[Federal Register Volume 87, Number 193 (Thursday, October 6, 2022)]
[Notices]
[Pages 60717-60719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-21677]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95961; File No. SR-BOX-2022-19]


Self-Regulatory Organizations; BOX Exchange LLC; Order Approving 
a Proposed Rule Change, as Modified by Amendment No. 1, To Amend 
Article 4 of the Exchange's Bylaws To Establish a Staggered Board

September 30, 2022.

I. Introduction

    On June 17, 2022, BOX Exchange LLC (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend Article 4 
of the Exchange's Bylaws (``Bylaws'') to establish a staggered board. 
The proposed rule change was published for comment in the Federal 
Register on July 6, 2022.\3\ On August 9, 2022, pursuant to Section 
19(b)(2) of the Act,\4\ the Commission designated a longer period 
within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ On September 28, 2022, the 
Exchange filed Amendment No. 1 to the proposed rule change.\6\ The 
Commission received no comments on the proposed rule change. This order 
approves the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 95174 (June 29, 
2022), 87 FR 40321 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 95446 (August 9, 
2022), 87 FR 50142 (August 15, 2022). The Commission designated 
October 4, 2022, as the date by which the Commission shall approve 
or disapprove, or institute proceedings to determine whether to 
disapprove, the proposed rule change.
    \6\ In Amendment No. 1, the Exchange clarified how the 
transition to a staggered board would be implemented. Because 
Amendment No. 1 does not materially alter the substance of the 
proposed rule change, Amendment No. 1 is not subject to notice and 
comment. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-box-2022-19/srbox202219-20144374-309297.pdf (``Amendment 
No. 1'').
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II. Description of the Proposed Rule Change 7
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    \7\ For a more complete description of the changes proposed, see 
Notice, supra note 3.
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    The Exchange proposes to amend its Bylaws to establish a staggered 
Board. Specifically, the Exchange proposes to amend Section 4.03 
(``Term of Directors'') of the Bylaws to provide that Exchange 
Directors will be divided into three classes, designated Class I, Class 
II and Class III, which will be as nearly equal in number and 
classification as the total number of such Directors then serving on 
the Board permits. As proposed, each class of Directors will serve 
staggered three-year terms, with the term of office of one class 
expiring each year.\8\
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    \8\ Currently, Directors serve one-year terms, and all Directors 
are nominated and begin serving each year at the annual meeting of 
Members. See Notice, supra note 3, at 40322 n.4.
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    In order to commence such staggered three-year terms, the Exchange 
proposes to amend Section 4.03 of the Bylaws to provide that Class I 
Directors will initially serve a one-year term; Class II Directors will 
initially serve a two-year term; and Class III Directors will initially 
serve a three-year term.\9\ Thereafter, all Directors shall serve 
staggered three-year terms, with the term of office of one class 
expiring each year.\10\
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    \9\ According to the Exchange, the 2022 annual meeting of the 
Members of the Exchange has not yet occurred. If the proposed rule 
change is approved before the 2022 annual meeting of Members, Class 
I Directors, Class II Directors and Class III Directors would each 
be nominated and selected in 2022 and the initial term of Class I 
Directors would end at the 2023 annual meeting of Members, and a new 
slate of Class I Directors would be nominated and selected in 2023 
in accordance with the Bylaws. See Amendment 1, supra note 6, at 2. 
In this circumstance, the term of Class II and Class III directors 
would end at the Members annual meeting in 2024 and 2025, 
respectively. See id. at 2 n.5.
    \10\ See Amendment 1, supra note 6 at 2.
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    The Exchange further proposes to amend Section 4.03 of the Bylaws 
to provide that, in the case of any new Director as contemplated by 
Article IV, Section 4.02, such Director will be added to a class, as 
determined by the Board at the time of such Director's initial election 
or appointment, and will

[[Page 60718]]

