more 
quickly than T+2 where all of the conditions in Rule 25060(h) are met, 
as described above, where settlement faster than T+2 is consistent with 
the rules, policies and procedures of a registered clearing agency.\86\
---------------------------------------------------------------------------

    \85\ 17 CFR 242.611.
    \86\ 17 CFR 242.611(b)(2).
---------------------------------------------------------------------------

    In adopting amendments to SEC Rule 15c6-1 in 2017 to shorten the 
standard settlement cycle for most broker-dealer transactions in 
securities from T+3 to T+2, the Commission stated its belief that the 
shorter settlement cycle would have positive effects regarding the 
liquidity risks and costs faced by members in a clearing agency, like 
NSCC, that performs central counterparty \87\ (``CCP'') services, and 
that it would also have positive effects for other market participants. 
Specifically, the Commission stated its belief that the resulting 
``reduction in the amount of unsettled trades and the period of time 
during which the CCP is exposed to risk would reduce the amount of 
financial resources that the CCP members may have to provide to support 
the CCP's risk management process . . .'' and that ``[t]his reduction 
in the potential need for financial resources should, in turn, reduce 
the liquidity costs and capital demands clearing broker-dealers face . 
. . and allow for improved capital utilization.'' \88\ The Commission 
went on to state its belief that shortening the settlement cycle 
``would also lead to benefits to other market participants, including 
introducing broker-dealers, institutional investors, and retail 
investors'' such as ``quicker access to funds and securities following 
trade execution'' and ``reduced margin charges and other fees that 
clearing broker-dealers may pass down to other market participants[.]'' 
\89\ The Commission also ``noted that a move to a T+1 standard 
settlement cycle could have similar qualitative benefits of market, 
credit, and liquidity risk reduction for market participants[.]'' \90\ 
BSTX agrees with these statements by the Commission and has therefore 
proposed BSTX Rules 25060(h) and 25100(d) in a form that would promote 
the benefits of available, shorter settlement cycles.\91\
---------------------------------------------------------------------------

    \87\ See 17 CFR 240.17Ad-22(a)(2) (defining the term ``central 
counterparty'' to mean ``a clearing agency that interposes itself 
between the counterparties to securities transactions, acting 
functionally as the buyer to every seller and the seller to every 
buyer'').
    \88\ Exchange Act Release No. 80295 (March 22, 2017), 82 FR 
15564, 15570-71 (March 29, 2017).
    \89\ Id. at 15571.
    \90\ Id. at 15582.
    \91\ As described in this Part II.I, an order for a Security 
marked for T+0 or T+1 could still interact with any other order, 
including an order with the default T+2 settlement, with settlement 
to occur at the later of any two matched orders (e.g., if a T+1 
order matches with a T+2 order, the orders would settle T+2). Only 
where an order marked for a shorter settlement time matches with 
another order similarly marked would a shorter settlement time 
occur. Consequently, the proposed use of shorter settlement times 
would not adversely impact any market participant seeking T+2 
settlement in a transaction for a Security.
---------------------------------------------------------------------------

Proposed BSTX Rules
    The discussion in this Part III addresses the proposed BSTX Rules 
that would be adopted as Rule Series 17000 through 29000.
General Provisions of BSTX and Definitions (Rule 17000 Series)
    The Exchange proposes to adopt as its Rule 17000 Series (General 
Provisions of BSTX) a set of general provisions relating to the trading 
of Securities and other rules governing participation on BSTX. Proposed 
Rule 17000 sets forth the defined terms used throughout the BSTX Rules. 
The majority of the proposed definitions are substantially similar to 
defined terms used in other equities exchange rulebooks, such as with 
respect to the term ``customer.'' \92\ The Exchange proposes to set 
forth new definitions for certain terms to specifically identify 
systems, agreements, or persons as they relate to BSTX and as distinct 
from other Exchange systems, agreements, or persons that may be used in 
connection with the trading of other options on the Exchange.\93\ The 
Exchange also proposes to define certain unique terms relating to the 
trading of Securities, including the term ``Security'' itself \94\ and 
``Thinly Traded Securities,'' \95\ as well as for other features of 
BSTX such

[[Page 29646]]

as the ``BSTX Market Data Blockchain.'' \96\
---------------------------------------------------------------------------

    \92\ Proposed Rule 17000(a)(17) defines the term ``customer'' to 
not include a broker or dealer, which parallels the same definition 
in other exchange rulebooks. See e.g., IEX Rule 1.160(j). Similarly, 
the Exchange proposes to define the term ``Regular Trading Hours'' 
as the time between 9:30 a.m. and 4:00 p.m. Eastern Time. See 
proposed Rule 17000(a)(29) cf. IEX Rule 1.160(gg) (defining 
``Regular Market Hours'' in the same manner).
    \93\ For example, the Exchange proposes to define the term 
``BSTX'' to mean the facility of the Exchange for executing 
transaction in Securities, the term ``BSTX Participant'' to mean a 
Participant or Options Participant (as those terms are defined in 
the Exchange's Rule 100 Series) that is authorized to trade 
Securities, and the term ``BSTX System'' to mean the automated 
trading system used by BSTX for the trading of Securities. See 
proposed Rule 17000(a)(8), (11), and (15).
    \94\ Proposed Rule 17000(a)(31) provides that the term 
``Security'' means a NMS stock, as defined in Rule 600(b)(47) of the 
Exchange Act, trading on the BSTX System. The proposed definition 
further specifies that references to a ``security'' or 
``securities'' in the Rules may include Securities.
    \95\ Proposed Rule 17000(a)(32) provides that the term ``Thinly 
Traded Security'' is defined in Rule 25150. See Part II.H for 
further discussion of Thinly Traded Securities and the definition 
set forth in proposed Rule 25150.
    \96\ Proposed Rule 17000(a)(9) provides that the term ``BSTX 
Market Data Blockchain'' means the private, permissioned blockchain 
network through which a BSTX Participant may access certain order 
and transaction data related to trading activity on BSTX. See Part 
II.F for further discussion of the BSTX Market Data Blockchain.
---------------------------------------------------------------------------

    In addition to setting forth proposed definitions used throughout 
the proposed Rules, the Exchange proposes to specify in proposed Rule 
17010 (Applicability) that the Rules set forth in the Rule 17000 Series 
to Rule 29000 Series apply to the trading, listing, and related matters 
pertaining to the trading of Securities. Proposed Rule 17010(b) 
provides that, unless specific Rules relating to Securities govern or 
unless the context otherwise requires, the provisions of any Exchange 
Rule (i.e., including Exchange Rules in the Rule 100 through 16000 
Series) shall be applicable to BSTX Participants.\97\ This is intended 
to make clear that BSTX Participants are subject to all of the 
Exchange's Rules that may be applicable to them, notwithstanding that 
their trading activity may be limited solely to trading Securities. The 
Exchange believes that the proposed definitions set forth in Rule 17000 
are consistent with Section 6(b)(5) of the Exchange Act \98\ because 
they protect investors and the public interest by setting forth clear 
definitions that help BSTX Participants understand and apply Exchange 
Rules. Without clearly defining terms used in the Exchanges Rules and 
providing clarity as to the Exchange Rules that may apply, market 
participants could be confused as to the application of certain rules, 
which could cause harm to investors.
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    \97\ Proposed Rule 17010 further specifies that to the extent 
the provisions of the Rules relating to the trading of Securities 
contained in Rule 17000 Series to Rule 29000 Series are inconsistent 
with any other provisions of the Exchange Rules, the Rules relating 
to Security trading shall control.
    \98\ 15 U.S.C. 78f(b)(5).
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Participation on BSTX (Rule 18000 Series)
    The Exchange proposes to adopt as its Rule 18000 Series 
(Participation on BSTX), three rules setting forth certain requirements 
relating to participation on BSTX. Proposed Rule 18000 (BSTX 
Participation) establishes ``BSTX Participants'' as a new category of 
Exchange participation for effecting transactions on the BSTX System, 
provided they: (i) Complete the BSTX Participant Application, 
Participation Agreement, and User Agreement; \99\ (ii) be an existing 
Options Participant or become a Participant of the Exchange pursuant to 
the Rule 2000 Series; and (iii) provide such other information as 
required by the Exchange.\100\ Proposed Rule 18010 (Requirements for 
BSTX Participants) sets forth certain requirements for BSTX 
Participants including requirements that each BSTX Participant comply 
with Rule 15c3-1 under the Exchange Act, comply with applicable books 
and records requirements, and be a member of a registered clearing 
agency or clear Security transactions through another BSTX Participant 
that is a member/participant of a registered clearing agency.\101\ 
Finally, proposed Rule 18020 (Associated Persons) provides that 
associated persons of a BSTX Participant are bound by the Rules of the 
Exchange to the same extent as each BSTX Participant.
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    \99\ The BSTX Participant Application, Participation Agreement, 
and User Agreement have been submitted as Exhibits 3A, 3B, and 3C to 
the proposal respectively.
    \100\ Proposed Rule 18000 also sets forth the Exchange's review 
process regarding BSTX Participation Agreements and certain 
limitations on the ability to transfer BSTX Participant status 
(e.g., in the case of a change of control). In addition proposed 
Rule 18000(b)(2) provides that a BSTX Participant shall continue to 
abide by all applicable requirements of the Rule 2000 Series, which 
would include, for example, IM-2040-5, which specifies continuing 
education requirements of Exchange Participants and their associated 
persons.
    \101\ Proposed Rule 18010(b) is similar to the rules of existing 
exchanges. See e.g., IEX Rule 2.160(c). Proposed Rule 18010(a) is 
also similar to the rules of existing exchanges. See e.g., IEX Rule 
1.160(s) and Cboe BZX Rule 17.2(a).
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    The Exchange believes that the proposed Rule 18000 Series 
(Participation on BSTX) is consistent with Section 6(b)(5) of the 
Exchange Act \102\ because these proposed rules are designed to promote 
just and equitable principles of trade, and protect investors and the 
public interest by setting forth the requirements to become a BSTX 
Participant and specifying that associated persons of a BSTX 
Participant are bound by Exchange Rules. Under proposed Rule 18000, a 
BSTX Participant must first become an Exchange Participant pursuant to 
the Exchange Rule 2000 Series which the Exchange believes would help 
assure that BSTX Participants meet the appropriate standards for 
trading on BSTX in furtherance of the protection of investors.\103\
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    \102\ 15 U.S.C. 78f(b)(5).
    \103\ The Exchange notes that the approach of requiring members 
of a facility of an exchange to first become members of the exchange 
is consistent with the approach used by another national securities 
exchange. See Cboe BZX Rule 17.1(b)(3) (requiring that a Cboe BZX 
options member be an existing member or become a member of the Cboe 
BZX equities exchange pursuant to the Cboe BZX Chapter II Series).
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Business Conduct for BSTX Participants (Rule 19000 Series)
    The Exchange proposes to adopt as its Rule 19000 Series (Business 
Conduct for BSTX Participants), twenty two rules relating to business 
conduct requirements for BSTX Participants that are substantially 
similar to business conduct rules of other exchanges.\104\ The proposed 
Rule 19000 Series would specify business conduct requirements with 
respect to: (i) Just and equitable principles of trade; \105\ (ii) 
adherence to law; \106\ (iii) use of fraudulent devices; \107\ (iv) 
false statements; \108\ (v) know your customer; \109\ (vi) fair dealing 
with customers; \110\ (vii) suitability; \111\ (viii) the prompt 
receipt and delivery of securities; \112\ (ix) charges for services 
performed; \113\ (x) use of information obtained in a fiduciary 
capacity; \114\ (xi) publication of transactions and quotations; \115\ 
(xii) offers at stated

[[Page 29647]]

prices; \116\ (xiii) payments involving publications that influence the 
market price of a security; \117\ (xiv) customer confirmations; \118\ 
(xv) disclosure of a control relationship with an issuer of Securities; 
\119\ (xvi) discretionary accounts; \120\ (xvii) improper use of 
customers' securities or funds and a prohibition against guarantees and 
sharing in accounts; \121\ (xviii) the extent to which sharing in 
accounts is permissible; \122\ (xix) communications with customers and 
the public; \123\ (xx) gratuities; \124\ (xxi) telemarketing; \125\ and 
(xxii) mandatory systems testing.\126\ The Exchange notes that the 
proposed financial responsibility rules are virtually identical to 
those of other national securities exchanges other than changes to 
defined terms and certain other provisions that would not apply to the 
trading of Securities on the BSTX System.\127\
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    \104\ See Cboe BZX Chapter 5 rules. See also IEX Rule 5.150 with 
respect to proposed Rule 21040 (Prevention of the Misuse of 
Material, Non-Public Information).
    \105\ Proposed Rule 19000 (Just and Equitable Principles of 
Trade) provides that no BSTX Participant, including its associated 
persons, shall engage in acts or practices inconsistent with just 
and equitable principles of trade.
    \106\ Proposed Rule 19010 (Adherence to Law) generally requires 
BSTX Participants to adhere to applicable laws and regulatory 
requirements.
    \107\ Proposed Rule 19020 (Use of Fraudulent Devices) generally 
prohibits BSTX Participants from effecting a transaction in any 
security by means of a manipulative, deceptive or other fraudulent 
device or contrivance.
    \108\ Proposed Rule 19030 (False Statements) generally prohibits 
BSTX Participants and their associated persons from making false 
statements or misrepresentations in communications with the 
Exchange.
    \109\ Proposed Rule 19040 (Know Your Customer) requires BSTX 
Participants to comply with FINRA Rule 2090 as if such rule were 
part of the Exchange Rules.
    \110\ Proposed Rule 19050 (Fair Dealing with Customers) 
generally requires BSTX Participants to deal fairly with customers 
and specifies certain activities that would violate the duty of fair 
dealing (e.g., churning or overtrading in relation to the objectives 
and financial situation of a customer).
    \111\ Proposed Rule 19060 (Suitability) provides that BSTX 
Participants and their associated persons shall comply with FINRA 
Rule 2111 as if such rule were part of the Exchange Rules.
    \112\ Proposed Rule 19070 (Prompt Receipt and Delivery of 
Securities) would generally prohibit a BSTX Participant from 
accepting a customer's purchase order for a security until it can 
determine that the customer agrees to receive the securities against 
payment.
    \113\ Proposed Rule 19080 (Charges for Services Performed) 
generally requires that charges imposed on customers by broker-
dealers shall be reasonable and not unfairly discriminatory.
    \114\ Proposed Rule 19090 (Use of Information Obtained in a 
Fiduciary Capacity) generally restricts the use of information as to 
the ownership of securities when acting in certain capacities (e.g., 
as a trustee).
    \115\ Proposed Rule 19100 (Publication of Transactions and 
Quotations) generally prohibits a BSTX Participant from 
disseminating a transaction or quotation information unless the BSTX 
Participant believes it to be bona fide.
    \116\ Proposed Rule 19110 (Offers at Stated Prices) generally 
prohibits a BSTX Participant from offering to transact in a security 
at a stated price unless it is in fact prepared to do so.
    \117\ Proposed Rule 19120 (Payments Involving Publications that 
Influence the Market Price of a Security) generally prohibits direct 
or indirect payments with the aim of disseminating information that 
is intended to effect the price of a security.
    \118\ Proposed Rule 19130 (Customer Confirmations) requires that 
BSTX Participants comply with Rule 10b-10 of the Exchange Act. 17 
CFR 240.10b-10.
    \119\ Proposed Rule 19140 (Disclosure of Control Relationship 
with Issuer) generally requires BSTX Participants to disclose any 
control relationship with an issuer of a security before effecting a 
transaction in that security for the customer.
    \120\ Proposed Rule 19150 (Discretionary Accounts) generally 
provides certain restrictions on BSTX Participants handling of 
discretionary accounts, such as by effecting excessive transactions 
or obtained authorization to exercise discretionary powers.
    \121\ Proposed Rule 19160 (Improper Use of Customers' Securities 
or Funds and Prohibition against Guarantees and Sharing in Accounts) 
generally prohibits BSTX Participants from making improper use of 
customers securities or funds and prohibits guarantees to customers 
against losses.
    \122\ Proposed Rule 19170 (Sharing in Accounts; Extent 
Permissible) generally prohibits BSTX Participants and their 
associated persons from sharing directly or indirectly in the profit 
or losses of the account of a customer unless certain exceptions 
apply such as where an associated person receives prior written 
authorization from the BSTX Participant with which he or she is 
associated.
    \123\ Proposed Rule 19180 (Communications with Customers and the 
Public) generally provides that BSTX Participants and their 
associated persons shall comply with FINRA Rule 2210 as if such rule 
were part of the Exchange Rules.
    \124\ Proposed Rule 19190 (Gratuities) requires BSTX 
Participants to comply with the requirements set forth in BOX 
Exchange Rule 3060 (Gratuities).
    \125\ Proposed Rule 19200 (Telemarketing) requires that BSTX 
Participants and their associated persons comply with FINRA Rule 
3230 as if such rule were part of the Exchange's Rules.
    \126\ Proposed Rule 19210 (Mandatory Systems Testing) requires 
that BSTX Participants comply with Exchange Rule 3180 (Mandatory 
Systems Testing).
    \127\ For example, the Exchange is not proposing to adopt a rule 
contained in other exchanges' business conduct rules relating to 
disclosures that broker-dealers give to their customers regarding 
the risks of effecting securities transactions during times other 
than during regular trading hours (e.g., higher volatility, possibly 
lower liquidity) because executions may only occur during regular 
trading hours on the BSTX System. See e.g., IEX Rule 3.290, Cboe BZX 
Rule 3.21.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Rule 19000 Series (Business 
Conduct) is consistent with Section 6(b)(5) of the Exchange Act \128\ 
because these proposed rules are designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, and protect investors and the public interest by setting 
forth appropriate standards of conduct applicable to BSTX Participants 
in carrying out their business activities. For example, proposed Rule 
19000 (Just and Equitable Principles of Trade) and 19010 (Adherence to 
Law) would prohibit BSTX Participants from engaging in acts or 
practices inconsistent with just and equitable principles of trade or 
that would violate applicable laws and regulations. Similarly, proposed 
Rule 19050 (Fair Dealing with Customers) would require that BSTX 
Participants deal fairly with their customers and proposed Rule 19030 
(False Statements) would generally prohibit BSTX Participants, or their 
associated persons from making false statements or misrepresentations 
to the Exchange. The Exchange believes that requiring that BSTX 
Participants comply with the proposed business conduct rules in the 
Rule 19000 Series would further the protection of investors and the 
public interest by promoting high standards of commercial honor and 
integrity. In addition, each of the rules in the proposed Rule 19000 
Series (Business Conduct) is substantially similar to supervisory rules 
of other exchanges.\129\
---------------------------------------------------------------------------

    \128\ 15 U.S.C. 78f(b)(5).
    \129\ See supra note 1044.
---------------------------------------------------------------------------

Financial and Operational Rules for BSTX Participants (Rule 20000 
Series)
    The Exchange proposes to adopt as its Rule 20000 Series (Financial 
and Operational Rules), ten rules relating to financial and operational 
requirements for BSTX Participants that are substantially similar to 
financial and operational rules of other exchanges.\130\ The proposed 
Rule 20000 Series would specify financial and operational requirements 
with respect to: (i) Maintenance and furnishing of books and records; 
\131\ (ii) financial reports; \132\ (iii) net capital compliance; \133\ 
(iv) early warning notifications pursuant to Rule 17a-11 under the 
Exchange Act; \134\ (v) authority of the Chief Regulatory Officer to 
impose certain restrictions; \135\ (vi) margin; \136\ (vii) day-trading 
margin; \137\ (viii) customer account information; \138\ (ix) 
maintaining records of customer complaints; \139\ and (x) disclosure of 
financial condition.\140\
---------------------------------------------------------------------------

    \130\ See Cboe BZX Chapter 6 rules and IEX Chapter 5 rules.
    \131\ Proposed Rule 20000 (Maintenance, Retention and Furnishing 
of Books, Records and Other Information) requires that BSTX 
Participants comply with current Exchange Rule 1000 (Maintenance, 
Retention and Furnishing of Books, Records and Other Information) 
and that BSTX Participants shall submit to the Exchange order, 
market and transaction data as the Exchange may specify by 
Information Circular.
    \132\ Proposed Rule 20010 (Financial Reports) provides that BSTX 
Participants shall comply with the requirements of current Exchange 
Rule 10020 (Financial Reports).
    \133\ Proposed Rule 20020 (Capital Compliance) provides that 
each BSTX Participant subject to Rule 15c3-1 under the Exchange Act 
(17 CFR 240.15c3-1) shall comply with such rule and other financial 
and operational rules contained in the proposed Rule 20000 series.
    \134\ 17 CFR 240.17a-11. Proposed Rule 20030 (``Early Warning'' 
Notification) provides that BSTX Participants subject to the 
reporting or notifications requirements of Rule 17a-11 under the 
Exchange Act (17 CFR 240.17a-11) or similar ``early warning'' 
requirements imposed by other regulators shall provide the Exchange 
with certain reports and financial statements.
    \135\ Proposed Rule 20040 (Power of CRO to Impose Restrictions) 
generally provides that the Exchange's Chief Regulatory Officer may 
impose restrictions and conditions on a BSTX Participant subject to 
the early warning notification requirements under certain 
circumstances.
    \136\ Proposed Rule 20050 (Margin) sets forth the required 
margin amounts for certain securities held in a customer's margin 
account.
    \137\ Proposed Rule 20060 (Day Trading Margin) sets forth 
additional requirements with respect to customers that engage in day 
trading.
    \138\ Proposed Rule 20070 (Customer Account Information) 
requires that BSTX Participants comply with FINRA Rule 4512 as if 
such rule were part of the Exchange Rules and further clarifies 
certain cross-references within FINRA Rule 4512.
    \139\ Proposed Rule 20080 (Record of Written Customer 
Complaints) requires that BSTX Participants comply with FINRA Rule 
4513 as if such rule were part of the Exchange Rules.
    \140\ Proposed Rule 20090 (Disclosure of Financial Condition) 
generally requires that BSTX Participants make available certain 
information regarding the BSTX Participant's financial condition 
upon request of a customer.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Rule 20000 (Financial and 
Operational Rules) Series is consistent with Section 6(b)(5) of the 
Exchange Act \141\ because these proposed rules are designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, and protect investors and the public 
interest by subjecting BSTX Participants to certain recordkeeping,

[[Page 29648]]

disclosure, and related requirements designed to ensure that BSTX 
Participants conduct themselves in a financially responsible manner. 
For example, proposed Rule 20000 would require BSTX Participants to 
comply with existing Exchange Rule 1000, which sets forth certain 
recordkeeping responsibilities and the obligation to furnish these to 
the Exchange upon request so that the Exchange can appropriately 
monitor the financial condition of a BSTX Participant and its 
compliance with applicable regulatory requirements. Similarly, proposed 
Rule 20050 would set forth the margin requirements that BSTX 
Participants must retain with respect to customers trading in a margin 
account to ensure that BSTX Participants are not extending credit to 
customers in a manner that might put the financial condition of the 
BSTX Participant in jeopardy. Each of the proposed rules in the Rule 
20000 Series (Financial and Operational Rules) is substantially similar 
to existing rules of other exchanges or incorporates an existing rule 
of the Exchange or another self-regulatory organization (``SRO'') by 
reference.
---------------------------------------------------------------------------

    \141\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Supervision (Rule 21000 Series)
    The Exchange proposes to adopt as its Rule 21000 Series 
(Supervision), six rules relating to certain supervisory requirements 
for BSTX Participants that are substantially similar to supervisory 
rules of other exchanges.\142\ The Proposed Rule 21000 Series would 
specify supervisory requirements with respect to: (i) Enforcing written 
procedures to appropriately supervise the BSTX Participant's conduct 
and compliance with applicable regulatory requirements; \143\ (ii) 
designation of an individual to carry out written supervisory 
procedures; \144\ (iii) maintenance and keeping of records carrying out 
the BSTX Participant's written supervisory procedures; \145\ (iv) 
review of activities of each of a BSTX Participant's offices, including 
periodic examination of customer accounts to detect and prevent 
irregularities or abuses; \146\ (v) the prevention of the misuse of 
material non-public information; \147\ and (vi) implementation of an 
anti-money laundering (``AML'') compliance program.\148\ These rules 
are designed to ensure that BSTX Participants are able to appropriately 
supervise their business activities, review and maintain records with 
respect to such supervision, and enforce specific procedures relating 
insider-trading and AML.
---------------------------------------------------------------------------

