64482 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Notices 

11 15 U.S.C. 78s(b)(3)(A). 

12 17 CFR 240.19b–4(f). 

13 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The term ‘‘Trading Floor’’ or ‘‘Options Floor’’ 

means the physical trading floor of the Exchange 

located in Chicago. The Trading Floor shall consist 

of one ‘‘Crowd Area’’ or ‘‘Pit’’ where all option 

classes will be located. The Crowd Area or Pit shall 

be marked with specific visible boundaries on the 

Trading Floor, as determined by the Exchange. A 

Floor Broker must open outcry an order in the 

Crowd Area. See BOX Rule 100(a)(68). 

4The term ‘‘Participant’’ means a firm, or 

organization that is registered with the Exchange 

pursuant to the Rule 2000 Series for purposes of 

participating in trading on a facility of the Exchange 

appropriate in furtherance of the 

purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to section 19(b)(3)(A) 

of the Act 11 and paragraph (f) of Rule 

19b–4 12 thereunder. At any time within 

60 days of the filing of the proposed rule 

change, the Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBZX–2023–065 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–CboeBZX–2023–065. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CboeBZX–2023–065 and should be 

submitted on or before October 10, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–20168 Filed 9–18–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98380; File No. SR–BOX– 

2023–20] 

Self-Regulatory Organizations; BOX 

Exchange LLC; Notice of Filing of 

Proposed Rule Change To Adopt Rules 

To Govern FLEX Equity Options and a 

New Order Type to Trade FLEX Equity 

Options on the BOX Trading Floor 

September 13, 2023. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 1, 2023, BOX Exchange LLC 

(the ‘‘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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to (1) adopt 

Rules 5055 and 7605 which will govern 

the trading of flexible exchange options 

(‘‘FLEX Equity Options’’) on BOX; and 

(2) make related changes to Rules 100 

(Definitions), 7620 (Accommodation 

Transactions), and 12140 (Imposition of 

Fines for Minor Rule Violations). 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 https://

rules.boxexchange.com/rulefilings. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

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. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to adopt rules 

to govern FLEX Equity Options and a 

new order type to trade FLEX Equity 

Options on the BOX Trading Floor.3 The 

Exchange also proposes to amend Rules 

100 (Definitions), 7620 

(Accommodation Transactions), and 

12140 (Imposition of Fines for Minor 

Rule Violations) to reflect the 

introduction of FLEX Equity Option 

trading on the Exchange. FLEX Equity 

Options are options with flexible terms 

such that Participants 4 can customize 


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and includes an ‘‘Options Participant’’ and ‘‘BSTX 

Participant.’’ See BOX Rule 100(a)(42). 5See proposed Rule 5055(e)(1)(iii). 6See proposed Rule 5055(e)(1)(iv). 7See proposed Rule 5055(e)(1)(v). 8At least one of the following terms must differ 

between FLEX Equity Options and Non-FLEX 

Equity Options on the same underlying security: 

Exercise price, Exercise style, and Expiration date. 9See Securities Exchange Act Release No. 31920 

(February 24, 1993), 58 FR 12280 (March 3, 1993) 

(SR–CBOE–92–17) (Order Approving and Notice of 

Filing and Order Granting Accelerated Approval to 

Amendment Nos. 1, 2, 3, and 4 to Proposed Rule 

Changes by the Chicago Board Options Exchange, 

Inc., Relating to Flexible Exchange Options (‘‘FLEX 

Options’’)). 

10 Id. 

11 Id. 

12See Securities Exchange Act Release No. 36841 

(February 14, 1996), 61 FR 6666 (February 21, 1996) 

(SR–CBOE–95–43) (SR–PSE–95–24) (Order 

Approving Proposed Rule Changes and Notice of 

Filing and Order Granting Accelerated Approval of 

Amendments by the Chicago Board Options 

Exchange, Inc. and the Pacific Stock Exchange, Inc., 

Relating to the Listing of Flexible Exchange Options 

on Specified Equity Securities). 

13 Id. The Exchange notes that the Commission 

found pursuant to Rule 9b-1 under the Act, that 

FLEX Options, including FLEX Equity Options, are 

standardized options for purposes of the options 

disclosure framework established under Rule 9b-1 

of the Act. Id. 

14See CBOE Rules 4.20–4.22 and 5.70–5.75 and 

NYSE American Rules 900G–910G and NYSE Arca 

Rules 5.30–O–5.41–O and PHLX Rule Options 8, 

Section 34. 

15See Securities Exchange Act Release No. 81292 

(August 2, 2017), 82 FR 37144 (August 8, 2017) 

(Order Approving a Proposed Rule Change, as 

Modified by Amendment Nos. 1 and 2, To Adopt 

Rules for an Open-Outcry Trading Floor) (finding 

that the proposed rule change was consistent with 

the requirements of the Act and the rules and 

regulations thereunder applicable to a national 

securities exchange). 

16See https://www.optionsplaybook.com/optionsintroduction/stock-option-history/. 

17See proposed Rule 5055(a). For example, Rules 

7010 (Fees and Charges), 7020 (Days and Hours of 

Business), 7030 (Units of Trading), and 7080 

(Trading Halts) apply to FLEX Equity Options and 

Non-FLEX Equity Options alike. 

18See proposed Rule 5055(a). Proposed Rule 

5055(a) is based on NYSE Arca Rules 5.30–O(a) and 

(c). 

19The term ‘‘BOX Book’’ means the electronic 

book of orders on each single option series 

maintained by the BOX Trading Host. See BOX 

Rule 100(a)(10). 

20The term ‘‘Complex Order Book’’ means the 

electronic book of Complex Orders maintained by 

the BOX Trading Host. See BOX Rule 7240(a)(8). 

21See proposed Rule 5055(a)(1). Proposed Rule 

5055(a)(1) is based on CBOE Rule 5.72(a). 

22See, e.g., CBOE Rules 5.73 and 5.74. 

23See, e.g., NYSE Arca Rule 5.30–O(c). 

expiration date, exercise price, and 

exercise style. FLEX Equity Options are 

designed to meet the needs of investors 

for greater flexibility in selecting the 

terms of options within the parameters 

of the Exchange’s proposed rules. FLEX 

Equity Options are not preestablished 

for trading and are not listed 

individually for trading on the 

Exchange. Rather, investors select FLEX 

Equity Option terms and are limited by 

the parameters detailed below in their 

selection of those terms. As a result, 

FLEX Equity Options allow investors to 

satisfy more specific, individualized 

investment objectives than may be 

available to them in the standardized 

options market. Specifically, FLEX 

Equity Options will be subject to 

proposed Rule 5055 and will be traded 

as FLEX Open Outcry Orders (‘‘FOO 

Orders’’) on the BOX Trading Floor 

under proposed Rule 7605. FLEX Equity 

Options are a type put or call, and allow 

investors to choose an exercise price of 

any dollar amount in minimum 

increments of $0.01,5 an exercise style 

of American or European,6 and an 

expiration date of any month, business 

day and year no more than 15 years 

from the date on which a FLEX Equity 

Option is executed.7 As discussed 

further below, FLEX Equity Options will 

not be permitted with the same terms as 

an existing Non-FLEX Equity Option 

listed on the Exchange.8 Because of 

their composition, the Exchange 

believes that FLEX Equity Options may 

allow investors to more closely meet 

their individual investment and hedging 

objectives by customizing option 

contracts for the purpose of satisfying 

particular investment objectives that 

could not be met by the standardized 

markets. 

Background 

The Securities and Exchange 

Commission (‘‘Commission’’) approved 

the trading of FLEX options in 1993.9 At 

the time, the Chicago Board Options 

Exchange, Inc., now Cboe Exchange, 

Inc. (‘‘CBOE’’) proposed FLEX options 

based on the Standard and Poor’s 

Corporation 500 and 100 Stock Indexes 

(referred to as the ‘‘CBOE Order’’ 

herein).10 These FLEX options were 

offered as an alternative to an over-thecounter (‘‘OTC’’) market in customized 

equity options.11 Several years after the 

initial approval, the Commission 

approved the trading of additional FLEX 

options on specified equity securities.12

In its order, the Commission provided: 

‘‘The benefits of the Exchanges’ options 

markets include, but are not limited to, 

a centralized market center, an auction 

market with posted transparent market 

quotations and transaction reporting, 

parameters and procedures for clearance 

and settlement, and the guarantee of the 

OCC [Options Clearing Corporation] for 

all contracts traded on the Exchange.’’ 13

The Exchange notes that FLEX 

options are currently traded on CBOE, 

NYSE American LLC (‘‘NYSE 

American’’), NYSE Arca, Inc. (‘‘NYSE 

Arca’’), and Nasdaq PHLX LLC 

(‘‘PHLX’’).14 The Exchange notes further 

that CBOE offers electronic and open 

outcry FLEX option trading while NYSE 

American, NYSE Arca, and PHLX offer 

only open outcry trading of FLEX 

options. 

In August 2017, the Commission 

approved the Exchange’s proposal to 

adopt rules for an open outcry trading 

floor.15 The Exchange based the rules 

for the BOX Trading Floor on the rules 

of the options exchanges that had 

established trading floors at that time. 

When the BOX Trading Floor was 

adopted in 2017, it was the first options 

trading floor to be established since the 

1970s.16 As such, the BOX Trading 

Floor rules have certain differences to 

the trading floor rules at the other 

options exchanges, to account for the 

unique nature of BOX’s Trading Floor 

and to modernize the existing trading 

floor rules and surveillance practices. 

The BOX Trading Floor has been 

operating since 2017 and is now wellestablished. The Exchange believes that 

its unique features for open-outcry 

trading provide value to Floor 

Participants. The Exchange now 

proposes to allow for the trading of 

FLEX Equity Options as FOO Orders on 

the BOX Trading Floor. 

Proposal 

The Exchange proposes to adopt Rule 

5055 titled FLEX Equity Options which 

describes and governs FLEX Equity 

Options. Rule 5055(a) details the 

applicability of other Exchange rules 

with respect to the proposed FLEX 

Equity Options.17 Specifically, the 

trading of FLEX Equity Options is 

subject to all other Rules applicable to 

the trading of options on the Exchange, 

unless otherwise provided in Rules 

5055 and 7605.18 The rules proposed by 

the Exchange are uniquely applicable to 

FLEX Equity Options in order to 

accommodate their special 

characteristics. For example, the BOX 

Book 19 and the Complex Order Book 20

shall not be available for transactions in 

FLEX Equity Options because, 

consistent with other exchanges’ FLEX 

rules, there will be no pre-established 

series and no electronic trading of FLEX 

Equity Options.21 While electronic 

trading in FLEX options is available on 

CBOE,22 the Exchange at this time 

intends to introduce FLEX Equity 

Options on the Trading Floor only, 

consistent with other markets that trade 

these customized options solely on their 

trading floors.23 The Exchange notes 

that rules that contemplate the 

operation of or interaction with the BOX 

Book and the Complex Order Book will 

not apply to FLEX Equity Options, given 

that FLEX Equity Options may only be 


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24The Exchange notes that FLEX Equity Options 

may not trade via the PIP, COPIP, Facilitation and 

Solicitation Auctions, or as Qualified Contingent 

Cross (‘‘QCC’’), Complex QCC, Customer Cross, and 

Complex Customer Cross Orders. If the Exchange 

intended to allow FLEX Equity Options to trade via 

the PIP, COPIP, Facilitation and Solicitation 

Auctions, or as (‘‘QCC’’), Complex QCC, Customer 

Cross, and Complex Customer Cross Orders, the 

Exchange would be required to file a proposed rule 

change with the Commission to amend its rules to 

allow for the inclusion of FLEX Equity Options in 

the relevant rule text. 

25See proposed Rule 5055(f)(2). 

26See proposed Rule 5055(f)(1). Proposed Rule 

5055(f)(1) is based on NYSE Arca Rule 5.32–O, 

Commentary .01. 

27See proposed Rule 5055(f)(2). Proposed Rule 

5055(f)(2) is based on NYSE Arca Rule 5.32–O, 

Commentary .01. 

28See proposed Rule 5055(b)(1). The Exchange 

notes that proposed Rule 5055(e)(1)(i) provides that 

FLEX Equity Options on underlying securities may 

be authorized pursuant to Rule 5020. 

29See proposed Rule 5055(b)(2). Proposed Rule 

5055(b)(2) is based on NYSE Arca Rule 5.30– 

O(b)(11). 

30See proposed Rule 5055(b)(3). 

31See proposed Rule 5055(b)(4). 

32See BOX Rule 7600. See also Securities 

Exchange Act Release No. 81292 (August 2, 2017), 

82 FR 37144 (August 8, 2017) (Order Approving a 

Proposed Rule Change, as Modified by Amendment 

Nos. 1 and 2, To Adopt Rules for an Open-Outcry 

Trading Floor). 

33See proposed Rule 5055(b)(3). 

34See proposed Rule 5055(c). Proposed Rule 

5055(c) is based on NYSE Arca Rule 5.30–O(d). 

35BOX IM–7600–2 provides that nothing 

prohibits a Floor Broker from buying or selling a 

stock, security futures, or futures position following 

receipt of an option order, including a Complex 

Order, provided that prior to announcing such 

order to the trading crowd: (a) the option order is 

in a class designated as eligible for ‘‘tied hedge’’ 

transactions (as described below) as determined by 

the Exchange and is within the designated tied 

hedge eligibility size parameters, which parameters 

shall be determined by the Exchange and may not 

be smaller than 500 contracts per order. 

Additionally, there shall be no aggregation of 

multiple orders to satisfy the size parameter, and for 

Complex Orders involved in a tied hedge 

transaction at least one leg must meet the minimum 

size requirement; (b) such Floor Broker shall create 

an electronic record that it is engaging in a tied 

hedge transaction in a form and manner prescribed 

by the Exchange; (c) such hedging position is: (1) 

comprised of a position designated as eligible for 

a tied hedge transaction as determined by the 

Exchange and may include the same underlying 

stock applicable to the option order, a security 

future overlying the same stock applicable to the 

option order or, in reference to an index or 

Exchange-Traded Fund Shares (‘‘ETF’’), a related 

instrument. A ‘‘related instrument’’ means, in 

reference to an index option, securities comprising 

ten percent or more of the component securities in 

the index or a futures contract on any economically 

equivalent index applicable to the option order. A 

‘‘related instrument’’ means, in reference to an ETF 

option, a futures contract on any economically 

equivalent index applicable to the ETF underlying 

the option order; (2) brought without undue delay 

to the trading crowd and announced concurrently 

with the option order; (3) offered to the trading 

crowd in its entirety; and (4) offered, at the 

execution price received by the Floor Broker 

introducing the option, to any in-crowd Floor 

Participant who has established parity or priority 

for the related options; (d) the hedging position 

does not exceed the option order on a delta basis; 

(e) all tied hedge transactions (regardless of whether 

the option order is a simple or Complex Order) are 

treated the same as Complex Orders for purposes 

of the Exchange’s open outcry allocation and 

reporting procedures. Tied hedge transactions are 

subject to the existing NBBO trade-through 

requirements for options and stock, as applicable, 

and may qualify for various exceptions; however, 

when the option order is a simple order, the 

execution of the option leg of a tied hedge 

transaction does not qualify for the NBBO tradethrough exception for a Complex Trade (defined in 

Rule 7610(e)); (f) in-crowd Floor Participants that 

participate in the option transaction must also 

participate in the hedging position and may not 

prevent the option transaction from occurring by 

giving a competing bid or offer for one component 

of such order; (g) in the event the conditions in the 

non-options market prevents the execution of the 

non-option leg(s) at the agreed prices, the trade 

representing the options leg(s) may be cancelled; 

and (h) prior to entering tied hedge orders on behalf 

of Customers, the Floor Broker must deliver to the 

Customer a written notification informing the 

Customer that his order may be executed using the 

Exchange’s tied hedge procedures. The written 

notification must disclose the terms and conditions 

contained in this Interpretative Material and be in 

a form approved by the Exchange. See BOX IM– 

7600–2. 

36BOX IM–7600–5 provides that a Participant 

shall not utilize the Trading Floor to effect any 

transaction for its own account, the account of an 

associated person, or an account with respect to 

which it or an associated person thereof exercises 

investment discretion by relying on an exemption 

under Section 11(a)(1)(G) of the Exchange Act. See 

BOX IM–7600–5. 

37See proposed Rule 5055(d). Proposed Rule 

5055(d) is based on NYSE Arca Rule 5.31–O(b). 

traded as FOO Orders and FOO Orders 

may not be placed in the BOX Book or 

the Complex Order Book.24

Additionally, the Exchange is proposing 

to codify that Options Exchange 

Officials have the same duties and 

ability to enforce rules applicable to the 

trading of FLEX Equity Options as they 

do for all other activity on the Trading 

Floor.25

FLEX Equity Options will only be 

permitted in puts and calls that do not 

have the same exercise style (American 

or European), same expiration date and 

same exercise price as Non-FLEX Equity 

Options that are already available for 

trading on the same underlying 

security.26 In addition, once, and if, 

identical option series are listed for 

trading as Non-FLEX Equity Options, (1) 

all existing open positions established 

under the FLEX trading procedures 

shall be fully fungible with transactions 

in the respective Non-FLEX Equity 

Option series, and (2) any further 

trading in the series would be as NonFLEX Equity Options subject to the nonFLEX trading procedures and rules.27

Therefore, FOO Orders, whose terms 

must be different from options that are 

already available for trading, would not 

be fungible with interest resting on the 

BOX Book or Complex Order Book. 

Accordingly, the Exchange believes 

FOO Orders would not be able to trade 

through interest resting on the BOX 

Book or Complex Order Book nor would 

interest resting on the BOX Book or 

Complex Order Book lose priority to 

FOO Orders. 

The Exchange proposes Rule 5055(b) 

which defines the following terms: 

FLEX Equity Option, Non-FLEX Equity 

Option, FLEX Market Maker, and FLEX 

Open Outcry Order. Specifically, the 

term ‘‘FLEX Equity Option’’ means an 

option on a specified underlying 

security that is subject to Rule 5055.28

‘‘Non-FLEX Equity Option’’ means an 

option contract that is not a FLEX 

Equity Option.29 ‘‘FLEX Open Outcry 

Order’’ (‘‘FOO Order’’) means a FLEX 

Equity Option order as defined in 

proposed Rule 7605.30 ‘‘FLEX Market 

Maker’’ means a Market Maker that is 

qualified by the Exchange to trade FLEX 

Equity Options and meets the 

requirements of proposed Rule 

5055(k).31 The proposed functionality 

for FOO Orders is designed to be similar 

to the Exchange’s existing Qualified 

Open Outcry (‘‘QOO’’) Orders because 

both order types will be transacted on 

the Trading Floor and BOX believes 

they should follow similar procedures, 

excluding provisions related to the BOX 

Book, as discussed below.32 FLEX 

Equity Options shall not be traded other 

than as FOO Orders.33

The Exchange proposes Rule 5055(c) 

which states that certain Exchange rules 

do not apply to transactions in FLEX 

Equity Options. Specifically, Rule 7600 

‘‘Qualified Open Outcry Orders—Floor 

Crossing’’ and Rule 7620 

‘‘Accommodation Transactions’’ do not 

apply to transactions in FLEX Equity 

Options.34 These rules represent order 

types that currently apply to Non-FLEX 

Equity Options on the BOX Trading 

Floor and are specifically excluded 

given that the Exchange is proposing the 

FOO Order type to be used exclusively 

for trading FLEX Equity Options. 

However, the Exchange proposes that 

certain Rule 7600 Interpretive Materials 

apply to FLEX Equity Options; in 

particular IM–7600–2 35 and IM–7600– 

5.36 IM–7600–2 and IM–7600–5 relate to 

tied hedge orders and to compliance 

with Section 11(a)(1) of the Act, 

respectively, and will apply to the 

proposed FOO Orders in the same 

manner as they currently apply to QOO 

Orders. Because these provisions would 

apply equally to FLEX Equity Options 

as they do to Non-FLEX Equity Options, 

they need not be duplicated for 

purposes of the proposed rules. 

The Exchange proposes Rule 5055(d) 

which states that FLEX Equity Options 

will have no trading rotations.37 Trading 

rotations are used to open or reopen a 

series of options on BOX at a single 


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38See BOX Rules 7070(e)(2) and (l). 

39See BOX Rules 7070(a) and (e). The Exchange 

notes that trading rotations are referred to in BOX 

Rule 7070(e) as the Opening Match. 

40Proposed Rule 5055(e) is based on NYSE Arca 

Rule 5.32–O. The Exchange notes that it is not 

proposing FLEX Index Options and thus has not 

incorporated applicable provisions as Index 

Options do not trade on BOX. 

41Rule 5020 provides criteria for the listing of 

options on several different underlying types of 

securities, including securities registered with the 

SEC under Regulation NMS of the Act (‘‘NMS 

stock’’), Exchange-Traded Fund Shares, and IndexLinked Securities. See BOX Rule 5020. 

42See proposed Rule 5055(e)(1)(i). Proposed Rule 

5055(e)(1)(i) is based on NYSE Arca Rule 5.32– 

O(f)(1). 

43See proposed Rule 5055(e)(1)(ii). Proposed 

Rule 5055(e)(1)(ii) is based on NYSE Arca Rule 

5.32–O(b)(2). 

44See proposed Rule 5055(e)(1)(iii). Proposed 

Rule 5055(e)(1)(iii) is based on NYSE Arca Rule 

5.32–O(f)(2) (exercise prices and premiums may be 

stated in terms of: (i) a dollar amount; (ii) a method 

for fixing at the time a FLEX Request for Quote or 

FLEX Order is traded; or (iii) a percentage of the 

price of the underlying security at the time of the 

trade or as of the close of trading on the NYSE Arca 

on the trade date). The Exchange notes that the 

proposal only includes exercise, bid, and offer 

prices in terms of a dollar amount. 