have an initial term expiring at the same time as the term of the class 
to which such Director has been added. In making such determinations, 
the Board will balance the categories of Directors (e.g., Non-Industry, 
Public, Participant, and Facility Directors) among the classes to the 
extent possible. Pursuant to Section 4.02 of the Bylaws, the total 
number of Directors is determined by the Board and must be between five 
and eleven directors. Therefore, the Exchange proposes this provision 
specify that if a new Director is added to the Board, the term of that 
Director will correspond to the class to which that Director is 
assigned at the time of election or appointment.\11\ In addition, the 
Exchange proposes to amend Section 4.02 of the Bylaws to specify that 
no decrease in the number of Directors will have the effect of 
shortening the term of any incumbent Director.\12\
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    \11\ See Notice, supra note 3, at 40322.
    \12\ For example, the Exchange notes that it could not determine 
to reduce the size of the Board by eliminating the Director seat for 
a Director who had two years of his or her term remaining. See 
Notice, supra note 3, at 40322.
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    The Exchange also proposes to make certain conforming edits to 
other provisions of the Bylaws to clarify the responsibilities of the 
Board's Nominating Committee and to address Director vacancies that may 
arise. For example, the Exchange proposes to amend Section 4.06 
(``Nominating Committee'') of the Bylaws to specify that the Board's 
Nominating Committee will nominate individuals in advance of each 
annual meeting of the Members to begin service as Directors ``for the 
applicable class term then expiring (i.e., Class I, Class II or Class 
III)'' at such annual meeting of the Members.\13\ The Exchange also 
proposes to amend Section 4.06(d) (``Selection of Directors'') of the 
Bylaws to provide that, prior to the first annual meeting of the 
Members following adoption of the amended Section 4.06(d), each 
Director position set forth in Section 4.02 shall be designated, as 
determined by the Board, to one of the three classes for nomination by 
the Nominating Committee to begin service at such annual meeting. 
Thereafter, prior to each annual meeting of the Members, the Nominating 
Committee will select nominees for each Director position ``for the 
class with its term then expiring'' to begin service as Directors.\14\ 
Finally, the Exchange proposes to amend Section 4.10 (``Vacancies'') to 
provide that a Director who is elected by the Board to fill a vacancy 
(e.g., as a result of the death, resignation, removal, or increase in 
the authorized number of Directors), will serve for the remainder of 
the applicable class term. For example, according to the Exchange, if a 
Director in Class II resigns, the Director elected to fill the vacancy 
would serve for the remainder of the term of Class II Directors.\15\
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    \13\ Similarly, the Exchange also proposes to amend the final 
sentence of Section 4.06 to specify that at each annual meeting of 
the Members, the individuals selected ``for the applicable class 
term'' pursuant to Section 4.06 of the Bylaws would begin serving as 
Directors. See Notice, supra note 3, at 40322 n.7.
    \14\ The Exchange proposes to amend Section 4.06(d)(i) to 
include the same conforming edits to specify that the Nominating 
Committee will meet for the purposes of selecting proposed Director 
nominees ``for the class then expiring'' and that the Nominating 
Committee will provide the names of all proposed Director nominees 
``for the class then expiring'' to the Exchange's Secretary not 
later than sixty days prior to the date of the annual meeting of the 
Members. See Notice, supra note 3, at 40322 n.8.
    \15\ With respect to a vacancy arising from an increase in the 
number of authorized Directors, pursuant to proposed Section 4.03 of 
the Bylaws, the Director filling such vacancy would be assigned to a 
class by the Board and would have an initial term expiring at the 
same time as the term of the class to which such Director has been 
added. See Notice, supra note 3, at 40322 n.9.
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    The Exchange notes that it is not proposing any change to the 
composition of the Board, such as the requirement that 20% of Directors 
must be a Participant Directors or that a majority of Directors must be 
Non-Industry Directors.\16\ Further, all nominations and elections of 
Directors under the proposed staggered Board structure must be 
consistent with the existing composition requirements in the Bylaws and 
Directors may continue to serve consecutive terms.\17\
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    \16\ See Notice, supra note 3, at 40323; Section 4.02 of the 
Bylaws.
    \17\ See Notice, supra note 3, at 40323; Section 4.03 of the 
Bylaws.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No.1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\18\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\19\ which requires, among other things, 
that the rules of a national securities exchange be designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in 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. The Commission also finds 
that the proposed rule change, as amended, is consistent with Section 
6(b)(3) of the Exchange Act,\20\ which, among other things, requires 
that the rules of a national securities exchange ensure fair 
representation of its members in the selection of its directors and 
administration of its affairs.
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    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ 15 U.S.C. 78f(b)(3).
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    As discussed above, the Exchange proposes to amend its Bylaws to 
establish a staggered Board. The Commission believes that, by dividing 
Directors into three classes with only one class selected by the 
Nominating Committee each year to serve a three-year term, a staggered 
Board may improve the function of the Board by ensuring continuity and 
preserving institutional knowledge among its Directors. As the Exchange 
notes, retaining a majority of the incumbent Directors year-to-year may 
facilitate an orderly transition to new leadership. Moreover, according 
to the Exchange, the existing composition requirements related to 
Directors would remain the same under the proposed rule change and 
categories of Directors shall be balanced among the classes. Further, 
all Directors would be subject to the same requirements under the 
proposed rule change (i.e., all Directors, regardless of type, would be 
divided into one of three classes, each serving three-year terms). The 
Commission also notes that the proposed staggered Board structure is 
substantially similar to the staggered board structures of at least two 
exchanges \21\ and therefore poses no novel regulatory issues. Finally, 
the Commission believes that the proposed conforming changes to the 
Bylaws are consistent with the Act because they serve to clarify the 
responsibilities of the Board's Nominating Committee and to address 
Director vacancies that may arise.
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    \21\ See Amended and Restated By-Laws of Miami International 
Securities Exchange LLC (``MIAX''), Section 2.3(b) and First Amended 
and Restated Bylaws of Long-Term Stock Exchange, Inc. (``LTSE''), 
Section 3.3(b). The bylaws of The Options Clearing Corporation 
(``OCC''), another self-regulatory organization, also provide for a 
similar staggered board consisting of three classes. See OCC By-
Laws, Article III, Section 3.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-BOX-2022-

[[Page 60719]]

19), as modified by Amendment No. 1, be, and hereby is, approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-21677 Filed 10-5-22; 8:45 am]
BILLING CODE 8011-01-P


