Document ID: SEC-2013-0901-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2013-05-15T04:00Z

[Federal Register Volume 78, Number 94 (Wednesday, May 15, 2013)]
[Notices]
[Pages 28692-28695]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11523]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69551; File No. SR-BOX-2013-25]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
BOX Rules 5050, 7050, and 7240

May 9, 2013.
    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 May 8, 2013, BOX Options Exchange LLC (``BOX'' or ``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 Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change 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 BOX Rules 5050(e) (Jumbo SPY 
Options), 7050 (Minimum Trading Increments) and 7240 (Complex Orders). 
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 Web site at http://boxexchange.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.

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

1. Purpose
    The Exchange received approval to list and trade option contracts 
overlying 1,000 shares of the SPDR[supreg] S&P[supreg] 500 Exchange-
Traded Fund (``SPY'') \3\ or (``Jumbo SPY Options'').\4\ Whereas 
standard options contracts represent a deliverable of 100 shares of an 
underlying security, this product represents 1,000 SPY shares. Except 
for the difference in the number of deliverable shares, Jumbo SPY 
Options have the same terms and contract characteristics as regular-
sized options contracts (``standard options''), including exercise 
style. Accordingly, the Commission noted in the approval order that the 
Exchange's rules that apply to the trading of standard options would 
apply to Jumbo SPY Options as well.\5\ Prior to the launch of these 
non-standard contracts, the Exchange proposes to amend the BOX Rules to 
(1) Permit the minimum trading increment for Jumbo SPY Options to be 
the same as the minimum trading increment permitted for standard SPY 
options, (2) codify the minimum contract threshold requirement for the 
execution of Jumbo SPY Options in the Exchange's Facilitation and 
Solicitation Auctions, (3) provide that while Participants may execute 
complex orders involving Jumbo SPY Options, if any leg of a complex 
order is a Jumbo SPY Option, all options legs of such orders must also 
be Jumbo SPY Options \6\ and (4) clarify the eligibility of Jumbo SPY 
Options in the Price Improvement Period ``PIP'', as well as the market 
maker appointments and quoting obligations for Jumbo SPY Options. The 
Exchange notes that this filing is based on similar proposals filed by 
BOX as part of the launch of ``Mini Options,'' which are non-standard 
option contracts overlying 10 shares of a security.\7\
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    \3\ ``SPDR[supreg],'' ``Standard & Poor's[supreg],'' 
``S&P[supreg],'' ``S&P 500[supreg],'' and ``Standard & Poor's 500'' 
are registered trademarks of Standard & Poor's Financial Services 
LLC. The SPY ETF represents ownership in the SPDR S&P 500 Trust, a 
unit investment trust that generally corresponds to the price and 
yield performance of the SPDR S&P 500 Index.
    \4\ See Securities Exchange Act Release No. 69511 (May 03, 
2013), 78 FR 27271 (May 9, 2013) (Order Approving SR-BOX-2013-06).
    \5\ Id.
    \6\ Id.
    \7\ See Securities Exchange Act Release Nos. 69154 (March 15, 
2013), 78 FR 17741 (March 22, 2013) (Notice of Filing and Immediate 
Effectiveness of SR-BOX-2013-14); 69240 (March 26, 2013), 78 FR 
19562 (April 1, 2013) (Notice of Filing and Immediate Effectiveness 
of SR-BOX-2013-18) and 69512 (May 3, 2013) (Notice of Filing and 
Immediate Effectiveness of SR-BOX-2013-23).