45See proposed Rule 5055(e)(1)(iv). Proposed 

Rule 5055(e)(1)(iv) is based on NYSE Arca Rule 

5.32–O(b)(3). 

46See proposed Rule 5055(e)(1)(v). Proposed Rule 

5055(e)(1)(v) is based on NYSE Arca Rules 5.32– 

O(b)(4) and (6). The Exchange notes that it has 

omitted the exception for FLEX Index Options 

because BOX does not list FLEX Index Options and 

FLEX Index Options are not part of this proposal. 

47See proposed Rule 5055(e)(1)(v)(a). It is the 

Exchange’s understanding from conversations with 

the Options Clearing Corporation (‘‘OCC’’) that the 

OCC is able to process FLEX transactions that occur 

on the expiration date. The Exchange notes that 

NYSE Arca’s rules do not contain a similar 

provision. However, the Exchange believes, based 

on Participant feedback, that FLEX Option orders 

on NYSE ARCA are allowed on the expiration date. 

The Exchange notes that the exercise of options 

contracts is governed by the Rule 9000 series 

including exercise cut-off times and contrary 

exercise advices. 

48See proposed Rule 5055(f)(1). Proposed Rule 

5055(f)(1) is based on NYSE Arca Rule 5.32–O, 

Commentary .01. The Exchanges notes that its 

system enforces the requirement that a FLEX Equity 

Option does not have the same exercise style 

(American or European), same expiration date and 

same exercise price as a Non-FLEX Equity Option 

that is already available for trading on the same 

underlying security. Specifically, the system will 

reject an order in a FLEX Equity Option if the order 

is received with the same exercise style (American 

or European), same expiration date and same 

exercise price as a Non-FLEX Equity Option that is 

already available for trading on the same underlying 

security on the Exchange. 

49An open position resulting from a transaction 

on the Exchange becomes fungible post-trade and 

is separate from the execution occurring on the 

Exchange. For example, assume a Participant buys 

one (1) American style AAPL call option expiring 

on October 9, 2024, with a strike price of 150, 

which is a FLEX series because there is no standard 

option listed with those same terms. Now assume, 

while holding this position, a standard option with 

the same terms is listed (American style AAPL call 

option expiring on October 9, 2024, with a strike 

price of 150). After this standard option is listed, 

the Participant purchases one (1) contract in this 

non-FLEX option series. After this second 

transaction, the Participant will have an open 

position of two (2) contracts in the standard AAPL 

call expiring on October 9, 2024, with a 150 strike 

price. 

50This includes all priority and trade-through 

requirements on the Exchange (see, e.g., Rule 7130). 

51See proposed Rule 5055(f)(2). Proposed Rule 

5055(f)(2) is based on NYSE Arca Rule 5.32–O, 

Commentary .01. The Exchange notes that FLEX 

Equity Options previously traded as part of a 

Complex FOO Order or Multi-Leg FOO Order where 

the respective Non-FLEX Equity Option series is 

later listed may not be traded as part of a Complex 

FOO Order or Multi-leg FOO Order except as 

provided in proposed Rules 5055(f)(3) and 

7605(d)(3) once such Non-FLEX Equity Option 

series has been listed on the Exchange. See 

proposed Rules 7605(d)(1) and 7605(d)(3). For 

example, assume a Participant executes a Complex 

FOO Order to buy strategy A+B where A and B are 

both FLEX Equity Option series. Now assume that 

prior to the opening on the next trading day, a NonFLEX Equity Option series with the same terms 

(underlying security, type, exercise price, exercise 

style, and expiration date) as A has been listed on 

the Exchange. If the Participant decided to close out 

their open position in strategy A + B, it would need 

to be done as two separate orders for the component 

legs of the original order: (i) selling B, a FLEX 

Equity Option, by submitting a FOO Order, and (ii) 

selling the corresponding Non-FLEX Equity Option 

series that has the same terms as A because A has 

become fungible with the Non-FLEX Equity Option 

series with the identical terms. Trading in A would 

be subject to the Non-FLEX trading procedures and 

rules. See proposed Rule 5055(f)(2). 

52See proposed Rule 5055(f)(3). Proposed Rule 

5055(f)(3) is based on NYSE Arca Rule 5.32–O, 

Commentary .01. The Exchange notes that Complex 

Continued 

price.38 There is a period of time before 

the market in the underlying security 

opens during which orders placed on 

the BOX Book do not generate trade 

executions but may participate in the 

Opening Match.39 FLEX Equity Options 

will not be placed on the BOX Book, 

and therefore will not have trading 

rotations because there will be no 

requirement for specific FLEX Equity 

Option series to be quoted or traded 

each day. FLEX Equity Options are 

created with terms unique to individual 

investment objectives. As such, each 

investor may require FLEX Equity 

Options with slightly different terms 

than those already created. These 

individually defined FLEX Equity 

Options are customized for each 

investor and therefore trading rotations 

may not be useful for other investors 

who may create their own FLEX Equity 

Options because trading rotations are 

designed, in part, to determine a single 

opening, or reopening, price based on 

orders and quotes from multiple 

Participants. With the bespoke nature of 

FLEX Options there is not the 

opportunity, nor need, to bring together 

multiple orders and quotes as part of a 

trading rotation. 

Further, the Exchange proposes Rule 

5055(e) which provides that FLEX 

Equity Options will not be 

preestablished for trading, and must 

include one of each of the terms of a 

FLEX Equity Option that are described 

in the proposed Rule.40 Specifically, (i) 

the Exchange may authorize for trading 

a FLEX Equity Option class on any 

underlying security if it may authorize 

trading a Non-FLEX Equity Option class 

on that underlying security pursuant to 

Rule 5020,41 and that has Non-FLEX 

Equity Options on such security listed 

and traded on at least one national 

securities exchange, even if the 

Exchange does not list that Non-FLEX 

Equity Option class for trading; 42 (ii) 

the option type may be put or call; 43

(iii) the exercise price may be any dollar 

amount in minimum increments of 

$0.01; 44 (iv) the exercise style may be 

American or European; 45 and (v) the 

expiration date may be any business day 

(specified to the day, month, and year) 

no more than 15 years from the date of 

the FLEX Equity Option transaction.46 A 

FLEX Equity Option order may be 

submitted on any trading day, including 

the expiration date.47

Next, the Exchange proposes Rule 

5055(f) titled Additional Conditions of 

FLEX Equity Options. Proposed Rule 

5055(f)(1) limits FLEX Equity Option 

terms such that options on an 

underlying security otherwise eligible 

for FLEX trading will only be permitted 

in puts and calls that do not have the 

same exercise style (American or 

European), same expiration date and 

same exercise price as Non-FLEX Equity 

Options that are already available for 

trading on the same underlying 

security.48 Notwithstanding the 

foregoing, FLEX Equity Options that 

may in the future have the same terms 

as Non-FLEX Equity Options will be 

permitted before the options are listed 

for trading as Non-FLEX Equity Options. 

Once and if the identical option series 

are listed for trading as Non-FLEX 

Equity Options: (i) all existing open 

positions established under the FLEX 

trading procedures shall be fully 

fungible with transactions in the 

respective Non-FLEX Equity Option 

series,49 and (ii) any further trading in 

the series would be as Non-FLEX Equity 

Options subject to the non-FLEX trading 

procedures and rules,50 in addition to 

any other rules that apply to Non-FLEX 

Equity Options.51 In the event a NonFLEX Equity Option series is added 

intra-day, the holder or writer of a FLEX 

Equity Option position established 

under the FLEX trading procedures 

would be permitted to close such 

position under the FLEX trading 

procedures against another closing only 

FLEX Equity Option position for the 

balance of the trading day on which the 

series is added.52 In the event the NonVerDate Sep<11>2014 18:21 Sep 18, 2023 Jkt 259001 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 E:\FR\FM\19SEN1.SGM 19SEN1

ddrumheller on DSK120RN23PROD with NOTICES1
64486 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Notices 

FOO Orders and Multi-Leg FOO Orders, discussed 

below, may be traded with one or more closing only 

component legs. The Exchange notes that proposed 

Rule 5055(f)(3) differs from NYSE Arca Rule 5.32– 

O, Commentary .01 in that it includes a provision 

detailing the interaction between proposed Rules 

5055(f)(2) and (3). 

53See proposed Rule 5055(g). Proposed Rule 

5055(g) is based on CBOE Rule 5.4(c)(4). The 

Exchange notes that minimum increments in 

percentage terms have been omitted because they 

are not part of this proposal. 

54See proposed Rule 5055(h). Proposed Rule 

5055(h) is based on NYSE Arca Rule 5.32–O(f)(4). 

55See BOX Rules 3120 (Position Limits) and 3140 

(Exercise Limits). The Exchange notes that Complex 

FOO Orders and Multi-Leg FOO Orders when 

executed result in position changes for the 

individual component legs of the transaction based 

on the composition of the Complex or Multi-Leg 

FOO Order. 

56See proposed Rule 5055(i). Proposed Rule 

5055(i) is based on NYSE Arca Rules 5.35–O(a)(iii) 

and (b). The Exchange notes that Index Options and 

Binary Return Derivatives (‘‘ByRDs’’) are not traded 

on BOX and therefore FLEX Index Options and 

FLEX ByRDs will not be traded on BOX and are not 

included in proposed Rule 5055(i). See also CBOE 

Rule 8.35 and NYSE American Rule 906G and 

PHLX Rule Options 8, Section 34(e). 

57See 17 CFR 240.15c3–1. 

58See proposed Rule 5055(i)(1). Proposed Rule 

5055(i)(1) is based on NYSE Arca Rule 5.35–O(b). 

59See Securities Exchange Act Release Nos. 

39032 (September 9, 1997), 62 FR 48683 (September 

16, 1997) (SR–Amex–96–19; SR–CBOE–96–79; SR– 

PCX–97–09) (Order Granting Approval to Proposed 

Rule Change and Notice of Filing and Order 

Granting Accelerated Approval to Amendment No. 

1 to Proposed Rule Change by the American Stock 

Exchange, Inc. and the Chicago Board Options 

Exchange, Inc., and Order Granting Approval to 

Proposed Rule Change by the Pacific Exchange, 

Inc., Relating to the Elimination of Position and 

Exercise Limits for FLEX Equity Options) (approval 

of a pilot program for the elimination of position 

and exercise limits on FLEX Equity Options) and 

42223 (December 10, 1999), 64 FR 71158 (December 

20, 1999) (SR–Amex–99–40; SR–PCX–99–41; SR– 

CBOE–99–59) (Order Granting Accelerated 

Approval to Proposed Rule Change Relating to the 

Permanent Approval of the Elimination of Position 

and Exercise Limits for FLEX Equity Options). 

60See, e.g., FINRA Rule 4210(f)(2); OCC Rule 601. 

61See proposed Rule 5055(j). Proposed Rule 

5055(j) is based on NYSE Arca Rule 5.36–O. See 

also proposed Rule 5055(i). 

FLEX Equity Option series is added on 

a trading day after the position is 

established, the holder or writer of a 

FLEX Equity Option position 

established under the FLEX trading 

procedures would be permitted to close 

such position as a non-FLEX transaction 

consistent with the requirements of Rule 

5055(f)(2). 

The Exchange proposes Rule 5055(g) 

which states that the minimum quoting 

and trading increment for FLEX Equity 

Option contracts traded on BOX will be 

one cent ($0.01) for all series.53

The Exchange proposes Rule 5055(h) 

which states that FLEX Equity Options 

will be subject to the exercise by 

exception provisions of Rule 805 of the 

OCC, titled Expiration Exercise 

Procedure.54 Rule 805 provides 

provisions for the automatic exercise of 

certain options upon expiration. 

The Exchange proposes Rule 5055(i) 

which details position limits for FLEX 

Equity Options. Specifically, 5055(i)(1) 

states that FLEX Equity Options will not 

be subject to position limits, except as 

long as the options positions remain 

open, positions in FLEX Equity Options 

that expire on a third Friday-of-themonth shall be aggregated with 

positions in Non-FLEX Equity Options 

on the same underlying security and 

shall be subject to the position and 

exercise limits set forth in this proposed 

rule, and in the current BOX rules.55

Positions in FLEX Equity Options shall 

not be taken into account when 

calculating position limits for NonFLEX Equity Options, other than for 

positions in FLEX Equity Options that 

expire on a third Friday-of-the-month, 

as discussed below.56

The Exchange proposes to specify 

that, if the Exchange determines that a 

higher margin requirement is advisable 

in light of the risks associated with a 

FLEX Equity Option position, the 

Exchange may, pursuant to its authority 

under Rule 10130(b), consider imposing 

higher margin requirements upon the 

account maintaining the position. 

Additionally, it should be noted that the 

clearing firm carrying the account will 

be subject to capital charges under Rule 

15c3–1 under the Act 57 to the extent of 

any margin deficiency resulting from a 

higher margin requirement imposed by 

the Exchange.58

The Exchange notes that, unlike 

NYSE Arca Rule 5.35–O(b), the 

Exchange is not proposing to include a 

requirement that each Participant (other 

than a Market Maker) that maintains a 

position on the same side of the market 

in excess of the standard position limit 

for Non-FLEX Equity Options of the 

same class on behalf of its own account 

or for the account of a customer shall 

report information on the FLEX Equity 

Option position, positions in any related 

instrument, the purpose or strategy for 

the position and the collateral used by 

the account. Proposed Rule 5055(i)(1) 

would also differ from NYSE Arca Rule 

5.35–O(b) in that the Exchange is 

proposing to better tailor the Rule’s 

description of the Exchange’s ability to 

impose a higher margin requirement 

with the Exchange’s existing authority 

to impose higher margin as described in 

Rule 10130(b). The Exchange believes 

this would better maintain consistency 

with its existing rules and would more 

accurately describe the process by 

which the Exchange would consider 

imposing higher margin requirements in 

practice. 

The Exchange also believes that the 

separate reporting requirement for FLEX 

Equity Option positions, along with a 

requirement for the Exchange to monitor 

margin requirements for FLEX Equity 

Option positions separately from the 

manner in which the Exchange 

considers margin generally, add 

administrative burdens on Participants 

and the Exchange that do not 

meaningfully contribute to the 

management of margin in the options 

markets. The Exchange notes that the 

text of NYSE Arca Rule 5.35–O(b), along 

with comparable rule text at other 

exchanges that offer FLEX equity 

options, was originally adopted over 25 

years ago when FLEX equity options 

were first permitted to trade without 

position limits.59 The options markets 

have changed significantly since that 

time, including with respect to 

technology and surveillance 

capabilities. Moreover, market 

participants are now much more 

familiar with trading FLEX equity 

options and managing their associated 

risks. The OCC and FINRA both manage 

their own robust margin requirements 

that apply to Exchange Participants 

whether or not they trade in FLEX 

Equity Options.60 The Exchange further 

understands that, since FLEX equity 

options have traded on exchanges 

without position limits, no options 

exchange has used its authority to 

increase margin requirements due to 

large FLEX equity option positions. 

And, to the extent it ever became 

necessary to do so, the Exchange 

believes it already has the authority 

under Rule 10130(b) to increase margin 

requirements with respect to any FLEX 

Equity Option position. Accordingly, 

the Exchange does not believe it is 

necessary or appropriate to continue to 

mandate a duplicative reporting 

requirement and separate margin 

calculation that imposes additional 

administrative burdens on Participants 

and the Exchange with limited 

attendant benefits. 

The Exchange proposes Rule 5055(j) 

which governs exercise limits for FLEX 

Equity Options. Specifically, proposed 

Rule 5055(j) states that exercise limits 

for FLEX Equity Options shall be 

equivalent to the position limits 

established in this proposal; 

accordingly, there shall be no exercise 

limits for FLEX Equity Options.61 FLEX 

Equity Options will not be taken into 

account when calculating exercise 

limits for Non-FLEX Equity Options, 

except that as long as the option 

positions remain open, positions in 

FLEX Equity Options which expire on a 


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Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Notices 64487 

62See proposed Rule 5055(i). 

63See proposed Rule 5055(k). Proposed Rule 

5055(k) is based on NYSE Arca Rule 5.41–O(a). The 

Exchange notes that, while NYSE Arca allows an 

existing Letter of Guarantee to be amended 

specifically to include FLEX transactions upon 

approval by the OCC, the Exchange’s proposal does 

not include such a provision because the Exchange 

will require a separate Letter of Guarantee. The 

Exchange notes that a Market Maker’s Letter of 

Guarantee will remain effective until a revocation 

is received by the Exchange. 

64A Floor Broker is an individual who is 

registered with the Exchange for the purpose, while 

on the Trading Floor, of accepting and handling 

options orders. A Floor Broker must be registered 

as an Options Participant prior to registering as a 

Floor Broker. See BOX Rule 7540. 

65See proposed Rule 5055(l). Proposed Rule 

5055(l) is based on NYSE Arca Rule 5.41–O(b). The 

Exchange notes that, while NYSE Arca allows an 

existing Letter of Authorization to be amended 

specifically to include FLEX transactions upon 

approval by the OCC, the Exchange’s proposal does 

not include such a provision because the Exchange 

will require a separate Letter of Authorization. The 

Exchange notes that a Floor Broker’s Letter of 

Authorization will remain effective until a written 

revocation is received by the Exchange. 

66See proposed Rule 7605. See also Securities 

Exchange Act Release No. 81292 (August 2, 2017), 

82 FR 37144 (August 8, 2017) (Order Approving a 

Proposed Rule Change, as Modified by Amendment 

Nos. 1 and 2, To Adopt Rules for an Open-Outcry 

Trading Floor) (finding that the proposed rule 

change was consistent with the requirements of the 

Act and the rules and regulations thereunder 

applicable to a national securities exchange). 

67CBOE allows a FLEX Order to be represented 

and executed in the same manner as a non-FLEX 

Order. See CBOE Rule 5.72(d). The Exchange notes 

that CBOE Rule 5.72(d) also contains provisions 

that limit the priority rules applicable to FLEX 

Orders. Id. at 5.72(d)(2) and (3). 

68See proposed Rule 7605(a). 

69See proposed Rule 7605(b). Proposed Rule 

7605(b) is based on BOX Rules 7600(a)(2) and (3) 

and NYSE Arca Rule 5.41–O(b). Additionally, the 

Exchange is proposing to add a statement clarifying 

that Floor Brokers must record all FOO Orders 

pursuant to Rule 7580(e)(1) prior to the 

announcement of such FOO Orders, which is the 

requirement for all orders on the Trading Floor. 

70BOX Rule 7580(e)(1) outlines the requirements 

for a Floor Broker to record and systematize any 

orders prior to announcement of such order in the 

trading crowd. 

71See proposed Rule 7605(c). Proposed rule 

7605(c) is based on NYSE Arca Rules 5.37–O(a) and 

5.41–O(a). The Exchange notes that, while NYSE 

Arca requires at least three FLEX Qualified Market 

Makers per class, the Exchange’s proposal does not 

qualify FLEX Market Makers per class. 

72 Id. FLEX Market Maker qualification will 

include an examination requiring knowledge of 

FLEX Equity Options, including FLEX Equity 

Option terms, FLEX Market Maker qualification 

requirements, FLEX Market Maker quoting 

obligations, and FOO Order trading procedures. 

73See proposed Rule 7605(e)(3). Proposed Rule 

7605(e)(3) is similar to BOX Rule 7580(a), which 

applies to QOO Orders on the Trading Floor and 

requires a Floor Broker to ascertain that at least one 

Floor Market Maker is present in the Crowd Area 

prior to announcing an order for execution. 

74See Securities Exchange Act Release No. 81292 

(August 2, 2017), 82 FR 37144 (August 8, 2017) 

(Order Approving a Proposed Rule Change, as 

Modified by Amendment Nos. 1 and 2, To Adopt 

Rules for an Open-Outcry Trading Floor). 

75The Exchange notes that the requirement to 

have at least three qualified FLEX Market Makers 

is a baseline that must be met in order for any FLEX 

Equity Option to be traded on the Trading Floor. 

The requirement that at least one FLEX Market 

Maker be present when an FOO Order is announced 

is an additional order-by-order requirement that 

promotes order competition and is the same 

requirement for QOO Orders currently. 

76The BOX Order Gateway (‘‘BOG’’) is a 

component of the Trading Host which enables Floor 

Brokers and/or their employees to enter 

transactions on the Trading Floor. See BOX Rule 

100(b)(2). 

77See IM–7600–4. 

78When a Floor Broker receives an order, 

matched or unmatched, via telephone, the Floor 

Broker must enter the order electronically into the 

Floor Broker’s order entry mechanism. 

third Friday-of-the-month shall be 

aggregated with positions in Non-FLEX 

Equity Options on the same underlying 

security and will be subject to NonFLEX Equity Option exercise limits as 

applicable.62

The Exchange proposes Rule 5055(k) 

which details the Letter of Guarantee 

required for Market Makers to trade 

FLEX Equity Options. Specifically, 

proposed Rule 5055(k) states that no 

Market Maker shall effect any 

transaction in FLEX Equity Options 

unless a Letter of Guarantee has been 

issued by a clearing member 

organization and filed with the 

Exchange pursuant to Rule 8070 

specifically accepting financial 

responsibility for all FLEX Equity 

Option transactions made by such 

Market Maker and such letter has not 

been revoked under Rule 8070(c).63 A 

Letter of Guarantee will be required for 

a Market Maker to be qualified to trade 

FLEX Equity Options. 

