Document ID: SEC-2021-0635-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2021-05-05T04:00Z

[Federal Register Volume 86, Number 85 (Wednesday, May 5, 2021)]
[Notices]
[Pages 24119-24124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09443]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91714; File No. SR-BOX-2021-07]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Proposed Rule Change To Adopt BOX Rule 7670 To Establish a Virtual 
Trading Floor on BOX

April 29, 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 April 16, 2021, BOX Exchange LLC (``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to establish BOX Rule 7670 to adopt a Virtual 
Trading Floor on BOX. 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 24120]]

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

1. Purpose
    The Exchange proposes to establish BOX Rule 7670 to adopt a Virtual 
Trading Floor on BOX. This is a competitive filing that is based on a 
proposal submitted by Cboe Exchange, Inc. (``Cboe'') and approved by 
the Commission.\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 90658 (December 14, 
2020) (Order Approving SR-CBOE-2020-055).
---------------------------------------------------------------------------

    On March 20, 2020, as a precautionary measure to prevent the 
potential spread of coronavirus (COVID-19), BOX closed the Trading 
Floor located in Chicago, Illinois for an indefinite period of time. As 
a result of the closure of the Trading Floor, BOX operated in an 
electronic only trading mode. The Exchange continued to operate in an 
all-electronic capacity until May 4, 2020, when the Exchange reopened 
its Trading Floor with continued safety guidelines, policies and 
procedures in place. However, given the uncertainty related to the 
ongoing pandemic, which includes the possibility of the Exchange having 
to close its Trading Floor again, and given the possibility that the 
Exchange's Trading Floor may be inoperable or at capacity for other 
reasons in the future, the Exchange believes it is appropriate to 
continue to review and enhance its rules with regard to its business 
continuity plans. While BOX continued to operate in an all-electronic 
capacity while the physical Trading Floor was closed, an all-electronic 
trading environment cannot fully replicate open outcry trading. 
Therefore, the Exchange continues to evaluate potential enhancements 
that it believes would permit open outcry trading while the Trading 
Floor is inoperable to more closely replicate its trading environment 
that exists during normal operations.
    There are certain features of open outcry trading that are 
difficult to replicate in an electronic trading environment, 
particularly the human interaction that permits persons to negotiate 
pricing and to facilitate executions of larger orders and high-risk 
complicated strategies. For example, from January 2, 2020 through March 
21, 2020 (the last day on which the Trading Floor was open), Complex 
Orders for options with more than four legs represented approximately 
11.3% of the total complex order average daily volume (``ADV'') during 
that timeframe. However, from March 22, 2020 (the first day on which 
the Trading Floor was closed) through May 1, 2020 (the last day before 
the Trading Floor reopened), Participants executed zero complex orders 
for options with more than four legs.\4\ This data, taken into 
consideration with feedback from Participants, demonstrates the 
difficulty market participants have with executing high-risk and 
complex strategies in an all-electronic trading capacity that does not 
allow for human interaction.
---------------------------------------------------------------------------

