Federal Register / Vol. 80, No. 28 / Wednesday, February 11, 2015 / Notices 7663 

15 17 CFR 240.17Ad–22. 16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73878 

(December 18, 2014), 79 FR 77579 (‘‘Notice’’). 

4See Notice, supra note 3 at 77579. 

5Proposed BOX Rule 7300(a)(1). 

6Proposed BOX Rule 7300(a)(2). 

7Proposed BOX Rule 7300(d). 

changes are necessary and appropriate 

in furtherance of the purpose of the Act 

and the Commission’s regulations 

thereunder, including the financial 

resources and risk management 

requirements of Rule 17Ad–22.15

Furthermore, ICE Clear Europe does not 

believe that any such increase in margin 

requirements would significantly affect 

the ability of clearing members or other 

market participants to continue to clear 

CDS, consistent with the risk 

management requirements of the 

clearing house, or otherwise limit 

market participants’ choices for 

selecting clearing services. Accordingly 

ICE Clear Europe does not believe that 

clearance of the Additional WE 

Sovereign Contracts will impose any 

burden on competition not necessary or 

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 

Written comments relating to the 

acceptance of the Additional WE 

Sovereign Contracts for clearing have 

not been solicited or received. ICE Clear 

Europe will notify the Commission of 

any written comments received by ICE 

Clear Europe. 

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 

• Use 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 Number SR– 

ICEEU–2015–004 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–ICEEU–2015–004. 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 

filings also will be available for 

inspection and copying at the principal 

office of ICE Clear Europe and on ICE 

Clear Europe’s Web site at https://

www.theice.com/clear-europe/

regulation. 

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–ICEEU–2015–004 and 

should be submitted on or before March 

4, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–02751 Filed 2–10–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74210; File No. SR–BOX– 

2014–28] 

Self-Regulatory Organizations; BOX 

Options Exchange LLC; Order 

Approving Proposed Rule Change 

Adopt BOX Rule 7300 To Allow the 

Exchange To Trade Preferenced 

Orders 

February 5, 2015. 

I. Introduction 

On December 8, 2014, BOX Options 

Exchange LLC (‘‘BOX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

a proposed rule change pursuant to 

Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’),1 and 

Rule 19b–4 thereunder,2 to permit BOX 

Options Participants (‘‘Participants’’) to 

submit orders for which a Market Maker 

is designated to receive an Preferred 

allocation on the Exchange 

(‘‘Preferenced Orders’’). The proposed 

rule change was published in the 

Federal Register on December 24, 

2014.3 This order approves the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 

As described in more detail below, 

the Exchange proposes to adopt new 

BOX Rule 7300 to establish a program 

that will permit Participants to submit 

Preferenced Orders to Market Makers 

and for Maker Makers to receive 

Preferred allocations on such orders.4

As proposed, a Preferenced Order is any 

order, whether on a single options 

instrument or on a Complex Order 

Strategy, for which a Preferred Market 

Maker is designated with respect to 

such order, upon submission of such 

order to BOX.5 A Preferred Market 

Maker is a Market Maker designated as 

such by a Participant with respect to an 

order submitted by such Participant to 

BOX.6

All order types and designations 

available on BOX will be eligible to be 

entered as Preferenced Orders, except 

for Customer Cross Orders (which do 

not involve market makers) and 

Directed Orders (which relate to BOX’s 

PIP and COPIP matching algorithms).7


tkelley on DSK3SPTVN1PROD with NOTICES
7664 Federal Register / Vol. 80, No. 28 / Wednesday, February 11, 2015 / Notices 

8See Notice, supra note 3 at 77579. 

9Proposed BOX Rule 7300(b). 

10See Notice, supra note 3 at 77581. 

11Proposed BOX Rule 7300(a)(2). 

