Document ID: SEC-2021-0422-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2021-03-25T04:00Z

[Federal Register Volume 86, Number 56 (Thursday, March 25, 2021)]
[Notices]
[Pages 15992-15993]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06126]

[[Page 15992]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91368; File No. SR-BOX-2020-38]

Self-Regulatory Organizations; BOX Exchange LLC; Order Approving 
a Proposed Rule Change To Amend BOX Rule 7620 (Accommodation 
Transactions)

March 19, 2021.

I. Introduction

    On December 10, 2020, BOX Exchange LLC (``BOX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend BOX Rule 7620 (Accommodation Transactions) to allow Floor Brokers 
\3\ to enter opening cabinet orders at a price of $1 per option 
contract on behalf of customers and Floor Market Makers,\4\ and require 
all cabinet trades to follow the Exchange's existing open outcry rules 
pursuant to BOX Rule 7600 series. The proposed rule change was 
published for comment in the Federal Register on December 30, 2020.\5\ 
On February 8, 2021, the Commission extended the time period within 
which to approve, disapprove, or institute proceedings to determine 
whether to approve or disapprove the proposed rule change.\6\ The 
Commission received no comments on the proposed rule change. The 
Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See BOX Rule 7540 (defining ``Floor Broker'' as ``an 
individual who is registered with the Exchange for the purpose, 
while on the Trading Floor, of accepting and handling options 
orders. A Floor Broker must be registered as an Options Participant 
prior to registering as a Floor Broker. A Floor Broker may take into 
his own account, and subsequently liquidate, any position that 
results from an error made while attempting to execute, as Floor 
Broker, an order.'').
    \4\ See BOX Rule 8510(b) (defining ``Floor Market Maker'' as an 
Options Participant of the Exchange located on the Trading Floor who 
has received permission from the Exchange to trade in options for 
his own account.'').
    \5\ See Securities Exchange Act Release No. 90792 (December 23, 
2020), 85 FR 86610 (``Notice'').
    \6\ See Securities Exchange Act Release No. 91077, 86 FR 9403 
(February 12, 2021), in which the Commission designated March 30, 
2021 as the date by which it should approve, disapprove, or 
institute proceedings to determine whether to disapprove the 
proposed rule change.
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II. Description of the Proposed Rule Change