    \142\ See Cboe BZX Chapter 5 rules. See also IEX Rule 5.150 with 
respect to proposed Rule 21040 (Prevention of the Misuse of 
Material, Non-Public Information).
    \143\ Proposed Rule 21000 (Written Procedures).
    \144\ Proposed Rule 21010 (Responsibility of BSTX Participants) 
would also require that a copy of a BSTX's written supervisory 
procedures be kept in each office and makes clear that final 
responsibility for proper supervision rests with the BSTX 
Participant.
    \145\ Proposed Rule 21020 (Records).
    \146\ Proposed Rule 21030 (Review of Activities).
    \147\ Proposed Rule 21040 (Prevention of the Misuse of Material, 
Non-Public Information) generally requires BSTX Participants to 
enforce written procedures designed to prevent misuse of material 
non-public information and sets forth examples of conduct that would 
constitute a misuse of material, non-public information.
    \148\ Proposed Rule 21050 (Anti-Money Laundering Compliance 
Program). The Exchange already has rules with respect to Exchange 
Participants enforcing an AML compliance program set forth in 
Exchange Rule 10070 (Anti-Money Laundering Compliance Program), so 
proposed Rule 21050 specifies that BSTX Participants shall comply 
with the requirements of that pre-existing rule.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Rule 21000 (Supervision) 
Series is consistent with Section 6(b)(5) of the Exchange Act \149\ 
because these proposed rules are designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, and protect investors and the public interest by ensuring 
that BSTX Participants have appropriate supervisory controls in place 
to carry out their business activities in compliance with applicable 
regulatory requirements. For example, proposed Rule 21000 (Written 
Procedures) would require BSTX Participants to enforce written 
procedures which enable them to supervise the activities of their 
associated persons and proposed Rule 21010 (Responsibility of BSTX 
Participants) would require a BSTX Participant to designate a person in 
each office to carry out written supervisory procedures. Requiring 
appropriate supervision of a BSTX Participant's business activities and 
associated persons would promote compliance with the federal securities 
laws and other applicable regulatory requirements in furtherance of the 
protection of investors and the public interest.\150\ In addition, each 
of the rules in the proposed Rule 21000 Series (Supervision) is 
substantially similar to supervisory rules of other exchanges.\151\
---------------------------------------------------------------------------

    \149\ 15 U.S.C. 78f(b)(5).
    \150\ Id.
    \151\ See supra note 142.
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Miscellaneous Provisions (Rule 22000 Series)
    The Exchange proposes to adopt as its Rule 22000 Series 
(Miscellaneous Provisions), six rules relating to a variety of 
miscellaneous requirements applicable to BSTX Participants that are 
substantially similar to rules of other exchanges.\152\ These 
miscellaneous provisions relate to: (i) Comparison and settlement 
requirements; \153\ (ii) failures to deliver and failures to receive; 
\154\ (iii) forwarding of proxy and other issuer-related materials; 
\155\ (iv) commissions; \156\ (v) regulatory services agreements; \157\ 
and (vi) transactions involving Exchange employees.\158\ These rules 
are designed to capture additional regulatory requirements applicable 
to BSTX Participants, such as setting forth their obligation to deliver 
proxy materials at the request of an issuer and to incorporate by 
reference Rule 200-203 of Regulation SHO.\159\
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    \152\ See Cboe BZX Chapter 13 rules. See also IEX Rule 6.180 
with respect to proposed Rule 22050 (Transactions Involving BOX 
Employees).
    \153\ Proposed Rule 22000 (Comparison and Settlement 
Requirements) provides that a BSTX Participant that is a member of a 
registered clearing agency shall implement comparison and settlement 
procedures as may be required under the rules of such entity. The 
proposed rule would further provide that, notwithstanding this 
general provision, the Board may extend or postpone the time of 
delivery of a BSTX transaction whenever the Board determines that it 
is called for by the public interest, just and equitable principles 
of trade or to address unusual conditions. In such a case, delivery 
will occur as directed by the Board.
    \154\ Proposed Rule 22010 (Failure to Deliver and Failure to 
Receive) provides that borrowing and deliveries must be effected in 
accordance with Rule 203 of Regulation SHO (17 CFR 242.203) and 
incorporates Rules 200-203 of Regulation SHO by reference into the 
rule (17 CFR 242.200 through .203).
    \155\ Proposed Rule 22020 (Forwarding of Proxy and Other 
Information; Proxy Voting) generally provides that BSTX Participants 
shall forward proxy materials when requested by an issuer and sets 
forth certain conditions and limitations for BSTX Participants to 
give a proxy to vote stock that is registered in its name.
    \156\ Proposed Rule 22030 (Commissions) provides that the 
Exchange Rules or practices shall not be construed to allow a BSTX 
Participant or its associated persons to agree or arrange for the 
charging of fixed rates commissions for transactions on the 
Exchange.
    \157\ Proposed Rule 22040 (Regulatory Service Agreement) 
provides that the Exchange may enter into regulatory services 
agreements with other SROs to assist in carrying out regulatory 
functions, but the Exchange shall retain ultimate legal 
responsibility for, and control of, its SRO responsibilities.
    \158\ Proposed Rule 22040 (Transactions Involving Exchange 
Employees) sets forth conditions and limitations on a BSTX 
Participant providing loans or supporting the account of an Exchange 
employee (e.g., promptly obtaining and implementing an instruction 
from the employee to provide duplicate account statement to the 
Exchange) in order to mitigate any potential conflicts of interest 
that might arise from such a relationship.
    \159\ 17 CFR 242.200 through .203.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Rule 22000 (Miscellaneous 
Provisions) Series is consistent with Section 6(b)(5) of the Exchange 
Act \160\ because these proposed rules are designed to prevent 
fraudulent and manipulative acts and practices,

[[Page 29649]]

promote just and equitable principles of trade, and protect investors 
and the public interest by ensuring that BSTX Participants comply with 
additional regulatory requirements, such as Rule 203 of Regulation SHO 
\161\ as provided in proposed Rule 22010 (Failure to Deliver and 
Failure to Receive), in connection with their participation on BSTX. 
For example, proposed Rule 22030 (Commissions) prohibits BSTX 
Participants from charging fixed rates of commissions for transactions 
on the Exchange consistent with Section 6(e)(1) of the Exchange 
Act.\162\ Similarly, proposed Rule 22050 (Transactions involving 
Exchange Employees) sets forth certain requirements and prohibitions 
relating to a BSTX Participant providing certain financial services to 
an Exchange employee, which the Exchange believes helps prevent 
potentially fraudulent and manipulative acts and practices and furthers 
the protection of investors and the public interest.
---------------------------------------------------------------------------

    \160\ 15 U.S.C. 78f(b)(5).
    \161\ 17 CFR 242.203.
    \162\ 15 U.S.C. 78f(e)(1).
---------------------------------------------------------------------------

Trading Practice Rules (Rule 23000 Series)
    The Exchange proposes to adopt as its Rule 23000 Series (Trading 
Practice Rules), 14 rules relating to trading practice requirements for 
BSTX Participants that are substantially similar to trading practice 
rules of other exchanges.\163\ The proposed Rule 23000 Series would 
specify trading practice requirements related to: (i) Market 
manipulation; (ii) fictitious transactions; (iii) excessive sales by a 
BSTX Participant; (iv) manipulative transactions; (v) dissemination of 
false information; (vi) prohibition against trading ahead of customer 
orders; (vii) joint activity; (viii) influencing data feeds; (ix) trade 
shredding; (x) best execution; (xi) publication of transactions and 
changes; (xii) trading ahead of research reports; (xiii) front running 
of block transactions; and (xiv) a prohibition against disruptive 
quoting and trading activity. The purpose of the trading practice rules 
is to set forth standards and rules relating to the trading conduct of 
BSTX Participants, primarily with respect to prohibiting forms of 
market manipulation and specifying certain obligations broker-dealers 
have to their customers, such as the duty of best execution. For 
example, proposed Rule 23000 (Market Manipulation) sets forth a general 
prohibition against a BSTX Participant purchasing a security at 
successively higher prices or sales of a security at successively lower 
prices, or to otherwise engage in activity for the purpose of creating 
or inducing a false, misleading or artificial appearance of activity in 
such security.\164\ Proposed Rule 23010 (Fictitious Transactions) 
similarly prohibits BSTX Participants from fictitious transaction 
activity, such as executing a transaction which involves no beneficial 
change in ownership, and proposed Rule 23020 (Excessive Sales by a BSTX 
Participant) prohibits a BSTX Participant from executing purchases or 
sales in any security trading on the Exchange for any account in which 
it has an interest, which are excessive in view of the BSTX 
Participant's financial resources or in view of the market for such 
security.\165\ Proposed Rule 23060 (Joint Activity) prohibits a BSTX 
Participant from directly or indirectly holding any interest or 
participation in any joint account for buying or selling a security 
traded on the Exchange unless reported to the Exchange with certain 
information provided and proposed Rule 23090 (Best Execution) reaffirms 
BSTX Participants best execution obligations to their customers.\166\
---------------------------------------------------------------------------

    \163\ See Cboe BZX Chapter 12 rules.
    \164\ Proposed Rule 23030 (Manipulative Transactions) specifies 
further prohibitions relating to potential manipulation by 
prohibiting BSTX Participants from, among other things, 
participating or having any direct or indirect interest in the 
profits of a manipulative operation or knowingly managing or 
financing a manipulative operation.
    \165\ Other proposed rules relating to potential manipulation 
include: (i) Rule 23040 (Dissemination of False Information), which 
generally prohibits, consistent with Exchange Rule 3080, BSTX 
Participants from spreading information that is false or misleading; 
(ii) Rule 23070 (Influencing Data Feeds), which generally prohibits 
transactions to influence data feeds; (iii) Rule 23080 (Trade 
Shredding), which generally prohibits conduct that has the intent or 
effect of splitting any order into multiple smaller orders for the 
primary purpose of maximizing remuneration to the BSTX Participant; 
(iv) Rule 23110 (Trading Ahead of Research Reports), which generally 
prohibits BSTX Participants from trading based on non-public advance 
knowledge of a research report and requires BSTX Participants to 
enforce policies and procedures to limit information flow from 
research personnel to trading personnel that might trade on such 
information; (v) Rule 23120 (Front Running Block Transactions), 
which incorporates FINRA Rule 5270 as though it were part of the 
Exchange's Rules; and (vi) Rule 23130 (Disruptive Quoting and 
Trading Activity Prohibited), which incorporates Exchange Rule 3220 
by reference.
    \166\ In addition, proposed Rule 23100 (Publication of 
Transactions and Changes) provides that the Exchange will 
disseminate transaction information to appropriate data feeds, BSTX 
participants must provide information necessary to facilitate the 
dissemination of such information, and that an Exchange official 
shall be responsible for approving corrections to any reports 
transmitted over data feeds.
---------------------------------------------------------------------------

    Proposed Rule 23050 (Prohibition against Trading Ahead of Customer 
Orders) is substantially similar to FINRA 5320 and rules adopted by 
other exchanges,\167\ and generally prohibits BSTX Participants from 
trading ahead of customer orders unless certain enumerated exceptions 
are available and requires BSTX Participants to have a written 
methodology in place governing execution priority to ensure compliance 
with the Rule. The Exchange proposes to adopt each of the exceptions to 
the prohibition against trading ahead of customer orders as provided in 
FINRA Rule 5320 other than the exception related to trading outside of 
normal market hours, since trading on the Exchange would be limited to 
regular trading hours.
---------------------------------------------------------------------------

    \167\ See e.g., Cboe BZX Rule 12.6.
---------------------------------------------------------------------------

    The Exchange proposes to adopt the order handling procedures 
requirement in proposed Rule 23050(i) consistent with the rules of 
other exchanges.\168\ Specifically, proposed Rule 23050(i) would 
provide that a BSTX Participant must make every effort to execute a 
marketable customer order that it receives fully and promptly and must 
cross customer orders when they are marketable against each other 
consistent with the proposed Rule.
---------------------------------------------------------------------------

    \168\ See e.g., Cboe BZX Rule 12.6.07.
---------------------------------------------------------------------------

    The Exchange proposes to adopt a modified version of the exception 
set forth in FINRA Rule 5320.06 relating to minimum price improvement 
standards as proposed in Rule 23050(h). Under proposed Rule 23050(h), 
BSTX Participants would be permitted to execute an order on a 
proprietary basis when holding an unexecuted limit order in that same 
security without being required to execute the held limit order 
provided that they give price improvement of $0.01 to the unexecuted 
held limit order. While FINRA Rule 5320.06 sets forth alternate, lower 
price improvement standards for securities priced below $1, the 
Exchange proposes to adopt a uniform price improvement requirement of 
$0.01 for Securities traded on the BSTX System consistent with the 
Exchange's proposed uniform minimum price variant of $0.01 set forth in 
proposed Rule 25030.
    In addition, the Exchange proposes to adopt an exception for bona 
fide error transactions as proposed in Rule 25030(g) which would allow 
a BSTX Participant to trade ahead of a customer order if the trade is 
to correct a bona fide error, as defined in the rule. This proposed 
exception is nearly identical to similar exceptions of other exchanges 
\169\ except that other exchange rules also provide an exception 
whereby firms may submit a proprietary order ahead of a customer order 
to offset a customer order that is

[[Page 29650]]

in an amount other than a round lot (i.e., 100 shares). The Exchange is 
not adopting an exception for odd-lot orders under these circumstances 
because the minimum unit of trading for Securities pursuant to proposed 
Rule 25020 is one Security. The Exchange believes that there may be a 
notable amount of trading in amounts of less than 100 Securities (i.e., 
trading in odd-lot amounts), and the Exchange accordingly does not 
believe that it is appropriate to allow BSTX Participants to trade 
ahead of customer orders just to offset an odd-lot customer order.
---------------------------------------------------------------------------

    \169\ See e.g., Cboe BZX Rule 12.5.05.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Rule 23000 Series relating 
to trading practice rules is consistent with Section 6(b)(5) of the 
Exchange Act \170\ because these proposed rules are designed to prevent 
fraudulent and manipulative acts and practices that could harm 
investors and to promote just and equitable principles of trade. The 
proposed rules in the Rule 23000 Series are substantially similar to 
the rules of other exchanges and generally include a variety of 
prohibitions against types of trading activity or other conduct that 
could potentially be manipulative, such as prohibitions against market 
manipulation, fictitious transactions, and the dissemination of false 
information. The Exchange has proposed to exclude certain provisions 
from, or make certain modifications to, comparable rules of other SROs, 
as detailed above, in order to account for certain unique aspects 
related to the proposed trading of Securities. The Exchange believes 
that it is consistent with applicable requirements under the Exchange 
Act to exclude these provisions and exceptions because they set forth 
requirements that would not apply to BSTX Participants trading in 
Securities and are not necessary for the Exchange to carry out its 
functions of facilitating Security transactions and regulating BSTX 
Participants.
---------------------------------------------------------------------------

    \170\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Disciplinary Rules (Rule 24000 Series)
    With respect to disciplinary matters, the Exchange proposes to 
adopt Rule 24000 (Discipline and Summary Suspension), which provides 
that the provisions of the Exchange Rule 11000 Series (Summary 
Suspension), 12000 Series (Discipline), 13000 Series (Review of Certain 
Exchange Actions), and 14000 Series (Arbitration) of the Exchange Rules 
shall be applicable to BSTX Participants and trading on the BSTX 
System. The Exchange already has Rules pertaining to discipline and 
suspension of Exchange Participants that it proposes to extend to BSTX 
Participants and trading on the BSTX System. The Exchange also proposes 
to adopt as Rule 24010 a minor rule violation plan with respect to 
transactions on BSTX.\171\
---------------------------------------------------------------------------

    \171\ The proposed additions to the Exchange's minor rule 
violation plan pursuant to proposed Rule 24010 are discussed below 
in Part IV.
---------------------------------------------------------------------------

    Proposed Rule 24000 incorporates by reference existing rules that 
have already been approved by the Commission.
Trading Rules and the BSTX System (Rule 25000 Series)
Rule 25000--Access to and Conduct on the BSTX Marketplace
    The Exchange proposes to adopt Rule 25000 (Access to and Conduct on 
the BSTX Marketplace) to set forth rules relating to access to the BSTX 
System and certain conduct requirements applicable to BSTX 
Participants. Specifically, proposed Rule 25000 provides that only BSTX 
Participants, including their associated persons, that are approved for 
trading on the BSTX System shall effect any transaction on the BSTX 
System. Proposed Rule 25000(b) generally requires that a BSTX 
Participant maintain a list of authorized traders that may obtain 
access to the BSTX System on behalf of the BSTX Participant, have 
procedures in place reasonably designed to ensure that all authorized 
traders comply with Exchange Rules and to prevent unauthorized access 
to the BSTX System, and to provide the list of authorized traders to 
the Exchange upon request. Proposed Rule 25000(c) and (d) restate 
provisions that are already set forth in Exchange Rule 7000, generally 
providing that BSTX Participants shall not engage in conduct that is 
inconsistent with the maintenance of a fair and orderly market or the 
ordinary and efficient conduct of business, as well as conduct that is 
likely to impair public confidence in the operations of the Exchange. 
Examples of such prohibited conduct include failure to abide by a 
determination of the Exchange, refusal to provide information requested 
by the Exchange, and failure to adequately supervise employees. 
Proposed Rule 25000(f) provides the Exchange with authority to suspend 
or terminate access to the BSTX System under certain circumstances.
    The Exchange believes that proposed Rule 25000 is consistent with 
Section 6(b)(5) of the Exchange Act \172\ because it is designed to 
protect investors and the public interest and promote just and 
equitable principles of trade by ensuring that BSTX Participants would 
not allow for unauthorized access to the BSTX System and would not 
engage in conduct detrimental to the maintenance of fair and orderly 
markets.
---------------------------------------------------------------------------

    \172\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Rule 25010--Days/Hours
    Proposed Rule 25010 sets forth the days and hours during which BSTX 
would be open for business and during which transactions may be 
effected on the BSTX System. Under the proposed rule, transactions may 
be executed on the BSTX System between 9:30 a.m. and 4:00 p.m. Eastern 
Time. The proposed rule also specifies certain holidays BSTX would not 
be open (e.g., New Year's Day) and provides that the Chief Executive 
Officer, President, or Chief Regulatory Officer of the Exchange, or 
such person's designee who is a senior officer of the Exchange, shall 
have the power to halt or suspend trading in any Securities, close some 
or all of BSTX's facilities, and determine the duration of any such 
halt, suspension, or closing, when such person deems the action 
necessary for the maintenance of fair and orderly markets, the 
protection of investors, or otherwise in the public interest.
    The Exchange believes that proposed Rule 25010 is designed to 
protect investors and the public interest, consistent with Section 
6(b)(5) of the Exchange Act,\173\ by setting forth the days and hours 
that trades may be effected on the BSTX System and by providing 
officers of the Exchange with the authority to halt or suspend trading 
when such officers believe that such action is necessary or appropriate 
to maintain fair and orderly markets or to protect investors or in the 
public interest.
---------------------------------------------------------------------------

    \173\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Rule 25020--Units of Trading
    Proposed Rule 25020 sets forth the minimum unit of trading on the 
BSTX System, which shall be one Security. The Exchange believes that 
proposed Rule 25020 is consistent with Section 6(b)(5) of the Exchange 
Act \174\ because it fosters cooperation and coordination of persons 
engaged in facilitating transactions in securities by specifying the 
minimum unit of trading of Securities on the BSTX System. In addition, 
other exchanges similarly provide that the minimum unit of trading is 
one share for their market and/or for certain securities.\175\
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    \174\ 15 U.S.C. 78f(b)(5).
    \175\ See e.g., IEX Rule 11.180.

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[[Page 29651]]

Rule 25030--Minimum Price Variant
    Proposed Rule 25030 provides the minimum price variant for 
Securities shall be $0.01. The Exchange believes that proposed Rule 
25030 is consistent with Section 6(b)(5) of the Exchange Act because it 
fosters cooperation and coordination of persons engaged in facilitating 
transactions in securities by specifying the minimum price variant for 
Securities and promotes compliance with Rule 612 of Regulation 
NMS.\176\ Under Rule 612 of Regulation NMS, the Exchange is, among 
other things, prohibited from displaying, ranking or accepting from any 
person a bid or offer or order in an NMS stock in an increment smaller 
than $0.01 if that bid or offer or order is priced equal to or greater 
than $1.00 per share. Where a bid or offer or order is priced less than 
or equal to $1.00 per share, the minimum acceptable increment is 
$0.0001. Proposed Rule 25030 sets a uniform minimum price variant for 
all Securities of $0.01 irrespective of whether the Security is trading 
below $1.00.
---------------------------------------------------------------------------

    \176\ 17 CFR 242.611.
---------------------------------------------------------------------------

Rule 25040--Opening the Marketplace
    Proposed Rule 25040 sets forth the opening process for the BSTX 
System for BSTX-listed Securities and non-BSTX-listed securities. For 
BSTX-listed Securities, the Exchange proposes to allow for order entry 
to commence at 8:30 a.m. ET during the Pre-Opening Phase. Proposed Rule 
25040(a) provides that orders will not execute during the Pre-Opening 
Phase, which lasts until regular trading hours begin at 9:30 a.m. 
ET.\177\ Similar to how the Exchange's opening process works for 
options trading, BSTX would disseminate a theoretical opening price 
(``TOP'') to BSTX Participants, which is the price at which the opening 
match would occur at a given moment in time.\178\ Under the proposed 
rule, the Exchange will also broadcast other information during the 
Pre-Opening Phase. Specifically, in addition to the TOP, the Exchange 
would disseminate pursuant to proposed Rule 25040(a)(3): (i) ``Paired 
Securities,'' which is the quantity of Securities that would execute at 
the TOP; (ii) the ``Imbalance Quantity,'' which is the number of 
Securities 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 
(collectively, with the TOP, ``Broadcast Information'').\179\ Broadcast 
Information would be recalculated and disseminated every time a new 
order is received or cancelled and where such event causes the TOP or 
Paired Securities to change. With respect to priority during the 
opening match for all Securities, consistent with proposed Rule 25080 
(Execution and Price/Time Priority), among multiple orders at the same 
price, execution priority during the opening match is determined based 
on the time the order was received by the BSTX System.
---------------------------------------------------------------------------

    \177\ As a result, orders marked IOC submitted during the Pre-
Opening Phase would be rejected by the BSTX System. See proposed 
Rule 25040(a)(7).
    \178\ The TOP can only be calculated where the BSTX Book is 
crossed during the Pre-Opening Phase. See proposed Rule 25040(a)(2).
    \179\ Pursuant to proposed Rule 25040(a)(3), any orders which 
are at a better price (i.e., bid higher or offer lower) than the TOP 
would be shown only as a total quantity on the BSTX Book at a price 
equal to the TOP.
---------------------------------------------------------------------------

    Consistent with the manner in which the Exchange opens options 
trading, the BSTX System would determine a single price at which a 
BSTX-listed Security would be opened by calculating the optimum number 
of Securities that could be matched at a price, taking into 
consideration all the orders on the BSTX Book.\180\ Proposed Rule 
25040(a)(6) provides that the opening match price is the price which 
results in the matching of the highest number of Securities. If two or 
more prices would satisfy this maximum quantity criteria, the price 
leaving the fewest resting Securities in the BSTX Book will be selected 
at the opening price and where two or more prices would satisfy the 
maximum quantity criteria and leave the fewest Securities in the BSTX 
Book, the price closest to the previous day's closing price will be 
selected.\181\ The opening price must also be within the ``Collar Price 
Range'' as set forth in proposed Rule 25040(a)(5), which is designed to 
ensure that a Security opens in an fair and orderly manner and under 
market conditions where there is sufficient quotation interest (e.g., a 
national best bid and offer), 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.\182\ Unexecuted 
trading interest during the opening match will move to the BSTX Book 
and will preserve price time priority.\183\ When the BSTX System cannot 
determine an opening price of a BSTX-listed Security at the start of 
regular trading hours, BSTX would nevertheless open the Security for 
trading and move all trading interest received during the Pre-Opening 
Phase to the BSTX Book.\184\
---------------------------------------------------------------------------

    \180\ See proposed Rule 25040(a)(4)(ii).
    \181\ With respect to an initial public offering of a Security 
where there is no previous day's closing price, the opening price 
would be the price assigned to the Security by the underwriter for 
the offering, referred to as the ``Initial Security Offering 
Reference Price.'' See Proposed Rule 25040(a)(5)(ii)(3).
    \182\ See proposed Rule 25040(a)(5). The Exchange notes that the 
auction collars proposed in Rule 25040(a)(5) are substantially 
similar to those of Cboe BZX. See Cboe BZX Rule 11.23.
    \183\ See proposed Rule 25040(a)(7).
    \184\ Id.
---------------------------------------------------------------------------

    For initial public offerings of Securities (``Initial Security 
Offerings''), the process would be generally the same as regular market 
openings. However, in advance of an Initial Security Offering auction 
(``Initial Security Offering Auction''), the Exchange shall announce a 
``Quote-Only Period'' that shall be between fifteen (15) and thirty 
(30) minutes plus a short random period prior to the Initial Security 
Offering Auction.\185\ The Quote-Only Period may be extended in certain 
cases.\186\ As with regular market openings the Exchange would 
disseminate Broadcast Information at the commencement of the Quote Only 
Period, and Broadcast Information would be re-calculated and 
disseminated every time a new order is received or cancelled and where 
such event causes the TOP price or Paired Securities to change.\187\ In 
the event of any extension to the Quote-Only Period or a trading pause, 
the Exchange will notify market participants regarding the 
circumstances and length of the extension.\188\ Orders will be matched 
and executed at the conclusion of the Quote-Only Period, rather than at 
9:30 a.m. Eastern Time.\189\ Following the initial cross at the end of 
the Quote-Only Period wherein orders will execute based on price/time 
priority consistent with proposed Rule 25080, the Exchange will 
transition to normal trading pursuant to proposed Rule 
25040(a)(6).\190\
---------------------------------------------------------------------------

    \185\ See proposed Rule 25040(b)(1).
    \186\ Such cases are when: (i) There is no TOP; (ii) the 
underwriter requests an extension; (iii) the TOP moves the greater 
of 10% or fifty (50) cents in the fifteen (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 or of the Exchange to 
complete the Initial Security Offering. See proposed Rule 
25040(b)(2).
    \187\ See proposed Rule 25040(b)(3).
    \188\ See proposed Rule 25040(b)(4). The Exchange also proposes 
that if a trading pause is triggered by the Exchange or if the 
Exchange is unable to reopen trading at the end of the trading pause 
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 Securities Exchange Act of 1934. Id.
    \189\ See proposed Rule 25040(b)(5).
    \190\ As with the regular opening process, orders marked IOC 
submitted during the Pre-Opening Phase of an Initial Security 
Offering Auction would be rejected. See proposed Rule 25040(b)(6).

