[Federal Register Volume 86, Number 164 (Friday, August 27, 2021)]
[Notices]
[Pages 48274-48277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18460]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92724; File No. SR-BOX-2021-17]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the 
Response Time Period in the Facilitation and Solicitation Auction 
Mechanisms

August 23, 2021.
    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 August 10, 2021, BOX Exchange LLC (the ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule from 
interested persons.
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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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the time period allowed for 
Participant submission of Responses in the Facilitation and 
Solicitation auction mechanisms from one (1) second to a time period 
designated by the Exchange of no less than 100 milliseconds and no more 
than one (1) second. The text of the proposed rule change is available 
from the principal office of the Exchange, at the Commission's Public 
Reference Room and also on the Exchange's internet website at 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.

[[Page 48275]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the time period 
allowed for Participant submission of Responses in the Facilitation and 
Solicitation auction mechanisms from one (1) second to a time period 
designated by the Exchange of no less than 100 milliseconds and no more 
than one (1) second.\3\
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    \3\ While the Exchange intends to decrease the time period 
allowed for Responses, the proposed rule would also allow the 
Exchange to increase this time period up to one (1) second, which is 
the time currently allowed for the submission of Responses. See IM-
7270-4.
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    Rule 7270 contains the requirements applicable to the execution of 
orders in the Facilitation \4\ and Solicitation \5\ Auction Mechanisms. 
Currently, under the Facilitation and Solicitation auction mechanisms, 
when the Exchange receives a designated Agency Order for auction 
processing, a broadcast message will be sent and Options Participants 
will be given an opportunity to enter Responses with the prices and 
sizes at which they would be willing to participate in the execution of 
the Agency Order. Currently, the time given to Options Participants to 
enter Responses for Facilitation and Solicitation auctions is one (1) 
second pursuant to IM-7270-4. The Exchange now proposes to amend IM-
7270-4 to state that the time given to Options Participants to enter 
Responses shall be determined by the Exchange and announced through a 
Regulatory Circular. The time to enter Responses will be no less than 
100 milliseconds and no more than one (1) second. The Exchange notes 
that substantially similar language exists at other options exchanges 
with similar auction mechanisms.\6\
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    \4\ BOX's Facilitation Auction is a process by which an OFP can 
attempt to execute a transaction wherein the OFP seeks to facilitate 
a block-size order it represents as agent (``Agency Order''), and/or 
a transaction wherein the OFP solicited interest to execute against 
an Agency Order. OFPs must be willing to execute the entire size of 
Agency Orders entered into the Facilitation Auction through the 
submission of a contra ``Facilitation Order''. See BOX Rule 7270(a).
    \5\ BOX's Solicitation Auction is a process by which an OFP can 
attempt to execute orders of 500 or more contracts it represents as 
agent (the ``Agency Order'') against contra orders that it has 
solicited (``Solicited Order''). Each Agency Order entered into the 
Solicitation Auction shall be all-or-none. See BOX Rule 7270(b).
    \6\ See Securities Exchange Act Release Nos. 79352 (November 18, 
2016), 82 FR 3055 (January 10, 2017) (Order Approving SR-ISE-2016-
26, a Proposed Rule Change To Modify the Response Times in the Block 
Mechanism, Facilitation Mechanism, Solicited Order Mechanism, and 
Price Improvement Mechanism); 76301 (October 29, 2015), 80 FR 68347 
(November 4, 2015) (SR-BX-2015-032); 77557 (April 7, 2016), 81 FR 
21935 (April 13, 2016) (SR-PHLX-2016-40) and 80570 (May 1, 2017), 82 
FR 28369 (June 21, 2017) (SR-MIAX-2017-16).
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    The Exchange believes that proposed rule change could provide more 