Similarly, the Exchange proposes 

Rule 5055(l), which provides that no 

Floor Broker 64 shall effect any 

transaction in FLEX Equity Options 

unless a Letter of Authorization has 

been issued by a clearing member 

organization and filed with the 

Exchange specifically accepting 

responsibility for the clearance of FLEX 

Equity Option transactions of the Floor 

Broker, and that such letter will remain 

in effect until a written revocation is 

received by the Exchange.65

FLEX Open Outcry (‘‘FOO’’) Orders 

The Exchange proposes to introduce a 

new order type to facilitate FLEX Equity 

Option transactions on the BOX Trading 

Floor. Specifically, the Exchange 

proposes to adopt a FOO Order type and 

to model it after a current order type on 

the Trading Floor—QOO Orders.66

Trading FLEX options on an exchange 

floor in a similar manner as non-FLEX 

options is consistent with how FLEX 

orders are traded on another 

exchange.67 FOO Orders must consist of 

options with terms as defined in 

proposed Rule 5055. Further, FOO 

Orders are limited solely to FLEX Equity 

Options.68 FOO Orders are limited 

solely to the BOX Trading Floor and 

may be entered only by Floor Brokers.69

Floor Brokers must also be registered 

under Rule 7550. Prior to the 

announcement of such FOO Orders in 

the trading crowd, Floor Brokers must 

record all FOO Orders pursuant to Rule 

7580(e)(1).70 FOO Orders may be traded 

by FLEX Market Makers, which must be 

registered under Rule 8000 and must be 

Floor Market Makers in good standing 

under Rule 8500.71 FLEX Market Makers 

will be subject to Rule 8510, including 

provisions for the course and conduct of 

dealings, class assignments, and option 

priority and parity, unless otherwise 

specified in proposed Rule 7605. The 

Exchange shall qualify at least three 

FLEX Market Makers in accordance 

with a FLEX-specific qualification 

process prescribed by the Exchange to 

perform as Market Makers in FLEX 

Equity Options on the Trading Floor.72

Additionally, a Floor Broker shall 

ascertain that at least one FLEX Market 

Maker is present in the Crowd Area 

prior to announcing an order for 

execution.73 The Exchange notes that 

the Commission provided in its order 

approving the BOX Trading Floor that 

this requirement, among others, is 

designed to increase the opportunities 

for another Floor Participant to compete 

to interact with the orders on the 

Trading Floor.74 For FLEX Equity 

Options, this means that at least one of 

the FLEX Market Makers, out of the at 

least three required to be qualified by 

the Exchange, is present in the Crowd 

Area when the FOO Order is 

announced.75

On the BOX Trading Floor today, a 

Floor Broker may bring an unmatched 

order to the Trading Floor in order to 

seek liquidity. The Floor Broker may 

announce the unmatched order (i.e., the 

initiating side of a QOO Order) to the 

trading crowd in an attempt to source 

the contra-side. After finding sufficient 

quantity to match the initiating side 

pursuant to Rules 7580(e)(2) and 

7600(b), the Floor Broker is then able to 

submit a two-sided QOO Order to the 

BOG 76 as required.77 Floor Brokers may 

also enter single-sided orders into the 

BOX Book using BOX’s electronic 

interface. Specifically, a Floor Broker 

may receive a matched or unmatched 

order via a telephone call on the 

Trading Floor 78 or may have the 

matched or unmatched order sent 

electronically to the Floor Broker’s order 

entry mechanism on the Trading Floor 

prior to submitting the QOO Order to 

the BOG. Similar to how QOO Orders 

are introduced on the Trading Floor 


ddrumheller on DSK120RN23PROD with NOTICES1
64488 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Notices 

79See, e.g., Securities Exchange Act Release No. 

80720 (May 18, 2017), 82 FR 23657, 23666 (May 23, 

2017) (SR–BOX–2016–48) (Notice of Filing of 

Amendment No. 2 to a Proposed Rule Change to 

Adopt Rules for an Open-Outcry Trading Floor) 

(‘‘[A] Floor Broker may receive a matched or 

unmatched order via a telephone call on the 

Trading Floor or may have the matched or 

unmatched order sent electronically to the Floor 

Broker’s order entry mechanism on the Trading 

Floor . . . .’’). 

80CBOE allows a FLEX Order to be represented 

and executed in a similar manner as a non-FLEX 

Order. See CBOE Rule 5.72(d). The Exchange notes 

that CBOE Rule 5.72(d) also contains provisions 

that limit the priority rules applicable to FLEX 

Orders. Id. at 5.72(d)(2) and (3). 

81The Exchange notes that this process is the 

same as current Rule 7600(a)(4) for QOO Orders on 

the BOX Trading Floor. See BOX Information 

Circular 2022–18 (June 7, 2022), https://

boxoptions.com/assets/IC-2022-18-UpcomingEnhancements-to-Complex-Orders.pdf (providing 

that the maximum number of legs for Complex 

Orders is currently 16). A separate notice will be 

issued for Complex FOO Orders and Multi-Leg FOO 

Orders. 

82The Exchange notes that tied hedge orders may 

not be smaller than 500 contracts per order. See IM– 

7600–2(a). 

83The Exchange notes that, as with a simple FOO 

Order, the priority and allocation rules applicable 

to Complex FOO Orders and Multi-Leg FOO Orders 

are in proposed Rules 7605(i) (allocation of the 

initiating side of a FOO Order against the contraside of the FOO Order and interest from the Trading 

Crowd) and (k) (Floor Broker guarantee when 

crossing orders) and current Rule 7610 (priority 

among Floor Participants in the Trading Crowd). 

84See proposed Rule 7605(d). Proposed Rule 

7605(d) is based on CBOE Rules 1.1 (definition of 

‘‘Complex Order’’) and 5.70(b) and BOX Rule 

7600(a)(4). The Exchange does not reference FLEX 

Index Options or related attributes because Index 

Options are not traded on BOX and FLEX Index 

Options are not proposed herein. 

85See Proposed Rule 7605(d)(3). The Exchange is 

proposing Rule 7605(d)(3) to clarify the treatment 

of Complex FOO Orders and Multi-Leg FOO Orders 

when a Non-FLEX Equity Option is subsequently 

listed for a component leg. 

86Proposed Rule 7605(e) is based on BOX Rules 

7600(a), (a)(1), (b) and (c). The Exchange notes that 

the QOO Order provisions related to market 

conditions, the NBBO, the BOX Book, book sweep, 

the Complex Order Book, auctions, and away 

routing have been omitted because there will be no 

NBBO, no BOX Book, no Complex Order Book, no 

electronic auctions, and no book sweep for FOO 

Orders. See BOX Rules 7600(c)-(e) and (h). A book 

sweep is the number of contracts, if any, of the 

initiating side of a QOO Order that the Floor Broker 

is willing to relinquish to orders and quotes on the 

BOX Book that have priority pursuant to Rules 

7600(d)(1) and (2). See BOX Rule 7600(h). Book 

sweeps will not apply to FOO Orders. As provided 

in proposed Rules 5055(f)(1) and (2), FOO Orders 

must have different terms from orders on the BOX 

Book and, therefore, could not execute against 

interest on the BOX Book. For the same reason, the 

Complex Order priority provisions in Rules 

7240(b)(2) and (3), which address the priority of 

Complex Orders and interest on the BOX Book, do 

not apply to Complex FOO Orders or Multi-Leg 

FOO Orders. See proposed Rule 7605(d). The 

priority and allocation of FOO Orders will be 

determined by proposed Rules 7605(i) and (k) and 

current Rule 7610. See supra note 83. The Exchange 

also notes that proposed Rule 7605(e) requires that 

Floor Brokers announcing a FOO Order give Floor 

Participants a reasonable amount of time to 

respond, as provided in Rule 100(b)(5). Proposed 

Rule 7605(e) further provides that the Exchange 

shall establish, and announce via Regulatory 

Notice, a minimum period of time that qualifies as 

a reasonable amount of time that a Floor Broker 

must allow Floor Participants to respond, which 

must be between three seconds and five minutes. 

This differs from current Rule 7600(c), which 

simply states that Floor Brokers must allow 

adequate time for Floor Participants to participate 

in the transaction as provided in Rule 100(b)(5). 

87BOX Rule 7580(e)(2) provides that ‘‘A Floor 

Broker must announce an agency order that he is 

representing to the trading crowd before submitting 

the order to the BOG for execution. This 

announcement must take place whether the Floor 

Broker is representing a single-sided order and 

soliciting contra-side interest, or the Floor Broker 

has sufficient interest to match against the agency 

order already. If a Floor Broker is holding two 

agency orders, he will choose which order is the 

initiating side.’’ 

88See proposed IM–7605–1. Proposed IM–7605– 

1 is based on IM–7600–4. 

89The Exchange notes that priority of bids and 

offers from Floor Participants in the trading crowd 

is determined by Rule 7610. 

90The term ‘‘Floor Participant’’ means Floor 

Brokers as defined in Rule 7540 and Floor Market 

Makers as defined in Rule 8510(b). See BOX Rule 

100(a)(26). 

today, FOO Orders may be brought to 

the floor as matched or unmatched 

orders with a Floor Broker receiving the 

matched or unmatched order via the 

same methods that Floor Brokers receive 

them currently on the Trading Floor.79

The Exchange again notes that trading 

FLEX options on an exchange floor in a 

similar manner as non-FLEX options is 

consistent with how FLEX orders are 

traded on another exchange.80

Next, pursuant to proposed Rule 

7605(d), FOO Orders may be Complex 

Orders (‘‘Complex FOO Order’’) or 

Multi-Leg Orders (‘‘Multi-Leg FOO 

Order’’) as defined in Rules 7240(a)(7) 

and (10) with no more than the 

applicable number of legs, as 

determined by the Exchange and 

communicated to Participants,81

including tied hedge orders as defined 

in IM–7600–2.82 However, the priority 

provisions of Rules 7240(b)(2) and (3) 

do not apply to Complex FOO Orders or 

Multi-Leg FOO Orders because there 

will be no Complex Order Book for such 

orders, nor will there be a BOX Book for 

the individual FLEX Equity Option 

components of the Complex FOO 

Orders or Multi-Leg FOO Orders.83 Each 

option leg of a Complex FOO Order or 

Multi-Leg FOO Order must be for a 

FLEX Equity Option series with the 

same underlying security and must have 

the same exercise style (American or 

European).84 If a Non-FLEX Equity 

Option series is added intra-day for a 

component leg(s) of a Complex FOO 

Order or Multi-Leg FOO Order, the 

holder or writer of a position in the 

component leg(s) resulting from such 

Complex FOO Order or Multi-Leg FOO 

Order would be permitted to close its 

position(s) pursuant to proposed Rule 

5055(f)(3). If a Non-FLEX Equity Option 

series is added for a component leg(s) of 

a Complex FOO Order or Multi-Leg 

FOO Order on a trading day after the 

position is established, the holder or 

writer of a position in the component 

leg(s) resulting from such Complex FOO 

Order or Multi-Leg FOO Order would be 

required to execute separate FLEX and 

non-FLEX transactions consistent with 

the requirements of proposed Rule 

5055(f)(2) for each of the component 

leg(s) of the Complex FOO Order or 

Multi-Leg FOO Order to close its 

position(s).85

Announcement, Representation, and 

Execution of a FOO Order 

The Exchange proposes Rule 7605(e) 

which details announcement and 

representation of FOO Orders on the 

BOX Trading Floor that is consistent 

with the current Trading Floor 

requirements.86 Specifically, the 

Exchange proposes that all FOO Orders 

must be represented to the trading 

crowd as provided in Rule 7580(e)(2) 87

prior to submitting the agency FOO 

Order as part of a two-sided order to the 

Trading Host. The Exchange notes that 

Floor Brokers may bring unmatched 

orders (i.e., the initiating side of a FOO 

Order) to the Trading Floor in order to 

seek a contra-side. Once a contra-side is 

sourced, the Floor Broker shall submit 

the two-sided FOO Order to the BOG.88

When a Floor Broker submits a FOO 

Order for execution, the order will be 

executed in accordance with the 

proposed rules. A FOO Order on the 

Exchange is not deemed executed until 

it is processed by the Trading Host. All 

transactions occurring from the Trading 

Floor must be processed by the Trading 

Host. Floor Brokers are responsible for 

handling all orders in accordance with 

Exchange priority rules. 

There will be an initiating side and a 

contra-side of a FOO Order. The 

initiating side is the order which must 

be filled in its entirety. The contra-side 

must guarantee the full size of the 

initiating side of the FOO Order and can 

be composed of multiple firms. When 

the Floor Broker is soliciting interest 

from the trading crowd when the 

initiating side was announced or to the 

extent the trading crowd offers a better 

price, the contra-side will be the 

solicited interest from the trading 

crowd.89 If the Floor Broker had 

sufficient interest to match against the 

initiating side when the initiating side 

was announced, such Floor Broker 

interest will be the contra-side to the 

initiating side. If Floor Participants 90

responded with interest to the initiating 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Notices 64489 

91See proposed Rule 7605(e)(1). Proposed Rule 

7605(e)(1) is based on BOX Rule 7600(a)(1). The 

Exchange notes that provisions related to market 

conditions, the NBBO, the BOX Book, book sweep, 

and the Complex Order Book have been omitted 

because there will be no NBBO, no BOX Book, no 

Complex Order Book, and no book sweep for FOO 

Orders. See supra note 86. The priority and 

allocation of FOO Orders will be determined by 

proposed Rules 7605(i) and (k) and current Rule 

7610. See supra note 83. 

92See proposed Rule 7605(e)(2). Proposed Rule 

7605(e)(2) is based on BOX Rules 7600(b) and (c). 

The Exchange notes that provisions related to 

market conditions, the NBBO, the BOX Book, book 

sweep, and the Complex Order Book have been 

omitted because there will be no NBBO, no BOX 

Book, no Complex Order Book, and no book sweep 

for FOO Orders. See supra note 86. The priority and 

allocation of FOO Orders will be determined by 

proposed Rules 7605(i) and (k) and current Rule 

7610. See supra note 83. 

93The Exchange notes that trades may be 

allocated as provided in proposed Rule 7605(j). The 

Exchange notes further that the Exchange may 

nullify a transaction or adjust the execution price 

of a transaction in accordance with Rule 7170 

(Nullification and Adjustment of Options 

Transactions including Obvious Errors). See also 

BOX Rule 7640(b) (relating to trading disputes and 

adjustment or nullification of transactions on the 

Trading Floor). 

94See proposed Rule 7605(e). 

95See BOX Rule 100(b)(5). The Exchange notes 

that an Options Exchange Official takes into 

account various factors including complexity of the 

trade, general prevailing market conditions, and 

activity on the Trading Floor at the time the order 

is announced. 

96See proposed Rule 7605(f). Proposed Rule 

7605(f) is based on NYSE Arca Rule 5.32–O(b)(7). 

97See proposed Rule 7605(g). Proposed Rule 

7605(g) is based on NYSE Arca Rule 5.37–O(d). The 

Exchange notes that it has omitted the first part of 

NYSE Arca Rule 5.37–O(d), which provides FLEX 

Appointed Market Makers need not provide 

continuous FLEX Quotes and the Exchange has 

included the second part of NYSE Arca Rule 5.37– 

O(d), which provides FLEX Appointed Market 

Makers need not quote a minimum bid-offer spread 

in FLEX Equity Options. The Exchange has omitted 

the first part of NYSE Arca Rule 5.37–O(d) because, 

pursuant to proposed Rule 7605(h), the Exchange is 

instead proposing that FLEX Market Makers be 

obligated to quote FLEX Equity Options in response 

to any request for quote by a Floor Broker or 

Options Exchange Official and must provide a twosided market, which the Exchange believes will 

promote a robust and competitive market for FOO 

Orders on the Trading Floor and facilitate a fair and 

orderly market for the trading of FLEX Equity 

Options on the Exchange. The Exchange further 

notes that on NYSE Arca, FLEX Appointed Market 

Makers are appointed in classes of FLEX index 

options. FLEX Qualified Market Makers are 

appointed in FLEX equity options on NYSE Arca. 

Further, FLEX Appointed Market Makers have an 

obligation to enter a quote in response to a request 

for quote in a FLEX index option while FLEX 

Qualified Market Makers do not have a similar 

obligation for FLEX equity options. The Exchange 

believes that this distinction is the reason why 

NYSE Arca Rule 5.37–O(d) only specifically 

exempts FLEX Appointed Market Makers from 

quoting with a minimum bid-offer spread since they 

are the only FLEX market makers with the 

requirement to respond to a request for quote. 

Similarly, the Exchange is proposing that there be 

no maximum differences between the bid and offer 

for FLEX Equity Option quotes that, pursuant to 

Proposed Rule 7605(h), a FLEX Market Maker is 

required to provide in response to a request for 

quote by a Floor Broker or Options Exchange 

Official. 

98See proposed Rule 7605(h). Proposed Rule 

7605(h) is based on BOX Rule 8510(c)(2). The 

Exchange notes that proposed Rule 7605(h) does 

not include the provisions of current Rule 

8510(c)(2) related to quote spread parameter 

requirements and quotation sizes, which 

requirements are provided separately in proposed 

Rules 7605(f) and (g). 

99See proposed Rule 7605(i). Proposed Rule 

7605(i) is based on BOX Rule 7600(d)(3). The 

Exchange notes that provisions of BOX Rules 

7600(d)(1)–(2) were omitted from proposed Rule 

7605(i) because those provisions are related to the 

BOX Book, which is inapplicable to FOO Orders. 

100See proposed Rule 7605(i)(1). The Exchange 

notes that proposed Rule 7605(i)(1) is based on BOX 

Rule 7600(d)(3)(i). 

side where the Floor Broker provided 

sufficient interest to match against the 

initiating side, the Floor Broker will 

allocate the initiating side of the FOO 

Order pursuant to proposed Rule 

7605(i).91 The Exchange notes that this 

negotiation and agreement that occurs 

in the trading crowd does not result in 

a final trade, but rather a ‘‘meeting of 

the minds’’ that is then submitted 

through the BOG for execution. 

Consistent with current Trading Floor 

operations, all FOO Orders must be 

announced to the trading crowd, as 

provided in Rule 7580(e)(2), prior to the 

FOO Order being submitted to the 

BOG.92 An Options Exchange Official 

will certify that the Floor Broker 

adequately announced the FOO Order to 

the trading crowd. 

The FOO Order is not deemed 

executed until it is processed by the 

Trading Host. Once the Floor Broker 

submits the FOO Order to the BOG there 

will be no opportunity for the 

submitting Floor Broker,93 or anyone 

else, to alter the terms of the FOO Order. 

After announcing the FOO Order to the 

trading crowd, the Floor Broker must 

submit the FOO Order to the BOG for 

processing by the Trading Host without 

undue delay, provided that the 

executing Floor Broker must give Floor 

Participants a reasonable amount of 

time to respond, as provided in Rule 

100(b)(5). Additionally, the Exchange 

shall establish, and announce via 

Regulatory Notice, a minimum period of 

time (which amount of time must be 

between three seconds and five 

minutes) that qualifies as a reasonable 

amount of time for responses under 

proposed Rule 7605(e)(2). Such 

threshold will constitute the minimum 

possible time that a Floor Broker must 

give to the trading crowd to respond to 

a FOO Order; however, based on the 

characteristics and circumstances of 

each specific FOO Order, a reasonable 

amount of time, as provided in Rule 

100(b)(5), may require a response 

interval longer than the minimum 

threshold. An Options Exchange Official 

may not waive the minimum threshold 

established by the Exchange. 

The Exchange notes that the proposed 

floor interaction practice is consistent 

with the process in BOX Rule 7600 for 

QOO Orders on the BOX Trading Floor 

where the main differences are that FOO 

Orders will not be eligible for the BOX 

Book or the Complex Order Book, there 

is no NBBO, and that Floor Brokers 

must allow Floor Participants a 

minimum period of time to respond to 

FOO Orders. Consistent with QOO 

Orders, a FOO Order is not deemed 

executed until it is processed by the 

Trading Host.94 The Exchange notes that 

a reasonable amount of time for Floor 

Participants to respond to a FOO Order, 

the same as a QOO Order, will be 

interpreted on a case-by-case basis by an 

Options Exchange Official based on 

current market conditions and trading 

activity on the Trading Floor, provided, 

for FOO Orders, the minimum threshold 

discussed above must be satisfied.95

The Exchange proposes Rule 7605(f) 

which states that the minimum size for 

FLEX Equity Options transactions and 

quotations shall be one (1) contract.96

The Exchange also proposes Rule 

7605(g) which states that there are no 

maximum differences between the bid 

and the offer for FLEX Equity Option 

quotes.97

Pursuant to proposed Rule 7605(h), 

FLEX Market Makers have an obligation 

to quote a FLEX Equity Option in 

response to any request for quote by a 

Floor Broker or Options Exchange 

Official and must provide a two-sided 

market.98

Allocation of FOO Orders 

Next, the Exchange proposes Rule 

7605(i) which details the allocation 

process for FOO Orders. Specifically, 

the FOO Order will be matched by the 

Trading Host against the contra-side of 

the FOO Order, regardless of whether 

the contra-side order submitted by the 

Floor Broker is ultimately entitled to 

receive an allocation pursuant to 

proposed Rules 7605(i)(1)–(2). If no 

Floor Participant, other than the 

executing Floor Broker, is entitled to an 

allocation, then no further steps are 

necessary. If however, Floor Participants 

are entitled to an allocation, the 

remaining balance of the initiating side 

of the FOO Order will be allocated as 

described below.99

First, if the FOO Order satisfies the 

provisions of proposed Rule 7605(k), 

discussed below, the executing Floor 

Broker is entitled to 40% of the 

remaining quantity of the initiating side 

of the FOO Order.100 Next, FLEX Market 

Makers that respond with interest when 

the Floor Broker announces the FOO 


ddrumheller on DSK120RN23PROD with NOTICES1
64490 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Notices 

101See proposed Rule 7605(i)(2). The Exchange 

notes that proposed Rule 7605(i)(2) is based on BOX 

Rule 7600(d)(3)(ii). 