    \4\ The Exchange notes that from May 2, 2020 through July 31, 
2020, Complex Orders for options with more than four legs 
represented approximately 6.9% of the total Complex Order ADV during 
that timeframe. The Exchange believes that this trading activity 
further demonstrates the need to execute certain high-risk and 
complex strategies with the assistance of human interaction and 
price negotiation that a Trading Floor best facilitates. The 
Exchange believes that the proposed Virtual Trading Floor will be an 
identical venue to that of the physical Trading Floor with respect 
to these types of trades.
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change would further 
enhance the Exchange's trading environment when the physical Trading 
Floor is inoperable by permitting market participants that generally 
operate on the Trading Floor to continue to interact in a substantially 
similar manner as they do on the Trading Floor. Specifically, the 
Exchange proposes to adopt Rule 7670(a) which details the Loss of 
Trading Floor. If the Exchange Trading Floor becomes inoperable and the 
Exchange does not make a Virtual Trading Floor available, the Exchange 
will continue to operate in an electronic only environment while the 
Trading Floor is inoperable. Open outcry trading will not be available 
in the event the Trading Floor becomes inoperable except as otherwise 
set forth in Rule 7670 discussed herein. The Exchange reiterates that 
the proposed Virtual Trading Floor will only be activated if the 
physical Trading Floor becomes inoperable. Further, the Exchange has 
the discretion to not activate the Virtual Trading Floor if the 
physical Trading Floor becomes inoperable.
    The Exchange proposes to adopt Rule 7670(a)(1) which will allow the 
Exchange to make available an audio and video communication program to 
serve as a ``Virtual Trading Floor'' during regular trading hours. In 
the program, the Exchange will create a ``Virtual Trading Pit.'' In the 
Virtual Trading Pit, each Participant authorized to access the Virtual 
Trading Floor (as described below) that enters the Virtual Trading Pit 
will be visible to all other Participants in that Virtual Trading Pit. 
Additionally, all Participants in that Virtual Trading Pit may speak to 
each other through the program. This will allow the same communication 
capabilities Participants generally have on the physical Trading Floor 
so that they may conduct open outcry trading on the Virtual Trading 
Floor in the same manner as they do on the physical Trading Floor.
    All rules related to open outcry trading will apply to open outcry 
trading on the Virtual Trading Floor in the same manner as they apply 
to open outcry trading on the physical Trading Floor, except as the 
context otherwise requires and as set forth in proposed subparagraph 
(a)(1)(A). Proposed subparagraph (a)(1)(A) lists certain terms in the 
rules related to open outcry trading on the physical Trading Floor that 
will be deemed to refer to corresponding terms related to open outcry 
trading on the Virtual Trading Floor. Specifically:
    (i) References in the Rules to the ``Floor,'' ``Trading Floor,'' 
and ``Exchange Floor'' (and any other terms with the same meaning) will 
be deemed to refer to the ``Virtual Trading Floor.''
    (ii) References in the Rules to ``Pit'' and ``Crowd Area'' (and any 
other terms with the same meaning) will be deemed to refer to the 
``Virtual Trading Pit.''
    (iii) The terms ``in-crowd Floor Participant'' mean a Floor Market 
Maker or a Floor Brooker representing an order in the Virtual Trading 
Pit on the Virtual Trading Floor.
    Access to the Virtual Trading Floor will be substantially similar 
to access to the physical Trading Floor. Currently, admission to the 
physical Trading Floor is limited to Floor Participants, Exchange 
employees, Clerks employed by Floor Participants and registered with 
the Exchange, Exchange visitors that receive authorized admission to 
the Trading Floor pursuant to Exchange policy, and any other persons 
that the Exchange authorizes admission to the Trading Floor. Proposed 
Rule 7670(a)(1)(B) provides the same persons with access to the Virtual 
Trading Floor, except for visitors. While Clerks may access the Virtual 
Trading Floor, they may only perform the same functions for their 
associated organizations in connection with open outcry trading on the 
Virtual Trading Floor as they do for open outcry trading on the 
physical Trading Floor. The Exchange understands permitting Clerks to 
access the Virtual Trading Floor will provide them with access to the 
information that they normally have access to on the physical Trading 
Floor, which will make it more efficient for them to perform their 
tasks. Clerks will continue to be unable to enter into transactions on 
the Exchange. Additionally, as there is no physical equipment that 
would

[[Page 24121]]

need service on the Virtual Trading Floor, and no purpose for a visitor 
to observe the Virtual Trading Floor, the proposed rule change excludes 
visitors from accessing the Virtual Trading Floor.\5\
---------------------------------------------------------------------------

    \5\ While the Exchange does not anticipate granting any other 
individuals with access to the Virtual Trading Floor outside of 
Participants and Exchange personnel, the Exchange believes the 
flexibility to permit Exchange personnel to access the Virtual 
Trading Floor is appropriate, such as to permit access to make 
updates to the communication program.
---------------------------------------------------------------------------

    As is the case with the physical Trading Floor, the Exchange will 
provide access to the Virtual Trading Floor to Participants the 
Exchange has approved to perform a Trading Floor function (including 
Floor Brokers and Floor Market Makers). This includes Participants (and 
individuals that represent Participant organizations) that are 
currently authorized to perform Trading Floor functions, as well as any 
additional Participants that receive such authorization in the future. 
Each authorized individual will receive one log-in to the Virtual 
Trading Floor. The Exchange currently requires at least one Market 
Maker to be present on the physical Trading Floor (prior to a Floor 
Broker announcing an order for execution) \6\ and believes it is 
necessary and appropriate to impose such requirement for the Virtual 
Trading Floor.\7\ Further, the Exchange notes that it will track which 
individuals participate in the Virtual Trading Floor, including when 
they log-in and log-out.
---------------------------------------------------------------------------

