# SECURITIES AND EXCHAhlGE COMMISSION > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ab4e515f29d3fca1d ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text ` ~~oExctt~~~ UNITED STATES SECURITIES AND EXCHAhlGE COMMISSION ~°~ WASHINGTON, DC 20549 S •2 ~ '!~`~MXX~ DIVISION OF TRADING AND MARKETS October 28, 2019 Charles G. Cascarilla &Daniel M. Burstein Pa~os Trust Company,LLC c/o Andrew Blake, Partner Sidley Austin LLP 1501 K Street, NW Washington, DC 20005 Re: Clearing Agency Registration Under Section 17A(b)(1) of the Securities Exchange Act of 1934 Dear Mr. Cascarilla and Mr. Burstein: In your letter dated October 25,2019(the "Request"),' on behalf ofPaxos Trust Company, LLC ("Paxos"), you request that the Division of Trading and Markets(the "Staff') not recommend that the Securities and ExchangeCommission (the "Commission")take enforcement action against Paxos under Section 17A(b)(1) ofthe Securities Exchange Act of 1934 ("Exchange Act")2 if Paxos fails to register with the Commission as a clearing agency in connection with its operation of a securities settlement system referred to in the Request as the "Paxos Settlement Service." Based on the Request, we understand the facts to be as follows:3 Paxos is a New York limited purpose trust company that is regulated by the New York State Department of Financial Services and is a participant of The Depository Trust Company("DTC"). Paxos states that the Paxos Settlement Service is a private and permissioned distributed ledger system that records changes in ownership of securities and cash resulting from settlement of securities transactions between participants ofthe Paxos Settlement Service. In so doing, the Paxos Settlement Service is designed to conduct simultaneous delivery versus payment settlement of securities and cash for trades submitted to the Paxos Settlement Service for clearance and settlement. A copy ofthe Request is attached. 15 U.S.C. § 78q-1(b)(1). This list is not intended to capture or describe every aspect ofthe Request but rather highlight key aspects ofthe Request. Each participant may hold cash and securities in its Paxos Settlement Service account ("PSS account"). A participant will deposit an eligible security into its PSS account by using free of payment delivery instructions through DTC to transfer the security from the participant's DTC account to Paxos's DTC account. Upon receipt of a security into Paxos's DTC account,Paxos will create a digitized security entitlement, which is a digital representation ofthe security deposited into Paxos's DTC account. This security entitlement will be credited to the participant in its PSS account on the Paxos ledger. Similarly, a participant will deposit funds in U.S. dollars by initiating a wire transfer from its bank account to the specified Paxos bank account. Upon receipt of cash into a Paxos bank account, Paxos will create a digitized security entitlement representing U.S. dollars credited to the participant in its PSS account on the Paxos ledger. • To meet its settlement obligations, each participant must have the required securities or operating cash in its PSS account by each trade's settlement date; however each participant is not required to fund its securities or operating cash in advance of settlement. In accordance with instructions from the participant and provided that each participant has sufficient operating cash and securities in its PSS account, the Paxos Settlement Service will automatically settle the obligations on the settlement date, between two participants by causing the security entitlements to the cash and securities, as applicable, to be simultaneously transferred between the relevant participants' PSS accounts on the Paxos ledger. All trades submitted to the Paxos Settlement Service, regardless of the settlement cycle with which each trade is submitted, will be settled bilaterally on a gross trade-by-trade basis without any netting ofthe gross trades. • To manage the risk offinancial loss associated with replacing a transaction scheduled for settlement in the event that a participant fails to meet its settlement obligations, the Paxos Settlement Service will calculate amark-to-market margin on each business day and require the funding ofa sufficient margin cash balance in the PSS account of each participant to meet the greater of daily margin or the highest calculated daily margin over a ninety day look back period. Daily margin will be assessed for each unique pair of participants settling trades against one another in the Paxos Settlement Service. • As the operator ofthe Paxos Settlement Service, Paxos believes that it will be acting as a clearing agency under the definition of such in Section 3(a)(23) ofthe Exchange Act because Paxos will be an intermediary in making payments or deliveries or both in connection with transactions in securities and will also be providing facilities for comparison of data respecting the terms of settlement of securities transactions4 Section 17A(b)(1) ofthe Exchange Act states in relevant part that it shall be unlawful for any clearing agency, unless registered in accordance with this subsection, directly or indirectly, to make use ofthe mails or any means. or instrumentality of interstate commerce to perform the functions of a clearing agency with respect to any security. • At present, Paxos has not been registered as a clearing agency nor granted an exemption from registration as a clearing agency. To evaluate the potential benefits ofthe Paxos Settlement Service, Paxos plans, for a limited period oftwenty-four months,to operate 4 IS U.S.C. § 78c(a)(23). 2 the Paxos Settlement Service in a production environment for the clearance and settlement of listed U.S. equity securities trades, without being registered as a clearing agency (the "Feasibility Study No-Action Phase"). Response: Based on the facts and circumstances described in the Request, and without necessarily concurring with your conclusions and analysis, the Staff would not recommend enforcement action to the Commission against Paxos if Paxos engages in the proposed activities described in your Request without registering with the Commission as a clearing agency pursuant to Section 17A(b)(1)ofthe Exchange Act. In taking this position, staff notes that the Paxos Settlement Service will be:(i) operated during the Feasibility Study No-Action Phase only for a limited period oftime, and (ii) reasonably designed to ensure that activity remains de minimis through operating parameters designed to limit the scope of operations and manage financial and settlement risk using, among other things, participation requirements and limits, securities eligibility criteria, margin collection, volume limits, ongoing monitoring, and regular reporting to the Staff. In particular, staff notes that: • The Feasibility Study No-Action Phase will be conducted in a "de minimis" manner with "well-defined" parameters and limits on the volume of shares settled through the Paxos Settlement Service, including as follows: o No more than seven(7)participants will be eligible to use the Pesos Settlement Service for clearance and settlement and the participants will be required to satisfy the criteria for participation, as described more fully in the Request. o Securities eligible for settlement on the Paxos Settlement Service will include only publicly traded equity securities that are registered pursuant to Section 6 ofthe Securities Act of 1933, as amended, and Section 12 ofthe Exchange Act and that remain eligible at all times for listing and trading on a national securities exchange registered under Section 6 ofthe Exchange Act. o Securities eligible for the Paxos Settlement Service must satisfy the eligibility criteria, as described in the Request, and must be one ofthe securities listed in Exhibit B of the Request. In addition to the eligibility requirements, in order for a security to become active for submission to the Paxos Settlement Service, the security must have an average daily volume of not more than 300 trades executed between each potential counterparty pair on approved trading venues. o To avoid exceeding a de minimis level of aggregate share volume settling on the Paxos Settlement Service during the Feasibility Study No-Action Phase, Paxos will utilize the following volume limits as daily targets for the share volume submitted to Paxos Settlement Service: (i)less than 100,000 shares per security, per counterparty pair; and (ii) aggregate shares per security across all counterparty pairs ofless than 1% ofthe total average daily trading volume of the respective security. • Paxos will establish and implement procedures that are reasonably designed to monitor and maintain ongoing compliance with the operating parameters for the Feasibility Study No-Action Phase. As described more fully in the Request, this includes the monitoring of (i) compliance with participation criteria;(ii) securities eligibility; and (iii) volume limits. As described more fully in the Request, Paxos has also established processes for: stopping the submission oftrades for settlement, replacing "ceased" securities, and reinstating "ceased" securities. • For the duration ofthe Feasibility Study No-Action Phase,Paxos will provide Staff with prior and same day notifications of certain events as specified in the Request, as well as quarterly and ad hoc reporting, to ensure that the operation of the Paxos Settlement Service is transparent to Staff during the Feasibility Study No-Action Phase and to document findings related to the objectives ofthe Feasibility Study No-Action Phase. • No later than the twenty-third month,Pa~cos will promptly wind-down the Feasibility Study No-Action Phase within not more than thirty business days by ceasing to accept trades for settlement and settling all outstanding obligations ofthe Paxos Settlement Service in an orderly manner. Once all outstanding obligations are settled, participants will withdraw all cash and securities from the Paxos Settlement Service. The position of the Staff is based strictly on the facts and circumstances discussed in the Request, and any different facts or circumstances might require a different response. Furthermore, this response expresses the Staff's position on enforcement action only and does not purport to express any legal conclusions on the questions presented. The Staff expresses no view with respect to any other questions that the proposed activities may raise, including the applicability of any other federal or state laws, or self-regulatory organization rules. This position is subject to modification or revocation by the Staff at any time. If you have any