customer orders an opportunity for price improvement because it will 
reduce the market risk for all Participants executing trades in these 
mechanisms. Participants that submit orders into such mechanisms to 
initiate an auction (``Initiating Participants'') are required to 
guarantee an execution at the Agency Order price or a better, and are 
subject to market risk while the order is exposed in the mechanisms to 
other Participants. While other Participants are subject to market 
risk, the Initiating Participant is most exposed because the market can 
move against them during the auction period and they have guaranteed 
the customer an execution at the Agency Order price or better based on 
the market prices prior to the commencement of the auction. In today's 
fast-paced markets, big price changes can occur in 100 milliseconds or 
less, leaving the Initiating Participants vulnerable to trading losses 
due to their choice to seek price improvement for their customer. The 
Initiating Participant acts in a critical role in the price improvement 
process and their willingness to guarantee the customer an execution at 
the Agency Order Price or better is keystone to the customer order 
gaining the opportunity for price improvement. Therefore, limiting 
Initiating Participants' market risk by reducing the exposure time in 
the mechanisms should increase the likelihood that an Initiating 
Participant would seek price improvement for its customer by entering 
such orders into one of the mechanisms.
    Further, although the Exchange currently plans to reduce the time 
period allowed for the auction Responses to 100 milliseconds, the 
Exchange believes that it is appropriate to provide the flexibility to 
choose a Response period of up to one (1) second as this is consistent 
with the rules of other options markets.\7\
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    \7\ Id.
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    The Exchange's Participants operate electronic systems that enable 
them to react and respond to orders in a meaningful way in fractions of 
a second. The Exchange anticipates that its Participants will continue 
to compete within the proposed auction duration designated by the 
Exchange. In particular, the Exchange believes the proposed auction 
Response time will continue to provide Participants with sufficient 
time to respond to, compete for, and provide price improvement for 
orders, and will provide investors and other market participants with 
more timely executions, and reduce their market risk.
    To substantiate that BOX Participants can receive, process, and 
communicate a response to an auction broadcast within 100 milliseconds, 
the Exchange surveyed all Participants that responded to a Facilitation 
or Solicitation auction in the period beginning January 1, 2021 and 
ending June 30, 2021. The Exchange received responses from all 
Participants surveyed, and each Participant confirmed that they can 
receive, process, and communicate a response back to the Exchange 
within 100 milliseconds.
    Accordingly, the Exchange believes that an auction time as low as 
100 milliseconds will continue to provide Participants with sufficient 
time to respond to, compete for, and provide price improvement for 
orders, and will provide investors and other market participants with 
more timely executions, and reduce their market risk.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it has the 
necessary systems capacity to handle the potential additional traffic 
associated with the additional transactions that may occur with the 
implementation of the proposed reduction in the auction duration to no 
less than 100 milliseconds. Additionally, the Exchange represents that 
its systems will be able to sufficiently maintain an audit trail for 
order and trade information with the reduction in the auction duration.
    Upon effectiveness of the proposal, the Exchange will issue an 
Informational Circular to Participants informing them of the 
implementation date of the reduction of the auction from one (1) second 
to the auction time designated by the Exchange to allow Participants 
the opportunity to perform systems changes. This will give Participants 
an opportunity to make any necessary modifications to coincide with the 
implementation date.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\8\ in general, and Section 
6(b)(5) of the

