8318 Federal Register / Vol. 77, No. 30 / Tuesday, February 14, 2012 / Notices 

26 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The text of the proposed changes does not 

appear in CME’s rulebook but is available on CME’s 

Web site at http://www.cmegroup.com/rulebook/ 

files/s_6105_otc_fx_pai_cash_mk_to_mkt_ser_

020112_revised.pdf. 

also will be available for inspection and 

copying at the principal office of the 

Exchange. All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–BATS– 

2012–004 and should be submitted on 

or before March 6, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.26

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–3331 Filed 2–13–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66354; File No. SR–CME– 

2012–03] 

Self-Regulatory Organizations; 

Chicago Mercantile Exchange, Inc.; 

Notice of Filing and Order Granting 

Accelerated Approval of Proposed 

Rule Change to Amend Certain 

Aspects of the Performance Bond 

Regime Applicable to Cleared Only 

OTC FX Swaps 

February 8, 2012. 

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 January 

30, 2012, the Chicago Mercantile 

Exchange Inc. (‘‘CME’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change described in Items I and II 

below, which items have been prepared 

primarily by CME. The Commission is 

publishing this Notice and Order to 

solicit comments on the proposed rule 

change from interested persons and to 

approve the proposed rule change on an 

accelerated basis. 

I. Self-Regulatory Organization’s 

Statement of Terms of Substance of the 

Proposed Rule Change 

CME proposes to make certain 

changes that are related to its current 

cleared-only OTC foreign currency 

(‘‘FX’’) product offering. The proposed 

rule changes 3 would add Price 

Alignment Interest (‘‘PAI’’) functionality 

to current ‘‘cash mark-to-market’’ 

performance bond regime that applies to 

CME’s cleared-only OTC FX offering. 

A description of the revised 

performance bond regime with the 

addition of PAI is included below: 

* * * * * 

CME Forwards With Cash Mark-ToMarket 

In accordance with customer demand 

CME has begun clearing privatelynegotiated transactions in forwards with 

cash mark-to-market. 

Until October 18, 2011, all forwards 

cleared by CME had a collateralized 

mark-to-market. Each day, for each open 

forward trade, mark-to-market is 

calculated, from original trade price to 

the current end-of-day settlement price. 

These amounts are netted together and 

‘‘collateralized’’. In other words, if a 

negative number (a loss), they increase 

the initial margin (performance bond) 

requirement, thereby increasing the 

amount of collateral that must be posted 

to meet that margin requirement. If a 

positive number (a gain), they decrease 

the initial margin requirement. 

With cash mark-to-market 

implemented on October 18, 2011, the 

mark-to-market value for the previous 

clearing business date is subtracted from 

the mark-to-market amount for the 

current clearing date. These amounts are 

netted down and become part of the 

total banked cash flow for the currency 

in which they are denominated. It is a 

very simple change for this cash markto-market as opposed to collateralized 

mark-to-market. 

There is an additional feature for FX 

forwards, and in particular for nondeliverable forwards (NDF’s)—forwards 

where one currency of the pair is not 

bankable. We call this a forward where 

the cash mark-to-market is flipped, or 

inverted. 

Take for example a forward on the 

exchange rate between the US Dollar 

(USD) and the Chilean Peso (CLP). The 

quantity is specified in USD, and the 

price is quoted as a specified amount of 

CLP per one USD. Normally, the markto-market amount would be 

denominated in CLP, also referred to as 

the contra currency. But with the 

flipped mark-to-market, the amount is 

converted to USD by dividing by today’s 

end-of-day settlement price for the 

contract. 

Calculating Mark-to-Market and 

Change in Mark-to-Market 

In the normal case, the mark-tomarket amount for a forward is 

calculated as: 

• Subtract the original trade price 

from the end-of-day settlement price. 

• Express the trade quantity as a 

positive number for a buy or a negative 

number for a sell. 

• Take the product of the price 

difference, the trade quantity, the 

contract value factor, and the discount 

factor. 

• Round normally to the normal 

precision of the currency in which the 

mark-to-market amount is denominated. 

(the contra currency for an FX forward) 

In other words: 

(S ¥ T) * Q * CVF * DF 

Where: 

S is the end-of-day settlement price 

T is the original trade price 

Q is the trade quantity 

CVF is the contract value factor 

DF is the discount factor 

In the inverse case, the mark-tomarket amount is calculated in the exact 

same way, except that it includes a 

division by the daily settlement price: 

• Subtract the original trade price 

from the end-of-day settlement price. 