questions regarding this letter, please call me at(202)551-5712 or Matthew Lee at(202)551-5794. Sincerely, .Mooney Associate Director Attachment 4 • -• • October 25, 2019 VIA ELECTRONIC MAIL Mr. Jeffrey Mooney Associate Director Office of Clearance and Settlement Division of Trading and Markets U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 RE: Request for No-Action Relief from Clearin~Agencv Registration Under Section 17A(~(11 of the Securities Exchange Act of 1934 Dear Mr. Mooney: We are requesting that the staff of the Division of Trading and Markets ("Division") of the U.S. Securities and Exchange Commission ("Commission") confirm that it will not recommend that the Commission take enforcement action against Paxos Trust Company, LLC ("Paxos") for violation of Section 17A(b)(1)' of the Securities Exchange Act of 1934, as amended ("Exchange Act") in connection with Paxos's operation of a securities settlement system (herein,"Paxos Settlement Service") as described below. Page 1 I. Background and Intent to Conduct Feasibility Study Currently, Paxos is a New York limited purpose trust company that is regulated by the New York State Department of Financial Services ("NYDFS") and it is a participant of The 2 Dep~sitciy Trust ~~mpa~:;~("DTC"). The Paxos Settlement Service is a private and permissioned distributed ledger system developed by Paxos. The Paxos Settlement Service software maintains a distributed ledger ("Paxos Ledger")to record changes in ownership of securities and cash resulting from settlement of securities transactions between participants ("Participants") of the Paxos Settlement Service. Paxos believes that the Paxos Settlement Service technology and data processing techniques have the potential to provide unique advancements in the clearance and settlement of securities transactions including facilitation of more efficient settlement, immediacy of access to settlement proceeds, greater data ac:,uracy ar~ci transparency, acivancec! Se~uT'li~~, and ir~cr~ased levels of availability and operational efficiency. Therefore, Paxos believes that operation of the Paxos Settlement Service will advance Congress' finding in adopting Section 17A of the Exchange Act that "[n]ew data processing and communications techniques create the opportunity for more efficient, effective, and safe procedures for clearance and settlement."3. The potential benefits of the Paxos Settlement Service are more fully described in Section II., below. To evaluate the potential benefits of the Paxos Settlement Service, Paxos is requesting no-action relief for a limited period of twenty-four (24) months to operate the Paxos Settlement Service in a production environment for the clearance and settlement of listed U.S. equity securities trades, without being registered as a clearing agency (the "Feasibility Study No-Action Phase"). To guard against the potential for any negative disruption of the underlying U.S. securities markets, the Feasibilit;~ Study No-Action Phase will ~e conducted in a de minimis manner with well-defined parameters and limits on the volume of shares settled through the Paxos Settlement Service and the associated exposures between Participants. These operating parameters and limits are set out in Section IV., below. Paxos believes the Feasibility Study No-Action Phase will significantly enhance its ability to evaluate whether the Paxos Settlement Service functions as intended to facilitate prompt and accurate clearance and settlement of securities transactions and to achieve the benefits outlined in Section II., prior to the prospective deployment of the Paxos Settlement Service on a broader scale, if authorized following the submission of a Form CA-1 that is subsequently reviewed and appr~v~d by the Commission. z DTC is a registered clearing agency with the Commission that operates as a securities depository as that teen is defined in Section 3(a)(23)(A) of the Exchange Act. 3 15 U.S.C. § 78a-:~z)(1)(~)• Page 2 www.paxos.com II. Paxos Settlement Service Benefits Paxos believes that the Paxos Settlement Service represents an opportunity to provide market participants with the potential clearance and settlement benefits more fully described below. A. Access to Shorter Settlement Cvcles The Paxos Settlement Service is designed in a manner to facilitate more efficient settlement by expanding access to shorter settlement cycles in addition to the current standard settlement cycle of the second business day after the trade date (i.e., T+2} prescribed by Exchange Act Rule 15c6-14. The Paxos Settlement Service will offer Participants the option to settle any trade on T+0 or T+l, in addition to T+2, with agreement between counterparties. Although T+0 settlement is available through existing clearing agencies, the ability to achieve this is limited to trades submitted prior to an 11:30 a.m.5 cut-off time or by handling through non-standard exception processing. In contrast, as a standard service, the Paxos Settlement Service offers the ability to achieve T+0 settlement for all trades submitted throughout the day, up to the Paxos Settlement Service's daily settlement cut-off time of 4:15 p.m. Expanded access to shortened settlement cycles mitigates the risk of financial losses due to either party becoming unable to meet the financial obligations ofthe agreed-upon trade due to intervening causes between the trade date and settlement date, and provide market participants more efficient access to securities and cash proceeds. B. Immediate Access to Settlement Proceeds Regardless of the trade's settlement cycle, trade settlement through the Paxos Settlement Service and the resulting transfer of ownership of the securities and cash is designed to occur through a simultaneous delivery versus payment process. Thus, trade settlement on the Paxos Settlement Service is irrevocable and unconditional, which the Bank for International Settlements has defined to mean "final settlement"6. This increases a Participant's intraday liquidity by providing Participants with immediate access to securities and cash proceeds as settlements occur throughout the day, rather than being limited to a single end of the day cash settlement process.' '17 C.F.R. § 240.15c6-1. S Unless otherwise specified, all times used throughout this document are Eastern Time (Eastern Standard or Daylight Time, as applicable). 6A glossary of terms used in payments and settlement systems, Bank for International Settlements (2003), https://www.bis.orQ/c mi/ ~1ossary 030301.pdf. The Paxos Settlement Service provides each Participant with immediate access to its cash proceeds from each settled trade, at the time that settlement happens, which enables each Participant to withdraw its securities or cash from the Paxos Settlement Service, throughout the day, for use in funding liquidity or other obligations external to the Paxos Settlement Service. Each Participant can also deposit securities or cash to the Paxos Settlement Service throughout the day to satisfy its settlement obligations on the Paxos Settlement Service. The process for a Participant to deposit or withdraw securities or cash from the Paxos Settlement Service is described in Section III.A. Page 3 www.paxos.com C. Data Accuracy and Visibility The Paxos Ledger is made up of distinct, sequential, and time-stamped records of asset ownership resulting from settlement ("Blocks"). The underlying distributed ledger technology of the Paxos Settlement Service enforces the accuracy of each new Block in relation to 'ooth the settling transactions and the previous Block. This technologically enforced sequential recordkeeping provides certainty that settlements recorded on the taxos i,edger are accurate anti independently confirmed in real time by the Participants of the Paxos Settlement Service. Paxos is responsi'oie for upda~ing she Paxos Ledger through the addi~ion of new Blocks, the conients of which can be reviewed by Participants upon distribution in real time. For each Participant, the copy of the Paxos Ledger provides data regarding the clearance and settlement status of its transactions and resulting securities and cash positions. Over time, this would allow ~~ch P~,r1.i~ip~~t t~ usP the P~xos Leger in ~i~~~ of maintaining a cPp~r~,te ~nt~rn~l l~~loPr, which has the potential to eliminate the need to reconcile differences in settlement records, either with trading counterparties or with the omnibus position in its account at the central securities depository. Additionally, each Participant could allow its customers (including the end investors) to have direct and individually permissioned access to the Paxos Ledger, providing the potential for enhanced investor protectian as it would allow investors to independently confirm their ownership and possession of assets recorded to the Paxos Ledger. This data visibility and accuracy could also be extended to regulators for the fair and consistent enforcement of market rules and regulations. D. ~ecurity and Availability The underlying technology of the Paxos Settlement Service is highly secure, available, and resilient which minimizes disruptions to clearance and settlement that could be caused by hardware malfunctions or unauthorized access or actions. To achieve a nigh level or availaniiiry and resiliency, redundant copies of the Paxos Settlement Service software are run in multiple data centers with concurrently replicated data across different geographic locations and power grids. Should any component of the Paxos Settlement Service's technology experience a malfunction or an externally caused disruption, this redundancy allows for the immediate transition of processing to another location with little to no disruption of service to Participants. As a private and permissioned distributed ledger system, the Paxos Settlement Service is comprised of known, trusted, and verified Participants, each of which must be approved and onboarded to the Paxos Settlement Service by Paxos and maintain their compliance with the standards outlined in Section IV.A. Each Participant can only access the Paxos Settlement Service and its copy of the Paxos Ledger over encrypted, direct communication channels. This ensures that no unauthorized parties can access the Paxos Settlement Service and provides Participants with a robust level of security. Additionally, the technology that enforces the Page 4 www.paxas.com accuracy of Blocks described in Section II.C., makes the Blocks immutable, which prevents any unauthorized alteration ofthe Paxos Ledger. E. Operational EfficiencX The Paxos Settlement Service is built using modern technological systems and practices that have lower operating costs and thus deliver cost efficiencies to market participants and investors. It is anticipated that over time this modern clearance and settlement infrastructure will enable financial services firms to modernize their own internal technologies to realize even greater operational savings. For example, each Participant would have the opportunity to replace its legacy, siloed, on-site recordkeeping systems with the records of the Paxos Ledger and reorganize its systems and processes around the shared ledger for the achievement of further efficiency gains. In these ways, Paxos believes that the Paxos Settlement Service represents capabilities that are consistent with Congress' finding in adopting Exchange Act Section 17A(a)(1)(C) that new data processing techniques create the opportunity for more efficient, effective and safe procedures for clearance and settlement.