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

[[Page 29652]]

    The Exchange also proposes a process for reopening trading 
following a Limit Up-Limit Down Halt or trading pause (``Halt 
Auctions''). For Halt Auctions, the Exchange proposes that in advance 
of reopening, the Exchange shall announce a Quote-Only Period that 
shall be five (5) minutes prior to the Halt Auction.\191\ This Quote-
Only Period may be extended in certain circumstances.\192\ The Exchange 
proposes to disseminate the same Broadcast Information as it does for 
an Initial Security Offering Auction and would similarly provide 
notification of any extension to the quote-only period as with an 
Initial Security Offering Auction.\193\ The transition to normal 
trading would also occur in the same manner as Initial Security 
Offering Auctions, as described above.\194\
---------------------------------------------------------------------------

    \191\ See proposed Rule 25040(c)(1). Orders marked IOC submitted 
during the Quote-Only Period would be rejected. In addition, Halt 
Auctions would be subject to the proposed Halt Auction Collar, as 
set forth in proposed Rule 25040(c)(2)(i) and (ii). These proposed 
collars for Halt Auctions are substantially similar to those 
provided by Cboe BZX, and are designed to make sure that the 
Exchange is able to reopen trading in a Security in a fair and 
orderly manner. See Cboe BZX Rule 11.23(d). To the extent an Halt 
Auction would occur at an ``Impermissible Price'' (i.e., a price 
outside of the proposed Halt Auction collars), the Exchange would 
extend the period of Halt Auction and gradually expand the scope of 
the collar price range over time until it is able to re-open trading 
in the Security in a manner consistent with proposed Rule 
25040(c)(2).
    \192\ See proposed Rule 25040(c)(2). The Quote-Only Period shall 
be extended for an additional five (5) minutes should a Halt Auction 
be unable to be performed due to the absence of a TOP (``Initial 
Extension Period''). After the Initial Extension Period, the 
Exchange proposes that the Quote-Only Period shall be extended for 
additional five (5) minute periods should a Halt Auction be unable 
to be performed due to absence of a TOP (``Additional Extension 
Period'') until a Halt Auction occurs. Under the proposed Rule, the 
Exchange shall attempt to conduct a Halt Auction during the course 
of each Additional Extension Period. Id.
    \193\ See proposed Rule 25040(c)(3)-(5).
    \194\ Id.
---------------------------------------------------------------------------

    The Exchange also proposes to adopt certain contingency procedures 
in proposed Rule 25040(d) that would provide that when a disruption 
occurs that prevents the execution of an Initial Security Offering 
Auction the Exchange will publicly announce the Quote-Only Period for 
the Initial Security Offering Auction, and the Exchange will then 
cancel all orders on the BSTX Book and disseminate a new scheduled time 
for the Quote-Only Period and opening match.\195\ Similarly, when a 
disruption occurs that prevents the execution of a Halt Auction, the 
Exchange will publicly announce that no Halt Auction will occur, and 
all orders in the halted Security on the BSTX Book will be canceled 
after which the Exchange will open the Security for trading without an 
auction.\196\
---------------------------------------------------------------------------

    \195\ See proposed Rule 25040(d)(1).
    \196\ See proposed Rule 25040(d)(2). The Exchange notes that 
these contingency procedures are substantially similar to those of 
another exchange (see e.g., IEX Rule 11.350(c)(4)) and are designed 
to ensure that the Exchange has appropriate mechanisms in place to 
address possible disruptions that may arise in an Initial Security 
Offering Auction or Halt Auction, consistent with the protection of 
investors and the public interest pursuant to Section 6(b)(5) of the 
Exchange Act. 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The opening process with respect to non-BSTX-listed securities is 
set forth in proposed Rule 25040(e). Pursuant to that Rule, BSTX 
Participants who wish to participate in the opening process may submit 
orders and quotes for inclusion in the BSTX Book, but such orders and 
quotes cannot execute until the termination of the Pre-Opening Phase 
(``Opening Process''). Orders that are canceled before the Opening 
Process will not participate in the Opening Process. The Exchange will 
attempt to perform the Opening Process and will match buy and sell 
orders that are executable at the midpoint of the NBBO.\197\ Generally, 
the price of the Opening Process will be at the midpoint of the first 
NBBO subsequent to the first two-sided quotation published by the 
listing exchange after 9:30:00 a.m. Eastern Time. Pursuant to proposed 
Rule 25040(e)(4), if the conditions to establish the price of the 
Opening Process set forth above do not occur by 9:45:00 a.m. Eastern 
Time, orders will be handled in time sequence, beginning with the order 
with the oldest time stamp, and will be placed on the BSTX Book 
cancelled, or executed in accordance with the terms of the order. A 
similar process will occur for re-opening a non-BSTX-listed security 
subject to a halt.\198\ The proposed opening process for Securities 
listed on another exchange serves as a placeholder in anticipation of 
other exchanges eventually listing and trading Securities, or the 
equivalent thereof, given that there are no other exchanges currently 
trading Securities. The proposed process for opening Securities listed 
on another exchange is similar to existing exchange rules governing the 
opening of trading of a security listed on another exchange.\199\
---------------------------------------------------------------------------

    \197\ See proposed Rule 25040(e)(2).
    \198\ See proposed Rule 25040(e)(5).
    \199\ See e.g., Cboe BZX Rule 11.24.
---------------------------------------------------------------------------

    Consistent with Section 6(b)(5) of the Exchange Act,\200\ the 
Exchange believes that the proposed process for opening trading in 
BSTX-listed Securities and Securities listed on other exchanges will 
promote just and equitable principles of trade and will help perfect 
the mechanism of a free and open market by establishing a uniform 
process to determine the opening price of Securities.\201\ Proposed 
Rule 25040 provides a mechanism by which BSTX Participants may submit 
orders in advance of the start of regular trading hours, perform an 
opening cross, and commence regular hours trading in Securities listed 
on BSTX or otherwise. Where an opening cross is not possible in a BSTX-
listed Security, the Exchange will proceed by opening regular hours 
trading in the Security anyway, which is consistent with the manner in 
which other exchanges open trading in securities.\202\ With respect to 
initial public offerings of Securities and openings after a Limit Up-
Limit Down halt or trading pause, BSTX proposes to use a process with 
features similar to its normal opening process. There are a variety of 
different ways in which an exchange can open trading in securities, 
including with respect to an initial public offering of a Security, and 
the Exchange believes that proposed Rule 25040 provides a simple and 
clear method for opening transactions that is consistent with the 
protection of investors and the public interest.\203\ Additionally, 
proposed Rule 25040 applies to all BSTX Participants in the same manner 
and is therefore not designed to permit unfair discrimination among 
BSTX Participants.
---------------------------------------------------------------------------

    \200\ 15 U.S.C. 78f(b)(5).
    \201\ The Exchange has not proposed to operate a closing auction 
at this time. As a result, the closing price of a Security on BSTX 
would be the last regular way transaction occurring on BSTX, which 
the Exchange believes is a simple and fair way to establish the 
closing price of a Security that does not permit unfair 
discrimination among customers, issuers, or broker-dealers 
consistent with Section 6(b)(5) of the Exchange Act. Id. This 
proposed process is consistent with the overall proposed simplified 
market structure for BSTX, which does not include a variety of order 
types offered by other exchanges such as market-on-close and limit-
on-close orders. The Exchange believes that a simplified market 
structure, including the proposed manner in which a closing price 
would be determined, promotes the public interest and the protection 
of investors consistent with Section 6(b)(5) of the Exchange Act 
through reduced complexity. Id.
    \202\ See e.g., BOX Rule 7070.
    \203\ The Exchange notes that its proposed opening, Initial 
Security Offering Auction, and Halt Auction processes are 
substantially similar to those of another exchange. See Cboe BZX 
Rule 11.23. The key differences between the Exchange's proposed 
processes and those of the Cboe BZX exchange are that the Exchange 
has substantially fewer order types, which make its opening process 
less complex.
---------------------------------------------------------------------------

Rule 25050--Trading Halts
    BSTX proposes to adopt rules relating to trading halts \204\ that 
are substantially

[[Page 29653]]

similar to other exchange rules adopted in connection with the NMS Plan 
to Address Extraordinary Market Volatility (``LULD Plan''), with 
certain exceptions that reflect Exchange functionality. BSTX intends to 
join the LULD Plan prior to the commencement of trading Securities. 
Below is an explanation of BSTX's approach to certain categories of 
orders during a trading halt:
---------------------------------------------------------------------------

    \204\ The Exchange notes that rules on opening trading for non-
BSTX-listed security are set forth in proposed Rule 25040(e).
---------------------------------------------------------------------------

     Short Sales--BSTX cancels all orders on the book during a 
halt and rejects any new orders, so rules relating to the repricing of 
short sale orders during a trading halt that certain other exchanges 
have adopted have been omitted.
     Pegged Orders--BSTX would not support pegged orders, at 
least initially, so rules relating to pegged orders during a trading 
halt have been omitted.
     Routable Orders--Pursuant to proposed Rule 25130, the BSTX 
System will reject any order or quotation that would lock or cross a 
protected quotation of another exchange (rather than routing such order 
or quotation), and therefore rules relating to handling of routable 
orders during a trading halt have been omitted.
     Limit Orders--Because BSTX would cancel resting order 
interest and reject incoming orders during a trading halt, specific 
rules relating to the repricing of limit-priced interest that certain 
other exchanges have adopted have been omitted.\205\
---------------------------------------------------------------------------

    \205\ See e.g., Cboe BZX 11.18(e)(5)(B).
---------------------------------------------------------------------------

     Auction Orders, Market Orders, and FOK Orders--BSTX would 
not support these order types, at least initially, so rules relating to 
these order types during a trading halt have been omitted.\206\
---------------------------------------------------------------------------

    \206\ IOC orders would be handled pursuant to proposed Rule 
25050(g)(5).
---------------------------------------------------------------------------

    Pursuant to proposed Rule 25050(d), 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.\207\
---------------------------------------------------------------------------

    \207\ Trading would resume pursuant to proposed Rule 
25040(e)(5). See proposed Rule 25050(g)(7).
---------------------------------------------------------------------------

    BSTX believes that it is in the public interest and furthers the 
protection of investors, consistent with Section 6(b)(5) of the 
Exchange Act \208\ to provide for a mechanism to halt trading in 
Securities during periods of extraordinary market volatility consistent 
with the LULD Plan. However, the Exchange has excluded rules relating 
to order types and other aspects of the LULD Plan that would not be 
supported by the Exchange, such as market orders and auction orders. 
The Exchange has also reserved the right in proposed Rule 25050(f) to 
halt or suspend trading in other circumstances where the Exchange deems 
it necessary to do so for the protection of investors and in the 
furtherance of the public interest.
---------------------------------------------------------------------------

    \208\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that canceling resting order interest during 
a trading halt and rejecting incoming orders received during the 
trading halt is consistent with Section 6(b)(5) of the Exchange Act 
\209\ because it is not designed to permit unfair discrimination among 
BSTX Participants. The orders and trading interest of all BSTX 
Participants would be canceled in the event of a trading halt and each 
BSTX Participant would be required to resubmit any orders they had 
resting on the order book.
---------------------------------------------------------------------------

    \209\ Id.
---------------------------------------------------------------------------

Rule 25060--Order Entry
    Proposed Rule 25060 sets forth the manner in which BSTX 
Participants may enter orders to the BSTX System. The BSTX System would 
initially only support limit orders.\210\ Orders that do not designate 
a limit price would be rejected.\211\ The BSTX System would also only 
support two time-in-force (``TIF'') designations initially: (i) DAY; 
and (ii) immediate or cancel (``IOC''). DAY orders will queue during 
the Pre-Opening Phase, may trade during regular market hours, and, if 
unexecuted at the close of the trading day (4:00 p.m. ET), are canceled 
by the BSTX System.\212\ All orders are given a default TIF of DAY. 
BSTX Participants may also designate orders as IOC, which designation 
overrides the default TIF of DAY. IOC orders are not accepted by the 
BSTX System during the Pre-Opening Phase. During regular trading hours, 
IOC orders will execute in whole or in part immediately upon receipt by 
the BSTX System. The BSTX System will not support modification of 
resting orders. To change the price or quantity of an order resting on 
the BSTX Book, a BSTX Participant must cancel the resting order and 
submit a new order, which will result in a new time stamp for purposes 
of BSTX Book priority. In addition, all orders on BSTX will be 
displayed, and the BSTX System will not support hidden orders or 
undisplayed liquidity, as set forth in proposed Rule 25100. The 
Exchange has also proposed an additional order parameter for BSTX 
Participants to indicate a preference for T+0 or T+1 settlement, as 
previously described in Item 3, Part II.I.
---------------------------------------------------------------------------

    \210\ The BSTX System will also accept incoming Intermarket 
Sweep Orders (``ISO'') pursuant to proposed Rule 25060(c)(2). 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 IOC. Proposed Rule 25060(c)(2) is substantially 
similar to rules of other national securities exchanges. See e.g., 
Cboe BZX Rule 11.9(d).
    \211\ Proposed Rule 25060(c)(1).
    \212\ Proposed Rule 25060(d)(1).
---------------------------------------------------------------------------

    Consistent with Section 6(b)(5) of the Exchange Act,\213\ the 
Exchange believes that the proposed order entry rules will promote just 
and equitable principles of trade and help perfect the mechanism of a 
free and open market by establishing the types of orders and modifiers 
that all BSTX Participants may use in entering orders to the BSTX 
System. Because these order types and TIFs are available to all BSTX 
Participants, the proposed rule does not unfairly discriminate among 
market participants, consistent with Section 6(b)(5) of the Exchange 
Act. The proposed rule sets forth a very simple exchange model whereby 
there is only one order type--limit orders--and two TIFs. Upon the 
initial launch of BSTX, there will be no hidden orders, price sliding, 
pegged orders, or other order type features that add complexity. The 
Exchange believes that creating a simplified exchange model is designed 
to protect investors and is in the public interest because it reduces 
complexity, thereby helping market participants better understand how 
orders would operate on the BSTX System.
---------------------------------------------------------------------------

    \213\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Rule 25070--Audit Trail
    Proposed Rule 25070 (Audit Trail) is designed to ensure that BSTX 
Participants provide the Exchange with information to be able to 
identify the source of a particular order and other information 
necessary to carry out the Exchange's oversight functions. The proposed 
rule is substantially similar to existing BOX Rule 7120 but eliminates 
certain information unique to orders for options contracts (e.g., 
exercise price) because Securities are equity securities. The proposed 
rule also provides that BSTX Participants that employ an electronic 
order routing or order management system that complies with Exchange 
requirements will be deemed to comply with the Rule if the required 
information is recorded in an electronic format. The proposed rule also 
specifies that order information must be kept for no less than three 
years and that where specific customer or account number information is 
not provided to the Exchange, BSTX Participants must maintain such 
information on their books and records.
    The Exchange believes that proposed Rule 25070 is designed to 
protect

[[Page 29654]]

investors and the public interest, consistent with Section 6(b)(5) of 
the Exchange Act,\214\ because it will provide the Exchange with 
information necessary to carry out its oversight role. Without being 
able to identify the source and terms of a particular order, the 
Exchange's ability to adequately surveil its market, with or through 
another SRO, for trading inconsistent with applicable regulatory 
requirements would be impeded. In order to promote compliance with Rule 
201 of Regulation SHO, proposed Rule 25080(b)(3) provides that when a 
short sale price test restriction is in effect, the execution price of 
the short sale order must be higher than (i.e., above) the best bid, 
unless the sell order is marked ``short exempt'' pursuant to Regulation 
SHO.
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    \214\ 15 U.S.C. 78f(b)(5).
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Rule 25080--Execution and Price Time Priority
    Proposed Rule 25080 governs the execution of orders on the BSTX 
System, providing a price-time priority model. 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. The proposed rule further provides that sell orders may not 
execute a price below the best bid in the marketplace and buy orders 
cannot execute at a price above the best offer in the marketplace. 
Further, the proposed rule ensures compliance with Regulation SHO, 
Regulation NMS, and the LULD Plan, in a manner consistent with the 
rulebooks of other national securities exchanges.\215\
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    \215\ See e.g., Cboe BZX Rule 11.13(a)(2)-(3) governing regular 
trading hours.
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 25080 is consistent with 
Section 6(b)(5) of the Exchange Act \216\ because it is designed to 
promote just and equitable principles of trade and foster cooperation 
and coordination with persons facilitating transactions in securities 
by setting forth the order execution priority scheme for Security 
transactions. Numerous other exchanges similarly operate a price-time 
priority structure for effecting transactions. The proposed rule also 
does not permit unfair discrimination among BSTX Participants because 
all BSTX Participants are subject to the same price-time priority 
structure. In addition, the Exchange believes that specifying in 
proposed Rule 25080(b)(3) that execution of short sale orders when a 
short sale price test restriction is in effect must occur at a price 
above the best bid unless the order is market ``short exempt,'' is 
consistent with the Exchange Act because it is intended promote 
compliance with Regulation SHO in furtherance of the protection of 
investors and the public interest.
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    \216\ 15 U.S.C. 78f(b)(5).
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Rule 25090--BSTX Risk Controls
    Proposed Rule 25090 sets forth certain risk controls applicable to 
orders submitted to the BSTX System. The proposed risk controls are 
designed to prevent the submission and execution of potentially 
erroneous orders. Under the proposed rule, the BSTX System will reject 
orders that exceed a maximum order size, as designated by each BSTX 
Participant. The Exchange, however may set default values for this 
control. The proposed rule also provides a means by which all of a BSTX 
Participant's orders will be canceled in the event that the BSTX 
Participant loses its connection to the BSTX System. Proposed Rule 
25090(c) provides a risk control that prevents incoming limit orders 
from being accepted by the BSTX System if the order's price is more 
than a designated percentage away from the National Best Bid or Offer 
in the marketplace. Proposed Rule 25090(d) provides a maximum order 
rate control whereby the BSTX System will reject an incoming order if 
the rate of orders received by the BSTX System exceeds a designated 
threshold. With respect to both of these risk controls (price 
protection for limit orders and maximum order rate), BSTX Participants 
may designate the appropriate thresholds, but the Exchange may also 
provide default values and mandatory minimum levels.
    The Exchange believes the proposed risk controls in Rule 25090 are 
consistent with Section 6(b)(5) of the Exchange Act \217\ because they 
are designed to help prevent the execution of potentially erroneous 
orders, which furthers the protection of investors and the public 
interest. Among other things, erroneous orders can be disruptive to the 
operation of an exchange marketplace, can lead to temporary price 
dislocations, and can hinder price formation. The Exchange believes 
that offering configurable risk controls to BSTX Participants, along 
with default values where a BSTX Participant has not designated its 
desired controls, will protect investors by reducing the number of 
erroneous executions on the BSTX System and will remove impediments to 
and perfect the mechanism of a free and open market system. The 
proposed risk controls are also similar to existing risk controls 
provided by the Exchange to Options Participants.
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    \217\ 15 U.S.C. 78f(b)(5).
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Rule 25100--Trade Execution, Reporting, and Dissemination of Quotations
    Proposed Rule 25100 provides that the Exchange shall collect and 
disseminate last sale information for transactions executed on the BSTX 
system. The proposed rule further provides that the aggregate of the 
best-ranked non-marketable Limit Order(s), pursuant to Rule 25080, to 
buy and the best-ranked non-marketable Limit Order(s) to sell in the 
BSTX Book shall be collected and made available to quotation vendors 
for dissemination. Proposed Rule 25100 further provides that the BSTX 
System will operate as an ``automated market center'' within the 
meaning of Regulation NMS and will display ``automated quotations'' at 
all times except in the event of a system malfunction.\218\ In 
addition, the proposed Rule specifies that the Exchange shall identify 
all trades executed pursuant to an exception or an exemption of 
Regulation NMS. The Exchange will disseminate last sale and quotation 
information pursuant to Rule 602 of Regulation NMS and will maintain 
connectivity to the securities information processors for dissemination 
of quotation information.\219\ BSTX Participants may obtain access to 
this information through the securities information processors.
---------------------------------------------------------------------------

    \218\ 17 CFR 242.600(b)(4) and (5). The general purpose of an 
exchange being deemed an ``automated trading center'' displaying 
``automated quotations'' relates to whether or not an exchange's 
quotations may be considered protected under Regulation NMS. See 
Exchange Act Release No. 51808, 70 FR 37495, 37520 (June 29, 2005). 
Other trading centers may not effect transactions that would trade 
through a protected quotation of another trading center. The 
Exchange believes that it is useful to specify that it will operate 
as an automated trading center at this time to make clear to market 
participants that it is not operating a manual market with respect 
to Securities.
    \219\ 17 CFR 242.602.
---------------------------------------------------------------------------

    Proposed Rule 25100(d) provides that executions that occur as a 
result of orders matched against the BSTX Book, pursuant to Rule 25080, 
shall clear and settle pursuant to the rules, policies, and procedures 
of a registered clearing agency. Rule 25100(e) obliges BSTX 
Participants, or a clearing member/participant clearing on behalf of a 
BSTX Participant to honor trades effected on the BSTX System on the 
scheduled settlement date, and the Exchange shall not be liable for the 
failure of BSTX

[[Page 29655]]

Participants to satisfy these obligations.\220\
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    \220\ These proposed provisions are substantially similar to 
those of exchanges. See e.g., Nasdaq Rule 4627 and IEX Rule 10.250.
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 25100 is consistent with 
Section 6(b)(5) of the Exchange Act \221\ because it will foster 
cooperation and coordination with persons processing information with 
respect to, and facilitating transactions in securities by requiring 
the Exchange to collect and disseminate quotation and last sale 
transaction information to market participants. BSTX Participants will 
need last sale and quotation information to effectively trade on the 
BSTX System, and proposed Rule 25100 sets forth the requirement for the 
Exchange to provide this information as well as the information to be 
provided. The proposed rule is similar to rules of other exchanges 
relating to the dissemination of last sale and quotation information. 
The Exchange believes that requiring BSTX Participants (or firms 
clearing trades on behalf of other BSTX Participants) to honor their 
trade obligations on the settlement date is consistent with the 
Exchange Act because it will foster cooperation with persons engaged in 
clearing and settling transactions in Securities, consistent with 
Section 6(b)(5) of the Exchange Act.\222\
---------------------------------------------------------------------------