    \6\ See BOX Rule 7580(a).
    \7\ The Exchange notes that another options exchange with a 
Virtual Trading Floor has a similar requirement. See Securities 
Exchange Release Act No. 91299 (March 11, 2021), 86 FR 14661 (Notice 
of Filing of Amendment No. 1 and Order Granting Accelerated Approval 
of SR-Phlx-2021-03).
---------------------------------------------------------------------------

    Under this proposal, Floor Participants are not required to display 
badges on the Virtual Trading Floor, as the size of the view on the 
communication program may not permit badges to be visible.\8\ 
Currently, on the physical Trading Floor, a Floor Market Maker has an 
appointment to trade open outcry in all classes trading on the Exchange 
(and must be physically present in the Crowd Area to trade in open 
outcry). Similarly, any Floor Market Maker authorized to act on the 
physical Trading Floor will receive access to the Virtual Trading Pit 
on the Virtual Trading Floor.
---------------------------------------------------------------------------

    \8\ The Virtual Trading Floor program will identify the 
Participant organization of each Participant in the Virtual Trading 
Pit.
---------------------------------------------------------------------------

    As set forth in Rule 7660, and subject to the requirements in that 
Rule, Floor Participants may use any communication device on the 
physical Trading Floor (which it must register with the Exchange). 
Pursuant to proposed Rule 7670(a)(1)(C), Participants may use any 
equipment to access the Virtual Trading Floor. Prior to using a 
communications device for business purposes on the physical Trading 
Floor of the Exchange, Participants must register the communications 
device by identifying (in a form and manner prescribed by the Exchange) 
the hardware. Because individuals on the Virtual Trading Floor will not 
be on the Exchange premises (and thus will not be using Exchange 
provided bandwidth to be shared with all market participants and do not 
pose the same security risks), the proposed rule change will not 
require Participants to register devices they use while on the Virtual 
Trading Floor.\9\ Rule 7660 will otherwise apply in the same manner to 
the Virtual Trading Floor as it does to the physical Trading Floor (to 
the extent the context requires). This includes requirements related to 
audit trail and record retention, prohibition on using any device for 
the purpose of recording activities in the Virtual Trading Pit or 
maintaining an open line of continuous communication whereby a non-
associated person not located in the trading crowd may continuously 
monitor the activities in the trading crowd.
---------------------------------------------------------------------------

    \9\ The Exchange notes that Floor Participants will be required 
to inform the Exchange of the IP address that will be used to access 
the Virtual Trading Floor. Market participants will likely use home 
networks to connect to the Virtual Trading Floor platform (which is 
contained in the BOX trading environment). By requiring the 
submission of IP addresses to BOX, the Exchange is able to create a 
secure network available only to approved IP addresses. This, in 
turn, denies any outside (and not previously approved) connections 
from entering the Virtual Trading Floor and, thus secures the 
Virtual Trading environment to only those Participants approved by 
the Exchange. Further, the Exchange believes that requiring the 
submission of IP addresses connected to the Virtual Trading Floor is 
appropriate and will be of assistance to BOX employees if market 
participants experience any connection issues when trying to use the 
Virtual Trading Floor platform.
---------------------------------------------------------------------------