$ III. General Description of the Operation of the Paxos Settlement Service During the Feasibility Study No-Action Phase The Paxos Settlement Service is designed to conduct simultaneous delivery versus payment settlement of securities and cash for trades submitted to the Paxos Settlement Service for clearance and settlement between Participants. The general description in this Section III. describes how the Paxos Settlement Service will operate during the Feasibility Study No-Action Phase. While Paxos is requesting the Feasibility Study No-Action Phase be approved for a period of twenty-four(24) months, the initial stage ofthe Feasibility Study No-Action Phase will be a period of twelve (12) calendar months from the date this request for no action relief is approved ("Initial Stage"). Certain functionalities of the Paxos Settlement Service will be implemented incrementally during either the Initial Stage or the remainder of the Feasibility Study No-Action Phase, all cases of which are further described in this Section III., below. A. Participant Accounts A Participant will operate a fully segregated account on the Paxos Settlement Service that performs the role that fulfills its specific responsibilities in the clearance and settlement of securities trades on the Paxos Settlement Service ("PSS Account"). Each Participant may hold $ See supra note 3 and accompanying text. Page 5 www.paxos.com cash and securities in its PSS Account, the ownership of which is recorded on the Paxos Ledger by Paxos, acting as a securities intPrmPdiary9. A Participant will deposit an eligible security, as described in Section IV.B., into its PSS Account by using free of payment delivery instructions through DTC to transfer the security from the Participant's DTC account to Paxos's DTC account. Upon receipt of a security into raxos's ETC account, Paxos wiii create a digitized security entitiement10, which is a digiiai representation of the security deposited into Paxos's DTC account. This security entitlement will be credited to the Participant in its PSS Account on the Paxos Ledger. This process is referred to as securities digitization ("Securities Digitization"). In accordance with instructions from a Participant, Paxos supports the withdrawal of a security from a Participant's PSS Account by removing the digitized security entitlement credited to the Participant in its PSS Account on the Paxos Ledger and initiating a free of payment delivery instruction through DTC to remove the e~ive~ Si1Ci► ScCuii~,v t0 l Z rQ1L1C1UQIll J Ll1. awOiiiit. SeCUTl~ it~~(i ~r aX05 S ~ i ~ 3000iii3i ail Paxos maintains two separate omnibus cash custody accounts that have been established for the benefit of Participants ("Paxos Bank Accounts") at a chartered U.S. national bank that is supervised by the Office of the Comptroller of the Currency. The Paxos Bank Accounts are used to hold funds deposited by Participants for two different purposes: the first account is used for funds deposited by Participants to settle obligations to other Participants ("Operating Cash") and the second is used for fiends deposited by Participants to fulfill margin requirements ("Margin Cash"). A Participant will deposit funds in U.S. dollars by initiating a wire transfer from its bank account to the specified Paxos Bank Account for the intended purpose of the funds, either Operating Cash or Margin Cash. Upon receipt of cash into a Paxos Bank Account, Paxos will create a digitized security entitlement (this time, representing U.S. dollars) credited to the P~.rti~ip?nt in ;ts PAC Arro,~nt on the Paxos T ~r~g~r. T}~~S process is r~ferr~d to as cash digitization ("Cash Digitization"). In accordance with instructions from a Participant, Paxos supports the withdrawal of cash" from a Participant's PSS Account by removing the digitized security entitlement of cash credited to the Participant in its PSS Account on the Paxos Ledger and initiating a wire transfer from the relevant Paxos Bank Account to a bank account designated by the Participant. B. Trade Submission for Settlement Purchase and sale transactions that are eligible for settlemen~ on the Paxos Settlement Service will be limited to trades between Participants, as described in Section IV.A., of an eligible security, as described in Section IV.B., and that are executed on an OTC basis or on a 9 Paxos would be a "securities intermediary" as defined in Section 8-102(a)(i4) of the Uniform Commercial Code ("UCC"). 10 The tQ~-n, °°secur;ry ~nt;tlPm~nt" _s defne~ in Section 8-102(x)(17) of the UCC as "thy rights and property interest of an entitlement holder with respect to a financial asset specified in Part 5 [of Article 8 of the UCC]." In turn, the term "entitlement holder" is defined in UCC Section 8-102(x)(7) as "a person identified in the records of a securities intermediary as the person having a security entitlement against the securities intermediary". " The Paxos Settlement Service will allow a Participant to withdraw Margin Cash from its PSS Account that is in excess of the Participant's current :e~iui:e~ margin as describe" sn Secticn II:.E. Page 6 ~r~v~w.paxos.com trading venue (e.g., alternative trading system, or ATS) that is duly notice registered with the Commission and approved by Paxos("Trading Venue"). A trade that has been determined by the trade counterparties to be settled on the Paxos Settlement Service will be submitted to the Paxos Settlement Service in near real-time according to the terms of the operating procedures of the Trading Venue or other agreement between the trade counterparties. The trade submission will contain the contractually executed trade details, including the transacted security, quantity of shares, price per share, net amount of money to be settled, buying trade counterparty, selling trade counterparty, trade date, and settlement date. The Paxos Settlement Service will use the trade details provided in the trade submission without any modification to such details. A trade submitted to the Paxos Settlement Service may be cancelled at any time by the Trading Venue12 if it is deemed by the Trading Venue to fall under its policy definition of a clearly erroneous trade, or in the case of an OTC trade, cancellation can occur with the consent of both trading counterparties up until the Paxos Settlement Service's OTC trade cancellation cut-off time of 4:00 p.m. on the day before settlement date . C. Settlement To meet its settlement obligations, each Participant must, through Cash Digitization and Securities Digitization, have the required securities or Operating Cash in its PSS Account by each trade's settlement date, however, each Participant is not required to fund its securities or Operating Cash in advance of settlement date13. In accordance with instructions from a Participant and provided that each Participant has sufficient Operating Cash and securities in its PSS Account, the Paxos Settlement Service will automatically settle the obligations, on the settlement date, between two Participants by causing the security entitlements to the cash and securities, as applicable, to be simultaneously transferred between the relevant Participants' PSS Accounts on the Paxos Ledger. During the Feasibility Study No-Action Phase all trades submitted to the Paxos Settlement Service, regardless of the settlement cycle with which each trade is submitted, will be settled bilaterally on a gross trade-by-trade basis without any netting ofthe gross trades. In the event a Participant fails to make sufficient Operating Cash or securities available in its PSS Account on a settlement date to settle any of its obligations on the Paxos Settlement Service by the daily settlement cut-off time at 4:15 p.m., such failure will constitute a settlement failure ("Settlement Failure"). The Paxos Settlement Service will continue to attempt to settle any outstanding Settlement Failure using Operating Cash or securities that become available in the Participant's PSS Account until the trade has been settled or closed out through abuy-in or sell-out, as applicable and as described immediately below, under the time frames required by Paxos. The Paxos Settlement Service buy-in and sell-out procedures are designed to allow Participants to manage and promptly close Settlement Failures. To ensure promptness, Paxos will mandate that a Participant that is failing to deliver securities closes each Settlement Failure •`Z Timing oftrade cancellations are subject to the operating rules of each Trading Venue. 