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Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices
lotter on DSK11XQN23PROD with NOTICES2

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 17020c3 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.46 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.
With respect to information security considerations, the Exchange notes that as a system of the Exchange, the BSTX
Market Data Blockchain will be subject to the requirements of the Exchange Act, including Regulation Systems Compliance and Integrity Reg. SCI 47
and that the Exchange has in place robust safeguards to protect against any possible systems intrusion to the market data blockchain. To the extent a BSTX
Participant were to share its credentials for accessing the API with third parties deliberately or inadvertently, it is possible that those third parties could gain access to its Participant Proprietary durations than five minutes. For example, 71.32%
of executions and 78.7% of cancellations occurred in small capitalization stocks during Q1 2021
within 100 seconds 1.67 minutes of being received by a market center. See Commission, Market Structure Data Visualizations, Conditional Frequency: Small Stocks Q1 2021, https
www.sec.gov/marketstructure/datavis/quotelife_
stocks_sm.html.YP8Q245KhPY. Given that over two-thirds of orders are executed or canceled within 1.67 minutes approximately one-third of the five minutes the Exchange proposes to delay publication of information to the BSTX Market Data Blockchain, the Exchange does not believe that there would be any real time trading advantage provided to those who use the BSTX Market Data Blockchain over subscribers to the Exchanges proprietary feeds or subscribers to consolidated market data. The data metrics also reveal that over 11% of executions and nearly 12% of cancellations occurred in small capitalization stocks during Q1
2021 within 1 second 1/300th of the duration of the proposed five minute delay. This data makes clear that the speed of markets is such that using the BSTX Market Data Blockchain to gain a real time trading advantage would not be possible as over 10% of trades and cancels occur within one second.
46 See e.g., 17 CFR 240.17a3.
47 17 CFR 240.10001007.

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Data.48 The Exchange would be able to issue new credentials upon request from a BSTX Participant or non-BSTX
Participant that believes their credentials may have been compromised and implement additional security controls. In any case, however, unauthorized access to the API through which data on the BSTX Market Data Blockchain may be accessed would not allow for any intruder to modify, delete, or otherwise change any data on the BSTX Market Data Blockchain. As a result, the Exchange does not believe that the BSTX Market Data Blockchain presents information security risks and that the Exchange has appropriate safeguards in place to mitigate any such risks.
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 17020c3 to periodically audit the BSTX Market Data Blockchain.
Specifically, the Exchange proposes to perform the audit at least bi-annually to ensure that 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. In particular, the Exchange plans to evaluate whether the information recorded to the BSTX
Market Data Blockchain is accurate i.e., that it corresponds to the Exchanges FIX trading logs of the relevant market data and captures all of the elements of market data specified in proposed Rule 17020c. To the extent any issues or discrepancies are identified in the course of the audit, the Exchange will promptly remediate such issues and provide notice, as may be required, to impacted users of the BSTX Market Data Blockchain and the Commission.49
48 The Exchange notes that any such unauthorized access would not provide any real time order and transaction information of the BSTX
Participant because of the five minute delay in publishing information to the BSTX Market Data Blockchain.
49 See generally Rule 1002 of Regulation SCI
describing notification requirements related to SCI events and de minimis SCI eventsi.e., those that would have no or a de minimis impact on the Exchanges operations or market participants. 17 CFR 242.1002.

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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 Participants 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, help confirm the accuracy of their internal trading data,50 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. In addition, non-BSTX
Participants granted access to General Market Data may find the data useful for academic studies. The Commission could also be granted access by the Exchange, which would allow the Commission to examine how and when orders arrived at the Exchange, how and when they were modified, and how and when they were executed.51
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 . . . 52
stating further that information and communications technologies are critical to healthy and efficient primary and secondary markets. 53 Regarding the judgment of whether the benefits of 50 As previously discussed, however, the BSTX
Market Data Blockchain could not be used as a substitute for a BSTX Participants recordkeeping obligations. See supra note 46 and proposed Rule 17020c3.
51 The Exchange notes that it is initially proposing a relatively simple exchange model without hidden orders or the numerous other types of complex orders available on certain other exchanges e.g., peg orders, hide-not-slide, discretionary peg orders etc.. Consequently, BSTX
presents an opportunity to study, using the data available on the BSTX Market Data Blockchain, how a more simplified market structure operates as well as the evolution of this model over time as additional features might be added or removed.
52 Securities and Exchange Commission, The Impact of Recent Technological Advances on the Securities Markets Sep. 1997, https
www.sec.gov/news/studies/techrp97.htm.
53 Id.

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