[Federal Register Volume 83, Number 111 (Friday, June 8, 2018)]
[Notices]
[Pages 26719-26724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12319]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83367; File No. SR-BOX-2018-14]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing of Proposed Rule Change To Adopt Rules Governing the Trading 
of Complex Qualified Contingent Cross and Complex Customer Cross Orders

June 4, 2018.
    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 May 22, 2018, BOX Options 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 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to adopt rules governing the trading of 
Complex Qualified Contingent Cross and Complex Customer Cross Orders. 
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

[[Page 26720]]

Exchange's internet website at http://boxoptions.com.

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 is proposing rules that will make existing 
functionality available to additional order types on BOX. Specifically, 
the Exchange is proposing rules to codify Complex Customer Cross Orders 
and Complex Qualified Contingent Cross (``QCC'') Orders on the 
Exchange.\3\ The Exchange notes that the proposed changes are similar 
to the rules of another exchange.\4\ In addition, the Exchange is 
proposing to expand certain Complex Order protections to the newly 
codified QCC Order and Complex Customer Cross Orders.\5\
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    \3\ See https://boxoptions.com/assets/RC-2017-11-CC_QCC_cNBBO-July-10-Implementation-1.pdf.
    \4\ See MIAX Rules 518(b)(5), 515(h)(3), 515(h)(4) and 
518(b)(6).
    \5\ See SR-BOX-2018-13.
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Complex Customer Cross Orders
    First, the Exchange is proposing to add text related to Complex 
Customer Cross Orders. Proposed Rule 7240(b)(4)(iii) defines a Complex 
Customer Cross Order as a type of Complex Order which is comprised of 
one Public Customer Complex Order to buy and one Public Customer 
Complex Order to sell (the same strategy) at the same price and for the 
same quantity.\6\
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    \6\ Proposed Rule 7240(b)(4)(iii) is based on MIAX Rule 
518(b)(5).
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    The Exchange uses the same crossing mechanism for the processing 
and execution of Complex Customer Cross Orders that is used for 
Customer Cross Orders in the regular market. Accordingly, proposed Rule 
7110(c)(7) shall govern the trading of Complex Customer Cross Orders, 
as defined in Rule 7240(b)(4)(iii), on BOX. Proposed Rule 7110(c)(7) 
describes the execution price requirements that are specific to Complex 
Customer Cross Orders.\7\ Specifically, Complex Customer Cross Orders 
are automatically executed upon entry provided that the execution (i) 
is at least $0.01 better than (inside) the cBBO \8\ and any Public 
Customer Complex Order on the Complex Order Book; \9\ (ii) is at or 
better than any non-Public Customer Complex Order on the Complex Order 
Book; and (iii) is at or between the cNBBO.\10\ The purpose of the 
requirement that the execution must be at least $0.01 better than the 
cBBO is to ensure that there is no interference between the regular and 
complex markets. The purpose of the requirement that the execution must 
be at least $0.01 better than any Public Customer Complex Order on the 
Complex Order Book is to ensure that the Complex Customer Cross Order 
does not trade in front of any resting Public Customer Complex Orders. 
The purpose of the requirement that the Complex Customer Cross Order be 
executed at or between the cNBBO is to ensure that net execution price 
is within the best net price available in the market and is in line 
with the requirement that simple Customer Cross Orders must execute at 
or within the NBBO.
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    \7\ Proposed Rule 7110(c)(7) is based on MIAX Rule 515(h)(3).
    \8\ The term ``cBBO'' means the best net bid and offer price for 
a Complex Order Strategy based on the BBO on the BOX Book for the 
individual options components of such Strategy. See Rule 7240(a)(1).
    \9\ The term ``Complex Order Book'' means the electronic book of 
Complex Orders maintained by the BOX Trading Host. See Rule 
7240(a)(8).
    \10\ The term ``cNBBO'' means the best net bid and offer price 
for a Complex Order Strategy based on the NBBO for the individual 
options components of such Strategy. See Rule 7240(a)(3).
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    The system will reject a Complex Customer Cross Order if, at the 
time of receipt of the Complex Customer Cross Order, the strategy is 
subject to an ongoing auction (including COPIP, Facilitation, and 
Solicitation auctions) or there is an exposed order on the strategy 
pursuant to Rule 7240(b)(3)(B). The purpose of this provision is to 
maintain an orderly market by avoiding the execution of Complex 
Customer Cross Orders with components that are involved in other system 
functions that could affect the execution price of the Complex Customer 
Cross Order, and by avoiding concurrent processing on the Exchange 
involving the same strategy.
    Proposed Rule 7110(c)(7)(i) states that Complex Customer Cross 
Orders will be automatically cancelled if they cannot be executed. 
Proposed Rule 7110(c)(7)(ii) provides that Complex Customer Cross 
Orders may only be entered in the minimum trading increments applicable 
to Complex Orders under Rule 7240(b)(1).
    As a regulatory matter, proposed Rule 7110(c)(7)(iii) states that 
IM-7140-1 applies to the entry and execution of Complex Customer Cross 
Orders.\11\
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    \11\ Rule 7140(b) prevents an Options Participant executing 
agency orders to increase its economic gain from trading against the 
order without first giving other trading interest on BOX an 
opportunity to trade with the agency order pursuant to Rule 7150 
(Price Improvement Period), Rule 7245 (Complex Order Price 
Improvement Period) or Rule 7270 (Block Trades). However, the 
Exchange recognizes that it may be possible for an Options 
Participant to establish a relationship with a Customer or other 
person (including affiliates) to deny agency orders the opportunity 
to interact on BOX and to realize similar economic benefits as it 
would achieve by executing agency orders as principal. It will be a 
violation of this Rule for an Options Participant to circumvent this 
Rule by providing an opportunity for a Customer or other person 
(including affiliates) to execute against agency orders handled by 
the Options Participant immediately upon their entry into the 
Trading Host. See IM-7140-1.
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    The following example illustrates the execution of a Complex 
Customer Cross Order:

Example 1--Execution of a Complex Customer Cross Order

BOX Leg A Book: 6.00-6.50
BOX Leg B Book: 3.00-3.30

Strategy: Buy A Call, Sell B Call

The cNBBO is 2.70-3.20
The cBBO is 3.00-3.20

    The Complex Order Book contains a Public Customer order to sell 
the strategy at 3.20.
    The Exchange receives a Complex Customer Cross Order 
representing Public Customers on both sides for the simultaneous 
purchase and sale of the strategy at a price of 3.19.
    The order price is at least $0.01 better than (inside) the cBBO 
and the Public Customer Complex Order on the Complex Order Book. 
Additionally, the order price is at or between the cNBBO. Therefore, 
the Complex Customer Cross Order is automatically executed upon 
entry.

    The Exchange notes that the proposed rules for Complex Customer 
Cross Orders are based on the rules of another exchange with certain 
minor differences.\12\ First, the MIAX Rule requires the execution 
price to be better than the best net price of a complex order. The 
proposal requires the execution price to be better than any Public 
Customer Complex Orders on the Complex Order Book and no worse than the 
price of any non-Public Customer Complex Orders. The Exchange believes 
this difference is minor because the execution price must respect the 
orders on the Complex Order Book and not trade ahead of Public Customer 
Orders on the Complex Order Book, which is in line with regular 
Customer Cross

[[Page 26721]]