12 Id. Compliance with this requirement will be 

determined on a monthly basis, however, this does 

not relieve a Preferred Market Maker from meeting 

the quoting requirement on a daily basis, nor does 

it prohibit the Exchange from taking disciplinary 

action against a Preferred Market Maker for failing 

to meet this requirement each trading day. The 

Exchange will determine compliance with these 

obligations on a monthly basis. Id. 

If a technical failure or limitation of a system of 

the Exchange prevents a Market Maker from 

maintaining, or prevents a Market Maker from 

communicating to the Exchange, timely and 

accurate electronic quotes in an issue, the duration 

of such failure shall not be considered in 

determining whether the Market Maker has satisfied 

its quoting obligation. The Exchange may consider 

other exceptions to this obligation based on a 

demonstrated legal or regulatory requirement or 

other mitigating circumstances. Id. 

13Proposed BOX Rule 7300(c). 

14Proposed BOX Rule 7300(c)(2). 

15Proposed BOX Rule 7300(c)(2); See Notice, 

supra note 3 at 77580. 

16Proposed BOX Rule 7300(c)(2). 

17Proposed BOX Rule 7300(c)(3). 

18Proposed BOX Rule 7300(c)(4). 

19 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

20 15 U.S.C. 78f(b). 

21 15 U.S.C. 78f(b)(5). 

22See Securities Exchange Act Release No. 51759 

(May 27, 2005), 70 FR 32860 (June 6, 2005) (SR– 

Phlx–2004–91) (‘‘Phlx Order’’); see also e.g., 

Securities Exchange Act Release Nos. 47628 (April 

3, 2003), 68 FR 17697 (April 10, 2003) (SR–CBOE– 

00–55) (‘‘CBOE Order’’); 52331 (August 24, 2005), 

70 FR 51856 (August 31, 2005) (SR–ISE–2004–16) 

(‘‘ISE Order’’); 52506 (September 23, 2005), 70 FR 

57340 (September 30, 2005) (SR–CBOE–2005–58); 

59472 (February 27, 2009) 74 FR 9843 (March 6, 

2009) (SRNYSEALTR–2008–14)(‘‘NYSEALTR 

Order’’); 60469 (August 10, 2009), 74 FR 41478 

(August 17, 2009)(SR–NYSEArca–2009–73) (‘‘NYSE 

Arca Notice’’); 68070 (October 18, 2012), 77 FR 

65037 (October 18, 2012) (SR–C2–2012–24) (‘‘C2 

Order’’); and 74129 (January 23, 2015), 80 FR 4954 

(January 29, 2015) (‘‘BX Order’’). 

23See Phlx Order, supra note 22 at 32861. 

24 Id. See also CBOE Order, supra note 22 at 

17708 (citing Securities Exchange Act Release No. 

45936 (May 15, 2002), 67 FR 36279, 26280 (May 23, 

2002); Securities Exchange Act Release No. 42835 

(May 26, 2000), 65 FR 35683, 35685–66 (June 5, 

2000); Securities Exchange Act Release No. 42455 

(February 24, 2000), 65 FR 11388, 11398 (March 2, 

2000); Securities Exchange Act Release No. 43100 

(July 31, 2000), 65 FR 48778, 48787–88 (August 9, 

2000)). 

Preferenced Orders will be treated the 

same as other orders submitted to the 

Exchange, including being executed in 

price/time priority in accordance with 

the existing matching algorithm on the 

Exchange,8 with some exceptions as 

described below and in proposed Rule 

7300.9 Although Complex Orders may 

be submitted as Preferenced Orders, 

such orders will be given the same 

treatment as Complex Orders submitted 

without designation.10

Proposed BOX Rule 7300(c)(2) 