102 Id. Priority under Rule 7610 is determined 

first by price and then by sequence. Specifically, on 

the Trading Floor, the highest (lowest) bid (offer) 

shall have priority; when two or more bids (offers) 

represent the highest (lowest) price, priority shall 

be afforded to such bids (offers) in the sequence in 

which they were made. If, however, the bids (offers) 

of two or more Floor Participants are made 

simultaneously, or if it is impossible to determine 

clearly the order of time in which they are made, 

such bids (offers) will be deemed to be on parity 

and priority will be afforded to them, insofar as 

practicable, on an equal basis. The Floor Broker 

announcing the order is responsible for determining 

the sequence in which bids or offers are vocalized 

on the Trading Floor from Floor Participants in 

response to the Floor Broker’s bid, offer, or call for 

a market. Rule 7610 also provides priority 

provisions where a Floor Broker requests a market 

in order to fill a large order and the Floor 

Participants provide a collective response. See BOX 

Rule 7610. 

103See proposed Rule 7605(i)(3). The Exchange 

notes that proposed Rule 7605(i)(3) is based on BOX 

Rule 7600(d)(3)(iii). 

104The Exchange notes that FOO Order allocation 

and priority differs from QOO Order provisions 

related to the priority of orders on the BOX Book. 

See BOX Rules 7600(c)–(e) and (h), and 7600(f)(1) 

and (3). See also supra note 86. 

105See proposed Rule 7605(j). Proposed Rule 

7605(j) is based on BOX Rule 7600(d)(4). 

106 Id. 

107See proposed Rules 7605(i), 7605(k)(1) and (3). 

Proposed Rules 7605(k)(1) and (3) are based on BOX 

Rules 7600(f)(1) and (3). 

108See proposed Rule 7605(k)(2). Proposed Rule 

7605(k)(2) is based on BOX Rule 7600(f)(2). 

109See proposed Rule 7605(k)(4). Proposed Rule 

7605(k)(4) is based on BOX Rule 7600(f)(4). 

110The Exchange notes that the proposed FOO 

Order priority differs from QOO Order priority 

because BOX Rules 7600(d)(1)–(2) contain 

provisions that describe priority related to the BOX 

Book, which is inapplicable to FOO Orders. 

111Pursuant to Rule 7610, FLEX Marker Maker 1 

would have priority over FLEX Market Maker 2 

even if FLEX Market Maker 2 responded first 

because FLEX Market Maker 1 responded at a better 

price. 

Order to the trading crowd, as outlined 

in Rule 7580(e)(2) and proposed Rule 

7605(e), are allocated.101 When multiple 

Floor Participants respond with interest, 

priority in the Trading Crowd is 

established pursuant to Rule 7610.102

Last, if interest remains after Floor 

Participants that responded with 

interest receive their allocation, the 

remaining quantity of the initiating side 

of the FOO Order will be allocated to 

the executing Floor Broker.103 The 

Exchange again notes that similar 

allocation and priority provisions are 

already established and apply to 

responses for QOO Orders on the BOX 

Trading Floor.104

The Exchange proposes that after 

execution of the FOO Order, the 

executing Floor Broker is responsible for 

providing the correct allocations of the 

initiating side of the FOO Order to an 

Options Exchange Official or his or her 

designee, if necessary, who will 

properly record the order in the 

Exchange’s system.105 The executing 

Floor Broker must provide the correct 

allocations to an Options Exchange 

Official or his or her designee, in 

writing, without unreasonable delay.106

The Exchange notes that the same 

procedure for recording trade 

allocations applies to QOO Orders on 

the BOX Trading Floor today. 

Similar to the allocation process in 

place for QOO Orders, the Exchange 

proposes to allow for a participation 

guarantee for certain FOO Orders 

executed by Floor Brokers on the 

Trading Floor. Specifically, when a 

Floor Broker holds an option order of 

the eligible order size or greater, the 

Floor Broker is entitled to cross 40% of 

the remaining contracts of the original 

order, after all bids or offers at better 

prices are filled, with other orders that 

the Floor Broker is holding.107 The 

Exchange may determine, on an option 

by option basis, the eligible size for an 

order on the Trading Floor to be subject 

to this guarantee; however, the eligible 

order size may not be less than 50 

contracts. In determining whether an 

order satisfies the eligible order size 

requirement, any Complex FOO Order 

or Multi-Leg FOO Order must contain 

one leg alone which is for the eligible 

order size or greater.108 Nothing in the 

proposed rule is intended to prohibit a 

Floor Broker from trading more than 

their percentage entitlement if the other 

Participants of the trading crowd do not 

choose to trade the remaining portion of 

the order.109 The Exchange notes that 

the proposed guarantee process is 

similar to the guarantee process 

currently in place for QOO Orders on 

the BOX Trading Floor.110

The below examples are designed to 

illustrate the allocation of the initiating 

side of a FOO Order. 

Example 1—Assume a Floor Broker 

wishes to execute a FOO Order for 500 

contracts. When he announces the 

order, FLEX Market Maker 1 and FLEX 

Market Maker 2 both respond to the 

FOO Order for 250 contracts each at the 

same price as the Floor Broker’s contraside. FLEX Market Maker 1 responded 

first so he will have time priority over 

FLEX Market Maker 2. Since the FOO 

Order is for at least 50 contracts, the 

Floor Broker is entitled to match at least 

40% of the initiating side with the Floor 

Broker’s contra-side. 

Result: The initiating side of the FOO 

Order will match against the Floor 

Broker’s contra-side order for the full 

500 contracts. After the execution of the 

FOO Order, because other Floor 

Participants are entitled to an allocation, 

the executing Floor Broker is then 

responsible for providing an Options 

Exchange Official or his or her designee 

the following allocation of the initiating 

side of the FOO Order: 

1. 200 contracts (40%, or 500 * .40) for 

the contra-side order submitted by the 

Floor Broker 

2. 250 contracts for FLEX Market Maker 

1 with time priority 

3. Remaining 50 contracts to FLEX 

Market Maker 2 

Example 2—Assume a Floor Broker 

wishes to execute a FOO Order for 40 

contracts. When he announces the 

order, FLEX Market Maker 1 and FLEX 

Market Maker 2 both respond to the 

FOO Order for 20 contracts each at the 

same price as the Floor Broker’s contraside. FLEX Market Maker 1 responded 

first so he will have time priority over 

FLEX Market Maker 2. Since the FOO 

Order is for less than 50 contracts, the 

Floor Broker is not entitled to a 40% 

guarantee. 

Result: The initiating side FOO Order 

will match against the Floor Broker’s 

contra-side for the full 40 contracts. 

After execution of the FOO Order, 

because other Floor Participants are 

entitled to an allocation, the executing 

Floor Broker is then responsible for 

providing an Options Exchange Official 

or his or her designee with the following 

allocation of the initiating side of the 

FOO Order: 

1. 20 contracts for FLEX Market Maker 

1 with time priority 

2. 20 contracts for FLEX Market Maker 

2 

3. The initiating side is filled and the 

executing Floor Broker will receive no 

allocation. 

Example 3—Assume a Floor Broker 

wishes to execute a FOO Order for 40 

contracts in ABC at 1.05 (initiating side 

is to sell). When he announces the 

order, FLEX Market Maker 1 and FLEX 

Market Maker 2 both respond to the 

FOO Order for 20 contracts each. FLEX 

Market Maker 1 responded first at an 

improved price to buy 20 at 1.06 so he 

will have price priority over FLEX 

Market Maker 2.111 Since the FOO 

Order is for less than 50 contracts, the 

Floor Broker is not entitled to a 40% 

guarantee. 

Result: The Floor Broker will submit 

two FOO Orders for 20 contracts each: 

a FOO Order at 1.06 for 20 contracts and 

a FOO Order at 1.05 for 20 contracts. 

The initiating side of each FOO Order 

will match against the Floor Broker’s 

contra-side orders for the full 20 

contracts. After execution of the FOO 

Orders, the executing Floor Broker is 

then responsible for providing an 

Options Exchange Official or his or her 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Notices 64491 

112See proposed Rule 7605(l). Proposed Rule 

7605(l) is based on BOX Rule 7600(g). See also 

NYSE Arca Rules 5.34–O and 6.62–O(f). The 

Exchange notes that NYSE Arca Rule 5.34–O 

provides a Floor Broker with additional discretion 

with respect to the number of FLEX contracts to be 

purchased or sold. The Exchange is not proposing 

the same discretion for FOO Orders so that the 

requirements for Floor Brokers handling FOO 

Orders are the same as handling QOO Orders 

currently on the Trading Floor. 

113See proposed IM–7605–1. Proposed IM–7605– 

1 is based on IM–7600–4. 

114See proposed IM–7605–2. Proposed IM–7605– 

2 is based on IM–7600–1. 

115The Exchange believes that, by providing the 

Options Exchange Official with the ability to 

consider any other relevant factors, Options 

Exchange Officials will retain the necessary 

discretion to perform their duties if a new or 

unforeseen circumstance arises. 

116The Exchange notes that while a Complex 

Order could be prevented from being completed by 

competing bids or offers on multiple components of 

such orders, competing bids or offers in any one of 

the multiple components may not prevent a 

Complex Order from being completed and each one 

is prohibited. 

117See proposed IM–7605–2(d). The eligible tied 

hedge order size requirement is determined by the 

Exchange and may not be smaller than 500 

contracts per order. See BOX IM–7600–2. 

118The Exchange is proposing that a minimum 

response period, which must be between three 

seconds and five minutes, shall be established by 

the Exchange and announced via Regulatory Notice. 

See proposed Rule 7605(e)(2). 

119See proposed Rule 100(b)(3). 

120See proposed Rule 7620. 

121The Exchange will report FLEX Equity Option 

trades and, if necessary, trade cancels to OPRA. 

122The term ‘‘Flexible Exchange Option’’ or 

‘‘FLEX Option’’ means a customized options 

contract. See NYSE Arca Rule 5.30–O(b)(4) and 

CBOE Rule 1.1 (definition of, ‘‘FLEX Option’’). 

123See NYSE Arca Rules 5.39–O and 5.40–O. 

designee with the following allocation 

of the initiating side of the FOO Orders: 

1. FOO Order at 1.06—20 contracts for 

FLEX Market Maker 1. 

2. FOO Order at 1.05—20 contracts for 

FLEX Market Maker 2. 

3. The executing Floor Broker will 

receive no allocation of either FOO 

Order. 

Additional Provisions 

The Exchange also proposes that all 

orders entrusted to a Floor Broker will 

be considered Not Held Orders, unless 

otherwise specified by a Floor Broker’s 

client. A Not Held Order is an order 

marked ‘‘not held’’, ‘‘take time’’, or 

which bears any qualifying notation 

giving discretion as to the price or time 

at which such order is to be executed.112

The Exchange further proposes IM– 

7605–1 which allows Floor Brokers to 

bring unmatched orders (i.e., the 

initiating side of a FOO Order) to the 

Trading Floor in order to seek contraside interest. Once a contra-side is 

sourced pursuant to current Rule 

7580(e)(2) and proposed Rule 7605(e), 

the Floor Broker shall submit the twosided FOO Order to the BOG.113 The 

Exchange notes that this provision is 

identical to IM–7600–4, with the 

exception of internal rule references, 

which applies to QOO Orders on the 

BOX Trading Floor. 

The Exchange proposes IM–7605–2 to 

guide conduct on the floor.114 In 

particular, the Floor Broker must 

disclose all securities that are 

components of the Public Customer 

order which is subject to crossing before 

requesting bids and offers for the 

execution of all components of the 

order. Once the trading crowd has 

provided a quote, it will remain in effect 

until a reasonable amount of time has 

passed, there is a significant change in 

the price of the underlying security, or 

the market given in response to the 

request has been improved. In the case 

of a dispute, the term ‘‘significant 

change’’ will be interpreted on a caseby-case basis by an Options Exchange 

Official based upon the extent of recent 

trading in the option and in the 

underlying security, and any other 

relevant factors.115 The Participants of 

the trading crowd who established the 

market will have priority over all other 

orders that were not announced in the 

trading crowd at the time that the 

market was established and will 

maintain priority over such orders 

except for orders that improve upon the 

market. When a Floor Broker announces 

an order to the trading crowd pursuant 

to Rule 7580(e)(2), it shall be the 

responsibility of the Floor Participant 

who established the market to alert the 

Floor Broker of the fact that the Floor 

Participant has priority. Complex FOO 

Orders, Multi-Leg FOO Orders or tied 

hedge orders on opposite sides of the 

market may be crossed, provided that 

the Floor Broker holding such orders 

proceeds in the manner described in 

proposed Rule 7605 and IM–7600–2 as 

appropriate. Floor Participants may not 

prevent a Complex Order from being 

completed by giving a competing bid or 

offer for one component of such 

order.116 In determining whether an 

order satisfies the eligible tied hedge 

order size requirement, any Complex 

FOO Order or Multi-Leg FOO Order 

must contain one leg which, standing 

alone, is for the eligible order size or 

greater.117 A Floor Broker crossing a 

Public Customer FOO Order with an 

order that is not a Public Customer 

Order, when providing for a reasonable 

opportunity 118 for the trading crowd to 

participate in the transaction, shall 

disclose the Public Customer Order that 

is subject to crossing. 

The Exchange proposes to amend 

Rule 100(b)(3) to provide: ‘‘All 

Exchange options transactions shall be 

executed automatically by the Trading 

Host as provided in applicable 

Exchange Rules.’’ 119 The Exchange 

notes that Rule 100(b)(3) already applies 

to Non-FLEX Equity Options. The 

proposed amendment is to replace 

specific rule references with a more 

general reference to avoid any 

unintended ambiguity and permit the 

Rule to apply in connection with FLEX 

Equity Options. 

The Exchange proposes to amend 

Rule 7620, titled Accommodation 

Transactions, and IM–7620–1 to exclude 

FLEX Equity Options as defined in 

proposed Rule 5055.120 The Exchange 

notes that Rule 7620(b) currently states 

that it applies to all options except for 

option classes participating in the 

Penny Interval Program under Rule 

7260, and IM–7620–1(b) currently states 

that it applies to all options including 

those in the Penny Interval Program. 

The proposed amendments will ensure 

consistency with proposed Rule 5055(c), 

which provides that Rule 7620 

(Accommodation Transactions) shall 

not apply to transactions in FLEX 

Equity Options. 

The Exchange has not yet determined 

the fees for FOO transactions executed 

on the Trading Floor. Prior to 

commencing trading of the proposed 

FOO Orders on the Trading Floor, the 

Exchange intends to submit a proposed 

rule change to the Commission setting 

forth the proposed fees. 

The Exchange has also analyzed its 

capacity and represents that it believes 

the Exchange and the Options Price 

Reporting Authority (‘‘OPRA’’) have the 

necessary systems capacity to handle 

the additional message traffic associated 

with the listing of new series that may 

result from the introduction of FLEX 

Equity Options.121 Additionally, the 

Exchange will have surveillance 

coverage in place to monitor issues 

unique to FLEX trading. 

The proposed FLEX Equity Option 

rules are based predominately on the 

rules of NYSE Arca. However, the 

Exchange omitted certain NYSE Arca 

rules from the proposed rules discussed 

herein due to differences in the scope 

and operation of FLEX Option 122

trading at NYSE Arca, compared to the 

scope and operation of the proposed 

FLEX Equity Option trading herein. The 

Exchange is not including NYSE Arca 

rule provisions that relate to FLEX 

Index Options as Index Options are not 

traded on BOX and FLEX Index Options 

are not proposed herein.123 In 

particular, NYSE Arca Rule 5.39–O 

requires net liquidating equity of 

$100,000 in an account in which 


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124See BOX Rules 8010, 8080, and 10200. 

125See NYSE Arca Rule 5.37–O(a). 

126See id. The Exchange notes that NYSE Arca 

allows but does not require appointment of two or 

more FLEX Appointed Market Makers to FLEX 

Equity Options in lieu of appointing FLEX 

Qualified Market Makers. 

127See BOX Rule 8080(a)(1). Rule 8080 also 

requires Market Makers to maintain net capital 

sufficient to comply with the requirements of Rule 

15c3–1 under the Act and each Market Maker that 

is a Clearing Participant shall also maintain net 

capital sufficient to comply with the requirements 

of the OCC. See BOX Rules 8080(a)(2) and (b). See 

also BOX Rule 8010 (‘‘To qualify for registration as 

a Market Maker, an Options Participant must meet 

the requirements established in SEC Rule 15c3– 

1(a)(6)(i) . . .’’). 

128See CBOE Rule 11.6 and Securities Exchange 

Act Release No. 87024 (September 19, 2019), 84 FR 

50545 (September 25, 2019) (SR–CBOE–2019–059) 

(Notice of Filing and Immediate Effectiveness of a 

proposed rule change to amend certain rules 

relating to market makers upon migration to the 

trading system used by CBOE affiliated exchanges). 

129See BOX Rule 10200 (Participants must 

comply with the additional requirements of the 

Rule 10200 Series and Market Makers must comply 

with the minimum financial requirements 

contained in Rule 8010). 

130Pursuant to BOX Rule 8150(e), whenever a 

BOX Floor Market Maker enters the trading crowd 

he must undertake the obligations specified in Rule 

8510(d) (In Classes of Option Contracts to Which 

Assigned—Affirmative Obligations). Since there is 

only one trading crowd on the BOX Floor, in 

practice this results in all BOX Floor Market Makers 

being required to quote all classes on the Trading 

Floor. The same will apply to FLEX Market Makers. 

131See proposed Rules 7605(f)-(h) (providing 

FOO Order quoting obligations). The Exchange 

notes that current Floor Market Maker quoting 

obligations and restrictions are detailed in Rule 

8510. 

132See NYSE Arca Rule 5.37–O(b). 

133See NYSE Arca Rule 5.37–O(c). 

134See proposed Rule 7605(h). 

135See BOX Rule 8510(c)(2). The Exchange notes 

that proposed Rule 7605(h) and current Rule 

8510(c)(2) are similar except that proposed Rule 

7605(h) does not include the provisions of current 

Rule 8510(c)(2) related to quote spread parameter 

requirements and quotation sizes, which 

requirements are provided separately in proposed 

Rules 7605(f) and (g). 

136See NYSE Arca Rule 5.32–O(f)(2). 

137The Exchange’s belief that the requirements of 

Participants will be met by stating exercise prices 

and premiums in a dollar amount is based on 

conversations with Participants regarding their 

preferences for stating the terms of exercise prices 

and premiums. 

138See NYSE Arca Rule 5.34–O. 

139See BOX Rule 7590 and proposed Rule 

7605(l). 

transactions in FLEX Index Options will 

be conducted. As the Exchange does not 

trade Index Options, FLEX Index 

Options are not proposed herein, and 

the Exchange already imposes minimum 

net capital requirements,124 it does not 

propose additional requirements. 

Next, NYSE Arca Rule 5.40–O 

requires at least $1 million of net 

liquidating equity in the account of a 

FLEX Appointed Market Maker. 

However, FLEX Appointed Market 

Makers are appointed for FLEX Index 

Options on NYSE Arca but are not 

required for FLEX Equity Options.125

Instead, NYSE Arca only requires FLEX 

Qualified Market Makers for FLEX 

Equity Options.126 And, this subset of 

Market Makers is not required to have 

at least $1 million of net liquidating 

equity. Therefore, the Exchange’s 

proposal does not propose to include 

additional net liquidating equity 

requirements for FLEX Market Makers. 

The Exchange notes that Market Makers, 

including Floor Market Makers and 

FLEX Market Makers are still subject to 

several financial requirements, 

including net liquidating equity in its 

Market Maker account of not less than 

$200,000.127 Additionally, the Exchange 

believes that the large infrastructure 

needed to trade as a Market Maker, 

including their adequacy of capital and 

operational capacity is such that current 

Market Makers are likely to have net 

liquidating equity well beyond $1 

million. In fact, another exchange which 

trades FLEX Options has removed a net 

liquidating equity requirement while 

still requiring market makers to 

maintain net capital sufficient to 

comply with the requirements of Rule 

15c3–1, under the Act.128 The Exchange 

has a similar provision, Rule 10200, that 

requires each Participant subject to Rule 

15c3–1 under the Act to comply with 

the capital requirements prescribed 

therein among other requirements.129

An additional difference in the 

appointment of FLEX Market Makers is 

that NYSE Arca appoints FLEX 

Qualified Market Makers to each FLEX 

Equity Option of a given class, while the 

Exchange will qualify FLEX Market 

Makers for all FLEX Equity Options. 