    The Exchange will use a communication program that has audio and 
video capabilities, as well as ``chat'' functionality. Proposed Rule 
7670(a)(1)(D) states that the Exchange may determine to require any 
Floor Market Maker or Floor Broker in the Virtual Trading Pit that 
wants to trade against an order represented for execution to express 
its bid or offer in a chat available in the Virtual Trading Pit.\10\ 
The Exchange would require Participants to utilize the chat function if 
BOX Trading Floor Officials determine that increased volume or activity 
in the Virtual Trading Crowd warrant mandatory use of the chat feature 
for Participants to maintain a fair and orderly market.\11\ Chats will 
be visible to all Participants in the Virtual Trading Pit and will not 
be permitted directly between individual Participants (i.e., the 
Exchange will disable direct messaging functionality within the 
communication program). Participants on the physical Trading Floor only 
verbalize their interest to trade against a represented order, so not 
requiring bids and offers to be included in a chat conforms to current 
practice on the Trading Floor. However, given potential limitations of 
communication software (such as limitations on how many people may be 
heard at the same time in the Virtual Pit or potential buffering or 
echoing), the Exchange believes it may be appropriate to require market 
participants to use a chat tool in the communication program to 
indicate their interest in participating in a trade so that the 
representing Floor Broker is able to know the market from the trading 
crowd and fairly allocate the trade pursuant to the Rules. The Exchange 
believes the flexibility to impose this requirement in the Virtual 
Trading Pit is appropriate, as these limitations may ultimately not 
interfere with a Floor Broker's ability to hear all interest 
(particularly in a Virtual Trading Pit with few Participants) and thus 
the additional requirement may potentially slow down executions. 
Flexibility will permit the Exchange to balance system limitation. The 
Exchange notes that, regardless of whether it requires the chat 
function to be used, the Exchange will maintain records of all chats in 
the Virtual Trading Floor in accordance with its self-regulatory 
organization record-retention obligations.
---------------------------------------------------------------------------

    \10\ The Exchange will announce to all Participants any 
determination to require bids and offers to be expressed in a chat 
within the communication program by Regulatory Circular. The 
Exchange will provide such notice with sufficient advance notice.
    \11\ The Exchange notes that another exchange with a Virtual 
Trading Floor has a similar requirement. See Securities Exchange 
Release Act No. 91299 (March 11, 2021), 86 FR 14661 (Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of 
SR-Phlx-2021-03).
---------------------------------------------------------------------------

    The program also has a functionality that will permit Floor Brokers 
and Floor Market Makers on the Virtual Trading Floor to see an 
electronic blotter containing a running list of unexecuted orders that 
have been represented by Floor Brokers on the Virtual Trading Floor. 
Currently, Floor Brokers record the times at which they verbally 
represent orders on the Trading Floor by submitting their order to the 
Trading Host for execution. This information is generally only verbally 
available on the physical trading floor. However, similar

[[Page 24122]]

to why the Exchange is making chat functionality available in the 
Virtual Trading Floor, the Exchange believes the additional information 
included in the blotter will benefit Virtual Trading Floor Participants 
given potential limitations of communication software (such as 
limitations on how many people may be heard at the same time in a 
virtual pit or potential buffering or echoing). For example, if a Floor 
Market Maker's personal device momentarily freezes, causing the Floor 
Market Maker to miss the terms of an order represented by a Floor 
Broker, the Floor Market Maker will still be able to see the terms of 
the order in the blotter and determine whether it wants to seek to 
trade with the order.
    Further, pursuant to proposed Rule 7670(a)(1)(E), Floor Market 
Maker quotes will be considered firm in the event the Floor Market 
Maker is disconnected from the Virtual Trading Crowd and the parties 
have a Meeting of the Minds with respect to the terms of the 
transaction. A ``Meeting of the Minds'' means the contra-side(s) 
verbally confirmed participation in the trade. In the event that a 
Floor Market Maker is disconnected from the Virtual Trading Crowd, a 
Floor Market Maker quote would not be considered firm if the quote were 
provided and the parties did not have a Meeting of the Minds with 
respect to the terms of the transaction.
    Today, a Floor Market Maker that experiences issues with internet 
connection, makes an error or otherwise is unaware of recent news in a 
particular option, would be held to a quote verbalized in open outcry. 
In the event that the negotiation continues and the terms change, the 
Floor Marker Maker would not be held to the new terms without 
additional acceptance of those terms. In the event that the transaction 
is not effectuated in the BOX Trading Host, the trade would not stand. 
To that end, the Exchange believes requiring quotes to remain firm once 
the parties have arrived at a Meeting of the Minds with respect to the 
terms of the transaction creates fair and equitable expectations for 
Participants trading in the Virtual Trading Crowd.
    The Exchange notes that, regardless of whether it requires the chat 
function to be used, the Exchange will maintain records of all chats in 
the Virtual Trading Floor \12\ in accordance with its self-regulatory 
organization record retention obligations, as these are 
``correspondence'' records subject to those obligations, as set forth 
in proposed subparagraph (a)1)(F).\13\ Specifically, proposed 
7670(a)(1)(F) states the Exchange will retain records of the chats, 
Participant logs, and any other records related to the virtual trading 
floor that are subject to the Exchange's record retention obligations 
under the Exchange Act. The Exchange does not currently plan to make 
video recordings of the virtual trading floor because the Exchange 
believes video is not subject to its record retention obligations. 
However, if the Exchange determined to make video recordings of the 
virtual trading floor, it would retain those video recordings in 
accordance with its record retention obligations.\14\
---------------------------------------------------------------------------