    \221\ 15 U.S.C. 78f(b)(5).
    \222\ Id.
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Rule 25110--Clearly Erroneous
    Proposed Rule 25110 sets forth the manner in which BSTX will 
resolve clearly erroneous executions that might occur on the BSTX 
System and is substantially similar to comparable clearly erroneous 
rules on other exchanges. Under proposed Rule 25100, transactions that 
involve an obvious error such as price or quantity, may be canceled 
after review and a determination by an officer of BSTX or such other 
employee designee of BSTX (``Official'').\223\ BSTX Participants that 
believe they submitted an order erroneously to the Exchange may request 
a review of the transaction, and must do so within thirty (30) minutes 
of execution and provide certain information, including the factual 
basis for believing that the trade is clearly erroneous, to the 
Official.\224\ Under proposed Rule 25100(c), an Official may determine 
that a transaction is clearly erroneous if the price of the transaction 
to buy (sell) that is the subject of the complaint is greater than 
(less than) the ``Reference Price'' \225\ by an amount that equals or 
exceeds specified ``Numerical Guidelines.'' \226\ The Official may 
consider additional factors in determining whether a transaction is 
clearly erroneous, such as whether trading in the security had recently 
halted or overall market conditions.\227\ Similar to other exchanges 
`clearly erroneous rules, the Exchange may determine that trades are 
clearly erroneous in certain circumstances such as during a system 
disruption or malfunction, on a BSTX Officer's (or senior employee 
designee) own motion, during a trading halt, or with respect to a 
series of transactions over multiple days.\228\ Under proposed Rule 
25110(e)(2), BSTX Participants affected by a determination by an 
Official may appeal this decision to the Chief Regulatory Officer of 
BSTX, provided such appeal is made within thirty (30) minutes after the 
party making the appeal is given notice of the initial determination 
being appealed.\229\ The Chief Regulatory Officer's determination shall 
constitute final action by the Exchange on the matter at issue pursuant 
to proposed Rule 25110(e)(2)(ii).
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    \223\ A transaction made in clearly erroneous error and canceled 
by both parties or determined by the Exchange to be clearly 
erroneous would be removed from the Consolidated Tape. Proposed Rule 
25110(a).
    \224\ Proposed Rule 25110(b). The Official may also consider 
certain ``outlier'' transactions on a case by case basis where the 
request for review is submitted after 30 minutes but no longer than 
sixty (60) minutes after the transaction. Proposed Rule 2511(d).
    \225\ The Reference Price would be equal to the consolidated 
last sale immediately prior to the execution(s) under review except 
for in circumstances, such as, for example, relevant news impacting 
a security or securities, periods of extreme market volatility, 
sustained illiquidity, or widespread system issues, where use of a 
different Reference Price is necessary for the maintenance of a fair 
and orderly market and the protection of investors and the public 
interest. Proposed Rule 25110(c)(1).
    \226\ The proposed Numerical Guidelines are 10% where the 
Reference Price ranges from $0.00 to $25.00, 5% where the Reference 
Price is greater than $25.00 up to and including $50.00, and 3% 
where the Reference Price ranges is greater than $50. Proposed Rule 
25110(c)(1).
    \227\ Proposed Rule 25110(c)(1).
    \228\ See proposed Rule 25110(f)-(j). These provisions are 
virtually identical to similar provisions of other exchanges' 
clearly erroneous rules other than by making certain administrative 
edits (e.g., replacing the term ``security'' with ``Security'').
    \229\ Determinations by an Official pursuant to proposed Rule 
25110(f) relating to system disruptions or malfunctions may not be 
appealed if the Official made a determination that the nullification 
of transactions was necessary for the maintenance of a fair and 
orderly market or the protection of invests and the public interest. 
Proposed Rule 25110(d)(2).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 25110 is consistent with 
Section 6(b)(5) of the Exchange Act,\230\ because it would 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 
by setting forth the process by which clearly erroneous trades on the 
BSTX System may be identified and remedied. Proposed Rule 25110 would 
apply equally to all BSTX Participants and is therefore not designed to 
permit unfair discrimination among BSTX Participants, consistent with 
Section 6(b)(5) of the Exchange Act.\231\ The proposed rule is 
substantially similar to the clearly erroneous rules of other 
exchanges.\232\ For example, proposed Rule 25110 does not include 
provisions related to clearly erroneous transactions for routed orders 
because orders for Securities will not route to other exchanges.\233\ 
Securities would also only trade during regular trading hours (i.e., 
9:30 a.m. ET to 4:00 p.m. ET), so provisions from comparable exchange 
rules relating to clearly erroneous executions occurring outside of 
regular trading hours have been excluded. Proposed Rule 25110 also 
excludes provisions from comparable clearly erroneous rules of certain 
other exchanges relating to clearly erroneous executions in unlisted 
trading privileges securities that are subject to an initial public 
offering.\234\
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    \230\ 15 U.S.C. 78f(b)(5).
    \231\ Id.
    \232\ See e.g., Cboe BZX Rule 11.17. Similar to other exchanges' 
comparable rules, proposed Rule 25110 provides BSTX with the ability 
to determine clearly erroneous trades that result from a system 
disruption or malfunction, a BSTX Official acting on his or her own 
motion, trading halts, multi-day trading events, multi-stock events 
involving five or more (but less than twenty) securities whose 
executions occurred within a period of five minutes or less, multi-
stock events involving twenty or more securities whose executions 
occurred within a period of five minutes or less, securities subject 
to the LULD Plan, and for leveraged ETP Securities.
    \233\ Other exchange clearly erroneous rules reference removing 
trades from the Consolidated Tape. Because Security transactions 
would be reported pursuant to a separate transaction reporting plan, 
proposed Rule 25110 eliminates references to the ``Consolidated 
Tape'' and provides that clearly erroneous Security transactions 
will be removed from ``all relevant data feeds disseminating last 
sale information for Security transactions.'' See proposed Rule 
25110(a).
    \234\ The Exchange notes that not all equities exchanges have a 
provision with respect to trade nullification for UTP securities 
that are the subject of an initial public offering. See IEX Rule 
11.270.
---------------------------------------------------------------------------

    The Exchange believes that its proposed process for BSTX 
Participants to appeal clearly erroneous execution determinations made 
by an Exchange Official pursuant to proposed Rule 25110 to the Chief 
Regulatory Officer of BSTX is consistent with Section 6(b)(5) of the 
Exchange Act \235\ because it

[[Page 29656]]

promotes just and equitable principles of trade and fosters cooperation 
and coordination with persons regulating, settling, and facilitating 
transactions in securities by providing a clear and expedient process 
to appeal determinations made by an Official. BSTX Participants benefit 
from having a quick resolution to potentially clearly erroneous 
executions and giving the Chief Regulatory Officer discretion to decide 
any appeals of an Official's determination provides an efficient means 
to resolve potential appeals that applies equally to all BSTX 
Participants and therefore does not permit unfair discrimination among 
BSTX Participants, consistent with Section 6(b)(5) of the Exchange Act. 
The Exchange notes that, with respect to options trading on the 
Exchange, the Exchange's Chief Regulatory Officer similarly has sole 
authority to overturn or modify obvious error determinations made by an 
Exchange Official and that such determination constitutes final 
Exchange action on the matter at issue.\236\ In addition, proposed Rule 
25110(e)(2)(iii) provides that any determination made by an Official or 
the Chief Regulatory Officer of BSTX under proposed Rule 25110 shall be 
rendered without prejudice as to the rights of the parties to the 
transaction to submit their dispute to arbitration. Accordingly, there 
is an additional safeguard in place for BSTX Participants to seek 
further review of the Exchange's clearly erroneous determination.
---------------------------------------------------------------------------

    \235\ 15 U.S.C. 78f(b)(5).
    \236\ See BOX Rule 7170(n).
---------------------------------------------------------------------------

    To the extent Securities become tradeable on other national 
securities exchanges or other changes arise that may necessitate 
changes to proposed Rule 25110 to conform more closely with the clearly 
erroneous execution rules of other exchanges, the Exchange intends to 
implement changes as necessary through a proposed rule change filed 
with the Commission pursuant to Section 19 of the Exchange Act \237\ at 
such future date.
---------------------------------------------------------------------------

    \237\ 15 U.S.C. 78s.
---------------------------------------------------------------------------

Rule 25120--Short Sales
    Proposed Rule 25120 sets forth certain requirements with respect to 
short sale orders submitted to the BSTX System that is virtually 
identical to similar rules on other exchanges.\238\ Specifically, 
proposed Rule 25120 requires BSTX Participants to appropriately mark 
orders as long, short, or short exempt and provides that the BSTX 
System will not execute or display a short sale order not marked short 
exempt with respect to a ``covered security'' \239\ at a price that is 
less than or equal to the current national best bid if the price of 
that security decreases by 10% or more, as determined by the listing 
market for the covered security, from the covered security's closing 
price on the listing market as of the end of Regular Trading Hours on 
the prior day (the ``Trigger Price''). The proposed rule further 
specifies the duration of the ``Short Sale Price Test'' and that the 
BSTX System shall determine whether a transaction in a covered security 
has occurred at a Trigger Price and shall immediately notify the 
responsible single plan processor.\240\
---------------------------------------------------------------------------

    \238\ See e.g., IEX Rule 11.290.
    \239\ Proposed Rule 25120(b) provides that the terms ``covered 
security,'' ``listing market,'' and ``national best bid'' shall have 
the same meaning as in Rule 201 of Regulation SHO. 17 CFR 
242.201(a).
    \240\ Proposed Rule 25120(d). The proposed rule further provides 
in paragraph (d)(1) that if a covered security did not trade on BSTX 
on the prior trading day, BSTX's determination of the Trigger Price 
shall be based on the last sale price on the BSTX System for that 
Security on the most recent day on which the Security traded.
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 25120 is consistent with 
Section 6(b)(5) of the Exchange Act,\241\ because it would promote just 
and equitable principles of trade and further the protection of 
investors and the public interest by enforcing rules consistent with 
Regulation SHO. Pursuant to Regulation SHO, broker-dealers are required 
to appropriately mark orders as long, short, or short exempt,\242\ and 
trading centers are required to establish, maintain, and enforce 
written policies and procedures reasonably designed to, among other 
things, prevent the execution or display of a short sale order of a 
covered security at a price that is less than or equal to the current 
national best bid if the price of that covered security decreases by 
10% or more from its closing price on the primary listing market on the 
prior day.\243\ Proposed Rule 25120 is designed to promote compliance 
with Regulation SHO, is nearly identical to similar rules of other 
exchanges, and would apply equally to all BSTX Participants.
---------------------------------------------------------------------------

    \241\ 15 U.S.C. 78f(b)(5).
    \242\ 17 CFR 242.200(g).
    \243\ 17 CFR 242.201(b)(1).
---------------------------------------------------------------------------

Rule 25130--Locking or Crossing Quotations in NMS Stocks
    Proposed Rule 25130 sets forth provisions related to locking or 
crossing quotations. The proposed rule is substantially similar to the 
rules of other national securities exchanges.\244\ Proposed Rule 25130 
is designed to promote compliance with Regulation NMS and prohibits 
BSTX participants from engaging in a pattern or practice of displaying 
quotations that lock or cross a protected quotation unless an exception 
applies. The Exchange proposes in Rule 25130(d) that the BSTX System 
will reject any order or quotation that would lock or cross a protected 
quotation of another exchange at the time of entry.
---------------------------------------------------------------------------

    \244\ See IEX Rule 11.310.
---------------------------------------------------------------------------

    The Exchange believes proposed Rule 25130 is consistent with 
Section 6(b)(5) of the Exchange Act \245\ because it is designed to 
promote just and equitable principles of trade and foster cooperation 
and coordination with persons facilitating transactions in securities 
by ensuring that the Exchange prevents display of quotations that lock 
or cross any protected quotation in an NMS stock, in compliance with 
applicable provisions of Regulation NMS.
---------------------------------------------------------------------------

    \245\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Rule 25140--Clearance and Settlement: Anonymity
    Proposed Rule 25140 provides that each BSTX Participant must either 
(1) be a member of a registered clearing agency that uses a CNS system, 
or (2) clear transactions executed on the Exchange through another 
Participant that is a member of such a registered clearing agency. The 
Exchange would maintain connectivity and access to the UTC of NSCC for 
transmission of executed transactions. The proposed Rule requires a 
Participant that clears through another participant to obtain a written 
agreement, in a form acceptable to the Exchange, that sets out the 
terms of such arrangement. The proposed Rule also provides that BSTX 
transaction reports shall not reveal contra party identities and that 
transactions would be settled and cleared anonymously. In certain 
circumstances, such as for regulatory purposes, the Exchange may reveal 
the identity of a Participant or its clearing firm such as to comply 
with a court order.
    The Exchange believes that proposed Rule 25140 is consistent with 
Section 6(b)(5) of the Exchange Act \246\ because it would foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities. Proposed Rule 25140 is similar 
to rules of other exchanges relating to clearance and settlement.\247\
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    \246\ 15 U.S.C. 78f(b)(5).
    \247\ See e.g. IEX Rule 11.250.

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[[Page 29657]]

Rule 25150--Thinly Traded Securities and Suspension of Unlisted Trading 
Privileges
    Proposed Rule 25150 would set forth the criteria for eligible 
Securities to be considered ``Thinly Traded Securities'' for which UTP 
may be suspended at the election of the issuer. Discussion of this Rule 
is set forth above in Part II.H.
Market Making on BSTX (Rule 25200 Series)
    The BSTX Market Making Rules (Rules 25200--25240) provide for 
registration and describe the obligations of Market Makers on the 
Exchange. The proposed Market Making Rules also provide for 
registration and obligations of Designated Market Makers (``DMMs'') in 
a given Security, allocation of a DMM to a particular Security, and 
parameters for business combinations of DMMs.
    Proposed Rule 25200 sets forth the basic registration requirement 
for a BSTX Market Maker by noting that a Market Maker must enter a 
registration request to BSTX and that such registration shall become 
effective on the next trading day after the registration is entered, 
or, in the Exchange's discretion, the registration may become effective 
the day that it is entered (and the Exchange will provide notice to the 
Market Maker in such cases). The proposed Rule further provides that a 
BSTX Market Maker's registration shall be terminated by the Exchange if 
the Market Maker fails to enter quotations within five business days 
after the registration becomes effective.\248\
---------------------------------------------------------------------------

    \248\ Proposed Rule 25200 is substantially similar to IEX Rule 
11.150.
---------------------------------------------------------------------------

    Proposed Rule 25210 sets forth the obligations of Market Makers, 
including DMMs. Under the proposed Rule, a BSTX Participant that is a 
Market Maker, including a DMM, is generally required to post two-sided 
quotes during the regular market session for each Security in which it 
is registered as a Market Maker.\249\ The Exchange proposes that such 
quotes must be entered within a certain percentage, called the 
``Designated Percentage,'' of the National Best Bid (Offer) price in 
such Security (or last sale price, in the event there is no National 
Best Bid (Offer)) on the Exchange.\250\ The Exchange proposes that the 
Designated Percentage would be 30%.\251\ The Exchange notes that the 
proposed Designated Percentage is substantially similar to the 
corresponding Designated Percentage for NYSE American market makers 
with respect to Tier 2 NMS stocks (as defined under the LULD 
plan).\252\ The Exchange believes that the proposed Designated 
Percentage for quotation obligations of Market Makers would be 
sufficient to ensure that there is adequate liquidity sufficiently 
close to the National Best Bid or Offer (``NBBO'') in Securities and to 
ensure fair and orderly markets. The Exchange notes that pursuant to 
proposed Rule 25210(a)(1)(iii), there is nothing to preclude a Market 
Maker from entering trading interest at price levels that are closer to 
the NBBO, so Market Makers have the ability to quote must closer to the 
NBBO than required by the Designated Percentage requirement if they so 
choose.
---------------------------------------------------------------------------

    \249\ See proposed Rule 25210(a)(1).
    \250\ See proposed Rule 25210(a)(1)(ii)(A).
    \251\ See proposed Rule 25210(a)(1)(ii)(B).
    \252\ See NYSE American Rule 7.23E(a)(1)(B)(iii) (providing 
that, other than during certain time periods around the market open 
and close, the Designated Percentage for Tier 2 NMS stocks priced 
below $1.00 is 30% and for Tier 2 NMS stocks priced above $1.00 is 
28%).
---------------------------------------------------------------------------

    The Exchange proposes in Rule 25210(a)(4) that, in the event that 
price movements cause a Market Maker or DMM's quotations to fall 
outside of the National Best Bid (Offer) (or last sale price in the 
event there is no National Best Bid (Offer)) by a given percentage, 
with such percentage called the ``Defined Limit,'' in a Security for 
which they are a Market Maker, the Market Maker or DMM must enter a new 
bid or offer at not more than the Designated Percentage away from the 
National Best Bid (Offer) in that Security. The Exchange proposes that 
the Defined Limit shall be 31.5%.\253\ Under the proposed Rules, a 
Market Maker's quotations must be firm and automatically executable for 
their size, and, to the extent the Exchange finds that a Market Maker 
has a substantial or continued failure to meet its quotation 
obligations, such Market Maker may face disciplinary action from the 
Exchange.\254\ Under the proposed Market Maker and DMM Rules, Market 
Makers and DMMs' two-sided quotation obligations must be maintained for 
a quantity of a ``normal unit of trading'' which is defined as one 
Security.\255\ The Exchange believes that Securities may initially 
trade in smaller increments relative to other listed equities and that 
reducing the two-sided quoting increment from one round lot (i.e., 100 
shares) to one Security will be sufficient to meet liquidity demands 
and would make it easier for Market Makers and DMMs to meet their 
quotation obligations, which in turn incentivize more Market Maker 
participation.
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    \253\ See proposed Rule 25210(a)(1)(ii)(3).
    \254\ See proposed Rule 25210(b) and (c). Pursuant to proposed 
Rule 25310(d), a BSTX Market Maker, other than a DMM, may apply for 
a temporary withdrawal from its Market Maker status provided it 
meets certain conditions such as demonstrating legal or regulatory 
requirements that necessitate its temporary withdrawal.
    \255\ See proposed Rule 25210(a)(1).
---------------------------------------------------------------------------

    The Exchange notes that proposed Rule 25210 is substantially 
similar to NYSE American Rule 7.23E, with the exceptions of: (i) The 
modified normal unit of trading, Designated Percentage, and Defined 
Limit (as discussed above); (ii) specifying that the minimum quotation 
increment shall be $0.01; and (iii) specifying that Market Maker 
quotations must be firm for their displayed size and automatically 
executable. The Exchange believes that the additional specifications 
with respect to the minimum quotation increment and firm quotation 
requirement will add additional clarity to the expectations of Market 
Makers on the Exchange.
    Proposed Rule 25220 sets forth the registration requirements for a 
DMM. Under proposed Rule 25220, a DMM must be a registered Market Maker 
and be approved as a DMM in order to receive an allocation of 
Securities pursuant to proposed Rule 25230, which is described 
below.\256\ For Securities in which a Participant serves as a DMM, it 
must meet the same obligations as if it were a Market Maker and must 
also maintain a bid or offer at the National Best Bid and Offer at 
least 25% of the day measured across all Securities in which such 
Participant serves as DMM.\257\ The proposed Rule provides, among other 
things, that a there will be no more than one DMM per Security and that 
a DMM must maintain information barriers between the trading unit 
operating as a DMM and the trading unit operating as a BSTX Market 
Maker in the same Security (to the extent applicable).\258\ The Rule 
further provides a process by which a DMM may temporarily withdraw from 
its DMM status, which is similar to the same process for a BSTX Market 
Maker \259\ and similar to the same process for DMMs on other 
exchanges.\260\ The Exchange notes that proposed Rule 25220 is 
substantially similar to NYSE American Rule 7.24E with the exception 
that the Exchanges proposes to add a provision stating that the 
Exchange is not required to assign a DMM if the Security has an 
adequate number of BSTX Market Makers assigned to such Security. The 
purpose

[[Page 29658]]

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 three active Market Makers at initial listing and two 
Market Makers for continued listing, consistent with proposed Rule 
26106 (Market Maker Requirement), which is discussed further below.
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    \256\ See proposed 25220(b). DMMs would be approved by the 
Exchange pursuant to an application process an [sic].
    \257\ See proposed Rule 25220(c).
    \258\ See proposed Rule 25220(b).
    \259\ See proposed Rule 25210(d).
    \260\ See e.g., NYSE American Rule 7.24E(b)(4).
---------------------------------------------------------------------------

    In proposed Rule 25230, the Exchange proposes to set forth the 
process by which a DMMs are allocated and reallocated responsibility 
for a particular Security. Proposed Rule 25230(a) sets forth the basic 
eligibility criteria for when a Security may be allocated to a DMM, 
providing that this may occur when the Security is initially listed on 
BSTX, when it is reassigned pursuant to Rule 25230, or when it is 
currently listed without a DMM assigned to the Security.\261\ Proposed 
Rule 2530(a) also specifies that a DMM's eligibility to participate in 
the allocation process is determined at the time the interview is 
scheduled by the Exchange and specifies that a DMM must meet with the 
quotation requirements set forth in proposed Rule 25220(c) (DMM 
obligations). The proposed Rule further specifies how the Exchange will 
handle several situations in which the DMM does not meet its 
obligations, such as, for example, by issuing an initial warning 
advising of poor performance if the DMM fails to meet its obligations 
for a one-month period.\262\
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    \261\ As previously noted, pursuant to proposed Rule 26106, a 
Security may, in lieu of having a DMM assigned to it, have a minimum 
of three non-DMM Market Makers at initial listing and two non-DMM 
Market Makers for continued listing to be eligible for listing on 
the Exchange. Consequently, a Security might not have a DMM when it 
initially begins trading on BSTX, but may acquire a DMM later.
    \262\ See proposed Rule 25230(a)(4). The proposed handling of 
these scenarios where a DMM does not meet its obligations is 
substantially similar to parallel requirements in NYSE American Rule 
7.25E(a)(4).
---------------------------------------------------------------------------

    Proposed Rule 25230(b) sets forth the manner in which a DMM may be 
selected and allocated a Security. Under proposed Rule 25230(b), an 
issuer may select its DMM directly, delegate the authority to the 
Exchange to selects its DMM, or may opt to proceed with listing without 
a DMM, in which case a minimum of three non-DMM Market Makers at 
initial listing and two non-DMM Market Makers for continued listing 
must be assigned to its Security consistent with proposed Rule 26106. 
Proposed Rule 25230(b) further sets forth provisions relating to the 
interview between the issuer and DMMs, the Exchange selection by 
delegation, and a requirement that a DMM serve as a DMM for a Security 
for at least one year unless compelling circumstances exist for which 
the Exchange may consider a shorter time period. Each of these 
provisions is substantially similar to corresponding provisions in NYSE 
American Rule 7.25E(b)(1)-(3), with the exception that the Exchange may 
shorten the one year DMM commitment period in compelling 
circumstances.\263\ Proposed Rule 25230(b) further sets forth specific 
provisions related to a variety of different issuances and types of 
securities, including spin-offs or related companies, warrants, rights, 
relistings, equity Security listing after preferred Security, listed 
company mergers, target Securities, and closed-end management 
investment companies.\264\ Each of these provisions is substantially 
similar to corresponding provisions in NYSE American Rule 7.25E(b)(4)-
(11).
---------------------------------------------------------------------------

    \263\ The Exchange believes that providing the Exchange with 
flexibility to shorten the one year commitment period is appropriate 
to accommodate unforeseen events or circumstances that might arise 
with respect to a DMM, such as a force majeure event, preventing a 
DMM from being able to carry out its functions.
    \264\ See proposed Rule 25230(b)(4)-(11).
---------------------------------------------------------------------------

    Proposed Rule 25230(c) sets forth the reallocation process for a 
DMM in a manner that is substantially similarly to corresponding 
provisions in NYSE American Rule 7.25E(c). Generally, under the 
proposed Rule, an issuer may request a reallocation to a new DMM and 
Exchange staff will review this request, along with any DMM response 
letter, and eventually make a determination.\265\ Proposed Rule 
25230(d), (e), and (f), set forth provisions governing an allocation 
freeze, allocation sunset, and criteria for applicants that are not 
currently DMMs to be eligible to be allocated a Security as a DMM 
respectively. Each of these provisions are likewise substantially 
similar to corresponding provisions in NYSE American Rule 7.25E(d)-(f).
---------------------------------------------------------------------------

    \265\ In addition, proposed Rule 25230(c)(2) sets forth 
provisions that allow for the Exchange's CEO to immediately initiate 
a reallocation proceeding upon written notice to the DMM and the 
issuer when the DMM's performance in a particular market situation 
was, in the judgment of the Exchange, so egregiously deficient as to 
call into question the Exchange's integrity or impair the Exchange's 
reputation for maintaining an efficient, fair, and orderly market.
---------------------------------------------------------------------------

    Finally, proposed Rule 25240 sets forth the DMM combination review 
policy. The proposed Rule, among other things, defines a proposed 
combination among DMMs, requires that DMMs provide a written submission 
to the Office of the Corporate Secretary of the Exchange and specifies, 
among other things, the items to be disclosed in the written 
submission, the criteria that the Exchange will use to evaluate a 
proposed combination, and the timing for a decision by the Exchange, 
subject to the Exchange's right to extend such time period. The 
Exchange notes that proposed Rule 25240 is substantially similar to 
NYSE American Rule 7.26E.
    The Exchange believes that the proposed Market Making Rules set 
forth in the Rule 25200 Series are consistent with Section 6(b)(5) of 
the Exchange Act \266\ because they are designed to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The Exchange notes that the 
proposed Rules are substantially similar to the market making rules of 
other exchanges, as detailed above,\267\ and that all BSTX Participants 
are eligible to become a Market Maker or DMM provided they comply with 
the proposed requirements.\268\ The proposed Market Maker Rules set 
forth the quotation and related expectations of BSTX Market Makers 
which the Exchange believes will help ensure that there is sufficient 
liquidity in Securities. Although the corresponding NYSE American rules 
upon which the proposed Rules are based provide for multiple tiers and 
classes of stocks that were each associated with a different Designated 
Percentage and Defined Limit, the Exchange has collapsed all such 
classes in to one category and provided a single Designated Percentage 
of 30% and Defined Limit of 31.5% for all Security trading on BSTX. The 
Exchange believes that simplifying the Rules in this manner can reduce 
the potential for confusion and allows for easier compliance and will 
still adequately serve the liquidity needs of investors of Security 
investors, which the Exchange believes promotes the removal of 
impediments to and perfection of the mechanism of a free and open 
market and a national market system, consistent with Section 6(b)(5) of 
the Exchange Act.\269\
---------------------------------------------------------------------------