Orders. Pursuant to Rule 7110(c)(5) a Customer Cross Order must execute 
at a price that is at or between the best bid and offer on BOX and is 
not at the same price as a Public Customer Order on the BOX Book. 
Additionally, the Exchange is proposing to have the execution price be 
within the cNBBO, which MIAX does not provide. The Exchange believes 
this difference is minor because the Exchange is simply ensuring that 
the execution price respect the best net prices available in the 
market. Additionally, similarly to the above, regular Complex Cross 
Orders may not trade through the NBBO.
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    \12\ See MIAX Rules 515(h)(3) and 518(b)(5).
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    Next, although both the proposed Rule and MIAX's Rule require the 
execution to be at least $0.01 better than best price based on orders 
on the regular books, MIAX includes non-displayed trading interest when 
determining the best price based on the regular books, which the 
Exchange is not proposing because the Exchange does not have non-
displayed interest.
    Lastly, MIAX rejects a Complex Customer Cross Order if, at the time 
of receipt, any component of the strategy is subject to a PRIME 
Auction, a Route Timer, or liquidity refresh pause. The Exchange is not 
proposing the same conditions.\13\ With respect to not rejecting when a 
component is subject to an auction, the Exchange notes that this 
approach is in line with the treatment of a COPIP when there is an 
ongoing PIP on a component of the Complex Order. Specifically, the 
Exchange will accept Complex Orders designated for the COPIP where 
there is a PIP on an individual component.\14\ Further, in order to 
ensure orderly markets involving multiple Complex Orders with common 
components, the Exchange is proposing additional circumstances in which 
a Complex Customer Cross Order will be rejected, specifically, when 
there is an exposed order on the strategy pursuant to rule 
7240(b)(4)(iii), or there is an ongoing Facilitation or Solicitation 
auction on the strategy.
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    \13\ BOX notes that it does not have either the Route Timer or 
liquidity refresh pause features on the Exchange. As such, BOX is 
not proposing to include these features under the Proposal.
    \14\ See IM-7245-2.
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Complex QCC Orders
    Next, the Exchange is proposing to add text related to Complex QCC 
Orders. Pursuant to proposed Rule 7240(b)(4)(iv), a Complex QCC Order 
is comprised of an originating Complex Order to buy or sell where each 
component is at least 1,000 contracts that is identified as being part 
of a qualified contingent trade \15\ coupled with a contra-side Complex 
Order or orders totaling an equal number of contracts.\16\
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    \15\ A ``qualified contingent trade'' is a transaction 
consisting of two or more component orders, executed as agent or 
principal, where: (1) At least one component is an NMS Stock, as 
defined in Rule 600 of Regulation NMS under the Exchange Act; (2) 
all components are effected with a product or price contingency that 
either has been agreed to by all the respective counterparties or 
arranged for by a broker-dealer as principal or agent; (3) the 
execution of one component is contingent upon the execution of all 
other components at or near the same time; (4) the specific 
relationship between the component orders (e.g., the spread between 
the prices of the component orders) is determined by the time the 
contingent order is placed; (5) the component orders bear a 
derivative relationship to one another, represent different classes 
of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or cancelled; and (6) the transaction is fully hedged 
(without regard to any prior existing position) as a result of other 
components of the contingent trade. See IM-7110-2.
    \16\ Proposed Rule 7240(b)(4)(iv) is based on MIAX Rule 
518(b)(6).
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    The Exchange uses the same crossing mechanism for the processing 
and execution of Complex QCC Orders that is used for QCC Orders in the 
regular market.\17\ Accordingly, proposed Rule 7110(c)(8) shall govern 
trading of Complex QCC Orders, as defined in Rule 7240(b)(4)(iv), on 