    \12\ The Exchange notes the information that will be displayed 
in the blotter is already retained as part of the BOX order audit 
trail.
    \13\ See 15 U.S.C. 78q(a).
    \14\ Id. The Exchange notes it will disable the ability of 
Participants to record the Virtual Trading Floor through the 
communication program.
---------------------------------------------------------------------------

    Floor Officials will have access to the Virtual Trading Floor. 
Floor Officials will have the same authority to act in the Virtual 
Trading Floor as they do on the physical trading floor. Additionally, a 
BOX employee will be available to provide technical and operational 
support (in addition to regular Exchange support staff for floor 
operations) if Participants in the Virtual Trading Floor need 
assistance. If there was an issue with the communication program making 
the Virtual Trading Floor unavailable, the Exchange would operate in an 
all-electronic configuration (as it did earlier in 2020 when the 
physical Trading Floor was unavailable) until the communication program 
was available again.
    While open outcry trading on the Virtual Trading Floor will occur 
with in-crowd market participants interacting with each other remotely 
through a computer communication program, all trading that occurs on 
the Virtual Trading Floor will occur in the same manner as it does on 
the physical Trading Floor. Specifically, open outcry trading on the 
Virtual Trading Floor will be subject to the same priority and 
allocation rules as open trading on the physical Trading Floor, as set 
forth in Rule 7600. Any risk controls and price protection mechanisms 
that apply to open outcry trading on the physical Trading Floor will 
apply in the same manner to open outcry trading on the Virtual Trading 
Floor. The Exchange will make the same order types and instructions 
available on the Virtual Trading Floor as it makes available on the 
physical Trading Floor. Floor Brokers will be subject to the 
responsibilities set forth in Rules 7570 and 7580 on the Virtual 
Trading Floor, as they are on the physical Trading Floor.
    In addition, marker participants participating on the Virtual 
Trading Floor will be subject to the same regulatory requirements on 
the Virtual Trading Floor as they are on the physical Trading Floor, 
including those set forth in Rule Series 3000 and 4000. Orders must be 
systematized \15\ and represented,\16\ and transactions reported, in 
connection with the Virtual Trading Floor in the same manner as they 
are when trading on the physical Trading Floor. Therefore, the audit 
trail for open outcry trading on the Virtual Trading Floor will capture 
the same information that it does for open outcry trading on the 
physical Trading Floor. The Regulatory Division will be able to utilize 
preexisting Trading Floor surveillances to surveil for the activity 
occurring on the Virtual Trading Floor. Specifically, the Regulatory 
Division monitors open outcry trading using various automated 
surveillances, which incorporate systematized order and trade execution 
information and applicable time stamps, as well as other elements of 
the audit trail from the Floor Broker's order entry system(s) and the 
BOX matching engine. Because in-crowd market participants will use the 
same tools to systematize and execute orders on the Virtual Trading 
Floor that they would use on the physical Trading Floor, and will be 
subject to the same trading rules and requirements, the Regulatory 
Staff's automated surveillances applicable to open outcry trading will 
incorporate the same audit trail information from open outcry trading 
on the Virtual Trading Floor that they do from open outcry trading on 
the physical Trading Floor. Additionally, Regulatory Staff will always 
be present on the Virtual Trading Floor and may access any records 
pertaining to the Virtual Trading Floor (i.e., chats) if they deem it 
necessary and appropriate to ensure compliance with BOX Rules.
---------------------------------------------------------------------------

    \15\ See Rule 7580(e)(1).
    \16\ See Rule 7580(e)(2).
---------------------------------------------------------------------------

    Lastly, the Exchange notes that it has conducted meetings with 
Floor Participants in which the Exchange presented the functionality of 
the Virtual Trading Floor and has made the Virtual Trading Floor 
available for testing so that the Exchange will be ready to implement 
it if necessary. The Exchange has received positive feedback from Floor 
Participants regarding the Virtual Trading Floor and will continue to 
make updates as necessary and appropriate in response to comments it 
receives to make the Virtual Trading Floor replicate the open outcry 
trading

