Self-Regulatory Organizations; BOX Exchange LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, Related to BOX Exchange LLC and BOX Holdings Group LLC Ownership Transfer Transactions

I. Introduction

On August 27, 2021, BOX Exchange LLC (“BOX Exchange” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, a proposed rule change related to the Exchange and BOX Holdings Group LLC (“BOX Holdings”) ownership transfer transactions. The proposed rule change was published for comment in the Federal Register on September 15, 2021. The Commission received one comment on the proposed rule change. On September 28, 2021, pursuant to Section 19(b)(2) of the Act, 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. On December 13, 2021, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and superseded the Notice in its entirety. The Commission is approving the proposed rule change, as modified by Amendment No. 1.

II. Description of the Proposed Rule Change

The Exchange is a limited liability company, organized under the laws of the State of Delaware on August 26, 2010. The Exchange's charter is a Second Amended and Restated Limited Liability Company Agreement, dated as of May 29, 2020, as amended November 30, 2020 (“BOX Exchange LLC Agreement”). Citigroup Financial Products Inc. (“Citi”), CSFB Next Fund Inc. (“CSFB”), and MX US 2, Inc., (“MXUS2”) each became a Member of the Exchange on May 10, 2012. Wolverine Holdings, L.P. (“Wolverine”) is not currently a Member of the Exchange.

BOX Holdings is a limited liability company, organized under the laws of the State of Delaware on August 26, 2010. BOX Holdings is the sole owner of BOX Options Market LLC, a facility of the Exchange (“BOX Options”). The BOX Holdings charter is a Second Amended and Restated Limited Liability Company Agreement, dated as of September 13, 2018 (“BOX Holdings LLC Agreement”). Citi and CSFB each became a Member of BOX Holdings on May 10, 2012.

The Exchange proposes several transactions related to the ownership of the Exchange and BOX Holdings. First, the Exchange would repurchase the ownership interests in the Exchange held by Citi and CSFB. Second, BOX Holdings would repurchase the ownership interests in BOX Holdings held by Citi and CSFB. Finally, Wolverine would purchase an ownership interest in the Exchange from MXUS2. The charts below summarize the ownership and voting percentage changes in the Exchange and BOX Holdings that would result from the proposed transactions:

BOX Exchange

BOX Holdings

In addition to the transactions, the Exchange proposes to update the name of one of its Members in the BOX Exchange LLC Agreement. LabMorgan Corp., a Member of the Exchange, has changed its legal name to “JPMC Strategic Investments I Corporation.”

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. In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with Section 6(b)(5) of the Act, 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 these proposed rule changes, as modified by Amendment No. 1, are consistent with Section 6(b)(1) of the Act, which requires, among other things, that a national securities exchange be so organized and have the capacity to carry out the purposes of the Act, and to comply and enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulations thereunder, and the rules of the exchange.

Both the BOX Exchange LLC Agreement and the BOX Holdings LLC Agreement contain provisions relating to limitations on ownership and voting power. In particular, the BOX Exchange LLC Agreement provides that no Person, either alone or together with any Related Persons may own, directly or indirectly, of record or beneficially, an aggregate Economic Percentage Interest greater than 40%. Exchange Facility Participants, alone or together with any Related Persons may not own, directly or indirectly, of record or beneficially, an Economic Percentage Interest greater than 20%. In addition, no Person, either alone or together with any Related Persons, may own, directly or indirectly, of record or beneficially, an aggregate Voting Percentage Interest greater than 20%. Moreover, any Member of the Exchange involved in a transaction that would result in a Member having a Voting Percentage Interest or Economic Percentage Interest, alone or together with any Related Person, of record or beneficially, of 5% or more will be required to provide written notice to BOX Exchange 14 days before the transaction that would exceed the 5% limit. BOX Exchange will then be required to provide written notice to the Commission 10 days before the transaction.

In addition, the BOX Holdings LLC Agreement provides that if a Member of BOX Holdings or any of its Related Persons is approved by the Exchange as a BOX Options Participant, and if such Member, alone or together with the Related Persons, own more than 20% of BOX Holdings Units, then such Member and any director of BOX Holdings designated by such Member will not have any voting rights with respect to any Units owned in excess of 20%. The BOX Holdings LLC Agreement further provides that any Member of BOX Holdings involved in a transaction in which the Member's Percentage Interest in BOX Holdings, either alone or together with any Related Person, will meet or cross the threshold level of 5% or the successive 5% percentage levels of 10% and 15% will be required to provide written notice to BOX Holdings 14 days before the transaction. BOX Holdings will then be required to provide written notice to BOX Exchange and the Commission 10 days before the transaction. In addition to these notices, any transaction of Units that results in the acquisition and holding by any Person, alone or with its Related Persons, of a Percentage Interest that meets or crosses the threshold level of 20% or any successive 5% percentage interest will be subject to the rule filing process of Section 19 of the Act. Further, any transaction that is in contravention of the notification and filing provisions shall be void.

The ownership and voting limitations are designed to help ensure that BOX Exchange is able to effectively carry out its regulatory obligations under the Act. In addition, the limitations are designed to address the conflicts of interests that might result from a member of a national securities exchange owning interests in the exchange. The Commission believes that the Exchange has followed the required notice procedures set forth in the BOX Exchange LLC Agreement and BOX Holdings LLC Agreement and that the proposed transactions are in compliance with the ownership and voting limitations in the governance documents. The Commission also notes that the BOX Exchange LLC Agreement and BOX Holdings LLC Agreement contain certain provisions designed to help maintain the independence of the regulatory functions of BOX Exchange. The Commission believes that the potential for conflicts of interest or unfair competition is mitigated by these provisions.

With respect to the ownership of BOX Exchange, the Commission notes that no BOX Exchange Member will own in excess of 40% of the Exchange's Economic Units (20% if an Exchange Facility Participant) and 20% of the Exchange's Voting Units. The board composition of the Exchange will not change. And although BOX Holdings is not independently responsible for regulation of BOX Options, its activities with respect to the operation of BOX Options must be consistent with, and not interfere with, the self-regulatory obligations of BOX Exchange. Pursuant to the transaction, with respect to the ownership of BOX Holdings, the voting power of IB, a BOX Options Participant, would remain at 20.00%. Further, while MXUS2's voting power in BOX Holdings would increase, MXUS2's power to appoint directors would remain unchanged. The Commission accordingly believes that the proposed transfers are in compliance with requirements in the BOX Exchange LLC Agreement and the BOX Holdings LLC Agreement and provisions designed to help maintain BOX Exchange's regulatory function.

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-BOX-2021-19), as modified by Amendment No. 1, be, and hereby is, approved.