13 Additionally, each Participant is permitted to withdraw its securities or cash from the Paxos Settlement Service at any time, subject to the limitations outlined in Section III.E. Page 7 www.paxos.com on a timeline that is consistent with the timing found in Rule 204 of the Commission's Regulation SHO14. Additionally, a Participant that is failing to receive securities or cash ("non-defaulting Participant') will have the right, but not the obligation, to resolve the Settlement Failure by either buying-in or selling-out the relevant security after the point of Settlement Failure and prior to the Paxos mandated close out times.15 Upon Paxos receiving notice of the buy-in or sell-out execution from anon-defaulting Participant, the Paxos Settlement Service will create a cash settlement obligation ("Liability Obligation") due for settlement on the next business day requiring the Participant responsible for the Settlement Failure to pay the difference, if any, beiween the net money value of the Settlement Failure and the nee money value ofthe buy-in or sell-out tr~de.16 In the event that a Participant has unsettled Liability Obligations, the Paxos Settlement Service will systematically prioritize the use of the Participant's available Operating Cash to settle tl~e Lia'uiii~y ~~i~i~aiiOtiS urior to any Oii7~i' Sci~ieiiiGi"li ~bligaiioris ~ha~ wiii ~eyuii-e Operating Cash. In the event of a Settlement Failure of a Liability Obligation, that Participant will be considered to be in a state of default" and Paxos shall have the immediate right to and would, without exception, utilize that Participant's Margin Cash to settle any Liability Obligations outstanding and due. D. Corporate Actions When the Feasibility Study No-Action Phase begins, the Paxos Settlement Service will not provide corporate actions processing functionality, such as dividend payment processing or voluntary elections. To avoid impacting the corporate actions processing of Participants' securities and alleviate the need for Paxos to manually process any corporate actions that might occur while securities are in the Paxos DTC account, each Participant will be obligated to transfer all securities from its PSS Account to its DTC account, as described in Section III.A., each day prior to DTC's cut-off for recording ownership positions (e.g., record date). This will allow for corporate actions processing at ~1C to occur as it normally does in the Participants' DTC accounts. Each day at 5:30 p.m., while the Paxos Settlement Service is not providing eorparate actions processing functionality, if a Participant has nat instructed the t:a:~sf~r of its securities from its PSS Account to its DTC account, Paxos will have authorization from each Participant to withdraw all of its securities from the Paxos Settlement Service each day no later than 6:00 p.m., regardless of whether there are pending corporate action events for such securities. 14 17 C.F.R. § 242.204. 15 A buy-in or sell-out by anon-defaulting Participant will not be required to settle through the Paxos Settlement Service. 16 Fach trade has a net money value which is calct~latPd as the executed price pPr share of the security m~~lt~p1_ie~1 b~ the share quantity of the trade plus or minus any execution costs or fees. The value of a Liability Obligation is the difference between the net money value of the buy-in or sell-out trade and the net money value of the Settlement Failure, which is the total monetary difference between the two trades. "Default, as it pertains to the Paxos Settlement Service, is defined as a Participant's failure to fulfill its Liability rJbligation by its settlement date or its filure t~ fard the R~aaireti Margin by its ~~ad.:n~. Page 8 www.paxos.com Paxos will begin implementing corporate actions processing functionality on the Paxos Settlement Service in an iterative manner such that a Participant will be able to, at its discretion, keep certain securities in its PSS Account overnight rather than transferring such securities to its DTC account each night. When Paxos implements corporate actions processing functionality it will, without delay, automatically pass through any rights and obligations associated with any corporate actions that occur for securities that are eligible to be held and are held overnight by each Participant in its PSS Account to the entitled Participant ("Automated Corporate Actions Processing"). In performing Automated Corporate Actions Processing, Paxos takes on such responsibilities acting as a securities intermediary18. The Automated Corporate Actions Processing will be implemented in the following sequence, however, Paxos will collaborate with Participants on the exact timing of the implementation, including testing, and release to production ofsuch functionality. i. Build functionality that allows the Paxos Settlement Service to automatically source corporate action events data from DTC and other required sources, including key dates. ii. Build functionality that allows the Paxos Settlement Service to read the sourced corporate action events data to determine if securities are eligible to be held in a Participant's PSS Account overnight because either there is no pending corporate action event or because Automated Corporate Actions Processing is implemented for the pending corporate action event type as described in Sections III.D.iii., III.D.iv., and III.D.v., below. For those securities that are not eligible to be held in Participant's PSS Account overnight for one of the aforementioned reasons, Paxos will communicate to each impacted Participant by 4:15 p.m. each day the securities that are not eligible to be held overnight in its PSS Account and that are required to be transferred to its DTC account no later than 6:00 p.m. iii. Build Automated Corporate Actions Processing functionality on the Paxos Settlement Service to process the most frequently occurring mandatory corporate action event types(e.g., cash dividends,stock dividends,stock splits, etc.). iv. Build Automated Corporate Actions Processing functionality on the Paxos Settlement Service to process the most frequently occurring voluntary corporate action event types(e.g., tender offers, rights subscriptions, etc.). v. Build Automated Corporate Actions Processing functionality on the Paxos Settlement Service to process less frequently occurring mandatory and voluntary corporate action event types (e.g., scheme of arrangement, bankruptcy, etc.). Paxos anticipates that the Automated Corporate Actions Processing for many of the less frequently occurring corporate action event types will not be implemented during the Feasibility Study No-Action Phase. '$ See supra note 9. Page 9 www.paxos.com In the event that a corporate action event is processed incorrectly on the Paxos Settlement Service,Paxos mill: i. take the necessary actions to promptly correct any such incorrect processing,and ii. should Paxos be ll~e cause of an incorrectly processed corpo:~te action event, Paxos ~,~~i!! c~mp~::sate :mpa~~e~ pzrticipa:-~ts for any resulting ?oss. E. Mark-to-Market Margin To manage the risk of financial loss19 associated with replacing a transaction scheduled for settlement in the event that a Participant fails to meet its settlement obligations, the Paxos ~~~i~.aiiti.uL ~i`vi~~ vJiii ic`~i~uia v u iTiain-w-iiiaint,~ iitai~lii vii ~.aCii ~i1.1S1iii.S~ C~~`y' ~ t~ait~% Margin") and require the funding of a sufficient Margin Cash balance in the PSS Account of each Participant ("Required Margin") to meet the greater of the Daily Margin or the highest calculated Daily Margin over a ninety (90) day lookback period ("Margin High Water Mark"). The eligible transactions for inclusion in the Daily Margin calculation are all open unsettled tra~Ps,failed or othPrNise,excluding Liability Obligat:ons20("Eligibly Margin Transactions"). Daily Margin will be assessed for each unique pair of two Participants settling trades against one another on the Paxos Settlement Service("Counterparty Pair")and each Participant's Required Margin will be calculated by the Paxos Settlement Service using the following procedure. i. For each Eligible Margin Transaction, after the market close ofeach trading day, Daily Margin will be calculated at the trade-level as 105% of the difference between each trade's execution price and the current day's closing price at 4:00 p.m.on thesecurit=y's primary exc'riacig~`~'iTradelevel I~ai~y Ii~laegin"j. ii. For each Counterparty Pair, each Trade-level Daily Margin (calculated in Section IsI.E.~. above)Dili X32 Sii1133712ti ~O CiEtEi7s71i3E a Sii3~i~ Ddiiy ~2Tglfi ai"iiviaYii Gi%Y2(~ by one Participant in each Counterparty Pair. iii. For each Participant, any Daily Margin amounts owed will be s~.~mmed to calculate the Participant's current day total amount owed ("Total Daily Margin"j. `~ Ifa replacement trade's price is unfavorablecompared to the original execution price ofthe trade,the Participant executing the replacement trade will incur a loss equal to the difference in price multiplied by the number ofshares, plus any additional costs associated with replacing the trade. For instance, ifthe price has increased since the original trade was executed then the buyer will incur a financial loss should the original trade need to be replaced by the buyer. 20 Liability Obligations are cash only and therefore are not applicable to the Daily Margin calculation on the Paxos S~ff~. A .. ^ ,:~::~ J. A .;~~:~~. Page 10 www.pax~s.cam iv. Each Participant's Required Margin will be calculated as the greater ofits current day Total Daily Margin amount (calculated in Section III.E.iii. above) or its Margin High Water Mark. Each Participant's Required Margin amount will be calculated and communicated to each Participantby the Paxos Settlement Service to each Participant no later than 6:00 p.m. each business day. Each Participant will be required to fund its Required Margin amount by having the Participant's Margin Cash credit balance be greater than or equal to its Required Margin no later than 9:00 a.m. the following business day. A Participant's Margin Cash will be held by Paxos on behalf of the Participant and is only made accessible to the Participant's counterparties in the event ofthe Participant's default21. Initially, in light ofthe de minimis nature ofthe Feasibility Study No-Action Phase and to reduce operational burden on Participants, instead of each Participant directly funding the Required Margin, Paxos will pledge $100,000 of its own cash to fund Required Margin across all Participants. Paxos will be calculating the daily Required Margin as described above and should the balance of $100,000 not be sufficient for any reason prior to the time when each.Participant begins directly funding its own Required Margin, Paxos will be responsible for the additional funding required to fulfill the aggregate Required Margin across all Participants in accordance with the 9:00 a.m. deadline. Paxos expects to require each Participant to fund its own Required 2z Margin prior to the end ofthe Initial Stage ofthe Feasibility Study No-Action Phase. Once each Participant is required to fund its own Required Margin,in the event that a Participant fails to fund its Required Margin or the Participant notifies Paxos of its insolvency, Paxos will have a perfected lien23 on such Participant's Margin Cash to settle any liabilities owed by the defaulting Participant to non-defaulting Participants. IV.Feasibility Study No-Action Phase Operating Parameters During the Feasibility Study No-Action Phase, Paxos will operate the Paxos Settlement Service in a manner that is described above in Section III., and it will impose the following operating parameters designed to effectively manage the risks that Paxos believes could arise through the operation of the Paxos Settlement Service. These operating parameters are intended to clearly define and limit Paxos' operation of the Paxos Settlement Service during the Feasibility Study No-Action Phase to reasonably ensure that aggregate share volumes and Z'See supra note 17. ZZ Paxos will require each Participant to fund its own Required Margin no later than when the aggregate Required Margin begins to regularly exceed the $100,000 pledged by Paxos or the number ofParticipants is greater than five (5). 