    \266\ 15 U.S.C. 78f(b)(5).
    \267\ See NYSE American Rule 7, Section 2.
    \268\ In this regard, the Exchange believes the proposed Market 
Making Rules are not designed to permit unfair discrimination 
between BSTX Participants, consistent with Section 6(b)(5) of the 
Exchange Act. 15 U.S.C. 78f(b)(5).
    \269\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange has also proposed that the minimum quotation size of 
Market Makers will be one Security. As noted above, the Exchange 
believes that Securities may initially trade in smaller increments 
relative to other listed

[[Page 29659]]

equities and that reducing the two-sided quoting increment from one 
round lot (i.e., 100 shares) to one Security would be sufficient to 
meet liquidity demands and would make it easier for Market Makers and 
DMMs to meet their quotation obligations, which in turn incentivize 
more Market Maker participation. The Exchange believes that adopting 
quotation requirements and parameters that are appropriate for the 
nature and types of securities that will trade on the Exchange will 
promote the protection of investors and the public interest by assuring 
that the Exchange Rules are appropriately tailored to its market.
BSTX Listing Rules Other Than for Exchange Traded Products and 
Suspension and Delisting Rules (Rule 26000 and 27000 Series)
    The BSTX Listing Rules Other than for Exchange Traded Products (the 
``Non-ETP Listing Rules'') in the Rule Series 26000 and the Suspension 
and Delisting Rules in the Rule 27000 Series have been adapted from, 
and are substantially similar to, Parts 1--12 of the NYSE American LLC 
Company Guide.\270\ Except as described below, each proposed Rule in 
the BSTX 26000 and 27000 Series is substantially similar to a Section 
of the NYSE American Company Guide.\271\ Below is further detail.
---------------------------------------------------------------------------

    \270\ All references to various ``Sections'' in the discussion 
of these Listing Rules refer to the various Sections of the NYSE 
American Company Guide.
    \271\ The Exchange notes that while the numbering of BSTX's 
Listing Rules generally corresponds to a Section of the NYSE 
American LLC Company Guide, BSTX did not integrate certain Sections 
of the NYSE American Company Guide that the Exchange deemed 
inapplicable to its operations, such as with respect to types of 
securities which the Exchange is not proposing to make eligible for 
listing (i.e., bonds, debentures, securities of foreign companies 
(other than Canadian companies), investment trusts, and securities 
such as equity-linked term notes). The Exchange also proposes to 
modify cross-references in the proposed Non-ETP Listing Rules to 
accord with its Rules.
---------------------------------------------------------------------------

     The BSTX Rule 26100 Series are based on the NYSE American 
Original Listing Requirements (Sections 101-146).\272\
---------------------------------------------------------------------------

    \272\ Pursuant to proposed Rule 26136, all securities initially 
listing on BSTX, except securities which are book-entry only, must 
be eligible for a Direct Registration Program operated by a clearing 
agency registered under Section 17A of the Exchange Act. 15 U.S.C. 
78q-1.
---------------------------------------------------------------------------

     The BSTX Original Listing Procedures (26200 Series) are 
based on the NYSE American Original Listing Procedures (Sections 201-
222).
     The BSTX Additional Listings Rules (26300 Series) are 
based on the NYSE American Additional Listings Sections (Sections 301-
350).
     The BSTX Disclosure Policies (26400 Series) are based on 
the NYSE American Disclosure Policies (Sections 401-404).
     The BSTX Dividends and Splits Rules (26500 Series) are 
based on the NYSE American Dividends and Stock Splits Sections 
(Sections 501-522).
     The BSTX Accounting; Annual and Quarterly Reports Rules 
(26600 Series) are based on the NYSE American Accounting; Annual and 
Quarterly Reports Sections (Sections 603-624).
     The BSTX Shareholders' Meetings, Approval and Voting of 
Proxies Rules (26700 Series) are based on the NYSE American 
Shareholders' Meetings, Approval and Voting of Proxies Sections 
(Sections 701-726).\273\
---------------------------------------------------------------------------

    \273\ The Exchange notes that the proposed fees for certain 
items in the proposed Listing Rules (e.g., proxy follow-up mailings) 
are the same as those charged by NYSE American. See e.g., proposed 
IM-26722-8 cf. NYSE American Section 722.80.
---------------------------------------------------------------------------

     The BSTX Corporate Governance Rules (26800 Series) are 
based on the NYSE American Corporate Governance Sections (Sections 801-
809).
     The BSTX Additional Matters Rules (26900 Series) are based 
on the NYSE American Additional Matters Sections (Sections 920-994).
     The BSTX Suspension and Delisting Rules (27000 Series) are 
based on the NYSE American Suspension and Delisting Sections (Sections 
1001-1011).
     The BSTX Guide to Filing Requirements (27100 Series) are 
based on the NYSE American Guide to Filing Requirements (Section 1101).
     The BSTX Procedures for Review of Exchange Listing 
Determinations (27200 Series) are based on the NYSE American Procedures 
for Review of Exchange Listing Determinations (Sections 1201-1211).
    Notwithstanding that the proposed Rule 26000 and 27000 Series are 
substantially similar to those of other exchanges, BSTX proposes 
certain additions or modifications to these rules specific to its 
market. For example, BSTX proposes to add definitions that apply to the 
proposed BSTX Rule 26000 and 27000 Series. The definitions set forth in 
proposed Rule 26000 are designed to facilitate understanding of these 
Rule Series by market participants. Increased clarity may serve to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system and may also foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, consistent with Section 6(b)(5) of the Exchange 
Act.\274\
---------------------------------------------------------------------------

    \274\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    With respect to initial listing standards for non-ETP Securities, 
which begin at proposed Rule 26101, the Exchange proposes to adopt 
listing standards that are substantially similar to the NYSE American 
listing rules.\275\ The Exchange believes that adopting listing rules 
similar to those in place on other national securities exchanges will 
facilitate more uniform standards across exchanges, which helps foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, consistent with Section 
6(b)(5) of the Exchange Act.\276\ Market participants that are already 
familiar with NYSE American's listing standards will already be 
familiar with most of the substance of the proposed listing rules. The 
Exchange also believes that adopting proposed listing standards that 
closely resemble those of NYSE American may also foster competition 
among listing exchanges for companies seeking to publicly list their 
securities. The Exchange is proposing an addition (relative to the NYSE 
American listing rules) to the initial listing standards for preferred 
Securities.\277\ Specifically, the Exchange proposes an additional 
standard for preferred Securities to list on the Exchange based on 
NASDAQ Rule 5510.\278\ The Exchange believes a

[[Page 29660]]

proposed rule providing an additional initial listing standard for 
preferred Securities consistent with a similar provision of NASDAQ 
would expand the possible universe of issuances that would be eligible 
to list on the Exchange to include preferred Securities. The Exchange 
believes that such a rule would help remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
consistent with Section 6(b)(5) of the Exchange Act by giving issuers 
an additional means by which it could list a different type of security 
(i.e., a preferred Security) and investors the opportunity to trade in 
such preferred Securities.\279\ Further, consistent with the public 
interest, rules that provide more opportunity for listings may promote 
competition among listing exchanges and capital formation for issuers.
---------------------------------------------------------------------------

    \275\ See NYSE American Section 101. The Exchange understands 
that the Commission has extended relief to NYSE American with 
respect to certain quantitative listing standards that do not meet 
the thresholds of SEC Rule 3a51-1. 17 CFR 240.3a51-1. Initial 
listings of securities that do not meet such thresholds and are not 
subject to the relief provided to NYSE American would qualify as 
``penny stocks'' and would be subject to additional regulation. BSTX 
notes that it is not seeking relief related to SEC Rule 3a51-1 and 
therefore has clarified proposed Rule 26101(a)(2) to ensure that 
issuers have at least one year of operating history. BSTX will also 
require new listings pursuant to proposed Rule 26102 to have a 
public distribution of 1 million Securities, 400 public Security 
holders, and a minimum market price of $4 per Security. These 
provisions meet the requirements in SEC Rule 3a51-1 and are 
consistent with the rules of other national securities exchanges. 
See e.g., Nasdaq Rule 5510. The quantitative thresholds specified in 
Rule 26102 are also reflected in the Sample Underwriter's Letter 
that has been submitted as Exhibit 3L to this proposal. In addition, 
the Exchange notes that proposed Rule 26140, which governs the 
additional listing requirements of a company that is affiliated with 
the Exchange, is based on similar provisions in NYSE American Rule 
497 and IEX 14.205.
    \276\ 15 U.S.C. 78f(b)(5).
    \277\ See proposed Rule 26103.
    \278\ See proposed Rule 26103(b)(2). Preferred Security 
Distribution Standard 2 requires that a preferred Security listing 
satisfy the following conditions: Minimum bid price of at least $4 
per Security; at least 10 Round Lot holders; At least 200,000 
Publicly Held Securities; and Market Value of Publicly Held 
Securities of at least $3.5 million.
    \279\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    With respect to the definitions in proposed Rule 26000, these are 
designed to facilitate understanding of the BSTX Non-ETP Listing Rules 
by market participants. The Exchange believes that allowing market 
participants to better understand and interpret the BSTX Non-ETP 
Listing Rules removes impediments to and perfects the mechanism of a 
free and open market and a national market system, and may also foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, consistent with Section 
6(b)(5) of the Exchange Act.\280\
---------------------------------------------------------------------------

    \280\ Id.
---------------------------------------------------------------------------

    The Exchange also proposes certain enhancements to the notice 
requirements for listed companies to communicate to BSTX related to 
record dates and defaults.\281\ The Exchange believes that these 
additional disclosure and communication obligations can help BSTX in 
monitoring for listed company compliance with applicable rules and 
regulations; such additional disclosure obligations are 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, 
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, consistent with Section 
6(b)(5) of the Exchange Act.\282\
---------------------------------------------------------------------------

    \281\ See Proposed Rule 26502, which requires, among other 
things, a listing company to give the Exchange at least ten days' 
notice in advance of a record date established for any other 
purpose, including meetings of shareholders.
    \282\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange's proposed Rules provide additional flexibility for 
listed companies in choosing how liquidity would be provided in their 
listings by allowing listed companies to meet either the DMM 
Requirement or Active Market Maker Requirement for initial listing and 
continued trading.\283\ Pursuant to proposed Rule 26205, a company may 
choose to be assigned a DMM by the Exchange or to select its own 
DMM.\284\ Alternatively, a company may elect, or the Exchange may 
determine, that, in lieu of a DMM, a minimum of three (3) market makers 
would be assigned to the Security at initial listing; such requirement 
may be reduced to two (2) market makers following the initial listing, 
consistent with proposed Rule 26106. The Exchange believes that such 
additional flexibility would promote the removal of impediments to and 
perfection of the mechanism of a free and open market and a national 
market system, consistent with Section 6(b)(5) of the Exchange 
Act.\285\ The Commission has previously approved exchange rules 
providing for three market makers to be assigned to a particular 
security upon initial listing and only two for continued listing.\286\ 
In accordance with these previously approved rules, the Exchange 
believes proposed Rule 26205 would ensure fair and orderly markets and 
would facilitate the provision of sufficient liquidity for Securities.
---------------------------------------------------------------------------

    \283\ See proposed Rule 26205. BSTX-listed Securities must meet 
the criteria specified in proposed Rule 26106, which provides that 
unless otherwise provided, all Securities listed pursuant to the 
BSTX Listing Standards must meet one of the following requirements: 
(1) The DMM Requirement whereby a DMM must be assigned to a given 
Security; or (2) the Active Market Maker Requirement which states 
that (i) for initial inclusion the Security must have at least three 
registered and active Market Makers, and (ii) for continued listing, 
a Security must have at least two registered and active Market 
Makers, one of which may be a Market Maker entering a stabilizing 
bid.
    \284\ Exchange personnel responsible for managing the listing 
and onboarding process would be responsible for determining to which 
DMM a Security would be assigned. As provided in proposed Rule 
26205, the Exchange makes every effort to see that each Security is 
allocated in the best interests of the company and its shareholders, 
as well as that of the public and the Exchange. Similarly, the 
Exchange anticipates that these same personnel would be responsible 
for answering questions relating to the Exchange's listing rules 
pursuant to proposed Rule 26994 (New Policies). The Exchange notes 
that certain provisions in the NYSE American Listing Manual 
contemplate a ``Listing Qualifications Analyst'' that would perform 
a number of these functions. The Exchange is not proposing to adopt 
provisions that specifically contemplate a ``Listing Qualifications 
Analyst,'' but expects to have personnel that will perform the same 
basic functions, such as advising issuers and prospective issuers 
with respect to relevant rules related to listing.
    \285\ 15 U.S.C. 78f(b)(5).
    \286\ See e.g., IEX Rule 14.206.
---------------------------------------------------------------------------

    The Exchange also proposes a number of other non-substantive 
changes from the baseline NYSE American listing rules, such as to 
eliminate references to the concept of a ``specialist,'' since BSTX 
will not have a specialist,\287\ or references to certificated 
equities, since Securities will be uncertificated equities.\288\ As 
another example, NYSE American Section 623 requires that three copies 
of certain press releases be sent to the exchange, while the Exchange 
proposes only that a single copy of such press release be shared with 
the Exchange.\289\ In addition, the Exchange proposes to adopt Rule 
26720 in a manner that is substantially similar to NYSE American 
Section 720, but proposes to modify the internal citations to ensure 
consistency with its proposed Rulebook.\290\ In its proposed Rules, the

[[Page 29661]]

Exchange has not included certain form letters related to proxy rules 
that are included in the NYSE American rules; \291\ instead, these 
forms will be included in the BSTX Listing Supplement.\292\ The 
Exchange is not proposing to adopt provisions relating to future priced 
securities at this time.\293\ In addition, the Exchange is not 
proposing to allow for listing of foreign companies, other than 
Canadian companies,\294\ or to allow for issuers to transfer their 
existing securities to BSTX.\295\ Similarly, the Exchange is not 
proposing at this time to support debt securities (other than those 
that may be ETPs), so the Exchange has not proposed to adopt certain 
provisions from the NYSE American Listing Manual related to bonds/debt 
securities \296\ or the trading of units.\297\ The Exchange believes 
that the departures from the NYSE American rules upon which the 
proposed Rules are based, as described above, are non-substantive 
(e.g., by not including provisions relating to instruments that will 
not trade on the Exchange), would apply to all issuers in the same 
manner and are therefore not designed to permit unfair discrimination, 
consistent with Section 6(b)(5) of the Exchange Act.\298\
---------------------------------------------------------------------------

    \287\ See e.g., NYSE American Section 513(f), noting that open 
orders to buy and open orders to sell on the books of a specialist 
on an ex rights date are reduced by the cash value of the rights. 
Proposed Rule 26340(f) deletes this provision because BSTX will not 
have specialists. Similarly, because BSTX will not have specialists, 
the Exchange is not proposing to adopt a parallel rule to NYSE 
American Section 516, which specifies that certain types of orders 
are to be reduced by a specialist when a security is quoted ex-
dividend, ex-distribution or ex-rights are set forth in NYSE 
American Rule 132.
    \288\ See e.g., NYSE American Section 117 including a clause 
relating to paired securities for which ``the stock certificates of 
which are printed back-to-back on a single certificate''). 
Similarly, the Exchange has proposed to replace certain references 
to the ``Office of General Counsel'' contained in certain NYSE 
American Listing Rule (see e.g., Section 1205) with references to 
the Exchange's ``Legal Department'' to accommodate differences in 
BSTX's organizational structure. See proposed Rule 27204. As another 
example, proposed Rule 27205 refers to the Exchange's ``Hearing 
Committee'' as defined in Section 6.08 of the Exchange's By-Laws to 
similarly accommodate organizational differences between the 
Exchange and NYSE American.
    \289\ See proposed Rule 26623.
    \290\ Specifically, proposed Rule 26720 would provide that 
participants must comply with Rules 26720 through 26725 and BSTX's 
Rule 22020 (Forwarding of Proxy and Other Issuer-Related Materials; 
Proxy Voting). NYSE American Section 726, upon which proposed Rule 
26720 is based, includes cross-references to NYSE American's 
corresponding rules to proposed Rules 26720 through 26725, and also 
includes cross-references to NYSE American Rules 578 through 585, 
for which the Exchange is not proposing corresponding rules. These 
NYSE American rules for which the Exchange is not proposing to adopt 
a parallel rule relate to certain requirements specific to proxy 
voting (e.g., requiring that a member state the actual number of 
shares for which a proxy is given--NYSE American Rule 578) or, in 
some cases, relate to certificated securities (e.g., NYSE American 
Rule 579), which would be inapplicable to the Exchange since it 
proposes to only list uncertificated securities. The Exchange 
believes that it does not need to propose to adopt parallel rules 
corresponding to NYSE American Rules 578-585 at this time and notes 
that other listing exchanges do not appear have corresponding 
versions of these NYSE American Rules. See e.g., Cboe BZX Rules. The 
Exchange believes that proposed Rule 26720 and the Exchange's other 
proposed Rules governing proxies, including those referenced in 
proposed Rule 26720, are sufficient to govern BSTX Participants' 
obligations with respect to proxies.
    \291\ The forms found in NYSE American Section 722.20 and 722.40 
would be included in the BSTX Listing Supplement.
    \292\ The BSTX Listing Supplement would contain samples of 
letters containing the information and instructions required 
pursuant to the proxy rules to be given to clients in the 
circumstances indicated in the appropriate heading. These are 
intended to serve as examples and not as prescribed forms. 
Participants would be permitted to adapt the form of these letters 
for their own purposes provided all of the required information and 
instructions are clearly enumerated in letters to clients. Pursuant 
to proposed Rule 26212, the BSTX Listing Supplement would also 
include a sample application for original listing, which the 
Exchange has submitted as Exhibit 3G. In addition, proposed Rule 
26350 states that the BSTX Listing Supplement will include a sample 
cancellation notice; the Exchange expects such notice to be 
substantially in the same form as NYSE American's sample notice in 
NYSE American Section 350. Other examples of items that would appear 
in the BSTX Listing Supplement include certain certifications to be 
completed by the CEO of listed companies pursuant to proposed Rule 
26810(a) and (c), and forms of letters to be sent to clients 
requesting voting instructions and other letters relating to proxy 
votes pursuant to proposed IM-26722-2 and IM-26722-4. The Exchange 
expects that these proposed materials in the BSTX Listing Supplement 
would be substantially similar to the corresponding versions of such 
samples used by NYSE American. The purpose of putting these sample 
letters and other information into the BSTX Listing Supplement 
rather than directly in the rules is to improve the readability of 
the Rules.
    \293\ See e.g., NYSE American Section 101, Commentary .02. The 
Exchange is also not proposing to adopt a parallel provision to NYSE 
American Section 950 (Explanation of Difference between Listed and 
Unlisted Trading Privileges) because the Exchange believes that such 
provision is not necessary and contains extraneous historical 
details that are not particularly relevant to the trading of 
Securities. The Exchange notes that numerous other listing exchanges 
do not have a similar provision to NYSE American Section 950. See 
e.g., IEX Listing Rules.
    \294\ See proposed Rule 26109. Because the Exchange does not 
propose to allow foreign issuers of Securities, it does not propose 
to adopt a parallel provision to NYSE American Section 110 and other 
similar provisions relating to foreign issuers--e.g., NYSE American 
Section 801(f).
    \295\ Consequently, the Exchange does not propose to adopt a 
parallel provision to NYSE American Section 113 at this time.
    \296\ See e.g., NYSE American Sections 1003(b)(iv) and (e).
    \297\ See e.g., NYSE American Sections 106(f), 401(i), and 
1003(g).
    \298\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange proposes in Rule 26507 to prohibit the issuance of 
fractional Securities and to provide that cash must be paid in lieu of 
any distribution or part of a distribution that might result in 
fractional interests in Securities.\299\ The Exchange believes that 
disallowing fractional shares reduces complexity. By extension, the 
requirement to provide cash in lieu of fractional shares simplifies the 
process related to share transfer and tracking of share ownership. The 
Exchange believes that this simplification promotes just and equitable 
principles of trade, fosters cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and facilitating transactions in securities, removes 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protects investors and the 
public interest, consistent with Section 6(b)(5) of the Exchange 
Act.\300\
---------------------------------------------------------------------------

    \299\ The Exchange also proposes certain conforming changes in 
Rule 26503 (Form of Notice) to reiterate that fractional interests 
in Securities are not permitted by the Exchange.
    \300\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Proposed BSTX Rule 26130 (Original Listing Applications) would 
require listing applicants to furnish a legal opinion that the 
applicant's Security is a security under applicable United States 
securities laws. Such a requirement provides assurance to the Exchange 
that Security trading relates to appropriate asset classes. The 
Exchange believes that this Rule promotes just and equitable principles 
of trade and, in general, protects investors and the public interest, 
consistent with Section 6(b)(5) of the Exchange Act.\301\
---------------------------------------------------------------------------

    \301\ Id.
---------------------------------------------------------------------------

    The Exchange proposes to adopt corporate governance listing 
standards as its Rule 26800 Series that are substantially similar to 
the corporate governance listing standards set forth in Part 8 of the 
NYSE American Listing Manual. However, it includes certain 
clarifications, most notably that certain proposed provisions are not 
intended to restrict the number of terms that a director may serve 
\302\ and that, if a limited partnership is managed by a general 
partner rather than a board of directors, the audit committee 
requirements applicable to the listed entity should be satisfied by the 
general partner.\303\ The Exchange also notes that, unlike the current 
NYSE American rules upon which the proposed Rules are based, the 
proposed Rules on corporate governance do not include provisions on 
asset-backed securities and foreign issues (other than those from 
Canada), since the Exchange does not proposed to allow for such foreign 
issuers to list on BSTX at this time.
---------------------------------------------------------------------------

    \302\ See proposed Rule 26802(d).
    \303\ See proposed Rule 26801(b).
---------------------------------------------------------------------------

    The Exchange proposes to adopt additional listing rules as its Rule 
26900 Series that are substantially similar to the corporate governance 
listing standards set forth in Part 9 of the NYSE American Listing 
Manual. The only significant difference from the baseline NYSE American 
rules is that the proposed BSTX Rules do not include provisions related 
to certificated securities, since Securities listed on BSTX will be 
uncertificated.
    The Exchange proposes to adopt suspension and delisting rules as 
its Rule 27000 Series that are substantially similar to the corporate 
governance listing standards set forth in Parts 10, 11, and 12 of the 
NYSE American Listing Manual. The proposed rules do not include 
concepts from the baseline NYSE American rules regarding foreign, fixed 
income securities, or other non-equity securities because the Exchange 
is not proposing to allow for listing of such securities at this 
time.\304\
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    \304\ As with all sections of the proposed rules, references to 
``securities'' have been changed to ``Securities'' where appropriate 
and, in the Rule 27000 Series, certain references have been 
conformed from the baseline NYSE American provisions to account for 
the differences in governance structure and naming conventions of 
BSTX.
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    The Exchange believes that the proposals in the Rule 26800 to Rule 
27000 Series, which are based on the rules of NYSE American with the 
differences explained above, are