BOX. Proposed Rule 7110(c)(8) describes the execution price 
requirements that are specific for Complex QCC Orders.\18\ 
Specifically, Complex QCC Orders are automatically executed upon entry 
provided that the execution (i) is not at the same price as a Public 
Customer Complex Order; (ii) is at least $0.01 better than (inside) the 
cBBO; (iii) is at or better than any non-Public Customer Complex on the 
Complex Order Book; and (iv) each option leg executes at or between the 
NBBO. The purpose of the requirement that the execution must be at 
least $0.01 better than the cBBO is to ensure that there is no 
interference between the regular and complex markets. The purpose of 
the requirement that the execution must not be at the same price as any 
Public Customer Complex Order on the Complex Order Book is to ensure 
that the Complex Customer Cross Order does not trade in front of any 
resting Public Customer Complex Orders. The purpose of the requirement 
that the individual options legs of the Complex QCC Order be executed 
at or between the NBBO is to ensure that the execution price of each 
option leg is within the best price available in the market and is in 
line with the requirement that simple QCC Orders must execute at or 
within the NBBO.
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    \17\ See Securities Exchange Act Release No. 80661 (May 11, 
2017), 82 FR 22682 (May 17, 2017) (SR-BOX-2017-14). The Exchange 
notes that regular QCC Orders on BOX are allowed to execute 
automatically on entry without exposure provided the execution: (i) 
Is not at the same price as a Public Customer Order on the BOX Book; 
and (2) is at or between the NBBO.
    \18\ Proposed Rule 7110(c)(8) is based on MIAX Rule 515(h)(4).
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    The system does not consider the NBBO price for the stock component 
because the Exchange does not execute the stock component; the Exchange 
executes the option components at a net price and ensures that, among 
other things, the execution price of (i) the strategy is at least $0.01 
better than the cBBO; and (ii) each option leg is at or between the 
NBBO.
    The Exchange believes the proposed Complex QCC pricing methodology 
aligns with the Qualified Contingent Trade (``QCT'') Exemption, as 
defined below. The parties to a contingent trade are focused on the 
spread or ratio between the transaction prices for each of the 
component instruments (i.e., the net price of the entire contingent 
trade), rather than on the absolute price of any single component. 
Pursuant to the requirements of the NMS QCT Exemption, the spread or 
ratio stands regardless of the market prices of the individual orders 
at their time of execution. As the Commission noted in the Original QCT 
Exemption, ``the difficulty of maintaining a hedge, and the risk of 
falling out of hedge, could dissuade participants from engaging in 
contingent trades, or at least raise the cost of such trades.'' Thus, 
the Commission found that, if each stock leg of a qualified contingent 
trade were required to meet the trade-through provisions of Rule 611 of 
Regulation NMS, such trades could become too risky and costly to be 
employed successfully and noted that the elimination or reduction of 
this trading strategy potentially could remove liquidity from the 
market.\19\ This is also true for QCC Orders in options, and thus the 
Exchange believes that its proposal is consistent with the Original QCT 
Exemption.\20\
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    \19\ See Securities Exchange Act Release No. 54389 (August 31, 
2006), 71 FR 52829 (September 7, 2006) (``Original QCT Exemption'').
    \20\ The Exchange represents that QCTs will be subject to 
existing trading surveillance administered by the Financial Industry 
Regulatory Authority (``FINRA'') on behalf of the Exchange, which 
are designated to detect violations of Exchange rules and applicable 
federal securities laws. The Exchange believes the existing 
surveillance of QCTs is sufficient to ensure compliance with the 
proposed rule.
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    The system will reject a Complex QCC Order if, at the time of 
receipt of the Complex QCC Order, the strategy is subject to an ongoing 
auction (including COPIP, Facilitation, and Solicitation