23 Participants will grant Paxos a security interest in the master services agreement for the Paxos Settlement Service, and Paxos intends to perfect its lien on Margin Cash through control pursuant to Sections 8-106 and 9-203 of the Uniform Commercial Code. Page 11 www_paxos.com Participant exposures will be de tninirriis in nature and will not have any negative effects on the U.S. secarit~~s markets ar Participants' ability to settle trades in a tirn~ly and accurate manner. A. Participants of the Feasibility Study No-Action Phase Up to seven (7) Participants will be eligible to use the Paxos Settletrieiit Service for c,eara;~cz and settlement. Eac, of tl~e Participants vJi~i LJ2 reyuir~d ~O Sa~iS~~ 2ii viilic ~OildWiil~ criteria for participation ("Participation Criteria"): be a DTC participant and be a broker-dealer. that is registered with the Commission and is a member of the Financial Industry Regulatory Authority ("FINRA"), ii. have $100 million or more in excess net capita124; and iii. meet Paxos's anti-money laundering and "know your customer" (collectively, "AML/KYC") onboarding requirements that Paxos maintains to comply with Bank Secrecy Act and U.S.A. Patriot Act requirements applicable to it as a limited purpose trust company that is supervised and examined by the NYDFS25. B. Eligible Securities Securities eligible for settleineilt on the Paxos Settlement Service will include only publicly traded equity securities that are registered pursuant to Section 6 of the Securities Act of 1933, as amended26, and Section 12 of the Exchange Act27 and that remain eligible at all times for listing and trading on a national securities exchange registered with the Commission pursuant to Section 6 of the Exchange Act28. Each Counterparty Pair, together with Paxos, will select securities for settlement on the Paxos Settlement ~erviee that will meet criteria ("Eligibility Crit~:ia") ~~asonably ~esigne~ t~ ensure there will be no negative effects on the U.S. securities markets or on Participants' ability to settle trades in a timely and accurate manner. The Eligibility Criteria were determined by Paxos based on the analysis of market data and actual trading behavior of the first Participants over a six month look back period. Each Counterpariy Pair will select up to two(2)securities to 2a ~ 7 r.F.g. y~ 7gQ,1$r'2_l~Pl(~d~~il \rlPfr~jnb a thQ term "P?{rPeS riet raYit~l" ?s the "am~~anr in Qx~Psc ~fthP ~mourt required under paragraph (a)[of Exchange Act Rule 15c3-1]...). ZS Paxos has implemented a Bank Secrecy Act and Anti-Money Laundering Compliance Program to comply with applicable la~,vs and regulations relating to anti-money laundering in the United States (31 U.S.C. ~ 5311 et seq.), including the obligation to file suspicious activity reports (SARs)(31 U.S.C. § 5318(g)), federal laws governing Customer Identification Programs (CIP)(31 U.S.C. § 5318(1) and Section 326 of the USA Patriot Act) and New York State anti-money laundering laws and regulations(3 N.Y.C.R.R. §~ 116 and 504). Z6 IS U.S.C. § 77f. ' Z 15 U.S.C. § 781. 2R is trn n oC i~ v.o.~,. cy 7oi. Page 12 www.paxos.com be active for submission to the Paxos Settlement Service for clearance and settlement ("Active Security") at a:~y given time, eacr. of which rr~ust satis~y all of the folla~ving Eligibility Cri~eria: be a component of either the Dow,S&P 500 or the Russell 1000 stock indices; ii. i;dve a share price of be~ween $5 and $15; iii. have no more than an 18%single day share price movement in the last 365 days; iv. have no more than a 20% aggregate, consecutive four-day share price movement over the last 365 days; v. have an expected average daily volume of less than 100,000 shares settling on the Paxos Settlement Service, per Counterparty Pair; and vi. have an expected daily volume of shares settling on the Paxos Settlement Service across all Participants of less than 1% of the average daily trading volume. In addition to the above Eligibility Criteria, in order for a security to become an Active Security, it must have an average daily volume of not more than 300 trades executed between each potential Counterparty Pair on approved Trading Venues. Attached in Exhibit B is the list of securities which would be eligible, as of June 12, 2019, to be selected as an Active Security during the Feasibility Study No-Action Phase. The eligibility of securities selected for settlement on the Paxos Settlement Service may change from time to time due to prevailing market conditions and, in such cases, Paxos and the Participants will follow the procedures described in Sections V.D., V.E., and V.F., below. C. Volume Limits To avoid exceeding a de minimis level of aggregate share volume settling on the Paxos Settlement Service during the Feasibility Study No-Action Phase, Paxos will utilize the below outlined volume limits as daily targets for the share volume submitted to the Paxos Settlement Service ("Volume Limits"). The specific daily Volume Limits for trades submitted to the Paxos Settlement Service are: less than 100,000 shares per security, per Counterparty Pair; and ii. aggregate shares per security across all Counterparty Pairs of less than 1 °/o ofthe total average daily trading volume29 ofthe respective security. Paxos believes that the operating parameters outlined above will reasonably ensure that each Counterparty Pair will maintain ds minimis daily exposures between themselves and that the aggregate volume ~f shares on the Pars Settlement Service will remain limited. Attached in F.xhihit A is an analvcic - a-y ~ ~_~ of the PxnPctPrl r~__s~ Paxnc CPttlPmPnt CPr~~ina ~inli„ma hPt~x~Pan a cinalP Counterparty Pair as well as across all Participants during the Feasibility Study No-Action Phase. Z9 Uuless otherwise specified, throughout this document the average daily trading volume is defined as the average a a securiiy's ciaiiy Trading volume over a roiling one (i) monin period. , Page 13 www.paxos.com This analysis was performed using assumptions based on six(6)months ofhistorical market data. and trading data ofthe first Participants. The analysis oftotal expected Paxos Settlement Service volume assumes the full allowance of seven (7) Participants and therefore a maximum of twenty-one(21)Counterparty Pairs each settling the allowance oftwo(2)securities resulting in a theoretical maximum of forty-two (42) Active Securities. E~chibit A shows that a possible scenario of the expected number of shares submitted to the Paxos Settlement Service per day across the forty-two (42) Active Securities is 1,575,000 shares which represents 0.44% of the total average daily trading volume ofthese securities3o D. Feasibilit~v No-Action Phase Dates As part of this request for no action relief, Paxos is prepared to promptly commence the Feasibility Study No-Action Phase with its first Participants. To allow for a sufficient observation period that will include the on-boarding of additional Participants and the development and implementation of certain functionalities described in Section III., the Feasibility Study No-Action Phase will lastfor a period ofno more than twenty-four(24)months from the date this request for no action relief is approved. The first twelve(12) months ofthe Feasibility Study No-Action Phase will be the Initial Phase during which certain functionalities of the Paxos Settlement Service will be implemented incrementally as described in Section III. No later than the twenty-third (23rd) month, Paxos will promptly wind-down the Feasibility Study No-Action Phase within not more than thirty (30) business days by ceasing to accept trades for settlement and settling all outstanding obligations on the Paxos Settlement Service in an orderly manner. Once all outstanding obligations are settled,the Participants will withdraw all cash and securities from the Paxos Settlement Service. V.Monitoring of Operating Parameters Paxos will establish and implement procedures that are reasonably designed to monitor and maintain ongoing compliance with the operating parameters for the Feasibility Study No-Action Phase described in Section IV. This includes the monitoring of securities Eligibility Criteria and Volume Limits, as well as, performing the subsequent actions that may need to be taken by Paxos or the Participants as a result ofsuch monitoring,all ofwhich is further described in Section V., below. A. Monitoring ofParticipation Criteria To monitor for ongoing compliance with the Participation Criteria, Paxos will require each Participant to do all ofthe following: 30 There are multiple scenarios where between one(1)and forty-two(42)Active Securities are settling on the Paxos Settlement Service. Given Pa~cos' responsibility to comply with the Volume Limits across all Counterparly Pairs, Participants choice ofsecurities to be Active Securities will be limited by Paxos to manage to the Volume Limits. Page 14 www,paxos.com i. certify to Paxos on a quarterly basis that it is a DTC participant, is abroker-dealer registered with the Commission, is a member of FINRA, and continues to meet Paxos's AML/KYC requirements; ii. provide Paxos with a copy of Quarterly FOCUS report submissions31; and iii. provide Paxos immediately with a copy of any report that the Participant must give to the SEC and other regulators pursuant to Exchange Act Rule 17a-11(g)32. Paxos will have the right to suspend or terminate any Participant based on its failure to continually meet the Participation Criteria specified in Section IV.A. In the event that Paxos suspends or terminates a Participant from the Paxos Settlement Service, Paxos will prohibit the Participant from withdrawing its Operating Cash, Margin Cash and securities from the Paxos Settlement Service until such time as all of such Participant's obligations on the Paxos Settlement Service are settled. B. Monitoring of Securities Eli~i-bility Criteria Each week, on the last business day of the week, Paxos will assess the Eligibility Criteria of each Active Security based on weekly data up to the prior business day's market close. Paxos will confirm each Active Security continues to meet all of the Eligibility Criteria. Should any Active Security fail to meet any of the Eligibility Criteria, Paxos will promptly follow the procedures to stop the submission of additional trades of the security to the Paxos Settlement Service, as outlined in Section V.D. C. Monitoring of Volume Limits At predetermined intervals on each trading day, Paxos will monitor the aggregate share volume submitted to the Paxos Settlement Service for each Active Security against the Volume Limits using the following procedure. Paxos will measure the intraday aggregate share volume submitted to the Paxos Settlement Service at the following time intervals: 11:00 a.m., 1:30 p.m., 2:30 p.m.33, and following the 4 p.m. market close. (These time intervals were determined by Paxos to be appropriate based on analysis of observed intraday volumes in historical market data and actual trading behavior of the first Participants over a six month look back period.) 