• Express the trade quantity as a 

positive number for a buy or a negative 

number for a sell. 

• Take the product of the price 

difference, the trade quantity, the 

contract value factor, and the discount 

factor. 

• Divide this result by the end-of-day 

settlement price. 

• Round normally to the normal 

precision of the currency in which the 

mark-to-market amount is denominated. 

(the primary currency for an FX 

forward) 

In other words: 

[(S ¥ T) * Q * CVF * DF]/S 

In either case, the settlement variation 

amount to be banked is calculated by 

subtracting the mark-to-market amount 

for the previous clearing business date 

from the amount for the current 

business date. 

Cash-Settled and Physically-Delivered 

Forwards 

At maturity, forwards with cash markto-market can be either cash-settled or 

physically-delivered, exactly as for 

forwards with collateralized mark-tomarket. 

For a cash-settled forward, at contract 

maturity (end-of-day on the ‘‘clearing 

settlement date’’): 

• The mark-to-market amount is set to 

zero. 

• We then calculate the settlement 

variation amount to be banked exactly 

as on any other day—by subtracting the 

previous day’s value for mark-to-market 

from the current day’s (zero) value. 

• The mark-to-market amount is then 

calculated one final time—from original 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 77, No. 30 / Tuesday, February 14, 2012 / Notices 8319 

4See Securities Exchange Act Release No. 34– 

65636 (October 26, 2011), 76 FR 67514 (November 

1, 2011) [SR–CME–2011–14]. 

trade price to the final settlement price 

and banked as part of the final 

settlement of the contract. 

• The initial margin requirement is 

also set to zero, exactly as for any other 

cash-settled forward or future. 

• The next morning the cash moves at 

the bank, and any collateral deposited to 

meet the initial margin requirement may 

be withdrawn. 

For a physically-delivered forward, at 

contract maturity (end-of-day on the 

clearing settlement date): 

• The mark-to-market amount is set to 

zero. 

• We then calculate the settlement 

variation amount to be banked exactly 

as on any other day—by subtracting the 

previous day’s value for mark-to-market 

from the current day’s (zero) value. 

• The invoice amount, calculated at 

original trade price, is included in the 

total amount to be banked. 

• On the value date for physical 

delivery, the position is removed. This 

causes the initial margin requirement to 

be set to zero, and any collateral 

deposited to meet it may be withdrawn. 

PAI is now a second additional 

feature for FX forwards and it applies to 

both (1) non-deliverable forwards 

(NDF’s)—cash-settlement forwards 

where one currency of the pair is not 

bankable and (2) cash-settlement WM/ 

Reuters OTC FX forwards. 

CME Clearing is introducing PAI to 

ensure settlement variation amounts for 

cleared OTC FX forwards are treated 

consistently with those of CME’s cleared 

interest-rate swaps and credit-default 

swaps. PAI is consistent and 

appropriate for all of these cleared 

products with daily mark-to-market 

amounts settled in cash. 

If the forward has positive net present 

value, the position holder pays price 

alignment interest, and conversely if the 

forward has negative net present value, 

the position holder receives price 

alignment interest. The amount is 

calculated on the net realized cash flow, 

from the banking business day on which 

that amount was realized, to the next 

banking business day, and is annualized 

on an actual/360 day basis. 

Data Formats 

Exactly as before, a forward is 

denoted with a product type code of 

FWD, and the settlement method is 

denoted as either CASH (for cashsettled) or DELIV (for physicallydelivered). 

There are now three possible values 

for the ‘‘valuation method’’ for forwards: 

• The existing value FWD will 

continue to mean that mark-to-market 

amounts are collateralized. 

• A new value FWDB (‘‘forward 

banked’’) means a forward with cash 

mark-to-market. 

• A second new value FWDBI 

(‘‘forward banked inverse’’) will be used 

for FX forwards with cash mark-tomarket where the value is flipped from 

the contra currency to the primary 

currency. 

Exactly as before, the FinalSettlCcy 

attribute denotes the currency in which 

the mark-to-market amount is 

denominated, and the Ccy attribute on 

Amt elements also specifies the 

currency. 

Exactly as before, the FMTM amount 

type will denote mark-to-market. For 

forwards with cash mark-to-market, a 

new IMTM amount type—‘‘incremental 

mark-to-market’’—denotes the change in 

mark-to-market from the previous 

clearing business date—in other words, 

the settlement variation amount. 