[[Page 26722]]

auctions) or there is an exposed order on the strategy pursuant to Rule 
7240(b)(3)(B). The purpose of this provision is to maintain an orderly 
market by avoiding the execution of Complex QCC Order with components 
that are involved in other system functions that could affect the 
execution price of the Complex QCC Order, and by avoiding concurrent 
processing on the Exchange involving the same strategy.
    Proposed Rule 7110(c)(8)(i) states that Complex QCC Orders will be 
automatically cancelled if they cannot be executed. Proposed Rule 
7110(c)(8)(ii) provides that Complex QCC Orders may only be entered in 
the minimum trading increments applicable to Complex Orders under Rule 
7240(b)(1).
    The following example illustrates the execution of a Complex QCC 
Order:

Example 2--Execution of a Complex QCC Order

BOX Leg A Book: 6.00-6.60
BOX Leg B Book: 3.00-3.30
Leg A NBBO: 6.00-6.60
Leg B NBBO: 3.00-3.30

Strategy: Buy A Call, Sell B Call

The cBBO is 2.70-3.30
The cNBBO is 2.70-3.30
    The Complex Order Book contains a broker-dealer order to sell 
the strategy at 3.29.

    The Exchange receives a Complex QCC Order for the simultaneous 
purchase and sale of the strategy at a net price of 3.29, 1,000 times. 
Since the order can be executed at or between the NBBO for each leg of 
the strategy, is not at a worse price than the non-Public Customer 
Order on the Complex Order Book, is at least $0.01 better than the cBBO 
and the order size is met, the Complex QCC Order is automatically 
executed upon entry.
    The proposed rules governing Complex QCC Orders are based on the 
rules of another exchange with certain differences.\21\ First, MIAX 
requires the individual legs be executed not at the same price as a 
Priority Customer Order on the book. The Exchange does not propose to 
include this provision of MIAX's rule as the BOX system handles Complex 
Orders differently. Specifically, Complex Orders on BOX are executed at 
a net debit or credit, and therefore it is understandable that the 
execution parameters would be controlled by the net price of the 
strategy rather than the individual legs. A Complex Order may execute 
as a net credit or debit with one other Participant; provided, the 
price of at least one leg of the Complex Order must trade at a price 
that is better than the corresponding bid or offer in the marketplace 
by at least one minimum trading increment (i.e., one cent) as set forth 
in Rule 7240(b)(1).\22\ As such, and to stay in line with how Complex 
Orders are handled on BOX, the Exchange is proposing that the net 
execution price of the Complex QCC Order be better than the cBBO. As 
discussed above, this is in line with the approach to Complex Orders in 
general on the Exchange. Further, the Exchange believes it is important 
to respect all interest in the regular Book and not only Public 
Customer interest, as is the case with MIAX, which is why the Exchange 
requires the Complex QCC Order to be better than the cBBO.
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    \21\ See MIAX Rules 515(h)(4) and 518(b)(6).
    \22\ See Rule 7240(b)(2)(1)(i). In addition, Complex Qualified 
Open Outcry Orders may be executed at a price without giving 
priority to equivalent bids or offers in the individual series legs 
on the initiating side, provided at least one options leg betters 
the corresponding bid or offer on the BOX Book by at least one 
minimum trading increment (i.e., one cent) as set forth in Rule 
7240(b)(1). See 7600(c).
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    To illustrate this, assume a Complex QCC Order at $2.01 is received 
by the system for strategy A+B. There is a Public Customer Order to buy 
leg A on the Book for $1.00 and a Public Customer Order to buy leg B on 
the Book for $1.00. Under the proposal, the Complex QCC Order would be 
accepted by the system because the execution price is at least $0.01 
better than the cBBO.\23\ The Exchange does not believe that this 
result harms the resting Public Customer Orders.\24\ Specifically, 