31 Required as per 17 C.F.R. § 240.17a-5 and including any non-public information submitted along with the FOCUS report. ' Z 17 C.F.R. § 240.17a-11. 33 Paxos will perform the 2:30 p.m. measurement of the intraday aggregate share volume submitted to the Paxos Settlement Service for a given Active Security if i) at 1:30 p.m. the measured intraday aggregate share volume for the Active Security exceeded 80% of the aggregate share volume allowed for the Active Security under the Volume Limits or ii) other observed data leads Paxos to believe it should perform the 2:30 p.m. measurement in order to minimize the probability that the given Active Security will breach the Volume Limits. Page 15 www.paxos.com ii. To determine the degree to which.a Volume Limit has been reached and the risk of each Volume Timit being exceeded before the market close, Paxos will promptly compare the data as ofeach intraday interval against the Volume Limits. iii. Paxos will be solely responsible for the decision at each time interval to either continue receiving trades for settlement in an Active Security or follow the procedure to stop the submission oftrades for settlement in an Active Security. In doing so, depending on Paxos's reasonablejudgement ofthe risk ofexceeding the Volume Limits, Paxos will consult with impacted Participants and may also evaluate other relevant information such as, market data, historical trading behavior, and news reports on the relevant Active Security to determine the best course ofaction to take to comply with the Volume Limits. Ch~iil~l Paxpc (IP.~.iCIP. to ctgr ~rP ciahmicgipn oftra~lPg t~ the P~Xlls' CPft~PYY~Pt1t CPY\/ll`P fns settlement of an Active Security, the procedures outlined in Section V.D. will be promptly performed with the impacted Participants. D. Storming the Submission ofTrades for Settlement Should Paxos' monitoring of the Eligibility Criteria or the Volume Limits outlined in Section V.B. and Section V.C. cause Paxos to make the determination to stop the submission of trades for clearance and settlement to the Paxos Settlement Service for an Active Security ("Ceased Security")34,Paxos and the impacted Participants will promptly follow the procedures outlined below. In this case, any trades already submitted to the Paxos Settlement Service which are not yet settled will continue to be settled by Participants in accordance with the procedures described in Section III. i. Paxos will promptly notify the impacted Participants that they should stop the submission of trades of the Ceased Security by following procedures for stop notification that are reasonably designed to ensure timely receipt of such notification by the responsible individuals within the impacted Participants. Paxos will require the Participant to provide confirmation back to Paxos ofthe receipt of the notification to stop the submission oftrades. ii. Paxos will require each impacted Participant to promptly make the required technology modifications to its internal systems to step the submission of trades ofthe Ceased Security. iii. Upon completion of the required technology modifications referenced above, Paxos will require each Participant to send confirmation to Paxos that it has stopped the submission oftrades ofthe Ceased Security and note the approximate time that such cessation was completed. 34After an Active Security becomes a Ceased Security it is no longer an Active Security unless it is reinstated, as described in Section V.E. Page 16 www.paxos.com iv. Paxos will provide notification to the Division staff within the same day an Active Security becomes a Ceased Security. v. Paxos will provide reporting to the Division staff within five (5) business days regarding the facts and circumstances associated with the cessation of the Ceased Security, as further described in Section V.G. Based on the facts and circumstances, an Active Security may become a Ceased Security for a single Counterparty Pair or across all Counterparty Pairs. A Ceased Security will continue to remain a Ceased Security until Paxos and the impacted Participants agree to reinstate the Ceased Security as an Active Security per the procedures outlined in Section V.E., below. As the Paxos Settlement Service operates on a post-trade basis and the submission of trades to it for settlement occurs after trade execution, Paxos can only monitor the Volume Limits after the trades have already been submitted to the Paxos Settlement Service. As such, the procedures to monitor Volume Limits and stop the submission of trades for settlement are designed to be prompt but not instantaneous. For these reasons, it is possible that Volume Limits may be exceeded in the intervening time between the i) Paxos intraday Volume Limit monitoring procedures, ii) notification to each impacted Participant to stop the submission of trades of the Ceased Security, and iii) each impacted Participant enacting the technology modifications in its internal systems to stop such submission. E. Reinstatement of Ceased Securities Ceased Securities will remain as Ceased Securities for a minimum period of at least three (3) business days to allow Paxos and the impacted Participants a reasonable observation period of activity regarding the Ceased Security's trading behavior to determine if it can be reinstated as an Active Security. If a security became a Ceased Security as a result of Volume Limits, Paxos and the impacted Participants will observe market data and actual trading volume between these Participants to reasonably assess the expected future volume ofthe Ceased Security with regards to any Volume Limits. Based on this assessment, Paxos and the impacted Participants will either follow the procedures to select a replacement security as an Active Security outlined in Section V.F. or reinstate the Ceased Security as an Active Security. Paxos will provide notification to the Division staff the same day that a Ceased Security is reinstated as an Active Security and, through the provision of ad hoc reporting described in Section V.G., below, will provide data on facts and circumstances leading to the reinstatement. If a security became a Ceased Security as a result of the security Eligibility Criteria, it will continue to be a Ceased Security until all Eligibility Criteria can be met. In this case, Paxos and the Participants will follow the procedures to select a replacement for the Ceased Security outlined in Section V.F., below. F. Replacement of Ceased Securities Should a Ceased Security need to be replaced, Paxos and the impacted Participants will, by mutual agreement, select a different security to become an Active Security, provided that, at Page 17 www.paxos.com the time of selection, it satisfies the Eligibility Criteria and is included in the most recent quarterly reporting provided to the Division staff as described in Sectior. V.G., belov~. Upon selection of a replacement Active Security, Paxos will provide notification to the Division staff in the same day, and through the provision of ad hoc reporting described in Section V.G., below, and will provide data substantiating the replacement security's compliance with the Eligibility Criteria. Following this notification, Paxos and the relevant Participants will make the required technology modifications to begin submission of trades for settlement of the security on the Paxos Settlement Service. G. Reporting For the duration of the Feasibility Study No-Action Phase, in addition to the same day notifications described in Sections V.D, V.E, and V.F., Paxos will provide the Division staff with quarterly and ad hoc reporting to ensure that the operation of the Paxos Settlement Service is transparent to the staff during the Feasibility Study No-Action Phase and to document findings related to the objectives of the Feasibility Study No-Action Phase. For each calendar Quarter, Paxos will provide a quarterly report package to the Division staff containing the scope of Participants (including any additions, suspensions, or terminations of Participants), the list of Active Securities, trade settlement data, Required Margin data, Volume Limits data, and a list of the potential securities eligible to become an Active Security. Paxos will provide the quarterly reporting no later than the third Friday following each Quarter's end date. E~ibit C provides a sample report template which illustrates the data that will be included in the quarterly reporting. On an ad hoc basis, Paxos will also provide the Division staff with prior notice of any modification to the scope of Active Securities or Participants (including any additions, suspensions or terminations) or implementation of a material change to the operation or functionalities35 of the Paxos Settlement Service as described in Section III. (including the transition to Participant funding of Required Margin). Paxos will also provide the Division staff with prompt notice of any exceedance of the Volume Limits. The reporting will include factual detail and circumstances surrounding a triggering event and qualitative commentary regarding the rationale f~: a change (if the went is pre-planned) or any r~media: actions taker (if the event :s urp~anneu). VI. Legal Discussion and Relief Request As the operator ofthe Paxos Settlement Service, Paxos believes that it will be acting as a clearing agency under the definition in Section 3(a)(23) of the Exchange Act.36 Paxos will be "an intermediary in making payments or deliveries or both in connection with transactions in ' s For the avoidance of doubt, Paxos will not make any material changes to the operations or functionality of the Paxos Settlement Service other than those described in Section III. 36 15 U.S.C. 78c(a)(23). Page 18 www.