requires that a Preferred Market Maker 

maintain a continuous two-sided 

market, pursuant to BOX Rule 

8050(c)(1), throughout the trading day, 

in options classes for which it accepts 

Preferenced Orders, for 99% of the time 

the Exchange is open for trading in each 

such option class.11 However, a 

Preferred Market Maker will not be 

required to quote in intra-day add-on 

series or series that have an expiration 

of nine months or greater in the classes 

for which it receives Preferenced 

Orders.12

Preferred Allocation 

Pursuant to proposed BOX Rule 

7300(c), when the total quantity of all 

orders available for execution on the 

Exchange against a Preferenced Order 

on a single options series is less than or 

equal to the executable quantity of the 

Preferenced Order at a given price level, 

all such orders at that price will be 

filled and the balance of the Preferenced 

Order, if any, will be executed, if 

possible, against orders at the next best 

price level.13 At the final price level, 

where the remaining quantity of the 

Preferenced Order is less than the total 

quantity of orders on the Exchange 

available for execution, and after all 

Public Customer orders have been filled, 

the Preferred Market Maker will receive 

a Preferred allocation set forth below, 

provided that: (1) The price level is at 

the NBBO, (2) the Preferred Market 

Maker has an existing quote on the 

opposite side of the Preferenced Order 

that is at the NBBO at the time the 

Preferenced Order is received, and (3) 

the Preferred Market Maker would not 

receive an allocation greater than 40% 

if allocated according to the Exchange’s 

normal price/time priority.14

The Preferred allocation will be 

limited by the total quantity of the 

Preferred Market Maker’s quote and will 

be 40% of the remaining quantity of the 

Preferenced Order after all Public 

Customer orders are filled, or 50% of 

the remaining quantity if only one other 

executable, non-Public Customer order 

matches the Preferenced Order at the 

final price level.15 Under the Exchange’s 

proposal, Legging Orders will not be 

considered when determining whether 

the Preferred Market Maker receives its 

40% or 50% allocation.16

Once the Preferenced Order is 

allocated to the Preferred Market Maker, 

or if no Preferred Allocation is made, 

BOX will distribute any remaining 

unallocated quantity of the Preferenced 

Order to all remaining orders and 

quotes, not including any Legging 

Order, that have not already received an 

allocation.17 This includes any quote by 

a Preferred Market Maker if no Preferred 

allocation was previously made. 

Allocations will be made in order of 

time priority. Following the allocation 

of all remaining order and quotes 

described above, any remaining 

unallocated quantity of the Preferenced 

Order will be allocated to any Legging 

Order at the same price.18

III. Discussion and Commission 

Findings 

The Commission has carefully 

reviewed the proposed rule change and 

finds that the proposed rule change is 

consistent with the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.19 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with Section 6(b) of the Act,20 in 

general, and furthers the objectives of 

Section 6(b)(5) of the Act.21 Section 

6(b)(5) requires, among other things, 

that the rules of the national securities 

exchange be 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, 

and to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system. 

The Commission has previously 

approved rules of other national 

securities exchanges that provide for 

enhanced participation guarantees.22

The Commission has closely scrutinized 

such exchange rule proposals where the 

percentage of enhanced participation 

would rise to a level that could have a 

material adverse impact on quote 

competition within a particular 

exchange.23

BOX’s proposal to permit Preferred 

Market Makers to receive a 40% 

allocation (or 50% where there is only 

one other non-public customer order at 

the same price as the Preferenced Order) 

will not increase the overall percentage 

of an order that is guaranteed to the 

Preferred Market Maker beyond the 

currently acceptable threshold.24 Under 

the proposal, the remaining portion of 

each order will be available for 

allocation based on the competitive 

bidding of market participants. 

Therefore, the Commission does not 

believe that the proposal will negatively 

impact quote competition or order flow 

on BOX. 

A Preferred Market Maker will have to 

be quoting at, or better than, the NBBO 

at the time a Preferenced Order is 

received in order to obtain the 40% or 

50% guarantee. The Commission 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 28 / Wednesday, February 11, 2015 / Notices 7665 

25See Letter from Bruce Goodhue, Chief 

Regulatory Officer, BOX, to David Hsu, Assistant 

Director, Commission, dated February 4, 2015. 

26BOX Rule 8050(e). 