The Exchange believes that the structure 

of its Trading Floor, with one crowd or 

trading area, will operate more 

efficiently without qualifying FLEX 

Market Makers by class.130 Accordingly, 

a Floor Broker or Options Exchange 

Official may request a FLEX Equity 

Option quote in any class from a FLEX 

Market Maker. The Exchange notes that 

FLEX Market Makers will be subject to 

Rule 8510, including provisions for the 

course and conduct of dealings, class 

assignments, and option priority and 

parity, unless otherwise specified in 

proposed Rule 7605.131

Further, the Exchange notes 

differences between the proposed 

quoting obligations and those applicable 

on NYSE Arca. Specifically, a NYSE 

Arca FLEX Qualified Market Maker 

may, but shall not be obligated to, enter 

a FLEX Quote in response to a Request 

for Quotes on a FLEX Equity Option of 

the class in which he or she is 

qualified.132 However, a FLEX Official 

on NYSE Arca may call upon FLEX 

Qualified Market Makers appointed in a 

class of FLEX Equity Options to make 

FLEX Quotes in response to a specific 

Request for Quotes in that class of FLEX 

Equity Options whenever in the opinion 

of the FLEX Official the interests of a 

fair, orderly and competitive market are 

best served by such action and shall 

make such a call upon FLEX Qualified 

Market Makers whenever no FLEX 

Quotes are made in response to a 

specific Request for Quotes.133 The 

Exchange’s proposal differs from NYSE 

Arca’s rule in that FLEX Market Makers 

have an obligation to quote a FLEX 

Equity Option in response to any 

request for quote by a Floor Broker or 

Options Exchange Official and must 

provide a two-sided market.134 The 

Exchange believes that the proposed 

quoting requirements allow reasonable 

opportunities for Floor Brokers to get 

quotes on FOO Orders and notes that 

the quoting requirements for QOO 

Orders on the BOX Trading Floor are 

similar to those proposed for FOO 

Orders.135

Among other NYSE Arca provisions 

not incorporated by the Exchange, are 

certain of NYSE Arca’s ‘‘Special Terms 

for FLEX Equity Options.’’ 136

Specifically, these special terms include 

that exercise prices and premiums may 

be stated in terms of: (i) a dollar amount; 

(ii) a method for fixing at the time a 

FLEX Request for Quote or FLEX order 

is traded; or (iii) a percentage of the 

price of the underlying security at the 

time of the trade or as of the close of 

trading on the NYSE Arca on the trade 

date. The Exchange will only offer 

exercise prices and premiums in a 

dollar amount because the additional 

methods for fixing prices are a matter of 

individual preference, and the Exchange 

believes that the requirements of 

Participants will be met by pricing 

exercise prices and premiums in a 

dollar amount.137

Another NYSE Arca provision not 

adopted by the Exchange in this 

proposal allows discretionary orders 

where Floor Brokers have discretion 

regarding the quantity of FLEX contracts 

traded.138 The Exchange prohibits 

discretion regarding quantity, and other 

terms, including the choice of the class 

of options to be bought or sold, and 

whether any such transaction shall be 

one of purchase or sale except to any 

discretionary transactions executed by a 

Floor Market Maker for an account in 

which he has an interest.139 The 

Exchange believes that proposed Rule 

7605(l) combined with current Rule 

7590, allowing Floor Brokers to have 

discretion over some terms of a FOO 


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140See NYSE Arca Rule 5.38–O. 

141NYSE Arca Rule 5.38–O provides that ‘‘[a] 

FLEX Official is responsible for: (1) reviewing the 

conformity of FLEX Requests for Quotes and FLEX 

Quotes to the terms and specifications contained in 

Rule 5.32–O [Terms of FLEX Options]; (2) posting 

FLEX Requests for Quotes for dissemination; (3) 

determining the BBO; (4) ensuring that FLEX 

contracts are executed in conformance with the 

priority principles set forth in Rule 5.33–O; and (5) 

calling upon FLEX Qualified Market Makers to 

make FLEX Quotes in specific classes of FLEX 

Equity Options as provided in paragraph (c) of Rule 

5.37–O.’’ See NYSE Arca Rule 5.38–O. 

142See supra note 48. The Exchange notes that 

NYSE Arca Rule 5.38–O(b)(1) provides that it is the 

responsibility of their FLEX Officials to review the 

terms of a FLEX order. 

143See proposed Rule 7605(e)(2). 

144BOX Rules currently provide that the 

President of the Exchange and his or her designated 

staff shall be responsible for monitoring, among 

other things, the activities of Floor Participants and 

their associated persons and shall establish 

standards and procedures for the training and 

qualification of Floor Participants and their 

associated persons active on the Trading Floor. See 

BOX Rule 100(b)(1). 

145See NYSE Arca Rule 5.38–O(a) (‘‘The 

Exchange may at any time designate an Exchange 

employee to act as a FLEX Official in one or more 

classes of FLEX Options [emphasis added]. . . .’’). 

146See NYSE Arca Rule 5.33–O. 

147See proposed Rule 7605 and current Rule 

7600. The minimum time period, which must be 

between three seconds and five minutes, will be 

established by the Exchange and communicated via 

Regulatory Notice. See proposed Rule 7605(e)(2). 

See also Securities Exchange Act Release No. 81292 

(August 2, 2017), 82 FR 37144 (August 8, 2017) 

(Order Approving a Proposed Rule Change, as 

Modified by Amendment Nos. 1 and 2, To Adopt 

Rules for an Open-Outcry Trading Floor). 

148 ‘‘FLEX Orders’’ are orders submitted in FLEX 

Options. See CBOE Rule 5.70. 

149See CBOE Rule 5.72(d). The Exchange notes 

that CBOE Rule 5.72(d) also contains provisions 

that limit the priority rules applicable to FLEX 

Orders. See CBOE Rules 5.72(d)(2) and (3). 

150See supra note 147 and accompanying text. 

Order such as price and time while not 

allowing discretion over terms such as 

quantity, strikes a balance between 

allowing Floor Brokers to provide full 

services to clients and preventing 

erroneous trades based on differing 

expectations or miscommunications 

between Floor Brokers and their clients. 

The Exchange notes that Rule 7600(g) 

governing QOO Orders is identical to 

proposed Rule 7605(l) and believes that 

consistency of handling between QOO 

Orders and FOO Orders may reduce 

confusion and increase efficiency on the 

Trading Floor. 

Another NYSE Arca rule not proposed 

by the Exchange provides that NYSE 

Arca may designate FLEX Officials.140

The Exchange is not proposing a similar 

rule because Rule 100(b)(6) already 

provides that any Exchange employee or 

officer designated as an Options 

Exchange Official will from time to time 

as provided in these rules have the 

ability to recommend and enforce rules 

and regulations relating to trading 

access, order, decorum, health, safety 

and welfare on the Exchange. 

Specifically, Options Exchange Officials 

have duties enumerated in Rules 

100(b)(5), 7610, 7640, and 8510, as well 

as in proposed Rule 7605 regarding 

announcement, quoting, and recording 

of FOO Orders, priority in the trading 

crowd, disputes on the trading floor, 

and obligations and restrictions 

applicable to Floor Market Makers and 

FLEX Market Makers. The Exchange 

believes that Options Exchange Officials 

will have the authority necessary to 

enforce the proposed FLEX Equity 

Option and FOO Order rules such that 

designation of a unique FLEX Official 

would be redundant and unnecessary, 

as the Exchange’s existing Options 

Exchange Officials will have the ability 

to perform the same functions as a 

separately designated FLEX Official. 

Specifically, the duties of FLEX 

Officials on NYSE Arca are mainly 

related to their Request for Quotes 

(‘‘RFQ’’) procedure unique to FLEX 

Options trading on NYSE Arca.141 The 

Exchange has elected not to adopt a 

similar procedure, as discussed below, 

instead basing the FOO Order process 

on the QOO Order process already 

monitored by Options Exchange 

Officials. Additionally, the Exchange’s 

system is designed to review the terms 

of a FLEX Equity Option for compliance 

with the applicable Rules as opposed to 

being a requirement of an Options 

Exchange Official to review.142 Options 

Exchange Officials will continue to be 

responsible for monitoring all open 

outcry activity on the Trading Floor. 

Therefore, the Exchange will not require 

a separate official to govern any unique 

process for FLEX Equity Options. 

Additionally, the Exchange represents 

that Options Exchange Officials will 

receive appropriate training on the 

terms of FLEX Equity Options and all 

rules applicable to FLEX Equity Options 

and FOO Orders, including their 

responsibility to certify that a Floor 

Broker has adequately announced a 

FOO Order to the trading crowd,143

consistent with the manner in which 

they are currently trained with respect 

to QOO Orders.144 The Exchange further 

notes that NYSE Arca’s rules do not 

require the exchange to designate FLEX 

Officials.145

Another NYSE Arca rule provision 

not proposed by the Exchange is NYSE 

Arca Rule 5.35–O(b), which would 

require that each Participant (other than 

a Market Maker) that maintains a 

position on the same side of the market 

in excess of the standard position limit 

for Non-FLEX Equity Options of the 

same class on behalf of its own account 

or for the account of a customer report 

information on the FLEX Equity Option 

position, positions in any related 

instrument, the purpose or strategy for 

the position and the collateral used by 

the account. As described above, the 

options markets have changed 

significantly since this provision was 

originally adopted and the Exchange 

does not believe it is necessary or 

appropriate to continue to mandate a 

duplicative reporting requirement that 

imposes additional administrative 

burdens on Participants and the 

Exchange with limited attendant 

benefits. The Exchange is also proposing 

to better tailor the language in proposed 

Rule 5055(i) to its existing authority to 

impose higher margin requirements on 

Participants. 

As mentioned above, rather than 

adopt the NYSE Arca RFQ procedure for 

FLEX Equity Options,146 the Exchange 

instead proposes to utilize the current 

process used on the BOX Trading Floor 

for QOO Orders with the addition of a 

minimum time period that a Floor 

Broker must allow Floor Participants 

when responding to FOO Orders.147 The 

Exchange believes that using the order 

announcement and responsive quote 

process for both QOO Orders and FOO 

Orders on the BOX Trading Floor will 

result in less confusion and greater 

efficiency for all BOX Trading Floor 

Participants. 

The Exchange notes that the manner 

in which the Exchange has proposed 

rules with respect to announcement of 

orders and responsive quotes is similar 

to how CBOE treats its FLEX Options; 

specifically, CBOE allows a FLEX 

Order 148 to be represented and executed 

in a similar manner as a non-FLEX 

Option.149 The Exchange believes 

CBOE’s approach is consistent with the 

Act and proposes to also require Floor 

Brokers to allow for a reasonable 

amount of time to participate in FLEX 

Equity Option transactions. Further, 

unlike CBOE, the Exchange proposes to 

establish and announce, via Regulatory 

Notice, a minimum period of time that 

a Floor Broker must allow Floor 

Participants to respond (which amount 

of time must be between three seconds 

and five minutes). The Exchange 

believes that it is unnecessary to specify 

a specific maximum time period for 

responses to FLEX orders as Options 

Exchange Officials on BOX’s Trading 

Floor will be responsible both to enforce 

the minimum period of time and to 

ensure that Floor Participants have a 

reasonable amount of time to respond to 

FOO Orders.150 The Exchange notes that 

the proposed order announcement 

procedure for FOO Orders is similar to 


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151See proposed Rule 12140(e)(3). The Exchange 

notes that adding proposed Rule 7605 for FOO 

Orders to current Rule 12140(e)(3) is consistent 

with the existing provision to enforce current Rule 

7600 for QOO Orders because Floor Participants 

have the same general requirements for executing 

FOO and QOO Orders on the Trading Floor. The 

Exchange notes further that fines defined under 

Rule 12140(e)(3) may apply to any failure to 

properly execute a FOO Order in accordance with 

applicable provisions of proposed Rule 7605 

governing such execution requirements. Proposed 

Rule 7605(h), however, which relates to a FLEX 

Market Maker’s quoting obligation, is specifically 

proposed for inclusion in proposed Rule 

12140(e)(9). 

152See proposed Rule 12140(e)(9). The Exchange 

notes that proposed Rule 7605(h) and current Rule 

8510(c)(2) are similar except that proposed Rule 

7605(h) does not include the provisions of current 

Rule 8510(c)(2) related to quote spread parameter 

requirements and quotation sizes, which 

requirements are provided separately in proposed 

Rules 7605(f) and (g). However, the Exchange 

believes it is appropriate to include proposed Rule 

7605(h) with Rule 8510(c)(2) in the MRVP given the 

similar nature of the underlying requirement to 

provide quotations. 

153 15 U.S.C. 78f(b). 

154 15 U.S.C. 78f(b)(5). 

155See Securities Exchange Act Release No. 

36841 (February 14, 1996), 61 FR 6666 (February 

21, 1996) (SR–CBOE–95–43) (SR–PSE–95–24) 

(Order Approving the Trading of Flexibly 

Structured Equity Options by CBOE and PSE). 

156See supra notes 83 and 86 and accompanying 

text. 

the rules and procedures currently in 

place for QOO Orders on the BOX 

Trading Floor. 

Minor Rule Violation Plan 

The Exchange’s disciplinary rules, 

including Exchange Rules applicable to 

‘‘minor rule violations,’’ are set forth in 

the Rule 12000 Series of the Exchange’s 

current Rules. The MRVP provides that 

in lieu of commencing a disciplinary 

proceeding, the Exchange may, subject 

to the certain requirements set forth in 

the Rule, impose a fine, not to exceed 

$5,000, on any Options Participant, or 

person associated with or employed by 

an Options Participant, with respect to 

any Rule violation listed in Rules 

12140(d) or (e) as discussed below. Any 

fine imposed pursuant to this Rule that 

(i) does not exceed $2,500 and (ii) is not 

contested, shall be reported on a 

periodic basis, except as may otherwise 

be required by Rule 19d-1 under the Act 

or by any other regulatory authority. 

Further, the Rule provides that any 

person against whom a fine is imposed 

under the Rule shall be served with a 

written statement setting forth: (i) the 

Rule(s) allegedly violated; (ii) the act or 

omission constituting each such 

violation; (iii) the fine imposed for each 

violation; and (iv) the date by which 

such determination becomes final and 

such fine must be paid or contested, 

which date shall be not less than 

twenty-five (25) calendar days after the 

date of service of such written 

statement. Rules 12140 (d) and (e) set 

forth the list of specific Exchange Rules 

under which an Options Participant or 

person associated with or employed by 

an Options Participant may be subject to 

a fine for violations of such Rules and 

the applicable fines that may be 

imposed by the Exchange. As with all 

the violations incorporated into its 

MRVP, the Exchange will proceed under 

this Rule only for violations that are 

minor in nature. Any other violation 

will be addressed pursuant to Rules 

12030 (Letters of Consent) or 12040 

(Charges). 

The Exchange proposes to amend its 

MRVP to add certain rules relating to 

FLEX Equity Options to the list of rules 

eligible for minor rule violation plan 

treatment by amending Rule 12140. 

Specifically, the Exchange proposes to 

amend Rule 12140(e)(3), which covers 

the failure to properly execute a QOO 

Order, to include Failure to Properly 

Execute a FOO Order (proposed Rule 

7605).151 Additionally, the Exchange 

proposes to amend Rule 12140(e)(9), 

which covers compliance with 

quotation requirements for Floor Market 

Makers and is designed to sanction 

violations thereof, to include violations 

of proposed Rule 7605(h), which 

proposes quoting requirements similar 

to those contained in Rule 8510(c)(2) 

regarding Floor Market Maker 

obligations.152

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 153 in general, and furthers the 

objectives of Section 6(b)(5) of the 

Act 154 in particular, in that it is 

designed to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system, and, in general to protect 

investors and the public interest. 

Specifically, the Exchange believes the 

adoption of the proposed rules allowing 

FLEX Equity Options to trade on the 

BOX Trading Floor as FOO Orders is 

consistent with the goals of the Act to 

remove the impediments to and perfect 

the mechanism of a free and open 

market because it will benefit 

Participants by providing an additional 

venue for Participants to provide and 

seek liquidity for customized, large, or 

complex FLEX option orders. As the 

Commission noted in its order granting 

FLEX Equity Option trading on CBOE 

and what was then the Pacific Stock 

Exchange (now NYSE Arca), trading 

FLEX Equity Options on an exchange is 

an alternative to trading customized 

options in OTC markets and carries with 

it the advantages of exchange markets 

such as transparency, parameters and 

procedures for clearance and settlement, 

and a centralized counterparty clearing 

agency.155 Therefore, the Exchange 

believes the proposed rule change will 

promote these same benefits for the 

market as a whole by providing an 

additional venue for market participants 

to seek liquidity for customized, largesized, or complex FLEX option orders. 

The Exchange believes that providing an 

additional venue for these FLEX orders 

will benefit investors, the national 

market system, Participants, and BOX 

by increasing competition for order flow 

and executions, and thereby spur 

product enhancements and potentially 

result in lower prices for exchange 

services related to FLEX Equity Options. 

The Exchange further believes that the 

proposal is designed to prevent 

fraudulent and manipulative acts and 

practices as the Exchange will review all 

current surveillance in light of any 

changes required, including 

surveillance and technology to detect 

disruptive or manipulative trading 

activity for FOO Orders on the Trading 

Floor, and will modify or add any 

surveillance as appropriate. 

General 

The Exchange believes that proposed 

Rule 5055(a) stating that the trading of 

FLEX Equity Options is subject to all 

other Rules applicable to the trading of 

options on the Exchange, unless 

otherwise provided in Rules 5055 and 

7605, is consistent with the Act because 

it will ensure that, except where 

otherwise provided in Rules 5055 and 

7605, the Exchange’s existing rules will 

continue to apply to FLEX Equity 

Options, which will provide increased 

consistency for Participants trading 

FLEX Equity Options and Non-FLEX 

Equity Options on BOX. The Exchange 

reiterates that rules which contemplate 

the operation of or interaction with the 

BOX Book and the Complex Order Book 

will not apply to FLEX Equity Options, 

given that FLEX Equity Options may 

only be traded as FOO Orders and FOO 

Orders may not be placed in the BOX 

Book or the Complex Order Book.156

Specifically, proposed Rule 5055(a) will 

specify that the BOX Book and the 

Complex Order Book shall not be 

applicable for transactions in FLEX 

Equity Options and thereby provide 

clarity for market participants that FLEX 


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157See NYSE Arca Rules 5.30–O(c) and (d). 

158See infra note 229 and accompanying text 

(describing the Section 11(a)(1) prohibition and 

defining ‘‘covered accounts’’). 

159See Securities Exchange Act Release No. 

31920 (February 24, 1993), 58 FR 12280, 12284 

(March 3, 1993) (SR–CBOE–92–17) (Order 

Approving Proposed Rule Change by the Chicago 

Board Options Exchange, Inc. Relating to the Listing 

and Trading of Flexible Exchange Options Based on 

the Nasdaq 100 Index). 160See BOX Rule 7070(d). 

161See NYSE Arca Rule 5.31–O(b). 

162See proposed Rule 5055(f)(1) (providing that 

FLEX Equity Options shall be permitted in puts and 

calls that do not have the same exercise style, same 

expiration date, and same exercise price as NonFLEX Equity Options that are already available for 

trading on the same underlying security). 

163See NYSE Arca Rule 5.32–O. 

Equity Options may only be traded on 

the Trading Floor. As described above, 

while electronic trading in FLEX 

options is available on one market 

today, the Exchange at this time intends 

to introduce FLEX Equity Options on 

the Trading Floor only, consistent with 

other markets that trade these 

customized options solely on their 

trading floors. The Exchange also 

believes that providing further detail 

about rules that shall not apply in 

proposed Rule 5055(c) is consistent 

with the Act because it will provide 

clarity for market participants about 

existing rules that will not be applicable 

to FLEX Equity Options on BOX. In 

particular, specifying that Rules 7600 

and 7620 will not apply to FLEX Equity 

Options will avoid potential confusion 

about which order types apply to FLEX 

Equity Options on BOX, as the 

Exchange is instead proposing Rule 

7605 to apply to transactions in FLEX 

Equity Options. Specifically, Rule 7600 

contains priority provisions related to 

the BOX Book and the Complex Order 

Book neither of which are applicable to 

transactions in FLEX Equity Options. 

The Exchange notes that another 

exchange excludes similar rules from 

application to transactions in FLEX 

Equity Options.157 However, proposed 

Rule 5055(c) also specifies that IM– 

7600–2 and IM–7600–5 shall apply to 

FLEX Equity Options. The Exchange 

believes that expressly applying these 

provisions is consistent with the Act 

because, although the remainder of Rule 

7600 will not apply to FOO Orders, IM– 

7600–2, and IM–7600–5 relate, 

respectively, to tied hedge orders and to 

compliance with Section 11(a)(1) of the 

Act and should apply to the proposed 

FOO Orders in the same manner as they 

currently apply to QOO Orders. 

Specifically, tied hedge orders are a 

combination of an option and hedging 

position that must follow the 

procedures set forth in IM–7600–2 

which is designed to protect investors 

and the public interest with provisions 

that limit the types of combinations 

considered to be tied hedge orders as 

well as prescribing Floor Broker duties 

for the handling of such orders. The 

Exchange believes that expressly 

applying IM–7600–2 to FOO Orders is 

consistent with the Act, as this will 

provide greater consistency between the 

trading of FLEX Equity Options and 

Non-FLEX Equity Options on the BOX 

Trading Floor and reduce the potential 

for market participant confusion. Next, 

IM–7600–5 prevents Participants from 

utilizing the Trading Floor to effect any 

transactions for their own account, the 

account of an associated person, or an 

account with respect to which the 

Participant or an associated person 

thereof exercises investment discretion 

by relying on an exemption under 

Section 11(a)(1)(G) of the Act (‘‘G 

Exemption’’). IM–7600–5 thereby 

provides notice to Floor Participants 

that when utilizing the trading floor to 

effect transactions in covered accounts, 

they cannot rely on the G Exemption 

and must rely on other available 

exemptions to the prohibition in Section 

11(a)(1) of the Act.158 In this manner, 

IM–7600–5 provides increased clarity to 

Floor Participants about their ability to 

comply with Section 11(a)(1) of the Act 

and it is therefore consistent with the 

Act and would protect investors and the 

public interest to continue to apply this 

rule to FOO Orders. 

The Exchange believes that the 

definitions proposed in Rule 5055(b) 

will provide increased clarity to market 

participants which will protect 

investors and the public interest by 

specifying definitions for FLEX Equity 

Options and Non-FLEX Equity Options, 

and by specifying that FLEX Equity 

Option transactions will be governed as 

proposed in Rule 7605 and shall not be 

traded other than as FOO Orders. The 

Exchange believes further that the term 

‘‘FLEX Market Maker’’ will clarify the 

difference between Floor Market Makers 

and FLEX Market Makers, where the 

latter are qualified for trading FLEX 

Equity Options and have an obligation 

to provide quotes in response to FOO 

Orders. The Exchange notes that, should 

it decide to propose additional order 

types or electronic trading for FLEX 

Equity Options, it will revise the 

defined term ‘‘FLEX Open Outcry 

Order’’ accordingly. 