~axos.coin securities" and will also be providing "facilities for comparison of data respecting the terms of settlement of securities transactions".37 Section 17A(b)(1) of the Exchange Act states in relevant part that "it shall be unlawful for any clearing agency, unless registered in accordance with this subsection, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce to perform the functions of a clearing agency with respect to any security".38 Paxos is seeking no-action relief regarding this registration requirement in connection with its operation of the Paxos Settlement Service under the terms specified in this letter. For the reasons that are summarized below, Paxos believes that no-action relief would be consistent with the principles under Section 17A of the Exchange Act, including facilitating prompt and accurate clearance and settlement. First, as noted above in Section I, in adopting Section 17A Congress found that "[n]ew data processing and communications techniques create the opportunity for more efficient, effective, and safe procedures for clearance and settlement."39. Paxos believes that the Paxos Settlement Service, as a private and permissioned distributed ledger system, has the potential to provide new and unique advancements in the clearance and settlement of securities transactions, increase efficiency, and that therefore the operation of the system will therefore advance Congress's objectives. Second, given the new technology represented by the Paxos Settlement Service, allowing the system to operate for a limited period during the Feasibility Study No-Action Phase would significantly enhance Paxos's ability to evaluate the Paxos Settlement Service and ensure that the system functions as intended to facilitate prompt and accurate clearance and settlement of securities transactions and facilitates the achievement ofthe benefits outlined in Section II. Third, the operating parameters for the Feasibility Study No-Action Phase, as described in Section IV. and Section V. and summarized below, are designed to limit the Paxos Settlement Service's scope of operation and mitigate the risk of any negative effects on the U.S. securities markets or Participants' ability to settle trades in a timely and accurate manner. i. There will be a limited number of Participants, all of which will be registered broker-dealers, FINRA members and DTC participants that are well capitalized and have strong commercial and reputational incentives to accurately and efficiently settle trades on the Paxos Settlement Service. In addition, each Participant will be required to provide Paxos with a copy of its FOCUS reports and any early warning report that it files under Exchange Act Rule 17a-11 related to its net capital requirement. ii. Paxos will also have the authority to suspend or terminate any Participant that no longer is a DTC participant, abroker-dealer registered with the Commission, a FINRA member, or in compliance with Paxos's AML/KYC requirements. 37See supra note 36 38 See supra note 1 and accompanying text. 39 See supra note 3 and accompanying text. Page 19 w~vw.paxos.com iii. Paxos's clearance and settlement services will only be available for equity s~c~arities that r:~eet the Eligibility criteria and have a historically stable market value and therefore a lower likelihood of significant changes in market value between the trade date and the actual settlement date. iv. Paxos will utilize daily Volume Limits reasonably designed to ensure that the expected volume and exposures between Participants on the Paxos settlement Service would be de minimis. As detailed in Exhibit A, the expected number of shares submitted to the Paxos Settlement Service per day is 1,575,000 or 0.44% of total average daily trading volume across a maximum of forty-two (42)securities. v. Paxos will follow monitoring procedures of each Active Security's compliance with the Eligibility Criteria and Volume Limits outlined in Section IV. and CP~tinn V. and f~llnw prnr_.PrliirPc to gtnr~ the ciii~miccinr~ of trat~Pc ft~r c~ttlemPnt on the Paxos Settlement Service should the Eligibility Criteria not continue to be met or the Volume Limits be exceeded. Fourth, the Paxos Settlement Service will calculate mark-to-market margin for each Participant and Paxos will collect the Required Margin, as outlined in Section III., to enable each Participant to manage its risk of loss associated with replacing a transaction scheduled for settlement in the event that one of its counterparties fails to meet its settlement obligations. For all of the foregoing reasons, Paxos believes that such relief is consistent with the relevant considerations under the Exchange Act, and Paxos requests that the Division staff grant this no-action relief request. If you have any questions or would like to discuss this request, please contact us at(212) 551-4935 or securities~a,~axos.com or our outside counsel, Andrew Blake of Sidley Austin LLP, at(202)736-8977 or ablakensidley.com. Sincerely, r~ .r a~~.df / Charles ~. ~ascarilia Daniei Psi. Burs~ein ChiefExecutive Officer Paxos Trust Company,LLC General Counsel & Chief~~'ofnpliav~ce OfficeN Paxos Trusi company, LLC cc: Andrew P. Blake, Sidley Austin LLP, Partner r"~iiiiiufcu By: Tiiuiiid~ r. ~a~,aii, ivi~iayi3a ii3~iai3i, t11G1iQ11UG1 h. LAlll Page 20 www.paxos.com EXHIBIT A -Analysis of Expected Exposures During the Feasibility Studv No-Action Phase The following summary outlines the expected trade volumes, share volumes, and risk exposures between Participants on the Paxos Settlement Service based on the defined scope of the Feasibility Study. For the calculation of the gross notional exposures in this analysis, we assume the worst case scenario where trade exposures are all going in the same direction (i.e., with no offsetting of buys and sells) within the population oftrades for a given Participant. This appr~acl~ allows us to quantify the upper Uound in presenting the worst case scenario of exposures between Participants based on expected volumes. Exhibit A.1: Feasibility Study NoAction Phase Operating Parameters and Securities Eligibility Criteria Maximum number of seven(7)Participants in total during Feasibility Study No-Action Phase,each ofwhich meet Participation Criteria specified in Section IV.A. Maximum number of2 securities per Counterparty Pair settling on the Paxos Settlement Service All securities must meet the Eligibility Criteria(see table below) Volume Limits of less than 100,000 shares per security, per Counterparty Pair; and aggregate shares per security across all Counterparty Pairs ofless than 1%ofthe total average daily trading volume ofthe respective security security must be a component ofeither the Dow,S&P 500 or the Russell 1000 stock indices Each security must have a share price of between $5 and $75 security must have no more than an 18% single day share price movement in the last 365 days Each security must have no more than a 20% aggregate, consecutive four-day share price movement over the last 365 days Each security must have an expected average daily volume of less than 100,000 shares settling on the Paxos Settlement Service, per Counterparty Pair Each security must have an expected daily volume of shares settling on the Paxos Settlement Service across all Participants ofless than 1% ofthe average daily trading volume Page 21 www.paxos.com Exhibit A.2: Analysis of Expected Counterparty Pair Exposures during Feasibility Study 19~oActia~a Phase Example security Security 1°0 Security 241 Price per share42 $14.00 $15.00 Average daily trading volume43 12,000,000 11,000,000 Maximum single day price move (last 365 days) 12.00% 8.00% Maximum four-day aggregate price move (last 365 days) 13.00% 10.00% Expected average number of daily trades 60 50 Expected aveeage number of shares pec trade i y5 125 ofshares per trade) 11,700 6,250 Percentage of total average daily trading volume ( Expected number ofshares submitted to the Paxos Settlement Service per day/Average daily trading volume) 0.10% 0.06% $163,800 $93,750 $19,656 $7,500 Expected number of shares submitted to the Paxos Settlement Service per day ( Expected average number of daily trades *Expected average number Gross notional buys +sells per Counterparty Pair ( Price *Expected number ofshares submitted to the Paxos Settlement Service per day) Gross notional Total Daily Margin per Counterparty Pair at historical maximum one-day 365 day volatility ( Price *Maximum single day price move *Expected number ofshares submitted to the Paxos Settlement Service per dayj 40 For this Exhibit A, Security 1 and Security 2 are anonymized representations of the actual securities selected for settlement between the first Participants. The related data used in this analysis is based on historical market data and the first Participants' actual trading data, and has been rounded for the purposes ofthis summary table. 41 See supra note 40 4Z All share prices represented in this exhibit are as of6/12/2019 43 Unless otherwise specified, throughout this document the average daily trading volume is defined as the average of a security's daily trading volume over a rolling one (1) month period. All average daily trading volumes in this exhibit are as of6/12/2019. Page 22 wvr~v.~,axos.cc;~ Exhibit A.3: Analysis of Expected Total Daily ExposuYe on the Paxos Settlement Service during Feasibility Study NoAction Phase verage security pace $32.83 Average of the average daily trading volume per security ( Average of the average daily trading volume of each one of the 142 securities evaluated) 8,558,525 Average maximum single day price move (last 365 days) 8.69% Average maximum four-day aggregate price move (last 365 days) 12.21% Total possible securities utilized during Feasibility Study No-Action Phase45 42 Total expected trades per security per day during Feasibility Study No-Action Phase 300 Expected average number ofshares per tradeab 125 Expected number of shares submitted to the Paxos Settlement Service per day (Total expected trades per security peg- day during Feasibility Study No-Action Phase Expected average number ofshares per trade * 42 securities) 1,575,000 Shares per day on the Paxos Settlement Service as a percentage of total average daily trading volume ( Expected number of shares sa~bmitted to the Paxos Settlement Service per day * 42 securities)/Averaged average daily trading volume per secatrity 0.44% Gross notional buys +sells on the Paxos Settlement Service ( Average security price *Expected number of shares submitted to the Paxos Settlement Service per day) $51,715,014 Gross notional Total Daily Margin on the Paxos Settlement Service at historical maximum one-day 365 day volatility ( Average security price *Average maximum single day price move *Expected number ofshares submitted to the Paxos Settlement Service per day) $4,494,035 44 The average per security values provided in this table are based on an analysis of the securities presented in Exhibit B which meet the Eligibility Criteria at the time of this letter. 