[[Page 29662]]

designed to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, 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. 
Further, the differences in the proposals compared to the analogous 
NYSE American provisions appropriately reflect the differences between 
the two exchanges. The Exchange believes that ensuring that its systems 
are appropriately described in the BSTX Rules facilitates market 
participants' review of such Rules, which serves to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system by ensuring that market participants can easily navigate, 
understand and comply with the Exchange's rulebook. Therefore, the 
Exchange believes its proposals are consistent with Section 6(b)(5) of 
the Exchange Act.\305\
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    \305\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Trading and Listing Rules for Exchange-Trade Products (Rule 28000 
Series)
    The Exchange proposes as the Rule 28000 Series rules related to 
trading and listing ETPs. These proposed Rules allow for an array of 
different types of ETPs to be traded and listed on the Exchange and 
would provide individuals and institutions with diverse range of 
products in which to invest. The proposed Rules would set forth 
requirements and initial as well as continued listing standards for a 
variety of ETPs noted in the bulleted list below. The proposed Rules 
have been adapted from, and are substantially similar to, rules found 
in the NYSE Arca Inc. (``NYSE Arca'') rulebook. Below is a list of the 
proposed Rules in the 28000 Series and the NYSE Arca rules on which it 
is based:
     Proposed Rule 28000 (Investment Company Units) is based on 
NYSE Arca Rule 5.2-E(j)(3)
     Proposed Rule 28001 (Equity Index-Linked Securities, 
Commodity-Linked Securities, Currency-Linked Securities, Fixed Income 
Index-Linked Securities, Futures-Linked Securities and Multifactor 
Index-Linked Securities) is based on NYSE Arca Rule 5.2-E(j)(6)
     Proposed Rule 28002 (Exchange-Traded Fund Shares) is based 
on NYSE Arca Rule 5.2-E(j)(8)
     Proposed Rule 28003 (Trust Issued Receipts) is based on 
NYSE Arca Rule 8.200-E
     Proposed Rule 28004 (Commodity-Based Trust Shares) is 
based on NYSE Arca Rule 8.201-E
     Proposed Rule 28005 (Managed Fund Shares) is based on NYSE 
Arca Rule 8.600-E
     Proposed Rule 28006 (Active Proxy Portfolio Shares) is 
based on NYSE Arca Rule 8.601-E
     Proposed Rule 28007 (Managed Portfolio Shares) is based on 
NYSE Arca Rule 8.900-E
    For each Rule in the 28000 Series, the Exchange proposes provisions 
that are substantially similar to provisions in the NYSE Arca rulebook, 
with adjustments made to ensure appropriate reference to concepts in 
other parts of the BSTX Rulebook. For example, in cases where the 
precedent NYSE Arca rule referred to a specific provision regarding 
delisting procedures, the Exchange has modified the proposed Rules to 
reference to the proposed Rule 27000 Series, which set forth the 
Exchange's proposed Rules governing suspension and delisting.\306\ As 
another example, the proposed definition of ``ETP Holder,'' which 
closely parallels the same definition in the NYSE Arca Rulebook, but is 
located in a different place in the proposed BSTX Rulebook as compared 
to the NYSE Arca rulebook.\307\ In addition, certain products or 
concepts that are supported by NYSE Arca but are not supported by the 
Exchange have not been included in the proposal. For example, the 
Exchange notes that the NYSE Arca rulebook provides for trading of a 
Nasdaq-100 Index product, Currency Trust Shares, and Commodity Index 
Trust Shares,\308\ whereas the Exchange will not support trading in 
these specific ETPs and therefore has not included provisions relating 
to the listing and trading of such products in its proposal. The 
discussion below describes other notable variations from the NYSE Arca 
rules set forth in the proposed Rule Series 28000.
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    \306\ As another example, the concept of ``Core Trading Hours'' 
in the NYSE Arca Rulebook (as defined therein) has no analog in the 
BSTX Rulebook. The BSTX Rulebook only allows for Regular Trading 
Hours and thus the proposal references the concept of Regular 
Trading Hours.
    \307\ See proposed IM-28000-1g. In the NYSE Arca rule book, the 
comparable definition is set forth in NYSE Arca Rulebook Rule 1.
    \308\ Specifically, Section 2 of Rule 8-E in the NYSE Arca 
rulebook allows for trading of a Nasdaq-100 Index product, Currency 
Trust Shares, and Commodity Index Trust Shares.
---------------------------------------------------------------------------

    The Exchange believes that the proposals in the Rule 28000 Series 
help remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general promote the 
protecting of investors and the public interest because they will 
facilitate an additional exchange on which ETPs can be listed and 
traded. This adds competition to the marketplace for the listing of 
ETPs, providing greater choice for issuers of ETPs and an additional 
trading venue on which market participants can trade such products. As 
noted, the proposed Rule 28000 Series is substantially similar to the 
rules of NYSE Arca relating to ETPs, with only non-substantive 
differences, which differences appropriately reflect the differences 
between the two exchanges (e.g., internal cross-references within each 
rule book or excluding provisions related to products that the Exchange 
will not support).
Fees (Rule 29000 Series)
    The Exchange proposes to set forth as its Rule 29000 Series (Fees) 
the Exchange's authority to prescribe reasonable dues, fees, 
assessments or other charges as it may deem appropriate. As provided in 
proposed Rule 29000 (Authority to Prescribe Dues, Fees, Assessments and 
Other Charges), these fees may include membership dues, transaction 
fees, communication and technology fees, regulatory fees, and other 
fees, which will be equitably allocated among BSTX Participants, 
issuers, and other persons using the Exchange's facilities.\309\ 
Proposed Rule 29010 (Regulatory Revenues) generally provides that any 
revenues received by the Exchange from fees derived from its regulatory 
function or regulatory fines will not be used for non-regulatory 
purposes or distributed to the stockholder, but rather, shall be 
applied to fund the legal and regulatory operations of the Exchange 
(including surveillance and enforcement activities).
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    \309\ Proposed Rule 29000 further provides authority for the 
Exchange to charge BSTX Participants a regulatory transaction fee 
pursuant to Section 31 of the Exchange Act (15 U.S.C. 78ee) and that 
the Exchange will set forth fees pursuant to publicly available 
schedule of fees.
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    The Exchange believes that the proposed Rule 29000 Series (Fees) is 
consistent with Sections 6(b)(5) of the Exchange Act because these 
proposed rules are designed to protect investors and the public 
interest by setting forth the Exchange's authority to assess fees on 
BSTX Participants, which would be used to operate the BSTX System and 
surveil BSTX for compliance with applicable laws and rules. The 
Exchange believes that the proposed Rule 29000 Series (Fees) is also 
consistent with Sections 6(b)(3) of the Exchange Act \310\ because the 
proposed Rules specify that all fees assessed by the Exchange shall be 
equitably allocated among BSTX Participants, issuers and other persons 
using the

[[Page 29663]]

Exchange's facilities. The Exchange notes that the proposed Rule 29000 
Series is substantially similar to the existing rules of another 
exchange.\311\ The Exchange intends to submit a proposed rule change to 
the Commission setting forth the proposed fees relating to trading on 
BSTX in advance of the launch of BSTX.
---------------------------------------------------------------------------

    \310\ 15 U.S.C. 78f(b)(5).
    \311\ See Cboe BZX Rules 15.1 and 15.2.
---------------------------------------------------------------------------

Minor Rule Violation Plan
    The Exchange's disciplinary rules, including Exchange Rules 
applicable to ``minor rule violations,'' are set forth in the Rule 
12000 Series of the Exchange's current Rules. Such disciplinary rules 
would apply to BSTX Participants and their associated persons pursuant 
to proposed Rule 24000. The Exchange's Minor Rule Violation Plan 
(``MRVP'') specifies those uncontested minor rule violations with 
sanctions not exceeding $2,500 that would not be subject to the 
provisions of Rule 19d-1(c)(1) under the Exchange Act \312\ requiring 
that an SRO promptly file notice with the Commission of any final 
disciplinary action taken with respect to any person or 
organization.\313\ The Exchange's MRVP includes the policies and 
procedures set forth in Exchange Rule 12140 (Imposition of Fines for 
Minor Violations).
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    \312\ 17 CFR 240.19d-1(c)(1).
    \313\ The Commission adopted amendments to paragraph (c) of Rule 
19d-1 to allow SROs to submit for Commission approval plans for the 
abbreviated reporting of minor disciplinary infractions. See 
Exchange Act Release No. 21013 (June 1, 1984), 49 FR 23828 (June 8, 
1984). Any disciplinary action taken by an SRO against any person 
for violation of a rule of the SRO which has been designated as a 
minor rule violation pursuant to such a plan filed with and declared 
effective by the Commission will not be considered ``final'' for 
purposes of Section 19(d)(1) of the Exchange Act if the sanction 
imposed consists of a fine not exceeding $2,500 and the sanctioned 
person has not sought an adjudication, including a hearing, or 
otherwise exhausted his administrative remedies.
---------------------------------------------------------------------------

    The Exchange proposes to amend its MRVP and Rule 12140 to include 
proposed Rule 24010 (Penalty for Minor Rule Violations). The Rules 
included in proposed Rule 24010 as appropriate for disposition under 
the Exchange's MRVP are: (a) Rule 20000 (Maintenance, Retention and 
Furnishing of Records); (b) Rule 25070 (Audit Trail); (c) Rule 
25210(a)(1) (Two-Sided Quotation Obligations of BSTX Market Makers); 
and Rule 25120 (Short Sales). The rules included in proposed Rule 12140 
are the same as the rules included in the MRVPs of other 
exchanges.\314\ Upon implementation of this proposal, the Exchange will 
include the enumerated trading rule violations in the Exchange's 
standard quarterly report of actions taken on minor rule violations 
under the MRVP. The quarterly report includes: The Exchange's internal 
file number for the case, the name of the individual and/or 
organization, the nature of the violation, the specific rule provision 
violated, the sanction imposed, the number of times the rule violation 
has occurred, and the date of disposition. The Exchange's MRVP, as 
proposed to be amended, is consistent with Sections 6(b)(1), 6(b)(5) 
and 6(b)(6) of the Exchange Act,\315\ which require, in part, that an 
exchange have the capacity to enforce compliance with, and provide 
appropriate discipline for, violations of the rules of the Commission 
and of the exchange. In addition, because amended Rule 12140 will offer 
procedural rights to a person sanctioned for a violation listed in 
proposed Rule 24010, the Exchange will provide a fair procedure for the 
disciplining of members and associated persons, consistent with Section 
6(b)(7) of the Exchange Act.\316\
---------------------------------------------------------------------------

    \314\ See e.g., IEX Rule 9.218 and Cboe BZX Rule 8.15.01.
    \315\ 15 U.S.C. 78f(b)(1), 78f(b)(5) and 78f(b)(6).
    \316\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    This proposal to include the rules listed in Rule 24010 in the 
Exchange's MRVP 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,\317\ because it should strengthen the Exchange's ability to carry 
out its oversight and enforcement responsibilities as an SRO in cases 
where full disciplinary proceedings are unsuitable in view of the minor 
nature of the particular violation. In requesting the proposed change 
to the MRVP, the Exchange in no way minimizes the importance of 
compliance with Exchange Rules and all other rules subject to the 
imposition of fines under the MRVP. However, the MRVP provides a 
reasonable means of addressing rule violations that do not rise to the 
level of requiring formal disciplinary proceedings, while providing 
greater flexibility in handling certain violations. The Exchange will 
continue to conduct surveillance with due diligence and make a 
determination based on its findings, on a case-by-case basis, whether a 
fine of more or less than the recommended amount is appropriate for a 
violation under the MRVP or whether a violation requires a formal 
disciplinary action.
---------------------------------------------------------------------------

    \317\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

Amendments to Existing BOX Rules
    Due to the new BSTX trading facility and the introduction of 
trading in Securities= [sic] on the Exchange, the Exchange proposes to 
amend those Exchange Rules that would apply to BSTX Participants, but 
that currently only contemplate trading in options. Therefore, the 
Exchange is seeking to amend the following Exchange Rules, each of 
which is set forth in Exhibit 5B submitted with the proposal:
     Rule 100(a) (Definitions) ``Options Participant'' or 
``Participant'': The Exchange proposes to change the definition of 
``Options Participant or Participant'' to ``Participant'' to reflect 
Options Participants and BSTX Participants and to amend the definition 
as follows: ``The term `Participant' means a firm, or organization that 
is registered with the Exchange pursuant to the Rule 2000 Series for 
purposes of participating in trading on a facility of the Exchange and 
includes an `Options Participant' and `BSTX Participant.' ''
     Rule 100(a) (Definitions) ``Options Participant'': The 
Exchange proposes to add a definition of ``Options Participant'' that 
would be defined as follows: ``The term `Options Participant' is a 
Participant registered with the Exchange for purposes of participating 
in options trading on the Exchange.'' \318\
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    \318\ In addition, as a result of these new defined terms, the 
Exchange proposes to renumber definitions set forth in Rule 100(a) 
to keep the definitions in alphabetical order.
---------------------------------------------------------------------------

     Rule 2020(g)(2) (Participant Eligibility and 
Registration): The Exchange proposes to delete subsection (g)(2) and 
replace it with the following: ``(2) Persons associated with a 
Participant whose functions are related solely and exclusively to 
transactions in municipal securities; (3) persons associated with a 
Participant whose functions are related solely and exclusively to 
transactions in commodities; (4) persons associated with a Participant 
whose functions are related solely and exclusively to transactions in 
securities futures, provided that any such person is appropriately 
registered with a registered futures association; and (5) persons 
associated with a Participant who are restricted from accessing the 
Exchange and that do not engage in the securities business of the 
Participant relating to activity that occurs on the Exchange.'' \319\
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    \319\ In addition to revising Rule 2020(g)(2) to broaden it to 
include securities activities beyond just options trading, the 
Exchange proposes to add greater specificity to define persons that 
are exempt from registration, consistent with the approach adopted 
by other exchanges. See e.g., IEX Rule 2.160(m).
---------------------------------------------------------------------------

     Rule 2060 (Revocation of Participant Status or Association 
with a Participant): The Exchange proposes to amend Rule 2060 to refer 
to ``securities

[[Page 29664]]

transactions'' rather than ``options securities transactions.''
     Rule 3180(a) (Mandatory Systems Testing): The Exchange 
proposes to amend subsection (a)(1) of Rule 3180 to also include BSTX 
Participants, in addition to the categories of Market Makers and OFPs.
     Rule 7130(a)(2)(v) Execution and Price/Time Priority: The 
Exchange proposes to update the cross reference to Rule 100(a)(58) to 
refer to Rule 100(a)(59), which defines the term ``Request for Quote'' 
or ``RFQ'' under the Rules after the proposed renumbering.
     Rule 7150(a)(2) (Price Improvement Period): The Exchange 
proposes to amend Rule 7150(a)(2) to update the cross reference to the 
definition of a Professional in Rule 100(a)(51) to instead refer to 
Rule 100(a)(52), which is where that term would be defined in the Rules 
after the proposed renumbering.
     Rule 7230 (Limitation of Liability): The Exchange proposes 
to amend the references in Rule 7230 to ``Options Participants'' to 
simply ``Participants.''
     Rule 7245(a)(4) (Complex Order Price Improve Period): The 
Exchange proposes to update the cross reference to Rule 100(a)(51) to 
refer to Rule 100(a)(52), which defines the term ``Professional'' after 
the proposed renumbering.
     IM-8050-3: The Exchange proposes to update the cross 
reference to Rule 100(a)(56) to refer to Rule 100(a)(57), which defines 
the term ``quote'' or ``quotation'' after the proposed renumbering.
     Rule 11010(a) ``Investigation Following Suspension'': The 
Exchange proposes to amend subsection (a) of Rule 11010 to remove the 
reference to ``in BOX options contracts'' and to modify the word 
``position'' with the word ``security'' as follows: ``. . . the amount 
owing to each and a complete list of each open long and short security 
position maintained by the Participant and each of his or its 
Customers.''
     Rule 11030 (Failure to Obtain Reinstatement): The Exchange 
proposes to amend Rule 11030 to replace the reference to ``Options 
Participant'' to simply ``Participant.''
     Rule 12140 (Imposition of Fines for Minor Rule 
Violations): The Exchange proposes to amend Rule 12140 to replace 
references to ``Options Participant'' to simply ``Participant.'' In 
addition, the Exchange proposes to add paragraph (f) to Rule 12140, to 
incorporate the aforementioned modifications to the Exchange's MRVP. 
New paragraph (f) of Rule 12140 would provide: ``(f) Transactions on 
BSTX. Rules and penalties relating to trading on BSTX that are set 
forth in Rule 24010 (Penalty for Minor Rule Violations).''
    The Exchange believes that the proposed amendments to the 
definitions set forth in Rule 100 are consistent with Section 6(b)(5) 
of the Exchange Act \320\ because they protect investors and the public 
interest by setting forth clear definitions that help BOX and BSTX 
Participants understand and apply Exchange Rules. Without defining 
terms used in the Exchange Rules clearly, market participants could be 
confused as to the application of certain rules, which could cause harm 
to investors.
---------------------------------------------------------------------------

    \320\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed amendments to the other 
Exchange Rules detailed above are consistent with Section 6(b)(5) of 
the Exchange Act \321\ because the proposed rule change is designed to 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, 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. 
The Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by ensuring that market participants can 
easily navigate, understand and comply with the Exchange's rulebook. 
The Exchange believes that the proposed rule change enables the 
Exchange to continue to enforce the Exchange's rules. The Exchange 
notes that none of the proposed changes to the current Exchange 
rulebook would materially alter the application of any of those Rules, 
other than by extending them to apply to BSTX Participants and trading 
on the BSTX System. As such, the proposed amendments would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national exchange system. 
Further, the Exchange believes that, by ensuring the rulebook 
accurately reflects the intention of the Exchange's rules, the proposed 
rule change reduces potential investor or market participant confusion.
---------------------------------------------------------------------------

    \321\ Id.
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Forms To Be Used in Connection With BSTX
    In connection with the operation of BSTX, the Exchange proposes to 
use a series of new forms to facilitate becoming a BSTX Participant and 
for issuers to list their Securities. These forms have been submitted 
with the proposal as Exhibits 3A-3L. Each are described below.
BSTX Participant Application
    Pursuant to proposed Rule 18000(b), in order to become a BSTX 
Participant, an applicant must complete a BSTX Participant Application, 
which has been submitted with the proposal as Exhibit 3A. The proposed 
BSTX Participant Application requires the applicant to provide certain 
basic information such as identifying the applicants name and contact 
information, Designated Examining Authority, organizational structure, 
and Central Registration Depository (``CRD'') number. The BSTX 
Participant Application also requires applicants to provide additional 
information including certain beneficial ownership information, the 
applicant's current Form BD, an organization chart, a description of 
how the applicant receives orders from customers, how it will send 
orders to BSTX, and a copy of written supervisory procedures and 
information barrier procedures.
    In addition, the BSTX Participant Application allows applicants to 
indicate whether they are applying to be a BSTX Market Maker or a 
Designated Market Maker. Applicants wishing to become a BSTX Market 
Maker or Designated Market Maker must provide certain additional 
information including a list of each of the applicant's trading 
representatives (including a copy of each representative's Form U4), a 
copy of the applicant's written supervisory procedures relating to 
market making, a description of the source and amount of the 
applicant's capital, and information regarding the applicant's other 
business activities and information barrier procedures.
BSTX Participant Agreement
    Pursuant to Exchange Rule 18000(b), to transact business on BSTX, 
prospective BSTX Participants must complete a BSTX Participant 
Agreement. The BSTX Participant Agreement has been submitted with the 
proposal as Exhibit 3B. The BSTX Participant Agreement provides that a 
BSTX Participant must agree with the Exchange as follows:
    1. Participant agrees to abide by the Rules of the Exchange and 
applicable bylaws, as amended from time to time, and all circulars, 
notices, interpretations, directives and/or decisions adopted by the 
Exchange.
    2. Participant acknowledges that BSTX Participant and its 
associated

[[Page 29665]]

persons are subject to the oversight and jurisdiction of the Exchange.
    3. Participant authorizes the Exchange to make available to any 
governmental agency or SRO any information it may have concerning the 
BSTX Participant or its associated persons, and releases the Exchange 
from any and all liability in furnishing such information.
    4. Participant acknowledges its obligation to update any and all 
information contained in any part of the BSTX Participant's 
application, including termination of membership with another SRO.
    These provisions of the BSTX Participant Agreement and others 
therein are generally designed to reflect the Exchange's SRO 
obligations to regulate BSTX Participants. Accordingly, these 
provisions contractually bind a BSTX Participant to comply with 
Exchange rules, acknowledge the Exchange's oversight and jurisdiction, 
authorize the Exchange to disclose information regarding the 
Participant to any governmental agency or SRO and acknowledge the 
obligation to update any and all Application contained in the 
Participant's application.
BSTX User Agreement
    In order to become a BSTX Participant, prospective participants 
must also execute a BSTX User Agreement pursuant to proposed Rule 
18000(b). The BSTX User Agreement, submitted with the proposal as 
Exhibit 3C, includes provisions related to the term of the agreement, 
compliance with exchange rules, right and obligations under the 
agreement, changes to BSTX, proprietary rights under the agreement, use 
of information received under the relationship, disclaimer of warranty, 
limitation of liability, indemnification, termination and assignment. 
The information is necessary to outline the rights and obligations of 
the prospective Participant and the Exchange under the terms of the 
agreement. Both the BSTX Participant Agreement and BSTX User Agreement 
will be available on the Exchange's website (http://boxoptions.com">boxoptions.com).
BSTX Security Market Designated Market Maker Selection Form
    In accordance with proposed Rule 25230(b)(1), BSTX will maintain 
the BSTX Security Designated Market Maker Selection Form, which has 
been submitted with the proposal as Exhibit 3D. The issuer may select 
its DMM from among a pool of DMMs eligible to participate in the 
process. Within two business days of the issuer selecting its DMM, it 
will use the BSTX Security Market Designated Market Maker Selection 
form to notify BSTX of the selection. The form must be signed by a duly 
authorized officer as specified in proposed Rule 25230(b)(1).
Clearing Authorization Forms
    In accordance with proposed Rule 18010, BSTX Participants that are 
not members/participants of a registered clearing agency must clear 
their transactions through a BSTX Participant that is a member of a 
registered clearing agency. A BSTX Participant clearing through another 
BSTX Participant would do so using, as applicable, either the BSTX 
Clearing Authorization (non-Market Maker) form (submitted with the 
proposal as Exhibit 3E) or the BSTX Participant Clearing Authorization 
(Market Maker) form (submitted with the proposal as Exhibit 3F). Each 
form would be maintained by BSTX and each form specifies that the BSTX 
Participant clearing on behalf of the other BSTX Participant accepts 
financial responsibility for all transactions on BSTX that are made by 
the BSTX Participant designated on the form.
BSTX Listing Applications
    The Exchange proposes to specify the required forms of listing 
application, listing agreement and other documentation that listing 
applicants and listed companies must execute or complete (as 
applicable) as a prerequisite for initial and ongoing listing on the 
Exchange, as applicable (collectively, ``listing documentation''). As 
proposed, the listing forms are substantially similar to those 
currently in use by NYSE American LLC, with certain differences to 
account for the trading of Securities. All listing documentation will 
be available on the Exchange's website (http://boxoptions.com">boxoptions.com). Each of the 
listing documents form a duly authorized representative of the company 
must sign an affirmation that the information provided is true and 
correct as of the date the form was signed. In the event that in the 
future the Exchange makes any substantive changes (including changes to 
the rights, duties, or obligations of a listed company or listing 
applicant or the Exchange, or that would otherwise require a rule 
filing) to such documents, it will submit a rule filing in accordance 
with Rule 19b-4.\322\
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    \322\ The Exchange will not submit a rule filing if the changes 
made to a document are solely typographical or stylistic in nature.
---------------------------------------------------------------------------

    Pursuant to Rule 26130 and 26300 of the Exchange Rules, a company 
must file and execute the BSTX Original Listing Application (submitted 
with the proposal as Exhibit 3G) or the BSTX Additional Listing 
Application (submitted with the proposal as Exhibit 3H) to apply for 
the listing of Securities on BSTX.\323\ The BSTX Original Listing 
Application provides information necessary, and in accordance with 
Section 12(b) of the Exchange Act,\324\ for Exchange regulatory staff 
to conduct a due diligence review of a company to determine if it 
qualifies for listing on the Exchange. The BSTX Additional Listing 
Application requires certain further information for an additional 
listing of Securities. Relevant factors regarding the company and 
securities to be listed would determine the type of information 
required. The following describes each category and use of application 
information:
---------------------------------------------------------------------------

    \323\ Pursuant to proposed Exchange Rule 26130, an applicant 
seeking the initial listing of its Security must also provide a 
legal opinion that the applicant's Security is a security under 
applicable United States securities laws.
    \324\ 15 U.S.C. 78l(b).
---------------------------------------------------------------------------

    1. Corporate information regarding the issuer of the security to be 
listed, including company name, address, contact information, Central 
Index Key Code (CIK), SEC File Number, state and country of 
incorporation, date of incorporation, whether the company is a foreign 
private issuer, website address, SIC Code, CUSIP number of the security 
being listed and the date of fiscal year end. This information is 
required of all applicants and is necessary in order for the Exchange's 
regulatory staff to collect basic company information for recordkeeping 
and due diligence purposes, including review of information contained 
in the company's SEC filings.
    2. For original listing applications only, corporate contact 
information including the company's Chief Executive Officer, Chief 
Financial Officer, Corporate Secretary, General Counsel and Investor 
Relations Officer. This information is required of all initial 
applicants and is necessary in order for the Exchange's regulatory 
staff to collect current company contact information for purposes of 
obtaining any additional due diligence information to complete a 
listing qualification review of the applicant.
    3. For original listing applications only, offering and security 
information regarding an offering, including the type of offering, a 
description of the issue, par value, number of Securities outstanding 
or offered, total Securities unissued, but reserved for issuance, date 
authorized, purpose of Securities to be issued, number of Securities 
authorized, and information relating to payment of dividends. This 
information is required of all applicants listing Securities on the

[[Page 29666]]