    Currently, BOX Rule 7620 defines a ``cabinet order'' as ``a closing 
limit order at a price of $1 per option contract for the account of a 
customer or Floor Market Maker.'' \7\ Only closing limit orders may be 
submitted as orders to the cabinet. Although BOX Rule 7620 specifies 
that ``opening orders'' are not cabinet orders, the rule currently 
allows opening orders to be matched with cabinet orders in certain 
specified circumstances.\8\
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    \7\ See BOX Rule 7620.
    \8\ See BOX Rule 7620(c)-(e) (specifying limited circumstances 
in which an opening order may be matched with a cabinet order). See 
also Notice, supra note 5, at 86611-13.
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    BOX proposes to amend BOX Rule 7620 to allow all cabinet trades 
(both opening and closing) to occur via open outcry pursuant to BOX's 
existing Rule 7600 series. To effectuate this change, BOX proposes to 
expand the definition of ``cabinet orders'' to include opening orders 
as well as closing orders.\9\ Further, as proposed, the Exchange would 
preserve the primacy of existing closing cabinet orders by requiring 
cabinet orders, whether opening or closing, to yield priority to all 
existing closing cabinet orders represented by the trading crowd.\10\ 
Cabinet trading would not be available in options classes participating 
in the Penny Interval Program.\11\
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    \9\ See proposed BOX Rule 7620. As proposed, ``cabinet orders'' 
would be defined as ``bids and offers (whether opening or closing) 
at a price of $1 per option contract for the account of a customer 
of Floor Market Maker.''
    \10\ See proposed BOX Rule 7620(c). See also Notice, supra note 
5, at 86612-13.
    \11\ See proposed BOX Rule 7620(b).
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    Further, under the proposal, as is the case today, only Floor 
Brokers would be permitted to represent cabinet orders and such orders 
would only be permitted to execute on the Exchange's Trading Floor.\12\ 
The Exchange proposes to codify that cabinet orders would be subject to 
the existing BOX Rule 7600 series \13\ and therefore would execute in 
open outcry in the same manner as all other orders execute on the 
Trading Floor (i.e., in accordance with the order allocation, priority, 
and execution rules applicable to all Qualified Open Outcry (``QOO'') 
Orders).\14\ In addition, under the proposal, cabinet orders would no 
longer be subject to separate manual recordation requirements and would 
instead be subject to the same systematization and order recordation 
requirements that currently apply to all other QOO Orders.\15\
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    \12\ See BOX Rule 7620. See also Notice, supra note 5, at 86611.
    \13\ See Proposed BOX Rule 7620.
    \14\ See Notice, supra note 5, at 86611.
    \15\ See Notice, supra note 5, at 86612. Specifically, BOX Rule 
7580(e)(1) would require Floor Brokers to contemporaneously upon 
receipt of a cabinet order to record specific information about the 
order onto the Floor Broker's order entry mechanism. See id. at 
86612 n.17.
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III. Discussion and Commission Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\16\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\17\ which requires that the 
rules of an exchange be designed, among other things, 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 regulating and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest, and not be designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers. The Commission also finds that the proposed rule change is 
consistent with Section 6(b)(8) of the Act,\18\ which requires that the 
rules of a national securities exchange not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \16\ 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).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that the proposed rule change to allow bids 
and offers (whether opening or closing) at a price of $1 per option 
contract to be executed by Floor Brokers in open outcry on the 
Exchange's Trading Floor subject to the existing BOX Rule 7600 series 
appears reasonably designed to provide market participants with an 
additional means by which they can close out worthless positions in 
series of options that are not actively traded and thereby avoid 
unwanted risk. According to the Exchange, opening cabinet trades are 
not profitable for participants, but participants can use them to 
change their risk profile. The Exchange asserts that the proposed 
change is in line with the primary purpose of cabinet trading in that 
it would allow participants to submit opening cabinet orders in series 
that are not actively traded to effectively close out 
(``synthetically'') the risk associated with current positions.\19\ The

[[Page 15993]]

Commission believes that the proposed rule change will permit market 
participants to effectively close out worthless positions prior to 
their expiration using closing or opening cabinet orders in a manner 
that is consistent with the original purpose of the cabinet and in so 
doing will allow market participants to better manage their capital and 
risk exposures. In this regard, the Commission notes that all orders 
traded pursuant to BOX Rule 7620 must meet the proposed definition of 
``cabinet order'' and be bona fide trades. Further, cabinet orders 
(whether opening or closing) may not be conducted for any improper 
purpose or be executed in a manner that would be inconsistent with the 
Exchange's other rules. For example, the Commission believes that it 
would be inconsistent with the just and equitable principles of trade 
for a participant to utilize the cabinet trading rules for the purpose 
of avoiding the exchange's minimum trading increment rules. The 
Commission believes subjecting cabinet orders to the same order entry, 
recordation, and processing requirements as currently apply to all QOO 
Orders will create an electronic audit trail for cabinet orders and 
should promote consistency and facilitate regulatory oversight of 
trading on the Trading Floor.
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    \19\ See Notice, supra note 5, at 86613. See also Notice, supra 
note 5, at 86611 n.9-10 and accompanying text (providing an example 
of the use of an opening cabinet order to synthetically close a 
Market Maker's position in a worthless option and thereby hedge 
unwanted portfolio risk).
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    For the reasons set forth above, the Commission believes that the 
proposed rule change is consistent with the requirements of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-BOX-2020-38) hereby is 
approved.
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021-06126 Filed 3-24-21; 8:45 am]
BILLING CODE 8011-01-P