Exactly as before, the DLV amount 

type represents either the final mark-tomarket amount to be banked (for cash 

settled contracts) or the invoice amount 

(for physically-delivered contracts.) 

To simplify bookkeeping system 

processing, a new BANK amount 

element represents the total cash to be 

banked, and a new COLAT amount 

element represents the total amount to 

be collateralized. (For forwards with 

cash mark-to-market, the COLAT 

element will always have a value of 

zero.) 

Margining in SPAN 

There are no changes to how 

performance bond (initial margin) 

requirements are calculated in SPAN for 

portfolios including forwards with cash 

mark-to-market. Simply divide the true 

notional position by the equivalent 

position factor for the product, round 

the result up (away from zero) to the 

nearest integer, and feed the resulting 

‘‘marginable positions’’ to SPAN, 

exactly as before. 

Production Ready 

Forwards with cash mark-to-market 

and the PAI enhancement are now 

available in CME’s ‘‘Production’’ 

environment. For more information 

please contact CME Clearing at 312– 

207–2525. 

* * * * * 

The text of the proposed changes is 

also available at the CME’s Web site at 

http://www.cmegroup.com, at the 

principal office of CME, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of Purpose of, and Statutory 

Basis for, the Proposed Rule Change 

In its filing with the Commission, 

CME included statements concerning 

the purpose 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 III below. CME 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 Purpose of, and Statutory 

Basis for, the Proposed Rule Change 

CME currently offers clearing for 

certain OTC FX cleared-only products. 

In a previous filing, CME adopted a 

‘‘cash mark-to-market’’ performance 

bond regime for its cleared-only OTC FX 

products. These changes were 

applicable to all then currently listed 

and future product rollouts (which now 

include 12 cleared, cash-settlement OTC 

FX non-deliverable forwards (‘‘NDFs’’) 

and 26 cleared, cash-settlement CME 

WM/Reuters OTC Spot, Forward and 

Swaps).4 With this filing, CME proposes 

to enhance this current ‘‘cash mark-tomarket’’ performance bond regime by 

adding PAI functionality, which will 

bring CME’s centrally cleared OTC FX 

products in line with typical bilaterally 

held OTC FX transactions. 

CME uses its SPAN system to 

establish performance bond or ‘‘margin’’ 

requirements for CME’s OTC FX 

cleared-only products. Initial 

performance bond requirements are 

established at levels that are consistent 

with observed levels of volatility in the 

particular currency pairing and 

generally aligned with initial margin 

levels applied to current CME FX 

futures and option contracts, where 

applicable. Variation margins may be 

satisfied with the posting of appropriate 

amounts of collateral, where CME 

collects and pays in cash between the 

counterparties each day. CME accepts as 

collateral cash or any other instruments 

currently designated as approved 

collateral for posting for performance 

bonds. In order to calculate variation 

requirements, settlement prices are 

established for each contract and for 

each delivery date referencing data 

collected from a variety of market 

sources. None of these risk components 

of the clearing system would be changed 

with the proposed implementation of 

mstockstill on DSK4VPTVN1PROD with NOTICES

8320 Federal Register / Vol. 77, No. 30 / Tuesday, February 14, 2012 / Notices 

5 15 U.S.C. 78s(b). 

6 15 U.S.C. 78q–1. In approving this proposed 

rule change, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. 15 U.S.C. 78c(f). 

PAI to the ‘‘cash mark-to-market’’ 

performance bond regime. 

The addition of PAI, which is 

appropriate for cleared-only derivatives 

products with daily mark-to-market 

amounts settled in cash like OTC FX, 

would simply enhance the current 

performance bond administration 

operational procedures. Under PAI, if 

the contract has positive net present 

value, the position holder pays price 

alignment interest and, conversely, if 

the contract has negative net present 

value, the position holder receives price 

alignment interest. The amount is 

calculated on the net realized cash flow, 

from the banking business day on which 

that amount was realized, to the next 

business day, and is annualized on an 

actual/360 basis. Therefore, when 

market participants are required to post 

a cash mark-to-market amount for a 

cleared OTC FX forward position, that 

market participant will be reimbursed 

the interest equivalent on those newly 

posted funds. Similarly, those market 

participants receiving the cash mark-tomarket amount for a cleared OTC FX 

forward position are charged the interest 

equivalent on those newly credited 

funds to their account. This PAI 

performance bond mechanism 

adjustment makes the CME cleared OTC 

FX market more aligned with the 

underlying OTC FX forward market. 

