Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rule 7165 Regarding In-Kind Exchange of Options Positions and ETF Shares and UIT Units

<NOTICE> SECURITIES AND EXCHANGE COMMISSION <DEPDOC>[Release No. 34-103147; File No. SR-BOX-2025-15]</DEPDOC> <SUBJECT>Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rule 7165 Regarding In-Kind Exchange of Options Positions and ETF Shares and UIT Units</SUBJECT> <DATE>May 29, 2025.</DATE> Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), <SU>1</SU> <FTREF/> and Rule 19b-4 thereunder, <SU>2</SU> <FTREF/> notice is hereby given that on May 15, 2025, BOX Exchange LLC (“Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule from interested persons. <FTNT> <SU>1</SU>  15 U.S.C. 78s(b)(1). </FTNT> <FTNT> <SU>2</SU>  17 CFR 240.19b-4. </FTNT> <HD SOURCE="HD1">I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change</HD> The Exchange proposes to adopt Rule 7165 regarding In-Kind Exchange of Options Positions and ETF Shares and UIT Units. Specifically, the Exchange is proposing to adopt Rule 7165, which would permit positions in options listed on the Exchange to be transferred off the Exchange by a Participant in connection with transactions (a) to purchase or redeem creation units of ETF shares between an authorized participant and the issuer of such ETF shares or (b) to create or redeem units of a UIT between a broker-dealer and the issuer of such UIT units, which transfers would occur at the price used to calculate the net asset value (“NAV”) of such ETF shares or UIT units, respectively. The text of the proposed rule change is available from the principal office of the Exchange, at the Commission's Public Reference Room and also on the Exchange's internet website at <E T="03">https://rules.boxexchange.com/rulefilings.</E> <HD SOURCE="HD1">II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change</HD> In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. <HD SOURCE="HD2">A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change</HD> <HD SOURCE="HD3">1. Purpose</HD> The purpose of the proposed rule change is to adopt Rule 7165 regarding in-kind exchanges of options positions and exchange-traded fund (“ETF”) shares and unit investment trust (“UIT”) interests. The Exchange notes that this filing is based on a proposal submitted by Cboe C2 Exchange, Inc. (“C2”) and approved by the Commission. <SU>3</SU> <FTREF/> <FTNT> <SU>3</SU>   <E T="03">See</E> Cboe C2 Exchange, Inc. (“C2”) Rule 6.9; <E T="03">see also</E> Securities Exchange Act Release No. 89056 (June 12, 2020), 85 FR 36888 (June 18, 2020) (SR-C2-2020-006) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Chapter 6, Section G Regarding Off-Floor Transactions and Transfers). At this time, the Exchange is only proposing to add the ‘In-Kind Exchange of Options Positions and ETF Shares and UIT Interests’ rule. <E T="03">See also</E> Cboe Exchange, Inc (“CBOE”) Rule 6.9; <E T="03">see also</E> Securities Exchange Act Release No. 87340 (October 17, 2019), 84 FR 56877 (October 23, 2019) (SR-CBOE-2019-048) (Order Approving on an Accelerated Basis a Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, to Adopt Rule 6.9 (In-Kind Exchange of Options Positions and ETF Shares)). <E T="03">See also</E> Nasdaq PHLX LLC (“Phlx”) Options 6, Section 7; <E T="03">see also</E> Securities Exchange Act Release No. 87768 (December 17, 2019), 84 FR 70605 (December 23, 2019) (SR-Phlx-2019-53) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Adopt a New Rule 1059). In 2020, PHLX filed SR-Phlx-2020-03 to relocate the Phlx Rulebook into their new Rulebook Shell, Phlx Rule 1059 was relocated to Options 6, Section 7. <E T="03">See</E> Securities Exchange Act Release No. 88213 (March 12, 2020), 85 FR 9859 (February 20, 2020) (SR-Phlx-2020-03) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Relocate Rules From Its Current Rulebook Into Its New Rulebook Shell). <E T="03">See also</E> NYSE Arca, Inc. Rule 6.78A-O; <E T="03">see also</E> Securities Exchange Act Release No. 95644 (August 31, 2022), 87 FR 54727 (August 31, 2022) (SR-NYSEARCA-2022-55) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Rule 6.78-O and Adopt New Rules Related Thereto and Delete Paragraph (d) to Rule 6.69-O). <E T="03">See also</E> NYSE American, LLC Rule 997.3NY; <E T="03">see also</E> Securities Exchange Act Release 95646 (August 31, 2022), 87 FR 54720 (August 31, 2022) (SR-NYSEAMER-2022-36) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Adopt New Rules 997NY, 997.1NY, 997.2NY and 997.3NY and Delete Paragraph (d) to Rule 957NY). </FTNT> <HD SOURCE="HD3">Background</HD> As discussed further below, the ability to effect “in kind” transfers is a key component of the operational structure of an ETF and a UIT. Currently, in general, ETFs and UITs can effect in-kind transfers with respect to equity securities and fixed-income securities. The in-kind process is a major benefit to ETF shareholders and UIT unit holders, enabling tax efficient addition and removal of assets from these investment vehicles. In-kind transfers protect ETF shareholders and UIT unit holders from the undesirable tax effects of frequent “creations and redemptions” (described below) and improve the overall tax efficiency of the products. However, currently, the BOX Rules do not provide for ETFs and UITs to effect in-kind transfers of options off of the Exchange, resulting in tax inefficiencies for the ETFs and UITs that hold them. As a result, the use of options by ETFs and UITs is substantially limited. Currently, BOX Rule 7160(a) permits existing positions in options listed on the Exchange of a Participant or person associated with the Participant or non-Participant or person associated with a non-Participant that are to be transferred on, from, or to the books of a Clearing Participant to be transferred off the Exchange if the transfer involves one or more of the following events: (1) pursuant to Rule 3000, an adjustment or transfer in connection with the correction of a bona fide error in the recording of a transaction or the transferring of a position to another account, provided that the original trade documentation confirms the error; (2) the transfer of positions from one account to another account where no change in ownership is involved ( <E T="03">i.e.,</E> accounts of the same Person  <SU>4</SU> <FTREF/> ), provided the accounts are not in separate aggregation units or otherwise subject to information barrier or account segregation requirements; (3) the consolidation of accounts where no change in ownership is involved; (4) a merger, acquisition, consolidation, or similar non-recurring transaction for a Person; (5) the dissolution of a joint account in which the remaining Participant or person associated with the Participant assumes the positions of the joint account; (6) the dissolution of a corporation or partnership in which a former nominee of the corporation or partnership assumes the positions; (7) positions transferred as part of a Participants or person associated with the Participant's capital contribution to a new joint account, partnership, or corporation; (8) the donation of positions to a not-for-profit corporation; (9) the transfer of positions to a minor under the Uniform Gifts to Minors Act; or (10) the transfer of positions through operation of law from death, bankruptcy, or otherwise. At present, the list of limited circumstances in Rule 7160 that allows Participants to transfer their options positions off the Exchange does not include an exception for in-kind transfers. <FTNT> <SU>4</SU>  For purposes of BOX Rule 7160, the term “Person” shall be defined as an individual, partnership (general or limited), joint stock company, corporation, limited liability company, trust or unincorporated organization, or any governmental entity or agency or political subdivision thereof. </FTNT> The Exchange proposes to add a new circumstance under which off-Exchange transfers of options positions would be permitted to occur. Specifically, under proposed Rule 7165, positions in options listed on the Exchange would be permitted to be transferred off the Exchange by a Participant or Participant Organization in connection with transactions (a) to purchase or redeem “creation units” of ETF shares between an “authorized participant”  or (b) to create or redeem units of a UIT between a broker-dealer and the issuer  <SU>8</SU> <FTREF/> of such UIT units, which transfers would occur at the price used to calculate the net asset value (“NAV”) of such ETF shares or UIT units, respectively. This proposed new exception, although limited in scope, would have a significant impact in that it would help protect ETF shareholders and UIT holders from undesirable tax consequences and facilitate tax-efficient operations. The frequency with which ETFs and authorized participants, and UITs and sponsors, would rely on the proposed exception would depend upon such factors as the number of ETFs and UITs, respectively, ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 43k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━