Exchange, and is necessary in order for the Exchange's regulatory staff 
to collect basic information about the offering.
    4. For original listing applications only, information regarding 
the company's transfer agent. Transfer agent information is required 
for all applicants. This information is necessary in order for the 
Exchange's regulatory staff to collect current contact information for 
such company transfer agent for purposes of obtaining any additional 
due diligence information to complete a listing qualification review of 
the applicant.
    5. For original listing applications only, contact information for 
the outside counsel with respect to the listing application, if any. 
This information is necessary in order for the Exchange's regulatory 
staff to collect applicable contact information for purposes of 
obtaining any additional due diligence information to complete a 
listing qualification review of the applicant and assess compliance 
with Exchange Rule 26130.
    6. For original listing applications only, a description of any 
security preferences. This information is necessary to determine 
whether the Applicant issuer has any existing class of common stock or 
equity securities entitling the holders to differential voting rights, 
dividend payments, or other preferences.
    7. For original listing applications only, type of Security 
listing, including the type of transaction (initial public offering of 
a Security, merger, spin-off, follow on offering, reorganization, 
exchange offer or conversion) and other details related to the 
transaction, including the name and contact information for the 
investment banker/financial advisor contacts. This information is 
necessary in order for the Exchange's regulatory staff to collect 
information for such company for purposes of obtaining any additional 
due diligence information to complete a listing qualification review of 
the applicant.
    8. For original listing applications only, exchange requirements 
for listing consideration. This section notes that to be considered for 
listing, the Applicant Issuer must meet the Exchange's minimum listing 
requirements, that the Exchange has broad discretion regarding the 
listing of any Security and may deny listing or apply additional or 
more stringent criteria based on any event, condition or circumstance 
that makes the listing of an Applicant Issuer's Security inadvisable or 
unwarranted in the opinion of the Exchange. The section also notes that 
even if an Applicant Issuer meets the Exchange's listing standards for 
listing on the BSTX Security Market, it does not necessarily mean that 
its application will be approved. This information is necessary in 
order for the Exchange's regulatory staff to assess whether an 
Applicant Issuer is qualified for listing.
    9. For original listing applications only, regulatory review 
information, including a certification that no officer, board member or 
non-institutional shareholder with greater than 10% ownership of the 
company has been convicted of a felony or misdemeanor relating to 
financial issues during the past ten years or a detailed description of 
any such matters. This section also notes that the Exchange will review 
background materials available to it regarding the aforementioned 
individuals as part of the eligibility review process. This regulatory 
review information is necessary in order for the Exchange's regulatory 
staff to assess whether there are regulatory matters related to the 
company that render it unqualified for listing.
    10. For original listing applications only, supporting 
documentation required prior to listing approval includes a listing 
agreement, corporate governance affirmation, listing application 
checklist and underwriter's letter. This documentation is necessary in 
order to support the Exchange's regulatory staff listing qualification 
review (corporate governance affirmation, listing application checklist 
and underwriter's letter) and to effectuate the listed company's 
agreement to the terms of listing (listing agreement).
    11. For additional listing applications only, transaction details, 
including the purpose of the issuance, total Securities, date of board 
authorization, date of shareholder authorization and anticipated date 
of issuance. This information is required of all applicants listing 
additional Securities on the Exchange, and is necessary in order for 
the Exchange's regulatory staff to collect basic information about the 
offering.
    12. For additional listing applications only, insider participation 
and future potential issuances, including whether any director, officer 
or principal shareholder of the company has a direct or indirect 
interest in the transaction, and if the transaction potentially 
requires the company to issue any Securities in the future above the 
amount they are currently applying for. This information is required of 
all applicants listing additional Securities on the Exchange, and is 
necessary in order for the Exchange's regulatory staff to collect basic 
information about the offering.
    13. For additional listing applications only, information for a 
technical original listing, including reverse Security splits and 
changes in states of incorporation. This information is required of all 
applicants listing additional Securities on the Exchange, and is 
necessary in order for the Exchange's regulatory staff to collect basic 
information about the offering.
    14. For additional listing applications only, information for a 
forward Security split or Security dividend, including forward Security 
split ratios and information related to Security dividends. This 
information is required of all applicants listing additional Securities 
on the Exchange, and is necessary in order to determine the rights 
associated with the Securities.
    15. For additional listing applications only, relevant company 
documents. This information is required of all applicants listing 
additional Securities on the Exchange, and is necessary to assess to 
support the Exchange's regulatory staff listing qualification review.
    16. For additional listing applications only, reconciliation for 
technical original listing, including Securities issued and outstanding 
after the technical original event, listed reserves previously approved 
for listing, and unlisted reserves not yet approved by the Exchange. 
This information is required of all applicants listing additional 
Securities on the Exchange, and is necessary to assess to support the 
Exchange's regulatory staff listing qualification review and to obtain 
all of the information relevant to the offering.
Checklist for Original Listing Application
    In order to assist issuers seeking to list its Securities on BSTX, 
the Exchange has provided a checklist for issuers to seeking to file an 
original listing application with BSTX. The BSTX Listing Application 
Checklist, submitted with the proposal as Exhibit 3I, provides that 
issuers must provide BSTX with a listing application, listing 
agreement, corporate governance affirmation, underwriter's letter (for 
an initial public offering of a Security only) and relevant SEC filings 
(e.g., 8-A, 10, 40-F, 20-F). Each of the above referenced forms are 
fully described herein. The checklist is necessary to assist issuers 
and the Exchange regulatory staff in assessing the completion of the 
relevant documents.
BSTX Security Market Listing Agreement
    Pursuant to proposed Exchange Rule 26132, to apply for listing on 
the

[[Page 29667]]

Exchange, a company must execute the BSTX Security Market Listing 
Agreement (the ``Listing Agreement''), which has been submitted with 
this proposal as Exhibit 3J. Pursuant to the proposed Listing 
Agreement, a company agrees with the Exchange as follows:
    1. Company certifies that it will comply with all Exchange rules, 
policies, and procedures that apply to listed companies as they are now 
in effect and as they may be amended from time to time, regardless of 
whether the Company's organization documents would allow for a 
different result.
    2. Company shall notify the Exchange at least 20 days in advance of 
any change in the form or nature of any listed Securities or in the 
rights, benefits, and privileges of the holders of such Securities.
    3. Company understands that the Exchange may remove its Securities 
from listing on the BSTX Security Market, pursuant to applicable 
procedures, if it fails to meet one or more requirements of Paragraphs 
1 and 2 of this agreement.
    4. In order to publicize the Company's listing on the BSTX Security 
Market, the Company authorizes the Exchange to use the Company's 
corporate logos, website address, trade names, and trade/service marks 
in order to convey quotation information, transactional reporting 
information, and other information regarding the Company in connection 
with the Exchange. In order to ensure the accuracy of the information, 
the Company agrees to provide the Exchange with the Company's current 
corporate logos, website address, trade names, and trade/service marks 
and with any subsequent changes to those logos, trade names and marks. 
The Listing Agreement further requires that the Company specify a 
telephone number to which questions regarding logo usage should be 
directed.
    5. Company indemnifies the Exchange and holds it harmless from any 
third-party rights and/or claims arising out of use by the Exchange or, 
any affiliate or facility of the Exchange (``Corporations'') of the 
Company's corporate logos, website address, trade names, trade/service 
marks, and/or the trading symbol used by the Company.
    6. Company warrants and represents that the trading symbol to be 
used by the Company does not violate any trade/service mark, trade 
name, or other intellectual property right of any third party. The 
Company's trading symbol is provided to the Company for the limited 
purpose of identifying the Company's security in authorized quotation 
and trading systems. The Exchange reserves the right to change the 
Company's trading symbol at the Exchange's discretion at any time.
    7. Company agrees to furnish to the Exchange on demand such 
information concerning the Company as the Exchange may reasonably 
request.
    8. Company agrees to pay when due all fees associated with its 
listing of Securities on the BSTX Security Market, in accordance with 
the Exchange's Rules.
    9. Company agrees to file all required periodic financial reports 
with the SEC, including annual reports and, where applicable, quarterly 
or semi-annual reports, by the due dates established by the SEC.
    The various provisions of the Listing Agreement are designed to 
accomplish several objectives. First, clauses 1-3 and 6-8 reflect the 
Exchange's SRO obligations to assure that only listed companies that 
are compliant with applicable Exchange rules may remain listed. Thus, 
these provisions contractually bind a listed company to comply with 
Exchange rules, provide notification of any corporate action or other 
event that will cause the company to cease to be in compliance with 
Exchange listing requirements, evidence the company's understanding 
that it may be removed from listing (subject to applicable procedures) 
if it fails to be in compliance or notify the Exchange of any event of 
noncompliance, furnish the Exchange with requested information on 
demand, pay all fees due and file all required periodic reports with 
the SEC. Clauses four and five contain standard legal representations 
and agreements from the listed company to the Exchange regarding use of 
its logo, trade names, trade/service markets, and trading symbols as 
well as potential legal claims against the Exchange in connection 
thereto.
BSTX Security Market Company Corporate Governance Affirmation
    In accordance with the proposed Rule 26800 Series, companies listed 
on BSTX would be required to comply with certain corporate governance 
standards, relating to, for example, audit committees, director 
nominations, executive compensation, board composition, and executive 
sessions. In certain circumstances the corporate governance standards 
that apply vary depending on the nature of the company. In addition, 
there are phase-in periods and exemptions available to certain types of 
companies. The proposed BSTX Security Market Corporate Governance 
Affirmation, submitted with this proposal as Exhibit 3K, enables a 
company to confirm to the Exchange that it is in compliance with the 
applicable standards, and specify any applicable phase-ins or 
exemptions. Companies are required to submit a BSTX Security Market 
Corporate Governance Affirmation upon initial listing on the Exchange 
and thereafter when an event occurs that makes an existing form 
inaccurate. This BSTX Security Market Corporate Governance Affirmation 
assists the Exchange regulatory staff in monitoring listed company 
compliance with the corporate governance requirements.
Sample Underwriter's Letter
    In accordance with proposed Rule 26101, an initial public offering 
of a Security must meet certain listing requirements. The Exchange 
seeks to require the issuer's underwriter to execute a letter setting 
forth the details of the offering, including the name of the offering 
and why the offering meets the criteria of the BSTX rules. This 
information, set forth in the proposed Sample Underwriter's Letter and 
submitted with this proposal as Exhibit 3L, is necessary to assist the 
Exchange's regulatory staff in assessing the offering's compliance with 
BSTX listing standards for an initial public offering of a Security.
Regulation
    In connection with the operation of BSTX, the Exchange will 
leverage many of the structures it established to operate a national 
securities exchange in compliance with Section 6 of the Exchange 
Act.\325\ Specifically, the Exchange will extend its Regulatory 
Services Agreement with FINRA to cover BSTX Participants and trading on 
the BSTX System. This Regulatory Services Agreement will govern many 
aspects of the regulation and discipline of BSTX Participants, just as 
it does for options regulation. The Exchange will perform Security 
listing regulation, authorize BSTX Participants to trade on the BSTX 
System, and conduct surveillance of Security trading on the BSTX 
System.
---------------------------------------------------------------------------

    \325\ 15 U.S.C. 78f.
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    Section 17(d) of the Exchange Act \326\ and the related Exchange 
Act rules permit SROs to allocate certain regulatory responsibilities 
to avoid duplicative oversight and regulation. Under Exchange Act Rule 
17d-1,\327\ the SEC designates one SRO to be the Designated Examining 
Authority, or DEA, for each broker-dealer that is a member of more than 
one SRO. The DEA is responsible for the financial aspects of that 
broker-dealer's regulatory

[[Page 29668]]

oversight. Because Exchange Participants, including BSTX Participants, 
also must be members of at least one other SRO, the Exchange would 
generally not be designated as the DEA for any of its members.\328\
---------------------------------------------------------------------------

    \326\ 15 U.S.C. 78q(d).
    \327\ 17 CFR 240.17d-1.
    \328\ See Exchange Rule 2020(a) (requiring that a Participant be 
a member of another registered national securities exchange or 
association).
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    Rule 17d-2 under the Exchange Act \329\ permits SROs to file with 
the Commission plans under which the SROs allocate among each other the 
responsibility to receive regulatory reports from, and examine and 
enforce compliance with specified provisions of the Exchange Act and 
rules thereunder and SRO rules by, firms that are members of more than 
one SRO (``common members''). If such a plan is declared effective by 
the Commission, an SRO that is a party to the plan is relieved of 
regulatory responsibility as to any common member for whom 
responsibility is allocated under the plan to another SRO. The Exchange 
plans to join the Plan for the Allocation of Regulatory 
Responsibilities Regarding Regulation NMS.\330\ The Exchange may choose 
to join certain Rule 17d-2 agreements such as the agreement allocating 
responsibility for insider trading rules.\331\
---------------------------------------------------------------------------

    \329\ 17 CFR 240.17d-2.
    \330\ Exchange Act Release No. 85046 (February 4, 2019), 84 FR 
2643 (February 7, 2019).
    \331\ Exchange Act Release No. 84392 (October 10, 2018), 83 FR 
52243 (October 16, 2018).
---------------------------------------------------------------------------

    For those regulatory responsibilities that fall outside the scope 
of any Rule 17d-2 agreements that the Exchange may join, subject to 
Commission approval, the Exchange will retain full regulatory 
responsibility under the Exchange Act. However, as noted, the Exchange 
will extend its existing Regulatory Services Agreement with FINRA to 
provide that FINRA personnel will operate as agents for the Exchange in 
performing certain regulatory functions with respect to BSTX. As is the 
case with the Exchange's options trading platform, the Exchange will 
supervise FINRA and continue to bear ultimate regulatory responsibility 
for BSTX. Consistent with the Exchange's existing regulatory structure, 
the Exchange's Chief Regulatory Officer shall have general supervision 
of the regulatory operations of BSTX, including responsibility for 
overseeing the surveillance, examination, and enforcement functions and 
for administering all regulatory services agreements applicable to 
BSTX. Similarly, the Exchange's existing Regulatory Oversight Committee 
will be responsible for overseeing the adequacy and effectiveness of 
Exchange's regulatory and self-regulatory organization 
responsibilities, including those applicable to BSTX. Finally, as it 
does with options, the Exchange will perform automated surveillance of 
trading on BSTX for the purpose of maintaining a fair and orderly 
market at all times and monitor BSTX to identify unusual trading 
patterns and determine whether particular trading activity requires 
further regulatory investigation by FINRA.
    In addition, the Exchange will oversee the process for determining 
and implementing trade halts, identifying and responding to unusual 
market conditions, and administering the Exchange's process for 
identifying and remediating ``clearly erroneous trades'' pursuant to 
proposed Rule 25110.
NMS Plans
    The Exchange intends to join the Order Execution Quality Disclosure 
Plan, the Plan to Address Extraordinary Market Volatility, the Plan 
Governing the Process of Selecting a Plan Processor, and the applicable 
plan(s) for consolidation and dissemination of market data. The 
Exchange is already a participant in the NMS plan related to the 
Consolidated Audit Trail. Consistent with Section 6(b)(5) of the 
Exchange Act,\332\ the Exchange believes that joining the same set of 
NMS plans that all other national securities exchanges that trade 
equities must join fosters cooperation and coordination with other 
national securities exchanges and other market participants engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities.
---------------------------------------------------------------------------

    \332\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of the Exchange Act,\333\ in general and with 
Section 6(b)(5) of the Exchange Act,\334\ in particular, in that it is 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest; 
and it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers, or to regulate by virtue of 
any authority conferred by this title matters not related to the 
purposes of this title or the administration of the Exchange.
---------------------------------------------------------------------------

    \333\ 15 U.S.C. 78a et seq.
    \334\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that BSTX will benefit individual investors, 
other market participants, and the equities market generally. The 
Exchange proposes to establish BSTX as a facility of the Exchange that 
would trade equities in a similar manner to how equities presently 
trade on other exchanges. BSTX would also make available to BSTX 
Participants the BSTX Market Data Blockchain, which provides certain 
order and transaction information with respect to a BSTX Participant's 
trading activity on BSTX, as well as anonymized order and transaction 
data with respect to all trading activity occurring on BSTX. The 
Exchange believes that the content of information available on the BSTX 
Market Data Blockchain would generally be similar to TAQ data made 
available by NYSE today, except that (i) the BSTX Market Data 
Blockchain would use a private, permissioned network controlled by the 
Exchange to make the market data available to BSTX Participants; (ii) a 
BSTX Participant would be able to certain see non-anonymized 
information about its own trading activity on BSTX; \335\ and (iii) the 
BSTX Market Data Blockchain would include market data only with respect 
to trading activity occurring on BSTX, while the Exchange understands 
that TAQ data includes certain trading and quotation data that may 
occur on other markets.\336\ The Exchange believes that the use of 
blockchain technology, through a private permissioned network that 
operates in manner that is fully compatible with the existing 
regulatory structures for trading, recordkeeping, and clearance and 
settlement that market participants are familiar with is an appropriate 
way to introduce blockchain to the current market structure. BSTX 
Participants would have not have affirmative obligations to provide 
information to the blockchain nor would they be required to access or 
use it. The data inputs to the BSTX Market Data Blockchain would be 
captured in the ordinary course as BSTX Participants' orders and 
messages are

[[Page 29669]]

sent to the Exchange through the FIX gateway. The BSTX Market Data 
Blockchain, therefore, would be optional functionality available to all 
BSTX Participants on equal terms, and therefore is not unfairly 
discriminatory, consistent with Section 6(b)(5) of the Exchange 
Act.\337\
---------------------------------------------------------------------------

    \335\ All non-anonymized information would be available only to 
the BSTX Participant who provided such information to the Exchange 
through its trading activity on BSTX.
    \336\ See e.g., NYSE, Daily TAQ Fact Sheet, (noting that TAQ 
data ``provides users access to all trades and quotes for all issues 
traded on NYSE, Nasdaq and the regional exchanges for a single 
trading day'' and is ``a comprehensive history of daily activity 
from NYSE markets and the U.S. Consolidated Tape covering U.S. 
Equities instruments (CTA and UTP participating markets'') https://www.nyse.com/publicdocs/nyse/data/Daily_TAQ_Fact_Sheet.pdf.
    \337\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange has proposed to make the BSTX Market Data Blockchain 
available only to BSTX Participants rather than other market 
participants that are not BSTX Participants primarily because the 
Exchange believes that BSTX Participants would be the most likely to be 
interested in potentially using the BSTX Market Data Blockchain. The 
BSTX Market Data Blockchain would consist of information that pertains 
solely to trading activity on BSTX and not other exchanges. The 
Exchange believes, therefore, that most persons interested in market 
data relating to trading on BSTX would likely become a BSTX 
Participant, at which time they would have access to the BSTX Market 
Data Blockchain. The Exchange solicits comment from the public as to 
whether non-BSTX Participants would be interested in having access to 
the BSTX Market Data Blockchain and the anticipated uses of the BSTX 
Market Data Blockchain by such non-BSTX Participants.\338\ To the 
extent that non-BSTX Participants are interested in access to General 
Market Data (i.e., anonymized market data) available on the BSTX Market 
Data Blockchain, the Exchange would consider providing access to such 
persons on an ad hoc basis \339\ or may consider amendments to the 
proposal (or subsequent rule filings) to provide regular access to 
General Market Data on the BSTX Market Data Blockchain if there is 
sufficient interest or demand from non-BSTX Participants. The Exchange 
notes that the anonymized data that would be available on the BSTX 
Market Data Blockchain would be the same information that would be 
available through the Exchange's proprietary market data feeds, which 
any person (i.e., both BSTX Participants and non-BSTX Participants) 
would be able to acquire. Accordingly, under the proposal, non-BSTX 
Participants would still be able to access the same anonymized market 
data information available on the BSTX Market Data Blockchain as BSTX 
Participants, but through a different means (i.e., through the 
proprietary market data feeds rather than via the BSTX Market Data 
Blockchain). Because the same anonymized information would be available 
to non-BSTX Participants through another means, the Exchange believes 
that the proposed limitation of access to the BSTX Market Data 
Blockchain is not unfairly discriminatory and does not impose a burden 
on competition, consistent with Sections 6(b)(5) and 6(b)(8) of the 
Exchange Act.\340\
---------------------------------------------------------------------------

    \338\ The Exchange reiterates that non-anonymized market data 
available on the BSTX Market Data Blockchain would only ever be 
accessible by the BSTX Participant who provided such market data 
through its trading on BSTX.
    \339\ For example, the Exchange might provide temporary access 
to the BSTX Market Data Blockchain to academics studying equity 
markets.
    \340\ 15 U.S.C. 78f(b)(5) and (8).
---------------------------------------------------------------------------

    In addition, because the BSTX Market Data Blockchain only captures 
information with respect to trading activity on BSTX, it would have no 
effect or impact on other exchanges, promoting consistency with Section 
6(b)(8) of the Exchange Act, which prohibits an exchange's rules from 
imposing a burden on competition not necessary or appropriate in 
furtherance of the Exchange Act.\341\ The entry of an innovative 
competitor such as BSTX seeking to implement a measured introduction of 
blockchain technology in connection with the trading of equity 
securities may promote competition by encouraging other market 
participants to find ways of using blockchain technology in connection 
with securities transactions. The proposed regulation of BSTX and BSTX 
Participants, as well as the execution of Securities using a price-time 
priority model and the clearance and settlement of Securities pursuant 
to the rules, policies and procedures of a registered clearing agency 
will all operate in a manner substantially similar to existing equities 
exchanges. In this way, the Exchange believes that BSTX provides a 
robust regulatory structure that protects investors and the public 
interest while introducing the use of blockchain technology as an 
additional feature in connection with Securities traded on the 
Exchange.
---------------------------------------------------------------------------

    \341\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In connection with the clearance and settlement of Securities 
pursuant to the rules, policies and procedures of a registered clearing 
agency, the Exchange proposes that BSTX Participants would be able to 
include in their orders in Securities that are submitted to BSTX 
certain parameters to indicate a preference for settlement on a same 
day (T+0) or next trading day (T+1) basis when certain conditions are 
met.\342\ Any such orders would at the time of order entry represent 
orders that would be regular-way and would be presumed to settle on a 
T+2 basis just like any other order submitted by a BSTX Participant 
that does not include a parameter indicating a preference for faster 
settlement. As described in greater detail above, however, an Order 
with a T+0 Preference or an Order with a T+1 Preference would only 
result in executions that would actually settle more quickly than on a 
T+2 basis if, and only if, all of the conditions in Rule 25060(h) are 
met and the execution that is transmitted to NSCC is eligible for T+0 
or T+1 settlement under the rules, policies and procedures of a 
registered clearing agency.\343\ Any such preference included by a BSTX 
Participant would only become operative if the order happens to execute 
against another order from a BSTX Participant that also includes a 
parameter indicating a preference for settlement on a T+0 or T+1 basis.
---------------------------------------------------------------------------

    \342\ See proposed Rule 25060(h).
    \343\ See proposed Rule 25100(d).
---------------------------------------------------------------------------

    The Exchange believes that the proposed ability for BSTX 
Participants to indicate a preference for shorter settlement times as 
described above is consistent with the Exchange Act and in particular 
Section 6(b)(5) of the Exchange Act because it would help remove 
impediments to and perfect the mechanism of a free and open market and 
is not designed to permit unfair discrimination between or among market 
participants.\344\ Specifically, allowing for BSTX Participants to 
potentially reduce the settlement time for transactions on BSTX 
pursuant to the rules, policies and procedures of a registered clearing 
agency helps remove impediments to and perfects a free an open market 
by allowing greater choice for BSTX Participants who may want to avail 
themselves of currently available functionality at registered clearing 
agencies. Moreover, the Commission has previously noted a number of 
positive effects relating to the liquidity risks and costs faced by 
members in a clearing agency, and the Exchange believes that this 
proposed functionality on BSTX would help realize such positive 
effects.\345\ Proposed Rule 25060(h) is not designed to permit unfair 
discrimination between market participants consistent with Section 
6(b)(5) \346\ because the Rule would allow all orders that are 
marketable against one another--regardless of the settlement preference 
of the BSTX Participant submitting the order (or their customer)--to 
execute against each

[[Page 29670]]

other. A BSTX Participant that would like settlement of T+2 could still 
interact with orders on BSTX that indicate a preference for a shorter 
settlement cycle and vice-versa. Only where two orders that both 
indicate a preference for a shorter settlement cycle match on BSTX 
would a shorter settlement cycle be possible.
---------------------------------------------------------------------------

    \344\ 15 U.S.C. 78f(b)(5).
    \345\ See supra notes 888-91 and accompanying text.
    \346\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange also proposes to suspend unlisted trading privileges 
for Securities that qualify as Thinly Traded Securities, which the 
Exchange also believes is consistent with the Exchange Act for the 
reasons detailed in Part II.H above.\347\ The Exchange proposes to 
suspend UTP only for Securities that qualify as Thinly Traded 
Securities, which are generally those with an ADV of trading of 100,000 
or less and a market capitalization of less than $1 billion, and where 
an issuer of a Thinly Traded Security elects to have UTP suspended. The 
Exchange believes that the proposed suspension of UTP is consistent 
with Section 6(b)(5) of the Exchange Act \348\ because it is designed 
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 by concentrating displayed liquidity 
on a single exchange, which many, including the Commission, have 
suggested could potentially improve the market quality for thinly 
traded securities. The Exchange believes that concentrating displayed 
liquidity on a single venue could make market making more attractive in 
Thinly Traded Securities, thereby increasing the overall amount and 
depth of liquidity in the market and in turn making it easier for 
investors to acquire and dispose of positions in Thinly Traded 
Securities, which furthers the protection of investors and the public 
interest, consistent with Section 6(b)(5) of the Exchange Act.\349\ The 
Exchange would make available order and transaction data relating to 
Thinly Traded Securities to regulators, academics, and others upon 
request to evaluate how the suspension of UTP has impacted Thinly 
Traded Securities. The Exchange will also perform its own analysis 
across a range of market quality metrics to evaluate whether the 
suspension of UTP has had the intended effect of improving market 
quality for Thinly Traded Securities.\350\ The Exchange believes that 
by studying the effect of the suspension of UTP for Thinly Traded 
Securities and making available market data for others to make similar 
studies, the Exchange can help ensure that the suspension of UTP is in 
fact having the intended effect of improving market quality for Thinly 
Traded Securities and/or determine what else might be necessary to 
improve market quality, all of which the Exchange believes will help 
further the protection of investors and the public interest.
---------------------------------------------------------------------------