The Exchange believes that proposed 

Rule 5055(d) which specifies that there 

shall be no trading rotations in FLEX 

Equity Options is designed to promote 

just and equitable principles of trade 

and to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system because it provides notice to 

Participants regarding the mechanisms 

applicable to FLEX trading, which will 

not include trading rotations due to the 

customized nature of FLEX Equity 

Options and the fact that there will be 

no requirement for specific FLEX Equity 

Option series to be quoted or traded 

each day.159 The Exchange notes that 

QOO Orders on the Trading Floor can 

only participate in a trading rotation if 

entered into the BOX Book and as 

discussed herein FLEX Equity Options 

will not be eligible to be placed on the 

BOX Book.160 The Exchange also notes 

that another exchange does not hold 

trading rotations for FLEX Equity 

Options.161

FLEX Equity Option Terms 

The Exchange believes that some of 

the terms of FLEX Equity Options 

pursuant to proposed Rule 5055(e) serve 

to perfect the mechanism of a free and 

open market and a national market 

system because they will permit 

investors to customize some of the terms 

of their FLEX Equity Options to 

implement more precise trading 

strategies and hedges which may not be 

possible using Non-FLEX Equity 

Options.162 These investors may have 

improved capability to execute 

strategies to meet their specific 

investment objectives by using 

customized FLEX Equity Options. 

However, only certain terms are subject 

to flexible structuring by the parties to 

FLEX Equity Option transactions, and 

most of such terms have a specified 

number of alternative configurations. 

The Exchange believes that these 

restrictions are reasonable and designed 

to further the objectives of the Act and 

to promote just and equitable principles 

of trade because limiting FLEX Equity 

Option terms enables the efficient, 

centralized clearance and settlement 

and active secondary trading of opened 

FLEX Equity Options. Further, these 

terms are consistent with those 

currently offered at another 

exchange.163

Proposed rule 5055(e)(1)(v)(a) 

allowing a FLEX Equity Option order to 

be submitted on any trading day, 

including the expiration date, serves to 

perfect the mechanism of a free and 

open market and a national market 

system because it will allow investors to 

execute FLEX Equity Options at a time 

of their choosing. These investors may 

have improved capability to execute 

strategies to meet their specific 

investment objectives. Further, this rule 

is designed to provide clarity about 

when FLEX Equity Options may be 


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164See proposed Rule 5055(f)(1). 

165For example, the BOX Book will be 

inapplicable to FOO Orders and thus certain 

priority provisions applicable to QOO Orders are 

not applicable to FOO Orders. Specifically, FOO 

Order priority differs from QOO Order provisions 

related to the priority of orders on the BOX Book. 

See BOX Rules 7600(c)–(e) and (h). The priority of 

FOO Orders will be determined by proposed Rules 

7605(i) and (k) and BOX Rule 7610. 

166See proposed Rule 5055(f)(3). See also 

proposed Rule 7605(d)(3). See Exchange Act 

Release Nos. 62321 (June 17, 2010), 75 FR 36130 

(June 24, 2010) (SR–NYSEArca–2010–46) (Notice of 

Filing and Immediate Effectiveness of Proposed 

Rule Change Amending Commentary .01 to Rule 

5.32 To Permit Certain FLEX Options To Trade 

Under the FLEX Trading Procedures for a Limited 

Time on a Closing Only Basis) and 62870 

(September 8, 2010), 75 FR 56147 (September 15, 

2010) (SR–CBOE–2010–078) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Permit Certain FLEX Options To Trade Under 

the FLEX Trading Procedures for a Limited Time on 

a Closing Only Basis). 

167See proposed Rule 5055(f)(2). See Exchange 

Act Release Nos. 59417 (February 18, 2009), 74 FR 

8591 (February 25, 2009) (SR–CBOE–2008–115) 

(Notice of Filing of Amendments No. 1 and 2 and 

Order Granting Accelerated Approval to a Proposed 

Rule Change, as Modified by Amendments No. 1 

and 2 Thereto, Relating to FLEX Options 

Expirations); 60548 (August 20, 2009), 74 FR 43191 

(August 26, 2009) (SR–NYSEAmex–2009–44) 

(Notice of Filing and Immediate Effectiveness of 

Proposed Rule Change by NYSE AMEX LLC 

Amending the Permissible Expiration Dates for 

Flexible Exchange Options); 60549 (August 20, 

2009), 74 FR 44415 (August 28, 2009) (SR–NYSE– 

Arca–2009–75) (Notice of Filing and Immediate 

Effectiveness of Proposed Rule Change by NYSE 

Arca, Inc. Amending Permissible Expiration Dates 

for Flexible Exchange Options); and 60549 

(September 16, 2009), 74 FR 48619 (September 23, 

2009) (SR–Phlx–2009–81) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

Relating to FLEX Option Expirations). 

168The Exchange notes that investors will be able 

to close any such positions utilizing Non-FLEX 

Equity Option trading procedures beginning the 

next trading day. 

169See NYSE Arca Rule 5.32–O, Commentary .01. 

170See proposed Rule 5055(g). 

171See CBOE Rule 5.4(c)(4). The Exchange notes 

that minimum increments in percentage terms are 

not part of this proposal. 

172See proposed Rule 5055(h). 

173The Exchange notes that Rule 805 of the OCC 

currently applies to Non-FLEX Equity Options on 

BOX. See BOX Rule 9000(b). 

174See NYSE Arca Rule 5.32–O(f)(4). 

175The Exchange notes that although no position 

limits are proposed for FLEX Equity Options, there 

are several mitigating factors, which include 

aggregation of FLEX Equity Option and Non-FLEX 

Equity Option positions that expire on a third 

Friday-of-the-month and subjecting those positions 

to position and exercise limits, and daily 

monitoring of market activity. 

executed. The Exchange believes that 

Floor Participants benefit from 

increased flexibility and clarity. 

The Exchange also believes that 

proposed Rule 5055(f) to prevent FLEX 

Equity Options and Non-FLEX Equity 

Options with the same terms from 

trading concurrently is designed to 

promote just and equitable principles of 

trade and prevent fraudulent and 

manipulative acts and practices.164 In 

particular, a Non-FLEX Equity Option 

trading pursuant to Rule 7600 as a QOO 

Order has different priority rules than a 

FOO Order trading pursuant to 

proposed Rule 7605.165 Allowing an 

option with the same terms to trade 

under both rules concurrently would 

result in inconsistent order handling 

and could allow the order priority of 

QOO Orders to be circumvented. 

Therefore, the Exchange proposes to 

prevent this situation by permitting 

FLEX Equity Option transactions only 

in options with a different term 

(exercise style, expiration date, or 

exercise price) than Non-FLEX Equity 

Options that otherwise meet the 

requirements of proposed Rule 5055(e). 

This is designed to prevent FLEX Equity 

Options from being surrogates for NonFLEX Equity Options. Additionally, in 

the event that a Non-FLEX Equity 

Option series is added intra-day, the 

holder or writer of a FLEX Equity 

Option position established under the 

FLEX trading procedures would be 

permitted to close such position under 

the FLEX trading procedures against 

another closing only FLEX Equity 

Option position for the balance of the 

trading day on which the series is 

added. In the event that the Non-FLEX 

Equity Option series is added on a 

trading day after the position is 

established, the holder or writer of a 

FLEX Equity Option position 

established under the FLEX trading 

procedures would be permitted to close 

such position as a non-FLEX transaction 

consistent with the requirements of 

proposed Rule 5055(f)(2). This proposed 

rule will prevent an option with the 

same terms from trading as both a FLEX 

Equity Option and a Non-FLEX Equity 

Option concurrently, while providing a 

narrow exception for closing 

positions.166 Further opening trades in 

such options would be as Non-FLEX 

Equity Options subject to the Non-FLEX 

Equity Option trading procedures and 

rules, including Rule 7600 for Trading 

Floor transactions.167 The Exchange 

believes that enforcing consistent 

handling and priority for identical and 

fungible options prevents fraudulent 

and manipulative acts and practices, 

and promotes just and equitable 

principles of trade to protect investors 

and the public interest by ensuring 

consistent treatment of these options. 

The Exchange further believes that 

providing a narrow exception to permit 

the closing of a FLEX Equity Option 

position for the balance of the trading 

day on which the fungible Non-FLEX 

Equity Option is added perfects the 

mechanism of a free and open market 

and a national market system because it 

provides investors the ability to close 

their open FLEX Equity Option 

positions the same day as the identical 

Non-FLEX Equity Option is added.168

As noted herein, these requirements are 

consistent with those at another 

exchange.169

Further, the Exchange believes that 

allowing FLEX Equity Options to trade 

in minimum increments of $0.01 170

perfects the mechanism of a free and 

open market and a national market 

system because it provides investors 

with increased ability to meet their 

specific investment objectives and 

allows for increased opportunities for 

price improvement through a finer 

trading increment. The Exchange notes 

that another exchange currently trades 

FLEX Equity Options in minimum 

increments of $0.01.171

The Exchange further believes that 

subjecting FLEX Equity Options to the 

exercise by exception provisions of Rule 

805 of the OCC172 fosters cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities.173 Specifically, OCC Rule 805 

provides that, unless contrary 

instructions are given, option contracts 

that are in-the-money by specified 

amounts shall be automatically 

exercised. Application of Rule 805 to 

FLEX Equity Options provides 

consistency with Non-FLEX Equity 

Options and prevents confusion in the 

clearing process with respect to exercise 

instructions. The Exchange notes that 

another exchange provides that FLEX 

Equity Options shall be subject to the 

exercise by exception provisions of OCC 

Rule 805.174

Position Limits 

Position and exercise limits are 

designed to address potential 

manipulative schemes and adverse 

market impacts surrounding the use of 

options, such as disrupting the market 

in the security underlying the options. 

While position and exercise limits 

should address and discourage the 

potential for manipulative schemes and 

adverse market impact, if such limits are 

set too low, participation in the options 

market may be discouraged. The 

Exchange believes that any decision 

regarding imposing position and 

exercise limits for FLEX Equity Options 

must therefore be balanced between 

mitigating concerns of any potential 

manipulation and the cost of inhibiting 

potential hedging activity that could be 

used for legitimate economic 

purposes.175


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176See proposed Rules 5055(i) and (j). See also 

NYSE Arca Rules 5.35–O(a)(iii), (b) and 5.36–O and 

CBOE Rules 8.35 and 8.42 and NYSE American 

Rules 906G and 907G and PHLX Rule Options 8, 

Section 34(e) and (f). 

177See Securities Exchange Act Release No. 

42223 (December 10, 1999), 64 FR 71158, 71159 

(December 20, 1999) (SR–Amex–99–40) (SR–PCX– 

99–41) (SR–CBOE–99–59) (Order Granting 

Accelerated Approval to Proposed Rule Change 

Relating to the Permanent Approval of the 

Elimination of Position and Exercise Limits for 

FLEX Equity Options). 

178See id. 

179See NYSE Arca Rule 5.35–O(b)(i). 

180 ISG is an industry organization formed in 1983 

to coordinate intermarket surveillance among the 

SROs by cooperatively sharing regulatory 

information pursuant to a written agreement 

between the parties. The goal of the ISG’s 

information sharing is to coordinate regulatory 

efforts to address potential intermarket trading 

abuses and manipulations. 

181The Exchange notes that it is responsible for 

FINRA’s performance under this regulatory services 

agreement. 

182See NYSE Arca Rules 5.35–O(a)(iii), (b), and 

5.36–O and CBOE Rules 8.35 and 8.42 and NYSE 

American Rules 906G and 907G and PHLX Rule 

Options 8, Section 34(e) and (f). 

183See proposed Rule 5055(k). 

184See proposed Rule 7605(c). The Exchange 

notes that Market Makers are subject to the 

Continued 

Similar to the other exchanges that 

trade FLEX Equity Options, the 

Exchange believes that eliminating 

position and exercise limits for FLEX 

Equity Options, while requiring 

positions in FLEX Equity Options that 

expire on a third Friday-of-the-month to 

be aggregated with positions in NonFLEX Equity Options on the same 

underlying security,176 removes 

impediments to and perfects the 

mechanism of a free and open market 

and a national market system because it 

allows BOX to create a product and 

market that is an improved but 

comparable alternative to the OTC 

market in customized options. OTC 

transactions occur through bilateral 

agreements, the terms of which are not 

publicly disclosed to the marketplace. 

As such, OTC transactions do not 

contribute to the price discovery process 

that exists on a public exchange. 

The Exchange believes that the 

proposed elimination of position and 

exercise limits for FLEX Equity Options 

may encourage market participants to 

transfer their liquidity demands from 

OTC markets to exchanges and enable 

liquidity providers to provide additional 

liquidity to BOX through transactions in 

FLEX Equity Options. The Exchange 

notes that the Commission previously 

approved the elimination of position 

and exercise limits for FLEX Equity 

Options, finding that such elimination 

would allow exchanges ‘‘to better 

compete with the growing OTC market 

in customized equity options, thereby 

encouraging fair competition among 

brokers and dealers and exchange 

markets.’’ 177 The Commission has also 

stated that the elimination of position 

and exercise limits for FLEX Equity 

Options ‘‘could potentially expand the 

depth and liquidity of the FLEX equity 

market without significantly increasing 

concerns regarding intermarket 

manipulations or disruptions of the 

options or the underlying securities.’’ 178

Additionally, the Exchange believes 

that requiring positions in FLEX Equity 

Options that expire on a third Friday-ofthe-month to be aggregated with 

positions in Non-FLEX Equity Options 

on the same underlying security 

subjects FLEX Equity Options and NonFLEX Equity Options to the same 

position and exercise limits on third 

Friday-of-the-month expirations. These 

limitations are intended to serve as a 

safeguard against potential adverse 

effects of large FLEX Equity Option 

positions expiring on the same day as 

Non-FLEX Equity Option positions. The 

Exchange notes that another exchange 

has the same requirement.179

The Exchange believes that any 

potential risk of manipulative activity is 

mitigated by existing surveillance 

technologies, procedures, and reporting 

requirements at the Exchange, which 

allows the Exchange to properly identify 

disruptive and/or manipulative trading 

activity. In addition to its own 

surveillance programs, the Exchange 

also works with other SROs and 

exchanges on intermarket surveillance 

related issues. Through its participation 

in the Intermarket Surveillance Group 

(‘‘ISG’’) 180 the Exchange shares 

information and coordinates inquiries 

and investigations with other exchanges 

designed to address potential 

intermarket manipulation and trading 

abuses. The Exchange also notes that 

Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’), conducts 

cross-market surveillances on behalf of 

the Exchange pursuant to a regulatory 

services agreement.181 The Exchange 

also represents that it is reviewing its 

procedures to detect potential 

manipulation in light of any changes 

required for FLEX Equity Options to 

confirm appropriate surveillance 

coverage. These procedures utilize daily 

monitoring of market activity via 

automated surveillance techniques to 

identify unusual activity in both options 

and their underlying securities and are 

designed to protect investors and the 

public interest by ensuring that the 

Exchange has an adequate surveillance 

program in place. 

The Exchange believes that proposed 

Rule 5055(i)(1) further mitigates 

concerns for potential market 

manipulation and/or disruption in the 

underlying markets and thus protects 

investors and the public interest 

because the Exchange may determine 

that a higher margin requirement is 

necessary in light of the risks associated 

with a FLEX Equity Option position in 

excess of the standard limit for NonFLEX Equity Options of the same class. 

The Exchange may, pursuant to its 

authority under Rule 10130(b), impose 

additional margin upon the account of 

any Participant, including a Participant 

maintaining a large FLEX Equity Option 

position, as a safeguard against potential 

adverse effects of large FLEX Equity 

Option positions. The Exchange notes 

that the clearing firm carrying the 

account will be subject to capital 

charges under SEC Rule 15c3–1 to the 

extent of any margin deficiency 

resulting from the higher margin 

requirement. The Exchange also notes 

that other exchanges currently trading 

FLEX options have similar position and 

exercise limits.182 The Exchange also 

believes it is consistent with the Act to 

not include a requirement relating to the 

reporting of information on FLEX Equity 

Option positions in excess of the 

standard position limit for Non-FLEX 

Equity Options because it will remove 

an unnecessary administrative burden 

on Participants and the Exchange, and 

the Exchange, along with the OCC and 

FINRA, will retain the ability to monitor 

large FLEX Equity Options positions 

and have the ability to increase margin 

requirements if necessary. The 

Exchange further believes it is 

consistent with the Act to better tailor 

the language in proposed Rule 5055(i) to 

the Exchange’s existing authority to 

impose higher margin requirements 

because this will ensure consistency 

among Participants regarding the 

manner in which the Exchange may 

impose additional margin requirements 

and will increase clarity and 

accessibility with respect to the 

Exchange’s Rules. 

Letters of Guarantee and Authorization 

Pursuant to proposed Rule 5055(k), 

the Exchange will require FLEX Market 

Makers to provide a Letter of Guarantee 

issued by a clearing member 

organization and filed with the 

Exchange specifically accepting 

financial responsibility for all FLEX 

Equity Option transactions made by 

such person as long as such letter has 

not been revoked under Rule 8070(c).183

Market Makers that are qualified by the 

Exchange and have provided such a 

Letter of Guarantee will be permitted to 

trade FLEX Equity Options on BOX.184


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qualifications in Exchange rules including net 

capital and financial requirements. See BOX Rule 

8000 series. 185See NYSE Arca Rule 5.41–O(a). 186See proposed Rules 5055(l) and 7605(b). 187The Exchange notes that Floor Brokers are 

subject to registration requirements in Exchange 

rules including a Floor Broker examination and 

other factors deemed appropriate by the Exchange. 

See BOX Rule 7550. 

188See NYSE Arca Rule 5.41–O(b). 189See proposed Rule 7605. 

190See Securities Exchange Act Release No. 

81292 (August 2, 2017), 82 FR 37144 (August 8, 

2017) (Order Approving a Proposed Rule Change, 

as Modified by Amendment Nos. 1 and 2, To Adopt 

Rules for an Open-Outcry Trading Floor) (‘‘After 

careful review and consideration of the comments 

received, the Commission finds that the proposed 

rule change, as modified by Amendment Nos. 1 and 

2, is consistent with the requirements of the Act 

and the rules and regulations thereunder applicable 

to a national securities exchange.’’). 

191See proposed Rule 7605(e). The Exchange 

notes that in order to execute a FOO Order on the 

Trading Floor, it must be sent from a Floor Broker’s 

system to the BOG. This requires that the Floor 

Broker adequately systematized the FOO Order. 

192See NYSE Arca Rule 5.33–O and PHLX Rule 

Options 8, Section 34(c) and NYSE American Rule 

904G. 

193See CBOE Rule 5.72(d)(1) (providing that 

FLEX Traders have a reasonable amount of time 

(which amount of time must be between three 

seconds and five minutes) from the time a FLEX 

Trader requests a quote in a FLEX Option series or 

represents a FLEX Order (including announcing a 

crossing transaction pursuant to Rule 5.87) to 

respond with bids and offers). The Exchange notes 

that PHLX has also taken a similar approach to 

CBOE. See Securities Exchange Act Release No. 

97658 (June 7, 2023), 88 FR 38562 (June 13, 2023) 

(SR–Phlx–2023–22) (Notice of Filing and Immediate 

Effectiveness of Proposed Rule Change To Amend 

Various Options 8 Rules). 

194See Securities Exchange Act Release No. 

87235 (October 4, 2019), 84 FR 54671 (October 10, 

2019) (SR–CBOE–2019–084) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

to Extend the Operation of its Flexible Exchange 

Options (‘‘FLEX Options’’) Pilot Program Regarding 

Permissible Exercise Settlement Values for FLEX 

Index Options). 

195 Id. 

196See supra note 147 (describing that the 

minimum time period, which must be between 

three seconds and five minutes, will be established 

by the Exchange and communicated via Regulatory 

Notice). 

197The Exchange has a Minor Rule Violation 

Program (‘‘MRVP’’) pursuant to Rule 12140 

(Imposition of Fines for Minor Rule Violations). The 

MRVP provides in part that improper vocalization 

of a trade may result in sanction. See BOX Rule 

12140. 

The Exchange believes that requiring a 

Letter of Guarantee specific to FLEX 

Equity Options protects investors and 

the public interest because it signifies 

that the clearing member has 

specifically accepted financial 

responsibility for transactions in FLEX 

Equity Options entered into by the 

Market Maker which will protect the 

counterparties of those trades and such 

protections will flow to other clearing 

members and ultimately to the OCC as 

the central counterparty and guarantor 

of both FLEX Equity Option and NonFLEX Equity Option transactions. The 

Exchange notes that another exchange 

requires a Letter of Guarantee for FLEX 

transactions.185

Pursuant to proposed Rule 5055(l), 

prior to effecting any transaction in 

FLEX Equity Options, Floor Brokers are 

required to provide a Letter of 

Authorization issued by a clearing 

member organization and filed with the 

Exchange specifically accepting 

financial responsibility for all FLEX 

Equity Option transactions made by 

such person, and such letter remains in 

effect until a written revocation is 

received by the Exchange.186 Floor 

Brokers that have provided such a Letter 

of Authorization and are qualified by 

the Exchange will be permitted to trade 

FLEX Equity Options on BOX.187 The 

Exchange believes that requiring a Letter 

of Authorization specific to FLEX 

Equity Options protects investors and 

the public interest because it signifies 

that the clearing member has accepted 

financial responsibility for transactions 

in FLEX Equity Options entered into by 

the Floor Broker which will protect the 

counterparties of those trades and such 

protections will flow to other clearing 

members and ultimately to the OCC as 

the central counterparty and guarantor 

of both FLEX Equity Option and NonFLEX Equity Option transactions. The 

Exchange notes that another exchange 

requires a separate Letter of 

Authorization for Floor Brokers to trade 

FLEX Equity Options.188

FOO Orders 

The Exchange believes that the 

proposed rule change to adopt a new 

order type 189 for FLEX Equity Option 

transactions on the BOX Trading Floor 

is consistent with the Act. The 

Exchange modeled its proposed rule 

governing FOO Orders after Rule 7600 

applicable to QOO Orders to harmonize 

current procedures on BOX’s Trading 

Floor, which the Exchange believes will 

reduce investor confusion and thus 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system.190

Specifically, the proposed elements of a 

FOO Order are designed to aid Floor 

Brokers in their duties and to maintain 

order and structure on the Trading 

Floor. For example, as with a QOO 

Order, the rules applicable to FOO 

Orders will ensure that all FLEX Equity 

Option transactions executed on the 

Trading Floor by Floor Brokers are 

systematized before they are represented 

to the trading crowd and provide an 

accurate timestamp of when the order 

was executed by the Floor Broker.191 As 

described above, the main differences 

from QOO Orders are that FOO Orders 

will not interact with the BOX Book or 

the Complex Order Book and that Floor 

Brokers must allow Floor Participants a 

minimum period of time to respond to 

FOO Orders. 