given the execution price of $2.01, the sell side of the Complex QCC 
Order could not interact with the resting Public Customer Orders 
because there is no interest on the individual legs that, when 
combined, equal the execution price of $2.01. If, however, in addition 
to the Public Customer order to buy leg B at $1.00 there is a non-
Public Customer order to buy leg B at $1.01, the Complex QCC Order at 
$2.01 would be rejected. This is because the execution price is no 
longer better than the cBBO.\25\ As such, the Public Customer Order on 
leg A is protected because there is interest on the individual leg 
Books that, when combined, equal the proposed execution price of the 
Complex QCC Order. Further, since the agreed upon price between market 
participants was $2.01, it would be detrimental to require the order to 
be executed at a worse price than is necessary. While the BOX proposal 
does not have the same price protection for Public Customers as MIAX 
Complex QCC rule, the Exchange believes the proposal, which provides a 
level of price protection to all Participants, remains consistent with 
the Act.
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    \23\ Assume for the example that the cBBO is 2.00-5.00. The 2.00 
bid is comprised of the Public Customer Orders on the individual leg 
books and 5.00 is a resting Complex Order.
    \24\ As outlined in the proposal, this is consistent with how 
the system currently handles the interaction between Complex Orders 
and the individual leg Books. The Exchange notes that the same 
behavior occurs regardless of the account of the order on the 
individual leg Books. For example, if the orders on the leg Books 
were for the account of a broker-dealer, the execution price of the 
Complex QCC would still need to be $0.01 better than the cBBO.
    \25\ The cBBO would now be 2.01-5.00.
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    The Exchange is proposing the additional requirements that the 
execution price is not at the same price as a Public Customer Complex 
Order and at or better than any non-Public Customer Complex Order on 
the Complex Order Book as compared to MIAX. The Exchange believes that 
these additional requirements are reasonable because the Exchange is 
respecting resting Complex Orders.
    Lastly, MIAX rejects a Complex QCC Order if, at the time of 
receipt, any component of the strategy is subject to a PRIME Auction, a 
Route Timer, or liquidity refresh pause. The Exchange is not proposing 
the same conditions.\26\ With respect to not rejecting when a component 
is subject to an auction, the Exchange notes that this approach is in 
line with the treatment of a COPIP when there is an ongoing PIP on a 
component of the Complex Order. Specifically, the Exchange will accept 
Complex Orders designated for the COPIP where there is a PIP on an 
individual component.\27\ Further, the Exchange notes that orders on 
the regular book are protected by the fact that the execution price 
must be at least $0.01 better than the cBBO. Additionally, in order to 
ensure orderly markets involving multiple Complex Orders with common 
components, the Exchange is proposing additional circumstances in which 
a Complex QCC Order will be rejected, specifically, when there is an 
exposed order on the strategy, or there is an ongoing Facilitation or 
Solicitation auction on the strategy.
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    \26\ BOX notes that it does not have either the Route Timer or 
liquidity refresh pause features on the Exchange. As such, BOX is 
not proposing to include these features under the Proposal.
    \27\ See IM-7245-2.
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    Lastly, the Exchange proposes to expand certain Complex Order 
protections to Complex QCC Orders and Complex Customer Cross Orders. 
Specifically, the Exchange proposes to amend Rule IM-7240-1(a)(5) and 
IM-7240(b)(5) to apply these price protection checks to Complex QCC 
Orders and Complex Customer Cross