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[[Page 28693]]

Minimum Price Variation
    First, the Exchange proposes to amend BOX Rule 5050(e) (Jumbo SPY 
Options) and 7050 (Minimum Trading Increments) to permit the minimum 
trading increment for Jumbo SPY to be the same as the minimum trading 
increment permitted for standard SPY options.
    Currently, the Exchange is only approved to list Jumbo SPY Options 
and standard SPY options are part of the Exchange's Penny Pilot 
Program.\8\ Under the Penny Pilot Program, with the exception of three 
classes,\9\ the minimum price variation for all participating options 
classes is $0.01 for all quotations in options series that are quoted 
at less than $3 per contract and $0.05 for all quotations in options 
series that are quoted at $3 per contract or greater. The minimum 
trading increment for standard SPY options, which is not subject to a 
price test, is $0.01 across all option series. In the absence of the 
Penny Pilot Program the minimum price increment would be $0.05 for 
quotations in options series that were quoted at less than $3 per 
contract and $0.10 for quotations in options series that were quoted at 
$3 per contract or greater.
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    \8\ The Penny Pilot Program has been in effect on the Exchange 
since its inception in May 2012. See Securities Exchange Act Release 
Nos. 66871 (April 27, 2012) 77 FR 26323 (May 3, 2012) (File No. 10-
206, In the Matter of the Application of BOX Options Exchange LLC 
for Registration as a National Securities Exchange Findings, 
Opinion, and Order of the Commission), and 67328 (June 29, 2012) 77 
FR 40123 (July 6, 2012) (SR-BOX-2012-007). The Penny Pilot has been 
extended and is currently in place through June 30, 2013. See 
Securities Exchange Act Release No. 68425 (December 13, 2012), 77 FR 
75234 (December 19, 2012) (Notice of Filing and Immediate 
Effectiveness of SR-BOX-2012-021).
    \9\ The three classes are the Nasdaq-100 Index Tracking Stock 
(``QQQQ''), the SPDR S&P 500 ETF (``SPY'') and the iShares Russell 
2000 Index Fund (``IWM''). QQQQ, SPY and IWM are quoted in $0.01 
increments for all options series.
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    This proposed rule change will permit the minimum trading increment 
for Jumbo SPY to be identical to the minimum trading increment 
applicable to standard options on SPY. The Exchange believes having 
different trading increments for Jumbo SPY than those permitted for 
standard options on SPY would be detrimental to the success of this new 
product offering and would also lead to investor confusion.
    The Exchange notes that in limiting Jumbo options to only Jumbo SPY 
Options; the Exchange selected an underlying security with a high price 
and extremely liquid options market. Jumbo SPY Options are a natural 
extension to the options overlying SPY and therefore should retain the 
most important characteristic, i.e., trading increments. The Exchange 
believes that by reducing the minimum trading increments for Jumbo SPY 
Options to $0.01, the proposed rule change will provide market 
participants with meaningful trading opportunities in this product. 
Further, quoting and trading in $0.01 increments will enable market 
participants to trade Jumbo SPY Options with greater precision as to 
price. Providing these more refined increments will permit the 
Exchange's Market Makers the opportunity to provide better fills 
(meaning less spread than the current wider minimum increments rules 
allow) to customers. Therefore, the Exchange proposes to amend its 
rules to permit the listing and trading of Jumbo SPY Options [sic] 