[[Page 24123]]

experience on the physical Trading Floor as much as possible. The 
Exchange believes this will provide the opportunity for as seamless a 
rollout as possible if circumstances cause the Exchange to make the 
Virtual Trading Floor available.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \18\ 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. Additionally, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \19\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ Id.
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change will 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, as it will permit open outcry trading to continue in 
the event the Exchange's Trading Floor is inoperable. The Exchange 
again notes that the proposed Virtual Trading Floor will only be 
activated if the physical Trading Floor becomes inoperable. Further, 
the Exchange has the discretion to not activate the Virtual Trading 
Floor if the physical Trading Floor becomes inoperable. The Exchange 
believes that these factors, taken together, limit the scope of this 
proposal to extenuating circumstances that the Exchanges hopes to 
avoid. While the Exchange continues to believe that the physical 
Trading Floor is an essential function to BOX Market and hopes the 
physical Trading Floor does not become inoperable or require any 
closures in the future, the Exchange also believes it is appropriate to 
continue to review and enhance its rules with regard to its business 
continuity plans if the physical Trading Floor were to become 
inoperable. As such, the Exchange believes the adoption of a Virtual 
Trading Floor, which emulates the physical Trading Floor, is reasonable 
and appropriate given the circumstances the world faces today.
    As discussed above, there are certain features of open outcry 
trading that are difficult to replicate in an all-electronic trading 
environment. The Exchange has observed, and understands from various 
market participants, that they have had difficulty executing certain 
orders, such as larger orders and high-risk and complicated strategies, 
in an all-electronic trading environment without the element of human 
interaction to negotiate pricing for these orders. The proposed rule 
change would provide an environment in which this interaction would be 
available despite the inoperability of the physical Trading Floor. The 
Exchange believes the proposed rule change may facilitate continued 
trading of these orders if and when the Trading Floor is inoperable. As 
a result, the Exchange believes providing continuous access to open 
outcry trading when the physical Trading Floor is inoperable will 
remove impediments to a free and open market and will ultimately 
benefit investors, particularly those desiring to execute high-risk and 
complex trading strategies.
    The Exchange also believes the proposed rule change will promote 
just and equitable principles of trade, as open outcry trading on a 
Virtual Trading Floor will occur in accordance with the same trading 
rules and be subject to the same regulatory requirements that apply to 
open outcry trading on the physical Trading Floor, all of which have 
previously been filed with the Commission. The proposed rule change 
will merely permit this open outcry trading to occur in a virtual 
setting rather than a physical setting (which may be necessary and 
appropriate for health and safety purposes)--in other words, open 
outcry trading on a Virtual Trading Floor will occur while market 
participants operate remotely as they do when they trade 
electronically. Specifically, open outcry trading on the Virtual 
Trading Floor will be subject to the same priority and allocation rules 
as open trading on the physical Trading Floor, as set forth in Rule 
7600 series. As is the case for open outcry trading on the physical 
Trading Floor, open outcry trading on the Virtual Trading Floor is 
consistent with Section 11(a) of the Act, as IM-7600-5 (which will 
apply to open outcry trading on the Virtual Trading Floor) requires 
Participants relying on Section 11(a)(1)(G) of the Act and Rule 11a1-
1(T) thereunder (the so called ``G exemption rule'') as an exemption 
must yield priority to any bid (offer) at the same price of Public 
Customer orders and broker-dealer orders resting in the Book, as well 
as any other bid (offer) that has priority over those Broker Dealer 
orders under this Rule. The Exchange may make the same order types and 
instructions available on the Virtual Trading Floor as it makes 
available on the physical Trading Floor. Floor Brokers will be subject 
to the responsibilities set forth in Rules 7570 and 7580 on the Virtual 
Trading Floor, as they are on the physical Trading Floor.
    Additionally, Participants participating on the Virtual Trading 
Floor will be subject to the same regulatory requirements on the 
Virtual Trading Floor as they are on the physical Trading Floor, 
including those set forth in Rule Series 3000 and 4000. As previously 
noted, orders must be systematized and represented, and transactions 
reported, in connection with the Virtual Trading Floor in the same 
manner as they are when trading on the physical Trading Floor.\20\ 
Therefore, the audit trail for open outcry trading on the Virtual 
Trading Floor will capture the same information that it does for open 
outcry trading on the physical Trading Floor. The Regulatory Division 
will be able to utilize preexisting floor surveillances to surveil for 
the activity occurring on the Virtual Trading Floor. Specifically, the 
Regulatory Division monitors open outcry trading using various 
automated surveillances, which incorporate systematized order and trade 
execution information and applicable time stamps, as well as other 
elements of the audit trail from the floor broker's order entry 
system(s) and the BOX matching engine. Because in-crowd market 
participants will use the same tools to systematize and execute orders 
on the Virtual Trading Floor that they would use on the physical 
Trading Floor, and will be subject to the same trading rules and 
requirements, the Regulatory Division's automated surveillances 
applicable to open outcry trading will incorporate the same audit trail 
information from open outcry trading on the Virtual Trading Floor that 
they do from open outcry trading on the physical Trading Floor. 
Additionally, Regulatory Division Staff