[[Page 26723]]

Orders. The Exchange notes that another options exchange has similar 
price checks.\28\
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    \28\ See Chicago Board Options Exchange, Incorporated (``Cboe'') 
Interpretations and Polices .08(c) and (g) to Rule 6.53C.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Securities Exchange Act of 1934 
(the ``Act''),\29\ in general, and Section 6(b)(5) of the Act,\30\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in 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.
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    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
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    The proposal to amend Rules 7110 and 7240 to codify rules covering 
Complex Customer Cross and Complex QCC Orders is consistent with 
Section 6(b)(5) of the Act because this proposal promotes just and 
equitable principles of trade and protects investors and the public 
interest by providing increased opportunities for the execution of 
Complex Orders. The Exchange believes that the proposed Complex 
Customer Cross and Complex QCC Rules will benefit Participants and the 
marketplace as a whole by adopting rules that allow for the trading of 
these types of orders on the Exchange. The Exchange believes the 
proposed rules for Complex Customer Cross and Complex QCC Orders remove 
impediments to and perfects the mechanism of a free and open market and 
a national market system and will result in more efficient trading and 
enhance the likelihood of the Complex Orders executing at the best 
prices by providing additional order types resulting in potentially 
greater liquidity available for trading on the Exchange.
    The proposed rule change will provide rules that make existing 
functionality available to additional order types. Providing rules that 
make Customer Cross and QCC available for Complex Orders removes 
impediments to and perfects the mechanisms of a free and open market 
and a national market system because Participants will be given 
additional ways in which they can execute Complex Orders.
    The proposed rule change will protect investors and the public 
interest by assuring the existing priority and allocation rules 
applicable to the processing and execution of Customer Cross Orders, 
QCC Orders, and Complex Orders remains consistent with the processing 
and execution of these order types, unless otherwise specifically set 
forth in the rules.
    The Exchange further believes that the proposed methodology for the 
execution of Complex QCC Orders without consideration of the NBBO of 
the stock component is consistent with the QCT Exemption. As stated 
above, the QCT Exemption provides an exception for the stock leg of 
qualified contingent trades from trade-through requirements. Therefore, 
the system considers the NBBO of the options legs of the Complex QCC 
Order, and not the NBBO for the stock component, in calculating the 
pricing requirement for Complex QCC Orders.
    The system does not consider the NBBO price for the stock component 
because the Exchange does not execute the stock component; the Exchange 
executes the option components at a net price and ensures that the net 
execution price for the strategy (i) is at least $0.01 better than the 
cBBO; (ii) is not at the same price as a Public Customer Complex Order; 
(iii) is at or better than any non-Public Customer Complex Order on the 
Complex Order Book; and (iv) each leg is at or between the NBBO.
    The Exchange believes that the proposal to reject a Complex 
Customer Cross or Complex QCC Order at the time of receipt of the order 
when the strategy is subject to an ongoing auction (including COPIP, 
Facilitation and Solicitation auctions), or there is an exposed order 
on the strategy, removes impediments to and perfects the mechanism of a 
free and open market by ensuring orderly markets involving multiple 
complex orders with common components.
    The proposed rule change to implement a debit/credit check for 
Complex QCC and Complex Customer Cross Orders is consistent with the 
Act. With the use of debit/credit checks, the Exchange can further 
assist with the maintenance of a fair and orderly market by mitigating 
the potential risks associated with Complex Orders trading at prices 
that are inconsistent with their strategies (which may result in 
executions at prices that are extreme and potentially erroneous), which 
ultimately protects investors. This proposed implementation of the 
debit/credit check promotes just and equitable principles of trade, as 
it is based on the same general option and volatility pricing 
principles which the Exchange understands are used by market 
participants in their option pricing models.
    Additionally, the Exchange also believes that calculating a maximum 
price for true butterfly spreads, vertical spreads, and box spreads 
will assist with the maintenance of fair and orderly markets by helping 
to mitigate the potential risks associated with Complex QCC and Complex 
Customer Cross Orders trading at extreme and potentially erroneous 
prices that are inconsistent with particular Complex Order strategies. 
Further, the Exchange notes that the maximum price is designed to 
mitigate the potential risks of executions at prices that are not 
within an acceptable price range, as a means to help mitigate the 
potential risks associated with Complex Orders trading at prices that 
are inconsistent with their strategies, in addition to the debit/credit 
check. As such, the proposed rule change is designed to protect 
investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change to 
provide rules governing the trading of Complex Customer Cross and 
Complex QCC Orders will impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act. In this 
regard and as indicated above, the Exchange notes that the rule is 
being proposed as a competitive response to the rules of another 
exchange.\31\ Additionally, the proposed rule change is intended to 
promote competition by adding rules for new order types that enable 
Participants to execute Complex Orders on the Exchange. The Exchange 
believes that this enhances inter-market competition by enabling the 
Exchange to compete for this type of order flow with other exchanges 
that have similar rules and functionalities in place.
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    \31\ See MIAX Rules 515(h)(3), 515(h)(4), 518(b)(5), and 
518(b)(6).
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    Further, the Exchange does not believe that the proposed Complex 
Order protections will impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act. In this 
regard and as indicated above, the Exchange notes that the rule change 
is being proposed as a competitive response to the rules of another 
exchange.\32\ Additionally, the Exchange believes the proposed rule 
change is beneficial to Participants as it will provide increased 
protections that will prevent the execution of certain Complex Orders 
that were entered in

[[Page 26724]]

error. The Exchange believes the proposal is pro-competitive and should 
serve to attract additional Complex Orders to the Exchange. Further, 
the Exchange does not believe the proposed change will not impose a 
burden on intramarket competition because it is available to all 
Participants.
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    \32\ See supra, note 4.
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    For the reasons stated, the Exchange does not believe that the 
proposed rule changes will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act, and 
the Exchange believes the proposed change will, in fact, enhance 
competition.

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 up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#9ae8eff6ffb7f9f5f7f7fff4eee9dae9fff9b4fdf5ec"><span class="__cf_email__" data-cfemail="8af8ffe6efa7e9e5e7e7efe4fef9caf9efe9a4ede5fc">[email protected]</span></a>. Please include 
File Number SR-BOX-2018-14 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2018-14. 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 (http://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 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BOX-2018-14, and should be submitted on 
or before June 29, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12319 Filed 6-7-18; 8:45 am]
 BILLING CODE 8011-01-P


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