$0.01 increments, the same increment permitted for standard options on 
SPY. However, the Exchange notes even though this proposed rule change 
would permit the trading of Jumbo SPY Options in narrower increments, 
they would not be considered part of the Penny Pilot Program.
    The Exchange's proposal to quote and trade certain option classes 
that are outside of the Penny Pilot Program in $0.01 increments is not 
novel. Specifically, the Commission recently permitted BOX and other 
exchanges to set the minimum price variation for Mini Option as the 
same as standard options on the same underlying security.\10\
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    \10\ See supra, notes 4 and 6 [sic].
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    In support of this proposed rule change, the Exchange proposes to 
amend BOX Rules 7050 and 5050(e). In Rule 7050, the Exchange proposes 
to add new subsection (d) to provide that the minimum trading increment 
for Jumbo SPY Options shall be determined in accordance with new 
subsection (4) to Rule 5050(e). Proposed subsection (4) to Rule 5050(e) 
will provide that the minimum trading increment for Jumbo SPY Options 
shall be the same as the minimum trading increment permitted for 
standard options on SPY.
    With regard to the impact of this proposal on system capacity, the 
Exchange represents that it and the Options Price Reporting Authority 
have the necessary systems capacity to handle the potential additional 
traffic associated with this proposal. The Exchange does not believe 
that this increased traffic will become unmanageable since Jumbo SPY 
Options are limited to a single underlying security.
Facilitation and Solicitation Auctions
    The Exchange proposes to amend Rule 5050(e) (Jumbo SPY Options) to 
codify the minimum contract threshold requirement for the execution of 
Jumbo SPY Options in the Exchange's Facilitation and Solicitation 
Auctions. The 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''.\11\ Block-size orders are orders for 
fifty (50) or more contracts.\12\ The 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'').\13\ Each Agency Order 
entered into the Solicitation Auction shall be all-or-none. The minimum 
contract threshold required for the Facilitation Auction and the 
Solicitation Auction applies to option contracts that overlie 100 
shares and therefore does not currently apply to Jumbo options.
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    \11\ See BOX Rule 7270(a).
    \12\ See IM-7270-2.
    \13\ See BOX Rule 7270(b).
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    The Exchange proposes to add a new subsection (5) to Rule 5050(e) 
to adjust the minimum contract threshold for executing Jumbo SPY 
Options in the Facilitation Auction and Solicitation Auction to 1/10th 
their current requirement. Thus, Jumbo SPY Options executed in the 
Facilitation Auction must be for five (5) or more Jumbo option 
contracts, and Jumbo SPY Options executed in the Solicitation Auction 
must be for fifty (50) or more Jumbo Option contracts.
    The Exchange believes it is appropriate to adjust the minimum 
contract threshold for Jumbo SPY Options so they are equivalent (same 
number of underlying securities) to the minimum contract threshold 
required for standard options that are executed in the Facilitation and 
Solicitation Auctions. The Exchange believes that adjusting the minimum 
contract threshold will remove any confusion on the part of market 
participants that want to use these Exchange functionalities to execute 
Jumbo SPY Options.
Complex Orders
    The Exchange proposes to amend Rule 7240 (Complex Orders) to 
provide

