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Federal Register / Vol. 86, No. 18 / Friday, January 29, 2021 / Notices of the Exchanges obligations as an SRO
with respect to BSTX as a facility of the Exchange, were the subject of a separate proposed rule changethe BSTX
Trading Rules Proposalthat the Commission disapproved.72 In the BSTX Governance Proposal, the Exchange cites the BSTX Trading Rules Proposal and states that it would not commence operations of the BSTX
Market until the BSTX Trading Rules Proposal is approved by the Commission.73 Many aspects of the BSTX Governance Proposal and many provisions of the BSTX LLC Agreement, however, are substantively relevant only in the context of the existence and operation of the BSTX Market, and in the absence of the BSTX Trading Rules Proposal, the Commission is unable to assess these provisions and determine that the Exchange would be organized and have the capacity to carry out the purposes of the Exchange Act, consistent with Section 6b1 of the Exchange Act.
For example, in the BSTX LLC
Agreement the Exchange defines the BSTX Market as the market operated by BSTX pursuant to Section 3.1 of the BSTX LLC Agreement, 74 and Section 3.1 of the BSTX LLC Agreement states that the purpose of BSTX is to develop the System, to own and operate the BSTX Market for the Trading of BSTX
Products,75 and to engage in all related activities arising therefrom or relating thereto or necessary, desirable, advisable, convenient, or appropriate in connection therewith as the BSTX LLC
Members may determine. 76 And while the BSTX LLC Agreement generally defines the terms System,77 BSTX
Market,78 Trading,79 and BSTX
Products,80 the BSTX Governance Proposal and the BSTX LLC Agreement do not describe the proposed operation of the BSTX Market, how trading would occur on the BSTX Market, or the products proposed to be traded on the BSTX Market. Instead, the proposed rules for, and the description of, these 72 See
supra note 17 and accompanying text.
supra notes 2425 and accompanying text.
74 See BSTX LLC Agreement, supra note 14, Section 1.1.
75 The BSTX LLC Agreement defines BSTX
Products as security tokens emphasis added authorized for trading on the BSTX Market. See id.
at Section 1.1.
76 See BSTX LLC Agreement, supra note 14, Section 3.
77 See supra note 51 and accompanying text.
78 See supra note 74 and accompanying text.
79 The proposed BSTX LLC Agreement defines Trading as availability of the System to authorized users for entering, modifying and canceling orders in BSTX Products. See BSTX LLC
Agreement, supra note 14, Section 1.1.
80 See supra note 75 and accompanying text.

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aspects of the proposed facility were the subject of the BSTX Trading Rules Proposal.81
In particular, the securities that are proposed to be traded on BSTX are described in the BSTX Governance Proposal only as securities, but are defined in the BSTX LLC Agreement as BSTX Products, which are security tokens authorized for trading on the BSTX Market. And the Exchange does not further explain BSTX Products. The BSTX Trading Rules Proposal, however, proposed rules governing what securities could be listed and traded on BSTX,82 and explained how securities listed and traded on BSTX would be represented on the Ethereum blockchain as tokenized assets, a characteristic which would distinguish them from other NMS stocks.83 In the absence of the BSTX Trading Rules Proposal, the BSTX Governance Proposal does not sufficiently explain what kinds of securities would be listed and traded on BSTX, including what the Exchange intends by the term security tokens.
Furthermore, the Exchange states in the BSTX Governance Proposal that BSTX
will be a facility of the Exchange that operates a market for the trading of securities 84 and the BSTX LLC
Agreement defines the products to be traded on the facility as authorized for Trading on the BSTX Market. 85 As noted above, the Commission disapproved the rules that would have established this authority.
Similarly, the BSTX Governance Proposal does not sufficiently explain who would be a member of the Exchange that is eligible to trade on BSTX and qualify as a BSTX
Participant. The BSTX LLC Agreement defines BSTX Participant as a firm or organization that is registered with the Exchange pursuant to Exchange Rules for purposes of participating in Trading on the BSTX Market, 86 and Exchange Rules as the rules of the Exchange that constitute the rules of an exchange within the meaning of Section 3 of the Exchange Act, and that pertain to the BSTX Market. 87 However, the BSTX
Governance Proposal does not provide the rules for and eligibility to become a BSTX Participant, as well as ongoing obligations. Those were proposed in the 81 See
supra notes 5565 and accompanying text.
supra note 55 and accompanying text.
83 See e.g., BSTX Trading Rules Proposal, supra note 16, 85 FR at 51257; BSTX Rules, supra note 24, proposed BSTX Rule 17020d.
84 See supra note 23 and accompanying text.
85 See supra note 75.
86 See BSTX LLC Agreement, supra note 14, Section 1.1.
87 See id.
82 See
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BSTX Trading Rules Proposal.88 The BSTX Governance Proposal does not sufficiently establish what the Exchange Rules referred to in that proposal are, the extent of their application, and what they would require of BSTX members.
In addition, the BSTX LLC Agreement states that the Exchange will have regulatory responsibility for the activities of the BSTX Market. But the Exchange also states that it will only commence operations of the BSTX
Market if the BSTX Trading Rules Proposal is approved. Additionally, as described above, the BSTX Governance Proposal does not provide information about the proposed operations of BSTX
as a facility. As a result, it is not clear what the activities of the BSTX Market would be, over which the Exchange would exercise regulatory responsibility. For example, Section 3.2
of the BSTX LLC Agreement provides that the Exchange will a act as the Commission approved SRO for the BSTX Market, b have regulatory responsibility for the activities of the BSTX Market, and c provide regulatory services to BSTX pursuant to the Facility Agreement.89 The BSTX LLC
Agreement also states that the Exchange will become a party to the BSTX LLC
Agreement and the Commission and the Exchange shall have appropriate regulatory oversight responsibilities with respect to BSTX upon the Commissions approval of the Exchanges proposal to operate the BSTX Market as a facility of the Exchange.90 Because the BSTX
Governance Proposal does not explain how the BSTX Market would operate, the Commission is unable to assess what the Exchanges regulatory responsibilities would be and thus whether the Exchange would be organized and have the capacity to carry out the purposes of the Exchange Act with respect to BSTX as a facility of the Exchange.
Furthermore, the BSTX Trading Rules Proposal included discussion about how the Exchange planned to comply with its regulatory obligations with respect to the BSTX Market that is not included in the BSTX Governance Proposal. For example, the BSTX Governance Proposal does not explain whether the Exchange would enter into any agreements with other parties to provide regulatory services. However, the BSTX
Trading Rules Proposal explained that 88 See
supra notes 5962 and accompanying text.
BSTX LLC Agreement, supra note 14, Section 3.2ai; supra note 41.
90 See BSTX LLC Agreement, supra note 14, Section 18.8.
89 See
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