Under this proposal, Floor Brokers 

will continue to allow a reasonable 

amount of time for Floor Participants to 

participate in a FOO Order. 

Additionally, the Exchange will 

establish and communicate via 

Regulatory Notice a minimum time that 

Floor Brokers must provide for Floor 

Participants to respond to FOO Orders, 

which amount of time must be between 

three seconds and five minutes. While 

other exchanges have adopted RFQ 

processes for FLEX Equity Options,192

the Exchange has proposed to follow a 

similar approach for trading FLEX 

Equity Options as CBOE, which does 

not have a different open outcry process 

for FLEX Option transactions as 

compared to non-FLEX Option 

transactions, but does establish a 

different order announcement process 

that requires a reasonable amount of 

time for traders to respond to a FLEX 

Order.193 In fact, the Exchange notes 

that CBOE recently changed its process 

for FLEX Option transactions from 

conducting a RFQ process to utilizing 

the same process as for a non-FLEX 

Option on its trading floor.194 In its rule 

filing, CBOE stated that aligning the 

open outcry process for FLEX Options 

with that of non-FLEX Options may 

reduce confusion regarding how FLEX 

Orders may trade in open outcry and 

encourage the submission of FLEX 

Orders for execution.195

The Exchange similarly proposes to 

align its open outcry process for FLEX 

Equity Options with that of Non-FLEX 

Equity Options and to establish a 

minimum time for responses to FOO 

Orders. The Exchange also believes that, 

in addition to the required minimum 

time, it is appropriate to continue to 

have Options Exchange Officials 

determine whether Floor Participants 

have been provided a reasonable 

amount of time to respond to a FOO 

Order, which is consistent with the 

current procedure on the BOX Trading 

Floor for QOO Orders.196 The Options 

Exchange Official will make this 

determination on a case-by-case basis 

based on the current market conditions 

and trading activity on the Trading 

Floor.197 Options Exchange Officials are 

employees of the Exchange, reporting to 

the Chief Regulatory Officer, and are 

trained and qualified to enforce the 

Exchange’s rules. The Exchange believes 

that Options Exchange Officials will 

ensure that FOO Orders follow the 


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198See supra note 147 (describing that the 

minimum time period, which must be between 

three seconds and five minutes, will be established 

by the Exchange and communicated via Regulatory 

Notice). 

199See BOX Rule 7640(e). 

200See BOX Rule 7570. 

201See BOX IM–7580–4. 

202See NYSE American Rule 904G and NYSE 

Arca Rule 5.33–O and PHLX Rule Options 8, 

Section 34(c). 

203Pursuant to proposed Rule 7605(h), FLEX 

Market Makers have an obligation to quote a FLEX 

Equity Option in response to any request for quote 

by a Floor Broker or Options Exchange Official and 

must provide a two-sided market. 

204See proposed Rule 7605(d), proposed IM– 

7605–2(d) and current IM–7600–2. 

205BOX Rules 7240(b)(2) and (3) provide priority 

provisions for Complex Orders that take into 

consideration the prices of orders on the BOX Book 

and the Complex Order Book. Because there will be 

no BOX Book or Complex Book for Complex FOO 

Orders, there is no priority of orders on the BOX 

Book or Complex Book applicable to Complex FOO 

Orders. This is a distinction from Rule 7600(c), 

which, for purposes of QOO Orders, excludes the 

priority rules for Complex Orders contained in 

Rules 7240(b)(2) and (3) only from multi-leg QOO 

Orders that are not Complex Orders. 

Exchange’s rules, including that FLEX 

Market Makers are provided a 

reasonable amount of time to 

respond.198 FLEX Market Makers that 

do not believe a reasonable amount of 

time to respond was provided may 

appeal any related determination of an 

Options Exchange Official to the 

Exchange’s Chief Regulatory Officer.199

Additionally, Floor Brokers have a 

general responsibility to use due 

diligence to cause orders to be executed 

at the best price or prices available to 

them in accordance with the Rules of 

the Exchange.200 Further, it shall be 

considered conduct inconsistent with 

just and equitable principles of trade for 

any Floor Broker to intentionally 

disrupt the open outcry process.201

Thus, the Exchange believes that the 

proposed process promotes just and 

equitable principles of trade and 

removes impediments to and perfects 

the mechanism of a free and open 

market and a national market system 

because the proposed process provides 

substantially similar opportunities for 

Floor Participants to respond to FOO 

Orders as an RFQ process while 

maintaining consistency with existing 

Exchange processes for transactions on 

the Trading Floor. As noted herein, the 

proposed open outcry process is 

safeguarded by enforcement of the 

Exchange’s rules by Options Exchange 

Officials. The Exchange again notes that, 

except for the inclusion of a minimum 

time period that a Floor Broker must 

allow Floor Participants to respond to 

FOO Orders, the proposed open outcry 

process for FOO Orders is similar to the 

current process for QOO Orders. 

Therefore, the Exchange believes the 

proposal will serve to avoid confusion 

and increase efficiency on the BOX 

Trading Floor. 

Proposed Rule 7605(b) states that 

FOO Orders will be limited solely to the 

Trading Floor. The Exchange believes 

that limiting FOO Orders to the Trading 

Floor is consistent with the Act because, 

due to their unique and customizable 

nature, FLEX Equity Option transactions 

are well suited for a trading floor 

environment where the terms of such 

options can be effectively negotiated. 

The Exchange notes that other 

exchanges limit FLEX Equity Options 

trading to their respective trading 

floors.202 To the extent the Exchange 

determines to adopt an electronic 

mechanism for the trading of FLEX 

Equity Options, it will file a subsequent 

proposed rule change with the 

Commission. 

Proposed Rule 7605(c) provides that 

FLEX Market Makers must be registered 

under Rule 8000 and must be Floor 

Market Makers in good standing under 

Rule 8500, which protects investors and 

the public interest by ensuring that 

Market Makers are qualified to perform 

their duties, including filing an 

application, demonstrating knowledge 

of FLEX Equity Options, and providing 

additional information as the Exchange 

may consider necessary. The Exchange 

shall qualify at least three FLEX Market 

Makers in accordance with a FLEXspecific qualification process prescribed 

by the Exchange to provide competition 

for FOO Orders and reasonable 

opportunities for Participants to get 

quotes on FLEX Equity Options. The 

requirement to qualify at least three 

FLEX Market Makers is designed to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system. Similarly 

to Floor Market Makers, FLEX Market 

Makers will also be subject to Rule 

8510, including provisions for the 

course and conduct of dealings, class 

assignments, and option priority and 

parity, unless otherwise specified in 

proposed Rule 7605.203 Specifically, 

Rule 8510 provides that transactions of 

a Floor Market Maker should constitute 

a course of dealings reasonably 

calculated to contribute to the 

maintenance of a fair and orderly 

market, quoting obligations, restrictions 

on trading in certain circumstances, and 

restrictions on conduct related to the 

allocation of trades. These rules are 

designed to protect investors and the 

public interest and are therefore 

consistent with the Act. 

Proposed Rule 7605(d) states that 

FOO Orders may be Complex FOO 

Orders or Multi-Leg FOO Orders, 

including as tied hedge orders, and that 

these orders may be crossed.204

However, the priority provisions of 

Rules 7240(b)(2) and (3) do not apply to 

Complex FOO Orders or Multi-Leg FOO 

Orders because there will be no preestablished series and no electronic 

trading.205 Further, only FLEX Equity 

Options on the same underlying and of 

the same exercise style (American or 

European) may be part of a Complex 

FOO Order or Multi-Leg FOO Order. 

Additionally, if a Non-FLEX Equity 

Option series is added intra-day for a 

component leg(s) of a Complex FOO 

Order or Multi-Leg FOO Order, the 

holder or writer of a FLEX Equity 

Option position in the component leg(s) 

resulting from such Complex FOO 

Order or Multi-Leg FOO Order would be 

permitted to close its position(s) 

pursuant to Rule 5055(f)(3). If a NonFLEX Equity Option series is added for 

a component leg(s) of a Complex FOO 

Order or Multi-Leg FOO Order on a 

trading day after the position is 

established, the holder or writer of a 

FLEX Equity Option position in the 

component leg(s) resulting from such 

Complex FOO Order or Multi-Leg FOO 

Order would be required to execute 

separate FLEX and non-FLEX 

transactions consistent with the 

requirements of Rule 5055(f)(2) for each 

of the component leg(s) of the Complex 

FOO Order or Multi-Leg FOO Order to 

close its position(s). These proposed 

rules are designed to maintain order and 

structure, to detail the operation of 

Complex FOO Order and Multi-Leg 

FOO Order trading on the Trading 

Floor, and are similar to BOX’s current 

Rule 7600(a)(4). The Exchange is 

proposing to use similar procedures for 

the trading of Complex QOO Orders, 

multi-leg QOO Orders, Complex FOO 

Orders, and Multi-Leg FOO Orders on 

the BOX Trading Floor because it will 

reduce investor confusion and increase 

efficiency. Additionally, offering order 

functionality such as Complex FOO 

Orders, Multi-Leg FOO Orders, and tied 

hedge orders provides investors with 

the flexibility and capability to meet 

their investment and hedging objectives. 

For these reasons, the Exchange believes 

that allowing Complex FOO Orders, 

Multi-Leg FOO Orders, and tied hedge 

orders removes impediments to and 

perfects the mechanism of a free and 

open market and a national market 

system and is therefore consistent with 

the Act. The Exchange notes that 

another exchange allows complex 


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206See CBOE Rules 5.70(b) and 1.1 (definition of, 

‘‘Complex Order’’) (providing that the term 

‘‘complex order’’ means an order involving the 

concurrent execution of two or more different series 

in the same underlying security or index (the ‘‘legs’’ 

or ‘‘components’’ of the complex order), for the 

same account, occurring at or near the same time 

and for the purpose of executing a particular 

investment strategy with no more than the 

applicable number of legs (which number CBOE 

determines on a class-by-class basis)). The 

Exchange notes that the term ‘‘complex order’’ on 

CBOE includes both Complex Orders and Multi-Leg 

Orders, as those terms are defined on BOX. See also 

CBOE Rule 5.87 Interpretations and Policies .07 and 

Securities Exchange Act Release No. 93122 

(September 24, 2021), 86 FR 54269 (September 30, 

2021) (Order Granting Approval of SR–CBOE– 

2021–041). 

207See proposed Rule 7605(l). See also NYSE 

Arca Rules 5.34–O and 6.62–O(f). 

208See proposed IM–7605–2(a) and (e). 

209See proposed IM–7605(d). 

210See proposed IM–7600–2(b) and (c). 

211See BOX IM–7600–1. The Exchanges notes 

that the portion of IM–7600–1 that references BOX 

Book Priority is not included in proposed IM–7605– 

2 because, as discussed, the BOX Book is not 

available for transactions in FLEX Equity Options. 

212See proposed Rule 7605(e)(2). 

213FOO Orders will be submitted by Floor 

Brokers to the BOG, which is a component of the 

Trading Host. A Floor Broker will have a 

connection to the BOG giving the Floor Broker the 

ability to submit FOO Orders to the Trading Host. 

214 In order to execute a FOO Order on the 

Trading Floor, it must be sent from a Floor Broker’s 

system to the BOG. This requires that the Floor 

Broker adequately systematized the FOO Order 

prior to announcing the FOO Order to the trading 

crowd. See proposed Rule 7605(b). 

215See proposed Rule 7605(j). 

216See proposed Rule 7605(e)(3). 

217See BOX Rule 7600(d)(4). See also BOX Rule 

7580(a). 

218See proposed Rules 7605(f)–(h). 

219See proposed Rule 5055(e). 

220See NYSE Arca Rules 5.32–O(b)(7) and 5.37– 

O(d) and BOX Rule 8510(c)(2). 

orders and tied hedge orders for FLEX 

Equity Options.206

Another provision designed to 

maintain order and structure on the 

Trading Floor is the Exchange’s 

proposal that FOO Orders entrusted to 

a Floor Broker will be considered a Not 

Held Order, unless otherwise specified 

by a Floor Broker’s client.207 In 

particular, considering orders as Not 

Held will aid Floor Brokers in their 

duties on the Trading Floor because it 

provides clarity to both Floor Brokers 

and their clients regarding how each 

order is to be handled. Additionally, 

this rule is consistent with the current 

handling of QOO Orders on the BOX 

Trading Floor which will avoid 

confusion, increase efficiency, and 

ensure consistent treatment of orders on 

the Trading Floor. The Exchange further 

believes that this proposed rule protects 

investors and the public interest by 

clarifying order handling duties and 

expectations between Floor Brokers and 

Participants. 

Additionally, the requirement, in 

proposed IM–7605–2, that Participants 

disclose Public Customer Orders subject 

to crossing with an order that is not a 

Public Customer Order and all securities 

that are components of the Public 

Customer Order is designed to maintain 

order and structure on the Trading 

Floor.208 The rule also clarifies that 

Complex FOO Orders, Multi-Leg FOO 

Orders, or tied hedge orders on opposite 

sides of the market may be crossed 

subject to limitations.209 The Exchange 

believes that providing clarity will 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system and that 

full disclosure will prevent fraudulent 

and manipulative acts and practices by 

providing complete information to 

Participants which may prompt them to 

improve upon the Floor Broker’s 

proposed crossing price. Additionally, 

rules governing how long a response is 

in effect and the effect of an established 

market on priority create order and 

structure on the Trading Floor.210 The 

Exchange believes that such order and 

structure protects investors and the 

public and notes that the same rules 

apply to QOO Orders.211

Proposed Rule 7605(e) is designed to 

aid Floor Brokers in their duties and to 

maintain structure and order on the 

Trading Floor. For example, by 

providing that a FOO Order is not 

executed until it is processed by the 

Trading Host,212 the Exchange is 

providing an accurate timestamp of 

when the order was actually executed 

by the Floor Broker and not just when 

it was submitted to the Exchange.213

Additionally, the process whereby Floor 

Brokers are required to systematize 

orders in their systems is designed to 

provide a complete and accurate audit 

trail and minimize the occurrence of 

disputes and regulatory violations.214

After systematization, a Floor Broker’s 

system will then be required to send an 

order to the BOG. Further, Floor Brokers 

are responsible for providing the correct 

allocations of the initiating side of the 

FOO Order to an Options Exchange 

Official or his or her designee, if 

necessary, after order execution.215

Floor Brokers will also be required to 

ascertain that at least one FLEX Market 

Maker is present in the Crowd Area 

prior to announcing a FOO Order for 

execution, which is designed to increase 

competition for FLEX Equity Option 

interest on the Trading Floor.216 The 

Exchange notes that these rules are 

substantially similar to those currently 

in place for QOO Orders on the BOX 

Trading Floor.217 The Exchange believes 

that having substantially similar rules 

for all orders on the BOX Trading Floor 

will avoid any potential confusion and 

increase efficiency on the BOX Trading 

Floor, which will further the objectives 

and goals of the Act by helping to 

prevent fraudulent and manipulative 

acts and practices, promoting just and 

equitable principles of trade, and 

removing impediments to and 

perfecting the mechanisms of a free and 

open market and a national market 

system. 

FLEX Market Maker Requirements 

The Exchange believes that the 

proposed rules applicable to FLEX 

Market Makers are reasonable and will 

foster cooperation and coordination 

with persons engaged in facilitating 

transactions in securities, promote just 

and equitable principles of trade, and 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system. 

Specifically, proposed Rules 7605(f), (g) 

and (h) state: (1) that the minimum size 

for FLEX Equity Option transactions 

and quotations shall be 1 contract; (2) 

that there are no maximum bid to ask 

spread differentials for FLEX Equity 

Option quotes; and (3) that FLEX Market 

Makers have an obligation to quote a 

FLEX Equity Option in response to any 

request for quote by a Floor Broker or 

Options Exchange Official and must 

provide a two-sided market.218 The 

Exchange believes that these rules 

reflect the unique nature of FLEX Equity 

Option trading which occurs relatively 

infrequently and with option premiums 

that can vary widely because any 

exercise price (in minimum increments 

of $0.01) and any expiration date on a 

business day within 15 years of trade 

date may be traded.219 The Exchange 

believes that these requirements strike a 

balance between the complexity of 

quoting customized options and the 

need to ensure that Floor Brokers are 

able to get a quote for any FLEX Equity 

Option selected by their clients. Further, 

these requirements remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system by 

ensuring that there is a procedure in 

place to receive a two-sided quote for 

each FOO Order brought to the BOX 

Trading Floor. The Exchange notes that 

these requirements are similar to those 

currently in place at BOX and another 

options exchange.220

Priority of Orders and Allocation of 

Trades 

The Exchange believes that the 

proposed rule to provide a Floor Broker 

with a guarantee or entitlement to cross 


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221See proposed Rules 7605(i) and (k). 

222See NYSE American Rule 904G(e)(iii) 

(providing that ‘‘[i]n the case of FLEX Equity 

Options only and notwithstanding [Rules 904G(e)(i) 

and (ii)], whenever the Submitting Member has 

indicated an intention to cross or act as principal 

on the trade and has matched or improved the BBO 

during the BBO Improvement Interval, the 

Submitting Member will be permitted to execute 

the contra side of the trade that is the subject of the 

Request for Quotes, to the extent of at least 40% of 

the trade’’) and PHLX Rule Options 8, Section 

34(c)(5) (‘‘In the case of FLEX equity options only 

and notwithstanding [Section 34(c)(4)], whenever 

the Requesting Member has indicated an intention 

to cross or act as principal on the trade and has 

matched or improved the BBO during the BBO 

Improvement Interval, the Requesting Member will 

be permitted to execute the contra side of the trade 

that is the subject of the RFQs, to the extent of at 

least 40% of the trade, provided the order is a 

Public Customer order or an order respecting the 

Requesting Member’s firm proprietary account.’’). 

See also NYSE American Rule 904G(f) (‘‘A 

Submitting Member may effect crossing 

transactions only on public customer orders or 

orders respecting the Submitting Member’s firm 

proprietary account.’’). The Exchange notes 

differences between the guarantees on NYSE 

American and PHLX and the guarantee on BOX. 

First, neither PHLX nor NYSE American set an 

eligible order size and BOX proposes an eligible 

order size, determined by the Exchange, of 50 or 

more contracts. Further, both NYSE American and 

PHLX require the contra side of a crossing order 

subject to the 40% guaranteed allocation to be 

either a Public Customer order or an order 

respecting the submitting firm’s proprietary account 

whereas BOX does not impose such limitations. 

The Exchange believes that not limiting contra side 

participant types is consistent with the Act because 

it is consistent with current BOX rules for QOO 

Orders and removes impediments to and perfects 

the mechanism of a free and open market and a 

national market system by allowing more 

participant types on the contra side of crossing 

orders which may increase the number of eligible 

contra-side participants and may result in more 

transactions on the BOX Trading Floor. 

223See BOX Rule 7600(f). 

224See BOX Rule 7610. 

225The Exchange notes that split-price priority 

applicable to QOO Orders is not applicable to FOO 

Orders. Split-price priority allows a Participant 

effecting a trade that betters the market to have 

priority on the balance of that trade at the next 

pricing increment, even if there are orders in the 

book at the same price. BOX Book will not be 

applicable to FOO Orders and thus there is no need 

for split-price priority. Accordingly, the Exchange 

does not propose to adopt provisions analogous to 

Rule 7600(i), IM–7600–6, or IM–7600–7 in 

proposed Rule 7605. 

226CBOE Rule 5.72(d)(2) provides that FLEX 

Orders are allocated only to responses from the 

trading crowd pursuant to Rule 5.85(a)(1) and 

(2)(C). Rule 5.85(a)(1) provides that bids and offers 

with the highest bid and lowest offer have priority 

and (2)(C) establishes priority between in-crowd 

market participants at the same price. The Exchange 

believes that these rules are similar to BOX Rule 

7610 and are appropriate for FLEX Equity Option 

trading. But see NYSE Arca Rules 5.30–O(d) 

(providing that priority and order allocation 

procedures for open outcry do not apply to FLEX 

Equity Options) and 5.33–O (providing a RFQ 

procedure for FLEX transactions including priority 

provisions that provide priority in certain instances 

to FLEX Qualified Market Makers and limited 

priority to the submitting firm if it has matched or 

improved the market on NYSE Arca). As discussed 

herein, the Exchange does not believe that a RFQ 

procedure is necessary for FLEX Equity Option 

trading on BOX. Similarly, CBOE does not have a 

specific open outcry procedure for FLEX 

transactions. See CBOE Rule 5.72(d) (providing that 

a submitting FLEX Trader may represent and 

execute a FLEX Order on the Exchange’s trading 

floor in the same manner as a Trading Permit 

Holder may represent and execute an order for a 

non-FLEX Option). 