27See supra note 22. 

28See, e.g., Newton v. Merrill, Lynch, Pierce, 

Fenner & Smith, Inc., 135 F.3d 266, 269–70, 274 (3d 

Cir.), cert. denied, 525 U.S. 811 (1998); Certain 

Market Making Activities on Nasdaq, Securities 

Exchange Act Release No. 40900 (Jan. 11, 1999) 

(settled case) (citing Sinclair v. SEC, 444 F.2d 399 

(2d Cir. 1971); Arleen Hughes, 27 SEC 629, 636 

(1948), aff’d sub nom. Hughes v. SEC, 174 F.2d 969 

(D.C. Cir. 1949)). See also Order Execution 

Obligations, Securities Exchange Act Release No. 

37619A (Sept. 6, 1996), 61 FR 48290 (Sept. 12, 

1996) (‘‘Order Handling Rules Release’’); 51808 

(June 9, 2005), 70 FR 37496, 37537–8 (June 29, 

2005). 

29Order Handling Rules Release, supra note 28 at 

48322. See also Newton, 135 F.3d at 270. Failure 

to satisfy the duty of best execution can constitute 

fraud because a broker-dealer, in agreeing to 

execute a customer’s order, makes an implied 

representation that it will execute it in a manner 

that maximizes the customer’s economic gain in the 

transaction. See Newton, 135 F.3d at 273 (‘‘[T]he 

basis for the duty of best execution is the mutual 

understanding that the client is engaging in the 

trade—and retaining the services of the broker as 

his agent—solely for the purpose of maximizing his 

own economic benefit, and that the broker receives 

her compensation because she assists the client in 

reaching that goal.’’); Marc N. Geman, Securities 

Exchange Act Release No. 43963 (Feb. 14, 2001) 

(citing Newton, but concluding that respondent 

fulfilled his duty of best execution). See also 

Payment for Order Flow, Securities Exchange Act 

Release No. 34902 (Oct. 27, 1994), 59 FR 55006, 

55009 (Nov. 2, 1994) (‘‘Payment for Order Flow 

Final Rules’’). If the broker-dealer intends not to act 

in a manner that maximizes the customer’s benefit 

when he accepts the order and does not disclose 

this to the customer, the broker-dealer’s implied 

representation is false. See Newton, 135 F.3d at 

273–274. 

30Newton, 135 F.3d at 270. Newton also noted 

certain factors relevant to best execution—order 

size, trading characteristics of the security, speed of 

execution, clearing costs, and the cost and difficulty 

of executing an order in a particular market. Id. at 

270 n. 2 (citing Payment for Order Flow, Securities 

Exchange Act Release No. 33026 (Oct. 6, 1993), 58 

FR 52934, 52937–38 (Oct. 13, 1993) (Proposed 

Rules)). See In re E.F. Hutton & Co., Securities 

Exchange Act Release No. 25887 (July 6, 1988). See 

also Payment for Order Flow Final Rules, 59 FR at 

55008–55009. 

31Order Handling Rules Release, supra note 28 

48322–48333 (‘‘In conducting the requisite 

evaluation of its internal order handling 

procedures, a broker-dealer must regularly and 

rigorously examine execution quality likely to be 

obtained from different markets or market makers 

trading a security.’’). See also Newton, 135 F.3d at 

271; Market 2000: An Examination of Current 

Equity Market Developments V–4 (SEC Division of 

Market Regulation January 1994) (‘‘Without specific 

instructions from a customer, however, a brokerdealer should periodically assess the quality of 

competing markets to ensure that its order flow is 

directed to markets providing the most 

advantageous terms for the customer’s order.’’); 

Payment for Order Flow Final Rules, 59 FR at 

55009. 

32Order Handling Rules, supra note 28 at 48323. 

33Order Handling Rules, supra note 28 at 48323. 