[[Page 48276]]

Act,\9\ in particular, in that it designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change will provide investors with 
more timely execution of their option orders, while ensuring that there 
is an adequate exposure of orders in these mechanisms. Additionally, 
the proposed change will allow more investors the opportunity to 
receive price improvement through the mechanisms and will reduce market 
risk for Participants using the mechanisms. Finally, as mentioned 
above, other exchanges have amended their rules to permit response 
times consistent with those proposed here--i.e., no less than 100 
milliseconds and no more than 1 second.\10\ As such, the Exchange 
believes the proposed rule change would help perfect the mechanism for 
a free and open national market system, and generally help protect 
investors' and the public's interest.
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    \10\ See supra note 6. The Exchange notes that its Facilitation 
and Solicitation mechanisms are substantially similar to the 
Facilitation and Solicitation mechanisms at Nasdaq ISE. The Exchange 
notes one minor difference. Specifically, ISE's Solicitation 
Mechanism does not include a surrender quantity provision where 
BOX's Solicitation Mechanism does. The Exchange believes this is a 
minor difference and will not have a material impact with respect to 
the proposed response time discussed herein. Further, as discussed 
above, Nasdaq ISE has identical rule language to that of the 
proposed language discussed herein. See Securities Exchange Act 
Release No. 79352 (November 18, 2016), 82 FR 3055 (January 10, 2017) 
(Order Approving SR-ISE-2016-26, a Proposed Rule Change To Modify 
the Response Times in the Block Mechanism, Facilitation Mechanism, 
Solicited Order Mechanism, and Price Improvement Mechanism). As 
such, the Exchange believes the proposed change does not raise any 
new or novel issues and should be approved by the Commission.
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    The Exchange believes the proposed rule change is not unfairly 
discriminatory because the auction duration would be the same for all 
Participants. All Participants in the mechanisms have today, and will 
continue to have, an equal opportunity to receive the broadcast and 
respond with their best prices during the auction. Additionally, the 
Exchange believes the reduction in the auction duration reduces the 
market risk for all Participants. The reduction in the time period 
reduces the market risk for the Initiating Participant as well as any 
Participants providing orders in response to a broadcast. Moreover, 
based on the feedback the Exchange received from its Participants, the 
Exchange believes that a reduction in the auction period to a low of 
100 milliseconds would not impair Participants' ability to compete in 
the mechanisms. The Exchange believes these results support the 
assertion that a reduction in the auction duration would not be 
unfairly discriminatory and would benefit investors.

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

    The Exchange believes the proposal is consistent with Section 
6(b)(8) of the Act \11\ in that it does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed rule change provides the Exchange 
flexibility in determining potentially shorter durations for 
Facilitation and Solicitation auctions does not impose an undue burden 
on intra-market competition as the Exchange believes that allowing for 
an auction period of no less than 100 milliseconds and no more than 1 
second will benefit Participants utilizing the auction mechanisms. The 
Exchange believes it is in these Participants' best interest to 
minimize the Facilitation and Solicitation Auction duration while 
continuing to allow Participants adequate time to respond 
electronically. Further, based on the feedback the Exchange received 
from its Participants, the Exchange believes that a reduction in the 
auction period to a low of 100 milliseconds would not impair 
Participants' ability to compete in the mechanisms.
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    \11\ 15 U.S.C. 78f(b)(8).
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    The proposed rule allows Participants to respond quickly at the 
most favorable price while reducing the risk that the market will move 
against the response. The Exchange believes that its Participants will 
be able to compete within a range of no less than 100 milliseconds and 
no more than 1 second, and that any specific duration within this range 
is a sufficient amount of time to respond to, compete for, and provide 
price improvement for orders, and will provide investors and other 
market participants more timely executions, and reduce their market 
risk.
    The Exchange does not believe its proposed rule change will impose 
an undue burden on inter-market competition as the Exchange notes other 
exchanges offer similar mechanisms with similar auction durations.\12\
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    \12\ See supra note 6.
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    For all the reasons stated, the Exchange does not believe that the 
proposed rule change will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act, and 
believes the proposed change will 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6)(iii) thereunder.\16\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
waiver of the operative delay will allow the Exchange to immediately 
decrease the Response time which would allow Participants to respond 
quickly at their most favorable price, while reducing the risk that the 
market will move against the response. The Exchange also notes that 
other exchanges with similar auction mechanisms permit the same

[[Page 48277]]

response time period.\19\ The Commission believes that the proposed 
changes do not raise any material new issues that have not been 
previously considered by the Commission. For this reason, the 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the 30-day operative delay 
and designates the proposal operative upon filing.\20\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ See supra note 6.
    \20\ For purposed only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of this proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <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#8dfff8e1e8a0eee2e0e0e8e3f9fecdfee8eea3eae2fb"><span class="__cf_email__" data-cfemail="3d4f485158105e5250505853494e7d4e585e135a524b">[email protected]</span></a>. Please include 
File Number SR-BOX-2021-17 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BOX-2021-17. 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 the 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-2021-17, and should be submitted on 
or before September 17, 2021.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18460 Filed 8-26-21; 8:45 am]
BILLING CODE 8011-01-P


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