227See, e.g., NYSE Arca Rule 10.12 and CBOE 

Rule 13.15. 

40% of the remaining contracts of the 

original order, after all bids or offers at 

better prices are filled, with other orders 

that he is holding,221 is reasonable and 

is consistent with the Act. Specifically, 

proposed Rules 7605(i) and (k) will 

reward Floor Brokers who bring orders 

of an eligible size determined by the 

Exchange but not less than 50 contracts 

to the Exchange by guaranteeing them 

the ability to cross 40% of the remaining 

contracts of those orders after any better 

priced interest has been filled. The 

Exchange believes that establishing an 

eligible size for such guarantee for at 

least 50 contracts will encourage larger 

negotiated transactions while providing 

Floor Participants with a reasonable 

opportunity to participate. The 

Exchange notes that other options 

exchanges provide a guarantee for FLEX 

Equity Options on their trading 

floors.222 Additionally, the Exchange 

currently provides a similar guarantee 

with respect to QOO Orders executed on 

the BOX Trading Floor.223 Allowing a 

similar guarantee for QOO Orders and 

FOO Orders is intended to maintain 

consistency and increase efficiency for 

the different order types offered on the 

BOX Trading Floor. The Exchange 

believes that allowing a guarantee will 

promote just and equitable principles of 

trade and remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system by encouraging Floor Brokers to 

bring orders to the Trading Floor while 

maintaining the ability of other Floor 

Participants to participate in floor 

transactions and compete for such 

orders. 

The Exchange believes that, after the 

allocation of any bids and offers at 

better prices and any eligible Floor 

Broker guarantee, allocating FLEX 

Equity Option trades between Floor 

Participants pursuant to the priority 

provisions of Rule 7610 is reasonable 

and promotes just and equitable 

principles of trade. The Exchange notes 

that, pursuant to Rule 7610, bids and 

offers are considered in order of the 

highest bid/lowest offer and priority 

shall be afforded to such bids and offers 

in the sequence in which they are made. 

In situations where the sequence cannot 

be determined, Floor Participants are 

treated on an equal basis and receive an 

equal number of contracts to the extent 

mathematically possible.224 The 

Exchange believes that Rule 7610 is 

designed to be a fair and impartial 

method of trade allocation, to promote 

competition between Floor Participants, 

and to encourage quick responses of 

bids and offers at the best available 

prices. Additionally, consistent and 

objective trade allocation on the BOX 

Trading Floor may encourage FLEX 

Market Makers to provide liquidity 

which may improve the quality of 

responses to FOO Orders. The Exchange 

notes that Rule 7610 is currently 

applicable to QOO Orders on the BOX 

Trading Floor 225 and that other 

exchanges use a similar procedure.226

Further, if interest remains after Floor 

Participants that responded with 

interest receive their allocation, the 

remaining quantity of the initiating side 

of the FOO Order will be allocated to 

the executing Floor Broker. This 

allocation is designed to further 

incentivize Floor Brokers after first 

allowing Floor Participants an 

opportunity to participate in the trade. 

The Exchange believes that the 

proposed rule change to add certain 

proposed rules as eligible for a minor 

rule fine disposition under its MRVP 

will assist the Exchange in preventing 

fraudulent and manipulative acts and 

practices and promoting just and 

equitable principles of trade, and will 

serve to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, protect 

investors and the public interest. The 

Exchange believes violations of 

proposed Rules 7605 and 7605(h) to be 

minor in nature and therefore proposes 

to add them to the list of rules in Rule 

12140(e) eligible for a minor rule fine 

disposition. Further, the Exchange will 

be able to carry out its regulatory 

responsibility more quickly and 

efficiently by incorporating these 

violations into the MRVP. The Exchange 

notes that these violations are consistent 

with violations at other options 

exchanges.227 The Exchange also notes 

that the proposed additional violations 

are similar to minor rule violations 

already designated in the Exchange’s 

MRVP for activities related to the 

Trading Floor. 

The Exchange believes that amending 

Rule 7620 and IM–7620–1 to exclude 

FLEX Equity Options is consistent with 

proposed Rule 5055(c) which provides 

that Rule 7620 shall not apply to 

transactions in FLEX Equity Options. 

The amendment is designed to provide 

clarity by adding FLEX Equity Options 

to the exclusion list in Rule 7620 and 

IM–7620–1 to clarify that neither 


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228FLEX options are currently traded on CBOE, 

NYSE American, NYSE Arca, and PHLX. 

229 15 U.S.C. 78k(a)(1). 

230 15 U.S.C. 78k(a)(1)(A)–(I). 

231 17 CFR 240.11a2–2(T). 

232A Floor Broker may utilize the Trading Floor 

to effect a transaction for a covered account only 

pursuant to Rule 7540 and for purposes of 

liquidating error positions. 

233See proposed Rule 5055(c) (stating that IM– 

7600–5 shall apply to FLEX Equity Options). 

234 15 U.S.C. 78k(a)(1)(G). Section 11(a)(1)(G) of 

the Act provides an exemption from the general 

prohibition in Section 11(a)(1) of the Act for any 

transaction for a member’s own account, provided 

that: (i) such member is primarily engaged in the 

business of underwriting and distributing securities 

issued by other persons, selling securities to 

customers, and acting as broker, or any one or more 

of such activities, and whose gross income normally 

is derived principally from such business and 

related activities; and (ii) such transaction is 

effected in compliance with rules of the 

Commission which, as a minimum, assure that the 

transaction is not inconsistent with the 

maintenance of fair and orderly markets and yields 

priority, parity, and precedence in execution to 

orders for the account of persons who are not 

members or associated with members of the 

exchange. See also 17 CFR 240.11a1–1(T) (setting 

forth requirements for relying on the G Exemption). 

235Section 11(a) of the Act and the rules 

thereunder provide other exemptions to the Section 

11(a)(1) prohibition, including, for example, the 

‘‘effect versus execute’’ exemption (as discussed 

below), the exemption for transactions by a dealer 

acting in the capacity of a market maker, and the 

exemption for transactions to offset a transaction 

made in error. 

236 17 CFR 240.11a2–2(T). 

237This prohibition also applies to associated 

persons of the initiating Participant. The Participant 

may, however, participate in clearing and settling 

the transaction. 

238The Commission has previously found that the 

all-electronic transactions effected through the 

Trading Host are consistent with the requirements 

of Section 11(a) of the Act and Rule 11a2–2(T) 

thereunder. See, e.g., Securities Exchange Act 

Release Nos. 72848 (August 14, 2014), 79 FR 49361 

(August 20, 2014) (SR–BOX–2014–16) (order 

approving the Exchange’s proposal to adopt new 

trade allocation algorithms for matching trades at 

the conclusion of the PIP and the COPIP); and 

66871 (April 27, 2012), 77 FR 26323 (May 3, 2012) 

(order granting the Exchange’s application for 

registration as a national securities exchange). The 

Commission has also found that transactions 

effected by Participants through the Trading Floor 

are consistent with the requirements of Section 

11(a) of the Act and Rule 11a2–2(T) thereunder. See 

Securities Exchange Act Release No. 81292 (August 

2, 2017), 82 FR 37144 (August 8, 2017) (SR–BOX– 

2016–48) (order approving the Exchange’s proposal 

to adopt rules for an open-outcry Trading Floor). 

239See, e.g., Securities Exchange Act Release Nos. 

15533 (January 29, 1979), 44 FR 6084 (January 31, 

1979); and 14563 (March 14, 1978), 43 FR 11542 

(March 17, 1978) (‘‘1978 Release’’). 

Cabinet orders nor Sub-Penny Cabinet 

orders will be available for FLEX Equity 

Options. The Exchange believes further 

that this amendment will protect 

investors and the public interest by 

removing potential ambiguity between 

Rule 7620 and proposed Rules 5055 and 

7605 and is therefore consistent with 

the Act. 

Lastly, the amendment of Rule 

100(b)(3) to remove specific rule 

references is designed to clarify that all 

Exchange options transactions shall be 

executed automatically by the Trading 

Host as provided in applicable 

Exchange Rules. The Exchange believes 

that this amendment will protect 

investors and the public interest by 

removing potential ambiguity created by 

a list of specific rule references that may 

not be complete and is therefore 

consistent with the Act. 

The Exchange reiterates that FLEX 

Equity Options are currently traded on 

four other options exchanges currently 

conducting options trading.228

Therefore, the proposed rules perfect 

the mechanism of a free and open 

market and protect investors and the 

public interest by establishing FLEX 

Equity Options and FOO Orders on the 

BOX Trading Floor, which would 

provide market participants an 

additional execution venue to provide 

and seek liquidity for their customized 

orders, thereby increasing the 

opportunities to execute such orders to 

the benefit of all market participants. 

Section 11(a) Analysis 

The proposed rule change is 

consistent with Section 11(a) of the Act 

and the rules thereunder. Section 

11(a)(1) of the Act 229 prohibits a 

member of a national securities 

exchange from effecting transactions on 

that exchange for its own account, the 

account of an associated person, or an 

account over which it or its associated 

person exercises investment discretion 

(collectively, ‘‘covered accounts’’), 

unless an exception applies. Sections 

11(a)(1)(A)–(I) of the Act 230 and the 

rules thereunder provide certain 

exemptions from this general 

prohibition, including the exemption set 

forth in Rule 11a2–2(T) under the 

Act.231 The proposed rule change would 

not limit in any way the obligation of a 

Participant, while acting as a Floor 

Broker or otherwise, to comply with 

Section 11(a) of the Act or the rules 

thereunder.232

As described above, the Exchange 

proposes to apply existing IM–7600–5 to 

FLEX Equity Options,233 which states 

that a Participant shall not utilize the 

Trading Floor to effect any transaction 

for a covered account by relying on the 

G Exemption.234 Because no covered 

account transactions utilizing the 

Trading Floor may rely on the G 

Exemption, Participants utilizing the 

Trading Floor to effect transactions for 

covered accounts may only rely upon 

other exemptions to the Section 11(a)(1) 

prohibition.235

In addition to statutory exemptions, 

Rule 11a2–2(T) under the Act,236 known 

as the ‘‘effect versus execute’’ rule, 

provides Participants with an 

exemption from the Section 11(a)(1) 

prohibition. Rule 11a2–2(T) permits a 

Participant, subject to certain 

conditions, to effect transactions for 

covered accounts by arranging for an 

unaffiliated Participant, acting as a 

Floor Broker, to execute transactions on 

the Exchange. To comply with Rule 

11a2–2(T)’s conditions, the initiating 

Participant: (i) must transmit the order 

from off the Trading Floor; (ii) may not 

participate in the execution of the 

transaction once the order has been 

transmitted to the Participant 

performing the execution; 237 (iii) may 

not be affiliated with the executing 

Participant; and (iv) with respect to an 

account over which the Participant or 

an associated person has investment 

discretion, neither the Participant nor 

an associated person may retain any 

compensation in connection with 

effecting the transaction except as 

provided in the Rule. For the reasons set 

forth below, the Exchange believes that 

Participants utilizing FOO Orders on the 

Trading Floor may comply with the 

conditions of Rule 11a2–2(T) under the 

Act.238

Rule 11a2–2(T)’s first requirement is 

that orders for covered accounts be 

transmitted from off the Trading Floor. 

The Commission has found that the offfloor transmission requirement is met if 

a covered account order is transmitted 

from a remote location directly to an 

exchange’s floor by electronic means.239

Floor Brokers will receive matched or 

unmatched orders either via telephone, 

or electronically to the Floor Broker’s 

order entry mechanism. A Participant 

could submit an order for a covered 

account from off the Trading Floor to an 

unaffiliated Floor Broker for 

representation on the Trading Floor and 

use the ‘‘effect versus execute’’ 

exemption (assuming the other 

conditions of the rule are satisfied). A 

Participant that submits a FOO Order 

for a covered account utilizing the 

Trading Floor, and who wishes to rely 

on the ‘‘effect versus execute’’ 

exemption, must submit the order from 

off the Trading Floor. 

Second, Rule 11a2–2(T) requires that 

neither the initiating Participant nor an 

associated person of the initiating 

Participant participate in the execution 

of the transaction at any time after the 

order for the transaction has been 

transmitted. At no time following the 

submission of a FOO Order utilizing the 

Trading Floor will the submitting 


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240A Participant may cancel or modify the FOO 

Order, or modify the instructions for executing the 

FOO Order. The Commission has stated that the 

nonparticipation requirement is satisfied under 

such circumstances so long as the modifications or 

cancellations are also transmitted from off the floor. 

See 1978 Release, supra note 239, at 11547 (stating 

that the ‘‘non-participation requirement does not 

prevent initiating members from canceling of 

modifying orders (or the instructions pursuant to 

which the initiating member wishes orders to be 

executed) after the orders have been transmitted to 

the executing member, provided that any such 

instructions are also transmitted from off the 

floor’’). 

241See proposed Rule 7600(c). 

242See proposed Rule 7600(a). 

243 In addition, Rule 11a2–2(T)(d) requires that, if 

a Participant or associated person is authorized by 

written contract to retain compensation in 

connection with effecting transactions for covered 

accounts over which the Participant or associated 

person thereof exercises investment discretion, the 

Participant or associated person must furnish at 

least annually to the person authorized to transact 

business for the account a statement setting forth 

the total amount of compensation retained by the 

Participant or any associated person thereof in 

connection with effecting transactions for the 

account during the period covered by the statement. 

See 17 CFR 240.11a2–2(T)(d). See also 1978 

Release, supra note 239, at 11548 (stating that ‘‘[t]he 

contractual and disclosure requirements are 

designed to assure that accounts electing to permit 

transaction-related compensation do so only after 

deciding that such arrangements are suitable to 

their interests’’). 244See supra note 48. 

Participant or any associated person of 

such Participant acquire control or 

influence over the result or timing of the 

order’s execution.240 In addition, once a 

Floor Broker submits a FOO order to the 

BOG for execution, neither the Floor 

Broker nor anyone else may alter the 

terms of the order.241 Moreover, when a 

Floor Broker submits a FOO Order for 

execution, the order will be executed in 

accordance with Exchange rules and 

based on market conditions of when the 

order is received by the Trading Host.242

Accordingly, a Participant and its 

associated persons would not 

participate in the execution of a FOO 

Order submitted for execution utilizing 

the Trading Floor. 

Third, Rule 11a2–2(T) requires that 

the order be executed by a Participant 

that is not associated with the 

Participant initiating the order. To rely 

on the exemption in Rule 11a2–2(T), a 

Participant could submit a FOO Order 

for a covered account from off the 

Trading Floor to an unaffiliated Floor 

Broker. A Participant relying on Rule 

11a2–2(T) could not submit a FOO 

Order for a covered account to its 

‘‘house’’ Floor Broker on the Trading 

Floor for execution. If a Participant 

sends its FOO Order from off the floor 

to an affiliated Participant that is on the 

floor, who then directs the order into 

the Trading Host for execution, the offfloor Participant may not rely on the 

exemption in Rule 11a2–2(T). 

Fourth, in the case of a transaction 

effected for an account with respect to 

which the initiating Participant or an 

associated person thereof exercises 

investment discretion, neither the 

initiating Participant nor any associated 

person may retain any compensation in 

connection with effecting the 

transaction, unless the person 

authorized to transact business for the 

account has expressly provided 

otherwise by written contract referring 

to Section 11(a) of the Act and Rule 

11a2–2(T) thereunder.243 Participants 

and their associated persons trading for 

covered accounts over which they 

exercise investment discretion must 

comply with this condition in order to 

rely on the rule’s exemption. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange notes that other exchanges 

currently offer FLEX option trading on 

their respective trading floors. The 

Exchange believes that the proposed 

rules will allow BOX to compete with 

these other exchanges and provide an 

additional execution venue for these 

transactions for market participants. 

Thus, the proposed rules will promote 

intermarket competition by increasing 

the number of exchanges where FLEX 

Equity Options can be traded. The 

proposal also promotes intermarket 

competition by providing another 

alternative, exchange markets, to 

bilateral OTC trading of options with 

flexible terms. Exchange markets, in 

contrast with bilateral OTC trading, are 

centralized, transparent, and have the 

guarantee of the OCC for options traded. 

Additionally, the Exchange believes 

that this proposal does not impose an 

undue burden on intramarket 

competition because Participants are not 

required to trade FLEX Equity Options 

and those that choose to trade FLEX 

Equity Options may do so on the same 

terms and pursuant to the same rules. 

To the extent that the proposed rules 

differ for FLEX Market Makers and 

Floor Brokers, these differences are 

based on the unique roles and 

obligations of Floor Brokers (e.g., 

systemization, announcement, and 

allocation of orders) and FLEX Market 

Makers (e.g., quoting in response to 

orders). Additionally, any burden on 

intramarket competition imposed by 

providing Floor Brokers with a 

guaranteed trade allocation on certain 

trades is mitigated by the facts that 

FLEX Market Maker quotes at better 

prices are allocated first and FLEX 

Market Makers may still participate after 

the Floor Broker’s guarantee at the same 

price. Further, the Exchange notes that 

Floor Brokers source liquidity for the 

contra side of a two-sided order that 

may otherwise be unavailable on the 

Trading Floor due to the size and 

complexity of the order. The proposed 

guarantee provides greater opportunity 

for the contra-side to participate in the 

trade which facilitates Floor Brokers in 

their generation of contra-side interest 

and increases the likelihood of securing 

sufficient contra-side interest. FLEX 

Market Makers do not construct twosided orders and thus are not provided 

a guarantee. However, FLEX Market 

Makers may benefit from the Floor 

Broker guarantee as the guarantee is 

designed to incentivize Floor Brokers to 

bring their FLEX orders to the BOX 

Trading Floor where FLEX Market 

Makers have the ability to interact with 

these orders. The Exchange also does 

not believe the proposed rule change 

imposes any undue burden on 

intramarket competition between 

Participants that trade FLEX Equity 

Options and those that trade Non-FLEX 

Equity Options. As described above, the 

Exchange has proposed to use 

substantially similar procedures for the 

trading of QOO Orders and FOO Orders, 

with any modifications designed to 

reflect the unique nature of 

customizable FLEX Equity Options. The 

Exchange notes further that proposed 

Rule 5055(f) would prevent any FLEX 

Equity Options and Non-FLEX Equity 

Options with the same terms from 

trading concurrently on the Exchange, 

with a narrow exception for closing only 

orders.244

Lastly, the proposed MRVP changes 

are not intended to address competitive 

issues but rather are concerned solely 

with updating the Exchange’s MRVP in 

connection with the proposed rules 

eligible for a minor rule fine disposition. 

Further, the proposal relates to the 

Exchange’s role and responsibilities as a 

self-regulatory organization and the 

manner in which it disciplines its 

Participants and associated persons for 

violations of its rules. The Exchange 

believes the proposed MRVP changes, 

overall, will strengthen the Exchange’s 

ability to carry out its oversight and 

enforcement functions and deter 

potential violative conduct. 

Based on the foregoing, the Exchange 

believes that the proposed rule changes 

discussed herein do not impose any 

burden on competition not necessary or 


ddrumheller on DSK120RN23PROD with NOTICES1
64504 Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Notices 

245 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3References herein to Phlx Rules in the 3000 

Series shall mean Rules in Phlx Equity 4. 

4See Securities Exchange Act Release No. 34– 

98225 (August 16, 2023), 88 FR 60255 (August 31, 

2023) (SR–NASDAQ–2023–030). The Exchange’s 

proposal differs from that of Nasdaq in that it 

excludes changes to Order Types and Attributes 

that are inapplicable to the Exchange due to its 

absence of opening and closing crosses. 

5Pursuant to Rule 3301B(b)(5)(A), a ‘‘Market 

Maker Peg Order’’ is an Order Type designed to 

allow a Market Maker to maintain a continuous 

two-sided quotation at a displayed price that is 

compliant with the quotation requirements for 

Market Makers set forth in Equity 2, Section 5(a)(2). 

The displayed price of the Market Maker Peg Order 

is set with reference to a ‘‘Reference Price’’ in order 

to keep the displayed price of the Market Maker Peg 

Order within a bounded price range. The Reference 

Price for a Market Maker Peg Order to buy (sell) is 

the then-current National Best Bid (National Best 

Offer), or if no such National Best Bid or National 

Best Offer, the most recent reported last-sale eligible 

trade from the responsible single plan processor for 

that day, or if none, the previous closing price of 

the security as adjusted to reflect any corporate 

actions (e.g., dividends or stock splits) in the 

security. 

appropriate in furtherance of the 

purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange has neither solicited 

nor received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission shall: (a) by order 

approve or disapprove such proposed 

rule change, or (b) institute proceedings 

to determine whether the proposed rule 

change should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

BOX–2023–20 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–BOX–2023–20. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–BOX–2023–20 and should be 

submitted on or before October 10, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.245

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–20171 Filed 9–18–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98377; File No. SR–Phlx– 

2023–43] 

Self-Regulatory Organizations; Nasdaq 

PHLX LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Equity 4, 

Rules 3301A and 3301B 

September 13, 2023. 

Pursuant to section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 5, 2023, Nasdaq PHLX LLC 

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Equity 4, Rules 3301A and 3301B.3

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/phlx/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange 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 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes amendments 

to its Rules to address inconsistencies 

between the Rule Text and observed 

System behavior as well as behavior 

unaccounted for in the existing Rule 

text, as follows. This proposal is similar 

to a rule change filed by the Exchange’s 

sister exchange, the Nasdaq Stock 

Market, LLC, on August 16, 2023.4

First Rule Change 

The first proposed rule change 

addresses an edge case of inconsistency 

between the Rule text and System 

behavior, this time regarding Market 

Maker Peg Orders.5 Rule 3301A states 

that, if after entry of a Market Maker Peg 


ddrumheller on DSK120RN23PROD with NOTICES1