[[Page 24124]]

will always be present on the Virtual Trading Floor and may access any 
records pertaining to the Virtual Trading Floor (i.e., chats) if they 
deem it necessary and appropriate to ensure compliance with BOX Rules. 
The Exchange believes it will promote just and equitable principles of 
trading for all open outcry trading to occur in substantially the same 
manner, whether it occurs while market participants are in the same 
physical setting or in remote settings being connected through a 
technological solution.
---------------------------------------------------------------------------

    \20\ Pursuant to proposed Rule 7670(a)(1)(E), Floor Market Maker 
quotes will be considered firm in the event the Floor Market Maker 
is disconnected from the Virtual Trading Crowd and the parties have 
a Meeting of the Minds with respect to the terms of the transaction. 
A ``Meeting of the Minds'' means the contra-side(s) verbally 
confirmed participation in the trade. In the event that a Floor 
Market Maker is disconnected from the Virtual Trading Crowd, a Floor 
Market Maker quote would not be considered firm if the quote were 
provided and the parties did not have a Meeting of the Minds with 
respect to the terms of the transaction.
---------------------------------------------------------------------------

    In addition, the Exchange believes the proposed rule change will 
not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers, as all individuals authorized to act on 
the physical Trading Floor (both Participant organizations authorized 
at the time the physical Trading Floor becomes inoperable and any 
Participant organization that becomes authorized after the physical 
Trading Floor becomes inoperable) will be provided with access to the 
Virtual Trading Floor.
    Lastly, the Exchange notes that the proposed rule is a competitive 
response that is based on a proposal recently submitted by Cboe and 
approved by the Commission.\21\
---------------------------------------------------------------------------

    \21\ See supra note 3.
---------------------------------------------------------------------------

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

    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. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to a filing submitted by Cboe that was recently 
approved by the Commission. Further, the Exchange does not believe that 
the proposed rule change will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act, as all Participants authorized by the Exchange, or 
that become authorized by the Exchange, to transact on the Trading 
Floor will receive access to the Virtual Trading Floor. The Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as it relates solely to the 
location of open outcry trading on the Exchange. The proposed rule 
change will merely permit open outcry trading that generally occurs 
while market participants are located in the same physical setting to 
occur while market participants are in a remote setting, connected by a 
technological solution (as electronic trading does).
    The Exchange believes that the proposed rule change will relieve 
any burden on, or otherwise promote, competition. The Exchange believes 
the proposed rule change will provide market participants with 
continuous access to open outcry trading when the physical Trading 
Floor is inoperable. The Exchange believes this may facilitate 
continued, competitive price negotiations and trading of orders that 
the Exchange understands are more difficult to execute in an all-
electronic trading environment without human interaction. Additionally, 
the proposed rule change will provide customer orders represented for 
open outcry execution with access to the same pool of liquidity when 
the Trading Floor is inoperable to which those orders would have access 
when the Trading Floor is operating in its normal state. Maintenance of 
this level of liquidity at all times, even when the physical Trading 
Floor is inoperable, may promote competition by providing these 
customer orders with increased liquidity than may otherwise be 
available, and thus increased execution opportunities and price 
discovery.

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

     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-BOX-2021-07 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-BOX-2021-07. 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-2021-07, and should be submitted on 
or before May 26, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09443 Filed 5-4-21; 8:45 am]
BILLING CODE 8011-01-P