Pursuant to Commodity Futures 

Trading Commission (‘‘CFTC’’) 

regulations, the changes in the 

applicable performance bond regime 

have been interpreted by CME as being 

subject to CFTC Regulation 40.6(d), 

requiring a self certification filing to the 

CFTC, although no change to text of the 

CME rulebook is required. As such, the 

changes that are the subject of this filing 

and that are necessary to add the PAI 

functionality to CME’s ‘‘cash mark to 

market’’ performance bond regime are 

changes to CME operational procedures 

only. CME notes that it has already 

certified the proposed changes that are 

the subject of this filing to its primary 

regulator, the CFTC. The text of the 

proposed changes is noted above. 

CME believes the proposed changes 

are consistent with the requirements of 

the Exchange Act including Section 17A 

of the Exchange Act because they 

involve clearing of swaps and thus 

relate solely to the CME’s swaps 

clearing activities pursuant to its 

registration as a derivatives clearing 

organization under the Commodity 

Exchange Act (‘‘CEA’’) and do not 

significantly affect any securities 

clearing operations of the clearing 

agency or any related rights or 

obligations of the clearing agency or 

persons using such service. CME further 

notes that the policies of the CEA with 

respect to clearing are comparable to a 

number of the policies underlying the 

Exchange Act, such as promoting 

market transparency for over-thecounter derivatives markets, promoting 

the prompt and accurate clearance of 

transactions and protecting investors 

and the public interest. The proposed 

rule changes accomplish those 

objectives by offering investors clearing 

for a range of FX OTC swap products. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CME does not believe that the 

proposed rule change will have any 

impact, or impose any burden, on 

competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

CME has not solicited, and does not 

intend to solicit, comments regarding 

this proposed rule change. CME has not 

received any unsolicited written 

comments from interested parties. 

III. 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 may be 

submitted by using the Commission’s 

Internet comment form (http:// 

www.sec.gov/rules/sro.shtml), or send 

an email to rule-comments@sec.gov. 

Please include File No. SR–CME–2012– 

03 on the subject line. 

• Paper comments should be sent in 

triplicate to Elizabeth M. Murphy, 

Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CME–2012–03. 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 Web site (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 Web site 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 CME. All comments received 

will be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–CME– 

2012–03 and should be submitted on or 

before March 6, 2012. 

IV. Commission’s Findings and Order 

Granting Accelerated Approval of 

Proposed Rule Change 

In its filing, CME requested that the 

Commission approve this request on an 

accelerated basis, for good cause shown. 

CME has articulated three reasons for 

granting this request on an accelerated 

basis. One, the products covered by this 

filing, and CME’s operations as a 

derivatives clearing organization for 

such products, are regulated by the 

CFTC under the CEA. Two, the 

proposed rule changes relate solely to 

FX swap products and therefore relate 

solely to its swaps clearing activities 

and do not significantly relate to CME’s 

functions as a clearing agency for 

security-based swaps. Three, not 

approving this request on an accelerated 

basis will have a significant impact on 

the swap clearing business of CME as a 

designated clearing organization. 

Section 19(b) of the Act 5 directs the 

Commission to approve a proposed rule 

change of a self-regulatory organization 

if it finds that such proposed rule 

change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

such organization. The Commission 

finds that the proposed rule changes is 

consistent with the requirements of the 

Act, in particular the requirements of 

Section 17A of the Act,6 and the rules 

and regulations thereunder applicable to 

CME. Specifically, the Commission 

finds that the proposed rule change is 

consistent with Section 17A(b)(3)(F) of 

the Act which requires, among other 

things, that the rules of a clearing 

agency be designed to promote the 

prompt and accurate clearance and 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 77, No. 30 / Tuesday, February 14, 2012 / Notices 8321 

7 15 U.S.C. 78q–1(b)(3)(F). 

8 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). 

4 15 U.S.C. 78f(b). 