45 This analysis assumes the full allowance of seven (7) Participants and therefore a maximum of twenty-one (21) Counterparty Pairs each settling the allowance of two (2)securities resulting in a theoretical maximum offorty-two (42)securities settling on the Paxos Settlement Service. ab This is based on data from the first Participants and is reflective of the estimated average number of shares in a single trade on the eligible Trading Venues. Page 23 www.paxos.com EXHIBIT B -List of Eligible Securities The belo~,v table represents the list of securities that meet the Eligibility Criteria as of June 12, 2019 for the Feasibility Study No-Action Phase and also have an average daily trading volume greater than three million X3,000,000) shares per day. GE General Electric Company 369604103 10.28 11.65% 17.74% BAC Bank of America Corp 060505104 27.95 7.16% 1 130% F Foj•d Motor Coinpa;iy 34537850 9.85 10.74% 13.13% T AT&T lnc. 002068102 32.18 8.06% 11.20% INTC Intel Corporation 458140100 46.32 8.99% 13.50% SIRI Sirius XM Holdings Inc 82968B 103 5.5 10.32% 11.17% MiJ Micron Technology, Inc. 595112103 32.96 9.87% 15.69% PFE Pfizer Inc. 717081103 43.08 4.04% 8.23% CSCO Cisco Systems, Inc. 172758102 55.85 6.66% 9.62% FCX Freeport-McMoRan Inc 35671D857 10.59 13.08% 17.14% ZNGA Zynga Inc 989867108 6.19 12.37% 11.56% WFC Wells Fargo &, Cu 949746101 44.91 4.SGio 7.?9"!u NLY ANNALY CAP MGMT/SH 05710409 9.04 3.40% 4.94% CMCSA Comcast Corporation 20030N101 41.4 5.99% 7.44°io RIG Transocean LTD H8817H100 5.5 10.68°/a 1731% X United States Steei Corporation 912909108 13.75 17.30% 16.15% OXY Occidental Petroleum Corporation 674599105 48.79 6.44% 12.60°/a KMI Kinder Morgan Inc 49456B 101 2038 6.32% 6.32% CTL Centurylink Inc 156700106 10.77 13.11% 17.40% VZ Verizon Communications Inc. 92343V 104 5736 4.36% 7.62°/a C Citigtoup Inc 172967424 55.81 5.22% 10.83% BMY Bristol-Myers Squibb Co 110122108 47.63 13.94% 14.26% un TheC~~~-r~i~~~ ioi?iFinn S~.Fa R,aa~i in.ii~i MRO Marathon Oil Corporation 565849106 13.02 11.93% 13.17% HAL Halliburton Company 406216101 21.07 8.10% 13.93% Page 24 tivrwv.paxos.cam ORCL Oracle Corporation 68389X105 53.62 7.46% 8.27% MRVL Marvell Technology Group Ltd. G5876H105 24.06 8.20% 13.33% RF Regions Financial Corp 7591EP100 14.24 6.52% 16.20% XOM Exxon Mobil Corporation 302316102 74.03 4.78% 9.31% HPQ HP Inc 404~4L105 19.92 17.27% 18.50% HPE Hewlett Packard Enterprise Co 42824C109 14.14 8.18% 10.34% CNC Centene Corp 15135B 101 53.69 10.27% 12.24% CVS CVS Health Corp 126650100 53.66 8.10% 12.82% AMAT Applied Materials, Inc. 038222105 41.5 10.23% 13.52% JCI Johnson Controls International PLC 651502105 39.53 4.77% 10.73% SLB Schlumberger Limited. 806857108 35.58 8.12% 8.99% GM General Motors Company 37045V100 35.67 9.09% 10.33% HBAN Huntington Bancshares Incorporated 446150104 13.41 5.52% 12.56% VER VereitInc 92339V100 9.38 4.27% 8.35% MS Morgan Stanley 617446445 42.62 6.19% 9.25% KEY KeyCorp 493267108 17.02 6.44% 16.45% NEM Newmont Goldcorp Corp 651639106 35.47 8.89% 11.28% CTSH Cognizant Technology Solutions Corp 192446102 62.15 11.05% 19.24% EBAY eBay Inc 278642103 39.02 10.12% 11.96% MPC Marathon Petroleum Corp 56585A102 46.97 7.42% 15.39% SYMC Symantec Corporation 871503108 19.19 1.2.59% 16.97% ATVI Activision Blizzard, Inc. 00507V 109 45.09 1239% 17.96% BSX Boston Scientific Corporation 101137107 40.8 6.24% 9.07% RRC Range Resources Corp. 75281A109 6.58 10.62% 16.22% KR Kroger Co 501044101 24.63 9.95% 15.24% ON ON Semiconductor Corp 682189105 19.82 8.82% 15.90% AR Antero Resources Corp 03674X 106 5.76 8.70% 16.32% MGM MGM Resorts International 552953101 27.7 9.12% 15.97% MO Altria Group Inc 02209S103 51.59 6.91% 8.71% WPX WPX Energy Inc 98212B 103 10.66 10.10% 12.43% Page 25 www.paxos.com AES AES Corp 00130H105 16.76 6.71% 9.46% MDLZ MONDELEZ INTERNATIONAL INC 609207105 Common Stock 54.55 5.59% 7.19% WMB Williams Companies Inc 969457100 27.21 5.84% 8.38% COP ConocoPhillips 208250104 58.55 7.88% 9.06% HST Host Hotels and Resorts Inc 44107P104 18.43 6.26°~o 9.68% GPS Gap Inc 364760108 17.83 16.18% 17.28% SCHW Charles Schwab Corporation Common 808513105 Stock 42.1 6.04% 9.29% FITB Fifth Third Bancorp 316773100 27.11 6.46% 15.24% WU The Western Union Company 959802109 20.14 5.78% 7.43% COG Cabot Oil Rc Gas Corporation 127097103 23.72 7.73% 10.65% TJX TJX Companies Inc 872540109 52.13 5.31% 9.28% DVN Devon Energy Corp 25179M103 25.48 8.25% 15.22% GILD Gilead Sciences, Inc. 375558103 66.78 5.36% 8.87% AIG American International Group Inc 026874784 52.96 9.03% 12.75% AAL American Airlines Group Inc 023768102 31.1 9.12% 15.91% SYN' Synchrony N'inanciai 871658103 33.79 10.73% 13.05% NWL Newell Co 651229106 14.56 10.73% 13.05°/a TPR Tapestry Inc 876030107 28.83 14.83% 12.68% KSS Kohl's Corporation 500255104 47.97 12.34% 19.78% WY Weyerhaeuser Co 962166104 25.06 8.50% 11.16% NBL Noble Energy,Inc. 655044105 20.36 9.91% 1638% LB L Brands Inc 501797104 21.84 17.71% 19.78% AGNC AGNC Lnvestment Corp 00123Q104 16.75 2.77% 3.49% MET Metlife Inc 591568108 48.42 5.41% 9.61% CNP CenterPoint Energy,Inc. 151897107 28.98 4.05% 5.88% GLW Corning Incorporated 219350105 31.21 1133% 14.20% ARMK F~ramark 03852U1~b 34.93 12.37% 14.84% WBA Walgreens Boots Alliance Inc 931427108 52.12 12.81% 15.00% VST Vistra Energy Corp 92840M102 24.22 5.58% 13.42% Page 26 v✓ww.paxos.com USB U.S. Bancorp 902973304 52.69 3.79% 8.18% MOS Mosaic Co 619450103 22.66 10.61% 14.37% LVS Las Vegas Sands Corp. 517834107 57.04 11.82% 12.41% PPL PPL Corp 693517106 31.16 6.64% 8.70% NYCB New York Community Bancorp,Inc. 649445103 9.75 7.A0% q q2% FAST Fastenal Company 311900104 32.27 10.05% 11:74% NOV National-Oilwell Varco,Inc. 637071101 20.54 10.32% 1338% BK Bank of New York Mellon Corp 064058100 44.1 9.52% 9.86% IVZ Invesco Ltd. G491BT108 20.47 7.12% 11.46% BHGE Baker Hughes A GE Co 057226100 22.3 7.51% 13.48% APA Apache Corporation 037411105 28.01 6.59% 13.76% EXC Exelon Corporation 30161N101 50.45 4.49% 431% GT Goodyear Tire &Rubber Co 382550101 14.86 13.04% 13.65% FEYE FireEye Inc 31816Q101 14.5 12.1 I% 17.39% SO Southern Co 842587107 55.15 4.59% 5.90% BBT BB&T Corporation 054937107 49.59 4.65% 11.11% DAL Delta Air Lines, Inc. 247361702 55.45 8.94% 1033% DISCA DISCOVERY COMMUNICATIONS INC. Common Stock 25470F104 29.23 9.03% 13.20% KIM Kimco Realty Corp 494468109 18.38 623% 9.12% GIS General Mills, Inc. 370334104 52.61 7.62% 7.94% NRG NRG Energy Inc 629377508 34.5 5.13% 11.87% INVH Invitation Homes Inc 46187W107 26.97 3.64% 6.55% ADM Archer Daniels Midland Co 039483102 40.72 6.02% 8.84% .f BLU JetBlue Airways Corporation 477143101 19.24 10.20% 13.40% VIAB Viacom,Inc. Class B 92553P201 29.14 8.53% 11.50% ARNC Arconic Inc 03965L100 22.66 15.98% 15.98% EQH AXA Equitable Holdings Inc 054561105 21.23 6.53% 12.88% KOS Kosmos Energy Ltd 500688106 5.69 12.88% 14.89% CFG Citizens Financial Group Inc 174610105 34.75 5.77% 1335% GPK Graphic Packaging Holding Company 388689101 13.94 14.04% 17.11% Page 27 www.paxos.com PTEN Patterson-UTI Energy,Inc. 703481101 1031 9.68% 18.54% CCL Carnival Corp 143658300 5339 9.49% 18.95% YLJMC Yum China Holdings Inc 98850P109 41.19 13.85% 16.45% FE FirstEnergy Corp. 337932107 4337 4.02% 5.15% JM'R Juniper Nctworks,Inc. 482038104 26.95 7.SS% .;837°/a AA Alcoa Corp 013$72106 21.17 13.34% 15.17% NRZ New Residential Investment Corp 648287201 15.42 6.50% 8.21% DHI D.R. Horton Inc 23331A109 45.04 10.88% 10.56% HRL Hormel Foods Corp 440452100 41.55 3.83% 5.51% LUV Southwest Airlines Co 844741108 50.81 8.57% 17.63% BBY Best Buy Co Inc 086516101 64.45 14.11% 13.74% MNST Monster Beverage Corp 61174X109 64.08 8.83% 12.22% EMR Emerson Electric Co. 291011104 62.74 5.37% 8.86% URBN Urban Outfitters, Inc. 917047102 22.78 9.85% 12.25% MAS Masco Corp 574599106 38.17 8.29% 13.80% CC Chemours Co 163851108 23.58 9.50% 15.49% A Agilent Technologies Inc 008460101 70.29 11.01% 9.09% CPRI Capri Holdings Ltd G 1890E 107 33.12 14.62% 18.57% LKQ LKQ Corporation 501889208 26.19 5.70% 9.59% CAH Cazdinal Health Inc 14149Y108 44.22 6.81% 1120% CL Colgate-Palmolive Company 194162103 73.05 6.64% 10.77% WEN Wendys Co 95058W100 1938 4.40% 9.43% PHM PulteGroup,Inc. 745867101 32.16 7.28% 14.05% DISCK Discovery Inc Series C 25470F302 27.21 8.91% 12.30% IP International Paper Co 460146103 43.52 1025% 10.15% ALLY Ally Financial Inc 02005N100 2932 6.36% 9.89% 1VI NiSource Inc. 65473P105 28.53 11.72% 10.06% ADT ADT Inc 00090Q103 625 13.44% 19.47% Page 28 www.paxos.com EXHIBIT C -Quarterly Reporting Templates Exhibit C.1: Quarterly Scope Report The below Quarterly Scope Report will be provided once for every quarterly report package. 4uarterly Scope Report Reporting Quarter /Year Q# 20## Reporting Date Range MM/DD/YY - MNI/DD/YY Participants actively settling trades on the Paxos Settlement Service Active Securities per Counterparty Pair Participants pending activation of settlement on the Paxos Settlement Service Page 29 www.paxos.com Exhibit C:2: Quarterly Trade Data Report The below Quarterly Trade Data Report will be provided for every Counterparty Pair in the Quarterly Scope Report. Trade Data Counterparty Pair Reporting date range MM/DD/YY - MM/DD/YY Security Total number of trades Shares per trade USD notional per trade Trades per day [count] Shares per day [count] USD notional per day aggregate] Settlement Failures per day [count] USD notional of Settlement Failures per day [aggregate] Settlement Failures per quarter [count] Page 30 www.paxos.com Exhibit C.3: Quarterly Required Margin Data RepoNt The below Quarterly Required Margin Data Report repeats for every Counterparty Pair listed in the Quarterly Scope Report. Required Margin Data Reporting date range MNI/DD/YY - MM/DD/YY Participant Daily Margin Daily Margin High Water Mark Page 31 www.paxos.com Exhibit C.4: Quarterly Volu`ne Limits Report The below Quarterly Volume Limits Report will be provided once for every quarterly report package. This report will list all securities utilized in the quarter across all Counterparty Pairs on the Paxos Settlement Service. Volume Limits Report Reporting date range MM/DD/YY - MM/DD/YY Page 32 wwrv.paxos.co~n Exhibit C.S: Quarterly Eligible Securities Report The below Quarterly Eligible Securities Report will be provided once for every quarterly report package. This report will list all securities eligible to be selected as Active Securities on the Paxos Settlement Service. Eligible Securities Report Reporting date range MM/DD/YY - MM/DD/YY Number of Securities Page 33 www:paxos.com --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ab4e515f29d3fca1d. Public record. Not legal advice.