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Federal Register / Vol. 86, No. 104 / Wednesday, June 2, 2021 / Notices and thereby reduce settlement risk in the U.S. national market system.26

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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 Investors Exchange, LLC IEX, which, in turn, is consistent with the rules of other equities exchanges.27
BSTX believes that the operation of its depository eligibility rule and its bookentry 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.
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
SRNASD9524, 60 FR 28813 June 2, 1995;
35773 May 26, 1995, 60 FR 28817 June 2, 1995
SRNYSE9519.
27 See IEX Rule 11.250 Clearance and Settlement;
Anonymity, which was approved by the Commission in 2016 as part of its approval of IEXs 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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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 BSTXs operations, Securities would be securities that have been made eligible for services by DTC, including bookentry settlement services.
Settlement Cycle Proposed BSTX Rule 25100d 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 15c61 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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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
Background on Blockchain Technology In general, a blockchain is essentially a ledger that can maintain digital records of assets, transactions, or other information. A blockchains 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.

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,
BSTX Market Data Blockchain as a Private Permissioned Network The BSTX Market Data Blockchain would operate as a private, permissionbased blockchain accessible only to BSTX Participants. The Exchange would control all aspects of the BSTX Market Data Blockchain. Pursuant to proposed Rule 17020b, each BSTX Participant would be assigned a BSTX Market Data Blockchain address that corresponds to the BSTX Participants trading activity
28 17 CFR 240.15c61. Under SEC Rule 15c61, 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.

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.
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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