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

6See Securities Exchange Act Release No. 60253 

(July 7, 2009) 74 FR 34063 (July 14, 2009) (SR–ISE– 

2009–34) (Notice of Filing and Immediate 

Effectiveness of Proposed Rule Change Regarding 

Customer Cross Orders). 

settlement of derivative agreements, 

contracts, and transactions because it 

should allow CME to enhance its 

services in clearing foreign currency 

contracts, thereby promoting the prompt 

and accurate clearance and settlement of 

derivative agreements, contracts, and 

transactions.7

The Commission finds good cause for 

accelerating approval because: (i) The 

proposed rule change does not 

significantly affect any securities 

clearing operations of the clearing 

agency (whether in existence or 

contemplated by its rules) or any related 

rights or obligations of the clearing 

agency or persons using such service; 

(ii) CME has indicated that not 

providing accelerated approval would 

have a significant impact on the foreign 

currency contracts clearing business of 

CME as a designated clearing 

organization; and (iii) the activity 

relating to the non-security clearing 

operations of the clearing agency for 

which the clearing agency is seeking 

approval is subject to regulation by 

another regulator. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act, that the 

proposed rule change (SR–CME–2012– 

03) is approved on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–3329 Filed 2–13–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66356; File No. SR–BX– 

2012–007] 

Self-Regulatory Organizations; 

NASDAQ OMX BX; Notice of Filing and 

Immediate Effectiveness of a Proposal 

To Permit Customer Cross Orders on 

BOX 

February 8, 2012. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on January 

26, 2012, NASDAQ OMX BX (the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

substantially prepared by the Exchange. 

The Exchange has designated the 

proposed rule change as constituting a 

non-controversial rule change under 

Rule 19b–4(f)(6) under the Act,3 which 

renders the proposal effective upon 

filing with the Commission. 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 the Substance 

of the Proposed Rule Change 

The Exchange proposes to amend 

Chapter V, Section 14(c) (Doing 

Business on BOX-Order Entry) and 

Supplementary Material .01 to Chapter 

V, Section 17 (Customer Orders), of the 

Rules of the Boston Options Exchange 

Group, LLC (‘‘BOX’’) to permit 

Customer Cross Orders. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http:// 

nasdaqomxbx.cchwallstreet.com, 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 the 

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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Chapter V, Section 14(c) of the BOX 

Rules designates the order types that 

may be submitted to the Trading Host. 

The purpose of this proposal is to 

amend the definition of Order Entry to 

include Customer Cross Orders. In 

particular, the Exchange proposes to 

add the definition of a Customer Cross 

Order as new Section 14(c)(vii), 

specifying that a Customer Cross Order 

is comprised of a non-Professional, 

Public Customer Order to buy and a 

non-Professional, Public Customer 

Order to sell at the same price and for 

the same quantity. The Exchange also 

proposes to specify that Customer Cross 

Orders be automatically executed upon 

entry provided that the execution is 

between the best bid and offer on BOX 

(‘‘BBO’’) and will not trade-through the 

national best bid or offer (‘‘NBBO’’). 

The proposed rule also specifies that 

Customer Cross Orders entered at a 

price that is outside the BBO or the 

NBBO will be automatically canceled, 

and that Customer Cross Orders may 

only be entered in the regular trading 

increments applicable to the options 

class under Chapter V, Section 6 of the 

BOX Rules. 

Finally, the proposal specifies that 

Supplementary Material .01 to Chapter 

V, Section 17 of the BOX Rules, which 

prohibits an Options Participant from 

being a party to any arrangement 

designed to circumvent the 

requirements applicable to executing 

agency orders as principal, applies to 

the entry and execution of Customer 

Cross Orders. In this respect, the 

Exchange proposes to amend 

Supplementary Material .01 to Chapter 

V, Section 17 to specifically reference 

affiliates of Options Participants, which 

is consistent with how BOX has 

interpreted the provision. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the requirements of Section 6(b) of the 

Act,4 in general, and Section 6(b)(5) of 

the Act,5 in particular. Specifically, the 

Exchange believes that the proposed 

rule change is designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to facilitate 

transactions in securities, to remove 

impediments to and perfect the 

mechanism for a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest. In particular, the 

Exchange believes that the proposed 

rule change provides for the efficient 

entry and execution of Customer Cross 

Orders while also protecting orders at 

the best prices on the BOX Book. 

The Exchange notes that a similar 

filing proposed by the International 

Securities Exchange, LLC (‘‘ISE’’) 

became effective July 7, 2009.6 The 

Exchange would like to similarly offer 

BOX Options Participants the 

opportunities associated with Customer 

mstockstill on DSK4VPTVN1PROD with NOTICES