    \347\ See supra notes 71-76 and accompanying text.
    \348\ 15 U.S.C. 78f(b)(5).
    \349\ Id.
    \350\ See Part II.H.5.
---------------------------------------------------------------------------

    Similarly, consistent the Exchange believes that the proposed 
suspension of UTP for Thinly Traded Securities would not permit unfair 
discrimination between customers, issuers, brokers or dealers, because 
the suspension is for the purpose of furthering the regulatory 
objective of improving market quality for securities that are thinly 
traded. Although non-Thinly Traded Securities would not be able to have 
UTP suspended, this discriminatory treatment is not ``unfair'' given 
the substantial public interest, as demonstrated through the 
Commission's statements and by market participants at the Roundtable, 
in improving market conditions for thinly traded securities. The 
Exchange believes that the proposed suspension of UTP would help 
protect investors and the public interest, consistent with Section 
6(b)(5), by concentrating displayed liquidity on a single venue, 
thereby providing greater incentives for market makers in Thinly Traded 
Securities and in turn making it easier for investors to buy and sell 
shares of Thinly Traded Securities. The Exchange believes that there is 
a general consensus among members of Commission staff, former 
Commissioners (including former Chairman Jay Clayton), the Department 
of the Treasury, and market participants, as well as empirical 
evidence, making clear that operating company stocks with an ADV of 
less than 100,000 shares suffer significant liquidity and market 
quality challenges not faced by stocks with greater trading volume. It 
is for this reason, the Exchange believes, that the Commission 
specifically solicited requests from exchanges for innovative 
approaches to improve the market for thinly traded securities, 
including requests for suspension of UTP.\351\
---------------------------------------------------------------------------

    \351\ Commission Statement on Thinly Traded Securities at 56956.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.\352\ 
The Exchange operates in an intensely competitive global marketplace 
for transaction services. The Exchange competes for the privilege of 
providing market services to broker-dealers through the Exchange's 
service offerings and associated benefits it is able to provide. The 
Exchange's ability to compete in this environment is based in large 
part on the quality of its trading systems, the overall quality of its 
market and its attractiveness to market participants who evaluate the 
Exchange on, among other things, speed, reliability, the likelihood and 
costs of executions, as well as spreads, fairness, and transparency.
---------------------------------------------------------------------------

    \352\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Exchange believes that the primary areas where the proposed 
rule change could potentially result in a burden on competition are 
with regard to the terms on which: (1) Issuers may list their 
securities for trading, (2) market participants may access BSTX as a 
facility of the Exchange and use its services including the BSTX Market 
Data Blockchain, (3) Security transactions may be cleared and settled, 
(4) Security transactions would occur OTC (5) Security transactions 
would occur on other exchanges through an extension of UTP to 
Securities that are not Thinly Traded Securities; and (6) there would 
be a suspension of UTP for Thinly Traded Securities.
    Regarding considerations (1) and (2), and as described in detail in 
Item 3 above, the BSTX Rules are drawn substantially from the existing 
rules of other exchanges that the Commission has already found to be 
consistent with the Exchange Act, including regarding whether they 
impose any burden on competition that is not necessary or appropriate 
in furtherance of its purposes. For example, the BSTX Non-ETP Listing 
Rules in the 26000 Series and Suspension and Delisting Rules in the 
27000 Series that affect issuers and their ability to list Securities 
for trading are based substantially on the current rules of NYSE 
American. Additionally, the BSTX Trading and Listing of ETPs Rules in 
the 28000 Series that concern issuers and their ability to list 
Securities that are exchange-traded products are based substantially on 
the current rules of NYSE Arca. Additionally, the BSTX Rules regarding 
membership and access to and use of the facilities of BSTX are also 
substantially based on existing exchange rules. Specifically, the 
relevant BSTX Rules are as follows: participation on BSTX (Rule 18000 
Series); business conduct for BSTX participants (Rule 19000 Series);

[[Page 29671]]

financial and operational rules for BSTX participants (Rule 20000 
Series); supervision (Rule 21000 Series); miscellaneous provisions 
(Rule 22000 Series); trading practices (Rule 23000 Series); discipline 
and summary suspension (Rule 24000 Series); trading (Rule 25000 
Series); market making (Rule 25200 Series); and dues, fees, 
assessments, and other charges (Rule 28000 [sic] Series). As described 
in detail in Item 3, these rules are substantially based on analogous 
rules of the following exchanges, as applicable: BOX; Investors 
Exchange LLC; Cboe BZX Exchange, Inc.; The Nasdaq Stock Market LLC; and 
NYSE American LLC.
    Regarding consideration (2) and use of the BSTX Market Data 
Blockchain, the terms on which BSTX would operate the BSTX Market Data 
Blockchain under Rule 17020 would apply equally to all BSTX 
Participants and would therefore not impose any different burden on one 
BSTX Participant compared to another. As described in detail in Item 3, 
BSTX would issue login credentials to each BSTX Participant through 
which the BSTX Participant may choose to access the BSTX Market Data 
Blockchain. Accessing the BSTX Market Data Blockchain would not be 
required. If a Participant chooses to do so, it would be able to see 
its order and transaction information on BSTX as well as certain 
anonymized General Market Data from other BSTX Participants. Because 
the General Market Data would be anonymized, the Exchange believes that 
there would not be cause for concern regarding potential trading 
information leakage or the ability for a BSTX Participant to reverse 
engineer another BSTX Participant's trading strategies. Moreover, the 
BSTX Market Data Blockchain would not require any affirmative action on 
the part of a BSTX Participant for its information to be recorded to 
the BSTX Market Data Blockchain. Rather the Exchange would control all 
aspects of the BSTX Market Data Blockchain as a private, permission-
based blockchain accessible to BSTX Participants, and the BSTX Market 
Data Blockchain would capture order and execution activity that occurs 
in the normal course on BSTX and is made available to BSTX Participants 
as an additional resource that they may use in their discretion. The 
BSTX Market Data Blockchain would functionally provide market data 
similarly to what NYSE offers through TAQ data, but would simply 
provide it using distributed ledger technology. Accordingly, although 
capturing a different set of market data than captured by NYSE TAQ 
data, the BSTX Market Data Blockchain is pro-competitive by offering a 
similar type of market data and using an innovative technology to do 
so. For these reasons, the Exchange believes that the BSTX Market Data 
Blockchain would not impose any burden on competition.
    In addition to not imposing any burden on competition, the Exchange 
believes that the BSTX Market Data Blockchain would provide two primary 
benefits to BSTX Participants. First, the Exchange believes that BSTX 
Participants that choose to access the BSTX Market Data Blockchain may 
find the information useful as a focused source of market data 
regarding order and transaction information on BSTX.\353\ Second, the 
Exchange believes that the BSTX Market Data Blockchain would help 
familiarize BSTX Participants that access the market data with the 
capabilities of blockchain technology in a manner that does not impose 
any burden on competition on them or others. The Commission has stated 
that it is ``mindful of the benefits of increasing use of new 
technologies for investors and the markets, and has encouraged 
experimentation and innovation . . .'' stating further that 
``[i]nformation and communications technologies are critical to healthy 
and efficient primary and secondary markets.'' \354\ Regarding the 
judgment of whether the benefits of certain technologies are 
meritorious, the Commission has explained its view that ``[t]he market 
will ultimately prove the worth of technology--whether the benefits to 
the industry and its investors of developing and using new services are 
greater than the associated costs.'' \355\ Consistent with these 
statements, the Exchange believes that promoting use of the 
functionality of blockchain technology through the BSTX Market Data 
Blockchain will allow BSTX Participants to observe and increase their 
familiarity with the capabilities and potential benefits of blockchain 
technology in a context that operates within the current equity market 
infrastructure and thereby advances and protects the public's interest 
in the use and development of new data processing techniques that may 
create opportunities for more efficient, effective and safe securities 
markets.\356\
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    \353\ For example, a BSTX Participant may wish to use the market 
data to review its trading activity on BSTX, determine what the 
market quality was at a particular time for a given Security or to 
evaluate execution quality on BSTX.
    \354\ See supra n. 366-38 and accompanying text.
    \355\ Id.
    \356\ See supra n. 39 and accompanying text.
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    Regarding consideration (3) and the manner in which Security 
transactions may be cleared and settled, the Exchange proposes under 
BSTX Rule 25100(d) to clear and settle transactions in Securities in 
accordance with the rules, policies and procedures of a registered 
clearing agency. The Exchange believes that this is consistent with how 
other exchange-listed equity securities are cleared and settled today. 
Therefore, BSTX's rules regarding clearance and settlement of Security 
transactions do not impose any relative burden on competition regarding 
the manner in which trades may be cleared and settled because market 
participants would be able to clear and settle Security transactions in 
the same manner as they already do in other types of NMS stock. The 
Exchange believes that this is equally true regarding the proposed 
ability of BSTX Participants to submit to BSTX orders in Securities in 
which they include a parameter expressing a preference for T+1 or T+0 
settlement, consistent with the rules, policies and procedures of a 
registered clearing agency, as proposed in the operation of proposed 
BSTX Rules 25060(h) and 25100(d). As described in detail in Item 3 
above, BSTX believes that NSCC and DTC already have authority under 
their rules policies and procedures to clear and settle certain trades 
on a T+1 or T+0 basis and that these clearing agencies do already clear 
and settle trades in accordance with this authority.
    The Exchange believes that answering the question of whether a 
burden on competition is imposed by the proposal to allow BSTX 
Participants to specify an order parameter indicating a preference for 
potential settlement on a T+0 or T+1 basis requires an assessment under 
three general circumstances for order submissions and executions. The 
first possible circumstance contemplates orders that BSTX Participants 
would submit to the BSTX System and that would result in an execution 
on BSTX. Here, it would be entirely the choice of any BSTX Participant 
regarding whether to include an order parameter indicating a preference 
for T+0 or T+1 settlement where possible under the settlement logic in 
BSTX Rule 25060(h). If no such additional parameter is included in the 
order, the order defaults to settle on a regular-way T+2 basis under 
the settlement logic in proposed BSTX Rule 25060(h). As described in 
Part II.I of Item 3, an order that includes a parameter indicating a 
preference for potential T+0 settlement will execute against any order 
against which it is marketable with settlement occurring on

[[Page 29672]]

a regular-way settlement cycle of T+2 except where: (i) The order with 
the parameter for potential settlement on T+0 executes against another 
order with a parameter for potential settlement on T+0 (in which case 
settlement would occur on the trade date if the transaction is also 
eligible for settlement on T+0 under the rules, policies and procedures 
of a registered clearing agency) or (ii) the order with a parameter for 
potential settlement on T+0 executes against an order with a parameter 
for potential settlement on T+1 (in which case settlement would occur 
T+1). Similarly, as proposed, an order that includes a parameter for 
potential settlement on T+1 will execute against any order against 
which it is marketable with settlement occurring on a regular-way 
settlement date of T+2 except where: (i) An order that includes a 
parameter for potential settlement on T+1 executes against another such 
order or an order that includes a parameter for potential settlement on 
T+0 (in which case settlement would occur T+1). In all cases under the 
settlement logic in proposed BSTX Rule 25060(h), an order that does not 
include an optional parameter indicating a preference for potential 
settlement on T+0 or T+1 would be a regular way order that would always 
receive T+2 settlement if it executes against any other order in the 
BSTX System. In this way, all of the orders submitted to BSTX would be 
regular way orders that in and of themselves would be presumed to 
settle on T+2. Only where a BSTX Participant includes the optional 
parameters to express a preference for potential T+0 or T+1 settlement 
(where consistent with the rules, policies and procedures of a 
registered clearing agency) and the order matches against another order 
seeking a shorter settlement time than T+2 could a transaction settle 
more quickly than T+2 under the settlement logic in proposed BSTX Rule 
25060(h) and as described immediately above. Thus, every market 
participant seeking T+2 settlement for an execution on BSTX would be 
able to interact with any order against which their order is 
marketable, including those marked for possible T+0 or T+1 settlement. 
In addition, the possibility of shortened settlement timing would have 
no impact on the Exchange's price time priority.\357\ For these 
reasons, the Exchange believes that no burden on competition is imposed 
in this first possible circumstance.
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    \357\ See supra n. 82 and accompanying text.
---------------------------------------------------------------------------

    The second possible circumstance arises when an order that would be 
required under Exchange Act Rule 611,\358\ the Commission's ``order 
protection rule'', to be routed to BSTX from a third party exchange 
that extends UTP to a Security. This required routing of the order in 
such a Security would occur in this setting because the NBBO existed on 
BSTX at the time of the entry of the order. Under proposed BSTX Rule 
25060(h), the order routed to BSTX would execute against any order 
against which it is marketable without regard to whether a BSTX 
Participant may have included an optional parameter for potential T+0 
or T+1 settlement where the order executes against another order that 
also has an optional parameter for potential T+0 or T+1 settlement 
under the settlement logic in BSTX Rule 25060(h). In the event the 
order routed to BSTX executes against another order on BSTX against 
which it is marketable, that executed transaction in the Security would 
be bound for regular way T+2 settlement under BSTX Rule 25060(h) 
because the Exchange believes that the routed order from a third party 
exchange would not include a parameter for T+0 or T+1 settlement. This 
is because the Exchange believes that no other exchange currently 
includes any such optional parameters to be able to indicate a 
preference for potential T+0 or T+1 settlement. This structure means 
that any non-BSTX Participant that sees a quote in a Security on BSTX 
would remain able to execute against that quote even if that quote 
includes an optional parameter indicating a preference for T+0 or T+1 
settlement where an executed order becomes eligible for any such 
settlement on a basis that is faster that T+2 under the settlement 
logic in BSTX Rule 25060(h). The Exchange believes that no burden on 
competition results in this second possible circumstance because an 
order routed to BSTX would interact against any order on BSTX against 
which it is marketable. All orders in a Security that are submitted 
directly to BSTX by BSTX Participants or that may be routed to BSTX 
would be regular way orders that when viewed in isolation would be 
presumed to settle on a T+2 basis at the time of order entry. It would 
only be upon execution against another order that also includes an 
order parameter expressing a preference for settlement on a T+0 or T+1 
basis that the executed transaction (i.e., not the initial orders) 
would become eligible for settlement faster than T+2 under the 
settlement logic in Rule 25060(h). The Exchange believes this imposes 
no burden on competition on BSTX Participants because inclusion of any 
T+0 or T+1 parameter would be entirely optional and any BSTX 
Participant that includes such a parameter would do so with an ex-ante 
understanding of the settlement logic in BSTX Rule 25060 that could 
cause an executed transaction to settle more quickly than T+2. As 
noted, the Exchange believes that orders in a Security that would be 
required to be routed to BSTX, for example under the Commission's Order 
Protection Rule, would also not impose any burden on competition 
because other exchanges do not have rules that similarly contemplate 
the inclusion of a T+0 or T+1 parameter, such routed orders would 
therefore result in T+2 settlement if executed against any other order 
on BSTX against which the order is marketable (regardless of whether 
the order against which it executes includes an optional parameter 
indicating a preference for T+0 or T+1 settlement). Therefore, any 
order routed to BSTX would be able to interact with any other order on 
BSTX against which it is marketable and would settle on a regular way 
T+2 basis just as occurs today regarding any order in an NMS stock that 
is routed to a national securities exchange.
---------------------------------------------------------------------------

    \358\ 17 CFR 242.611.
---------------------------------------------------------------------------

    The third possible circumstance contemplates an order that must be 
routed under the order protection rule from BSTX to a third party 
exchange that extends UTP for a Security because the third party 
exchange has the NBBO at that time. The Exchange believes that this 
setting is not relevant under the proposed rules of BSTX. Specifically, 
the Exchange believes that it is not relevant because proposed BSTX 
Rule 25130(d) states that the BSTX System will reject any order or 
quotation that would lock or cross a protected quotation of another 
exchange at the time of entry. Therefore, any such orders that would 
otherwise be required to be routed by BSTX to another exchange will 
instead be rejected by the BSTX System. Accordingly, any specification 
by a BSTX Participant of a T+0 or T+1 settlement timing parameter for 
an order in this setting could not create any burden on competition 
because the order will be rejected and would never lead to an 
execution.
    In addition to not imposing any burden on competition, the Exchange 
believes that allowing BSTX Participants to use faster settlement 
cycles where consistent with the rules, policies and procedures of a 
registered clearing agency would mitigate settlement risk for 
transactions in such Securities, consistent with the benefits the 
Commission has noted in this area. Namely, in adopting amendments to 
SEC Rule 15c6-1 in 2017 to shorten the standard settlement cycle for 
most

[[Page 29673]]

broker-dealer transactions in securities from T+3 to T+2, the 
Commission stated its belief that the shorter settlement cycle would 
have positive effects regarding the liquidity risks and costs faced by 
members in a clearing agency, like NSCC, that performs CCP services, 
and that it would also have positive effects for other market 
participants. Specifically, the Commission stated its belief that the 
resulting ``reduction in the amount of unsettled trades and the period 
of time during which the CCP is exposed to risk would reduce the amount 
of financial resources that the CCP members may have to provide to 
support the CCP's risk management process . . .'' and that ``[t]his 
reduction in the potential need for financial resources should, in 
turn, reduce the liquidity costs and capital demands clearing broker-
dealers face . . . and allow for improved capital utilization.'' \359\ 
The Commission went on to state its belief that shortening the 
settlement cycle ``would also lead to benefits to other market 
participants, including introducing broker-dealers, institutional 
investors, and retail investors'' such as ``quicker access to funds and 
securities following trade execution'' and ``reduced margin charges and 
other fees that clearing broker-dealers may pass down to other market 
participants[.]'' \360\ The Commission also ``noted that a move to a 
T+1 standard settlement cycle could have similar qualitative benefits 
of market, credit, and liquidity risk reduction for market 
participants[.]'' \361\ The Exchange agrees with these statements by 
the Commission and has therefore proposed BSTX Rule 25100(d) in a form 
that would promote the benefits of shorter settlement cycles for 
Securities without imposing burdens on other national securities 
exchanges or market participants that are not BSTX Participants.
---------------------------------------------------------------------------

    \359\ See supra n. 88-91 and accompanying text.
    \360\ Id.
    \361\ Id.
---------------------------------------------------------------------------

    With respect to consideration (4) above, as previously noted, 
market participants would not be limited in their ability to trade 
Securities OTC because Securities could be traded OTC, including Thinly 
Traded Securities for which UTP has been suspended, and would be 
cleared and settled in the same manner as other NMS stocks through the 
facilities of a registered clearing agency. Thus, the Exchange does not 
believe that its proposal will place any new burden on competition with 
respect to OTC trading, given that trading, clearance and settlement 
will take place in the same manner as for other NMS stocks.
    With respect to consideration (5) noted above regarding other 
exchanges extending UTP to Securities that are not Thinly Traded 
Securities (and for which the issuer elected to suspend UTP), the 
Exchange does not believe that the proposed Rules would impose a burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Exchange Act. This is because, with the exception 
of Thinly Traded Securities described below, other national securities 
exchanges would be able to extend UTP to Securities in accordance with 
Commission rules just as they can regarding any other NMS stock.
    Regarding consideration (6) and suspensions of UTP for Thinly 
Traded Securities, the Exchange believes that proposed BSTX Rule 25150 
would impose a burden on competition as described below. However, for 
the reasons described below the Exchange believes that the degree of 
the burden on competition is justified under the Exchange Act because 
it is necessary and appropriate to promote other express objectives of 
the Exchange Act.
    If an operating company that is an issuer of a Security gives 
written notice to the Exchange under BSTX Rule 25150(b) that it elects 
a suspension of UTP and the Exchange determines that the Security 
qualifies as a Thinly Traded Security, the Thinly Traded Security would 
be eligible to trade only on BSTX and OTC while the suspension of UTP 
is in effect. This would burden competition regarding other national 
securities exchanges for the time that the suspension of UTP is in 
effect because it would mean that the exchanges would not be permitted 
to extend UTP to the Thinly Traded Security and therefore the Thinly 
Traded Security would only trade on BSTX and OTC. The Exchange 
believes, however, that this burden on other exchanges is appropriately 
limited to the subset of Securities that are Thinly Traded Securities 
because it would only apply (i) in the event that the Security meets 
the average daily trading volume thresholds in BSTX Rule 25150 and (ii) 
the issuer elects to notify the Exchange in writing that it wishes to 
suspend UTP. Therefore, the burden on other exchanges would never apply 
regarding a Security that is not a Thinly Traded Security.
    As also described in Item 3, Part II.H, the Exchange believes that 
this limited burden on other exchanges would be offset and necessary 
and appropriate under Section 6(b)(8) of the Exchange Act \362\ because 
the suspension of UTP has the potential to help solve market quality 
problems for Thinly Traded Securities that have been publicly 
identified by the Commission, Commission staff, the U.S. Department of 
Treasury, academics, and a broad spectrum of market participants.\363\ 
The Exchange agrees with the views expressed in the related 
publications that ``the current `one-size-fits-all' equity market 
structure, as largely governed under Regulation NMS, may not be optimal 
for thinly traded securities'' \364\ and that ``more needs to be done 
to promote liquidity and to improve the listing and trading environment 
for thinly traded stocks.'' \365\ The Commission noted that the 
``secondary market for thinly traded securities faces liquidity 
challenges that can have a negative effect on both investors and 
issuers traded securities faces liquidity challenges that can have a 
negative effect on both investors and issuer'' including ``wider 
spreads and less displayed size relative to securities that trade in 
greater volume, often resulting in higher transaction costs for 
investors.'' \366\ These concerns have been echoed in statements by 
former Commission Chairman Jay Clayton, former Director of the Division 
of Trading and Market Brett Redfearn, the Commission's Small Business 
Advisory Committee and demonstrated through empirical analyses by the 
Division of Trading and Market's Office of Analytics and Research (OAR) 
and academics.\367\ A frequently discussed potential solution to these 
liquidity and poor market quality issues facing thinly traded 
securities has been the suspension of UTP for such securities, allowing 
for displayed liquidity to be concentrated on a single exchange.\368\ 
The Exchange has thus proposed the suspension of UTP in response to 
these concerns. The Exchange notes that it proposes to use the same 
criteria as used by OAR (i.e., an ADV of less than 100,000 shares) 
\369\ to distinguish thinly traded securities from more actively traded 
securities with the additional conditions that only the Securities of 
an operating company and must have a market capitalization of less than 
$1

[[Page 29674]]

billion, which the Exchange believes helps ensure that the competitive 
burden imposed by the proposed suspension of UTP is narrowly tailored 
to address liquidity and market quality concerns for securities that 
are thinly traded.\370\ It is for these reasons that the Exchange 
believes that the burden on competition through the suspension of UTP 
for Thinly Traded Securities (at the election of the issuer) is 
justified in furtherance of goal of improving market quality for 
securities that are thinly traded.
---------------------------------------------------------------------------

    \362\ 15 U.S.C. 78f(b)(8).
    \363\ See supra n. 42-50 and accompanying text.
    \364\ Id.
    \365\ Id.
    \366\ Id.
    \367\ Id.
    \368\ See supra note 51-52.
    \369\ See supra note 56 noting the immaterial difference between 
the construction used by OAR of an ADV of less than 100,000 shares 
versus the Exchange's proposed construction of an ADV of 100,000 
shares or less.
    \370\ In addition, the Exchange proposes to work with other SROs 
to amend the revenue allocation formula of the applicable NMS 
plan(s) for consolidated market data to exclude Thinly Traded 
Securities in order to prevent the Exchange from unduly profiting 
from the suspension of UTP under such formula. See supra notes 70-71 
and accompanying text.
---------------------------------------------------------------------------

    In addition, the Exchange does not believe that the suspension of 
UTP for Thinly Traded Securities will impose a burden on competition 
not necessary or appropriate in furtherance of the Exchange Act \371\ 
because other exchanges could similarly be granted a suspension of UTP 
for qualifying thinly traded securities listed on their markets. 
Exchanges can compete with each other in attracting issuers of thinly 
traded securities to be singly-listed and traded on their respective 
exchanges. Exchanges would still be able to compete with one another 
for listings and the market for all thinly traded securities could be 
improved. Moreover, if the suspension of UTP has the desired effect of 
improving the overall liquidity of a Thinly Traded Security, such 
Security should hopefully exceed the 100,000 share ADV or $1 billion 
market capitalization thresholds and become available for UTP, thus 
removing any barrier to competition once the purpose for which the 
suspension of UTP was initiated has been fulfilled.
---------------------------------------------------------------------------

    \371\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule change and none have been received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BOX-2021-06 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BOX-2021-06. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BOX-2021-06 and should be submitted on 
or before June 23, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\372\
---------------------------------------------------------------------------

    \372\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11410 Filed 6-1-21; 8:45 am]
BILLING CODE 8011-01-P