For example, in connection with orders that are to 

be executed at a market opening price, ‘‘[b]rokerdealers are subject to a best execution duty in 

executing customer orders at the opening, and 

should take into account the alternative methods in 

determining how to obtain best execution for their 

customer orders.’’ Disclosure of Order Execution 

and Routing Practices, Securities Exchange Act 

Release No. 43590 (Nov.17, 2000), 65 FR 75414, 

75422 (Dec. 1, 2000) (adopting new Exchange Act 

Rules 11Ac1–5 and 11Ac1–6 and noting that 

alternative methods offered by some Nasdaq market 

centers for pre-open orders included the mid-point 

of the spread or at the bid or offer). 

34 15 U.S.C. 78f(b)(5). 

35 15 U.S.C. 78s(b)(2). 

36 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(2). 

believes that it is critical that a Preferred 

Market Maker must not be permitted to 

step up and match the NBBO after it 

receives a directed order in order to 

receive the Preferred Allocation. In this 

regard, BOX’s proposal prohibits 

notifying a DMM of an intention to 

submit a Directed Order so that such 

DMM could change its quotation to 

match the NBBO immediately prior to 

submission of the Directed Order, and 

then fade its quote. BOX submitted a 

letter to the Commission representing 

that it will provide the necessary 

protections against that type of conduct, 

and will proactively conduct 

surveillance for, and enforce against, 

such violations.25

BOX’s proposed rules will require 

Preferred Market Makers to quote at a 

higher level than other marker makers 

who are not Preferred Market Makers. 

Currently, market makers on BOX are 

required to quote 60% of the trading 

day.26 In order to receive the 

participation entitlement, Preferred 

Market Makers will be required to quote 

99% of the trading day. The 

Commission believes that requiring 

heightened quoting by a market maker 

in order to be eligible to receive a 

Preferred Allocation is consistent with 

what other exchanges have required as 

part of their directed order programs.27

The Commission emphasizes that 

approval of this proposal does not affect 

a broker-dealer’s duty of best execution. 

A broker-dealer has a legal duty to seek 

to obtain best execution of customer 

orders, and any decision to preference a 

particular Preferred Market Maker must 

be consistent with this duty.28 A brokerdealer’s duty of best execution derives 

from common law agency principles 

and fiduciary obligations, and is 

incorporated in SRO rules and, through 

judicial and Commission decisions, the 

antifraud provisions of the federal 

securities laws.29 The duty of best 

execution requires broker-dealers to 

execute customers’ trades at the most 

favorable terms reasonably available 

under the circumstances, i.e., at the best 

reasonably available price.30 The duty 

of best execution requires broker-dealers 

to periodically assess the quality of 

competing markets to assure that order 

flow is directed to the markets 

providing the most beneficial terms for 

their customer orders.31 Broker-dealers 

must examine their procedures for 

seeking to obtain best execution in light 

of market and technology changes and 

modify those practices if necessary to 

enable their customers to obtain the best 

reasonably available prices.32 In doing 

so, broker-dealers must take into 

account price improvement 

opportunities, and whether different 

markets may be more suitable for 

different types of orders or particular 

securities.33

For these reasons, the Commission 

believes that the proposal is consistent 

with the requirements of Section 6(b)(5) 

of the Act.34

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,35 that the 

proposed rule change (SR–BOX–2014– 

28) be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.36

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–02748 Filed 2–10–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74214; File No. SR–BATS– 

2015–08] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Adopt an Options 

Regulatory Fee 

February 5, 2015. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on January 

30, 2015, BATS Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BATS’’) 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 

prepared by the Exchange. The 

Exchange has designated the proposed 

rule change as one establishing or 

changing a member due, fee or other 

charge imposed by the Exchange under 

Section 19(b)(3)(A)(ii) of the Act,3 and 

Rule 19b–4(f)(2) thereunder,4 which 

renders the proposal effective upon 

filing with the Commission. The 

Commission is publishing this notice to 


tkelley on DSK3SPTVN1PROD with NOTICES