[[Page 28694]]

that while Participants may execute Complex Orders involving Jumbo SPY 
Options, if any leg of a complex order is a Jumbo SPY Option, all 
options legs of such orders must also be in Jumbo SPY Option.\14\
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    \14\ See Securities Exchange Act Release No. 69419 (April 19, 
2013), 78 FR 24449 (April 25, 2013) (Approval Order of SR-BOX-2013-
01). The Exchange launched its Complex Order Book on May 3, 2013.
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Other
    The Exchange represents that Market Maker appointments for Jumbo 
SPY Options will be done in compliance with existing Exchange 
rules.\15\ The Exchange also proposes to clarify that for Market Maker 
quoting obligation purposes Jumbo SPY Options will not be combined with 
standard SPY options. In addition, Jumbo SPY Options will be eligible 
to trade on the Exchange's PIP auction.
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    \15\ See BOX Rule 8030(a).
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Securities Exchange Act of 1934 
(the ``Act''),\16\ in general, and Section 6(b)(5) of the Act,\17\ 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.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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Minimum Price Variation
    In particular, the proposed rule change will assure that Mini, 
Jumbo and standard SPY options will trade in similar increments, 
providing market participants meaningful trading opportunities and 
enabling them to trade Jumbo SPY Options with greater precision as to 
price. The Exchange also believes that allowing Mini, standard and 
Jumbo SPY options to trade in similar increments will avoid investor 
confusion. The Exchange further believes that investors and other 
market participants will benefit from this proposed rule change because 
it clarifies and establishes the minimum trading increment for Jumbo 
SPY Options prior to the commencement of trading. The Exchange believes 
that investors generally will be expecting the minimum trading 
increment for Jumbo SPY Options to be the same as the minimum trading 
increment for Mini and standard options on SPY. This proposed rule 
change will therefore lessen investor confusion because Jumbo SPY 
Options, Mini and standard SPY options will all have the same minimum 
trading increment.
Facilitation Auction and Solicitation Auction
    The proposed rule change will assure that standard options and 
Jumbo Options on the same underlying security will have an equivalent 
minimum contract threshold for the execution of orders in the 
Exchange's Facilitation Auction and Solicitation Auction. The Exchange 
believes the proposed rule change will avoid investor confusion because 
in the absence of this proposal, the minimum contract threshold for 
executing Jumbo SPY Options in either the Facilitation Auction or the 
Solicitation Auction would not be equivalent than [sic] that for 
standard options (i.e., different number of underlying securities). The 
Exchange does not intend for Jumbo SPY Options and standard options to 
have different minimum contract threshold requirements for its various 
auctions executed on the Exchange. The Exchange further believes that 
investors and other market participants will benefit from this proposed 
rule change because it clarifies and establishes the minimum contract 
threshold for executing Jumbo SPY Options in the Facilitation and 
Solicitation Auctions. The Exchange believes that investors generally 
will be expecting the minimum contract threshold for Jumbo SPY Options 
to be equivalent to the minimum contract threshold for standard SPY 
options. This proposed rule change will therefore lessen investor 
confusion.
Complex Orders
    The Exchange believes that investors and other market participants 
would benefit from the current proposal to amend the Complex Orders 
rules because it provides that market participants may take advantage 
of legitimate investment strategies and execute complex orders 
involving Jumbo SPY Options. Additionally, the Exchange believes the 
proposed rule change will help avoid investor confusion, by providing 
how Jumbo SPY Options will trade as compared to standard options with 
respect to Complex Orders.
    The Exchange's proposal to permit Jumbo SPY Options to trade as 
Complex Orders provided the strategy does not combine Jumbo SPY Options 
and standard SPY options serves to maintain the permissible ratios that 
are applicable to Complex Orders by separating the trading of standard 
option Complex Orders and Jumbo SPY Option Complex Orders.
    Finally, the Exchange believes that the proposed rule change is not 
designed to permit unfair discrimination among market participants as 
all market participants may participate in complex orders involving 
Jumbo SPY Options.
Other
    The Exchange believes that it is appropriate to clarify how Jumbo 
SPY Options will be treated for purposes of a Market Maker's assignment 
and quoting obligations, as well as if this new product is eligible to 
trade on the PIP auction. Doing so provides investors and other market 
participants with a clear and accurate understanding of the Exchange's 
rules regarding Jumbo SPY Options. By submitting this proposal the 
Exchange is eliminating any potential confusion about how Jumbo SPY 
Options will be listed and traded. In particular, the Exchange believes 
that allowing Jumbo SPY Options to be eligible for the PIP auction may 
increase the frequency with which Options Participants initiate a PIP 
Order, which may result in greater opportunity for price improvement 
for customers. Further, the Exchange believes it is appropriate for 
Market Maker assignments in Jumbo SPY Options to be in compliance with 
existing Exchange rules, and to not combine Jumbo SPY Options with 
standard SPY options in determining Market Maker quoting obligations. 
This is the same approach that the Exchange took to Mini Options and 
doing this will lessen investor confusion on this new product.

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. Specifically, the Exchange 
believes that investors would benefit from the introduction and 
availability of Jumbo SPY by making options on large blocks of the SPY 
ETF more available as an investing tool, particularly for institutional 
investors. Trading in Jumbo SPY Options is entirely voluntary and 
Participants can determine if they would like to trade in this new 
product. The Exchange believes this proposed rule change is necessary 
to establish uniform rules regarding minimum trading increments, 
minimum contract thresholds, and

[[Page 28695]]

complex orders for the listing and trading of Jumbo SPY Options, a new 
options product. This proposal is also designed to promote investor 
certainty by clarifying if Jumbo SPY Options will be able to trade on 
the PIP, as well as the assignment and quoting obligations for Jumbo 
SPY Options.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, 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 \18\ and Rule 19b-4(f)(6) 
thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its 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 fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that the proposed rule change may become 
operative before the anticipated launch of trading in Jumbo SPY 
Options. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest.\20\ Waiver of the operative delay will allow the Exchange to 
implement its proposal consistent with the anticipated commencement of 
trading in Jumbo SPY Options on May 10, 2013. For these reasons, the 
Commission designates the proposed rule change as operative upon 
filing.
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    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 the 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.

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-2013-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2013-25. 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 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; 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-BOX-2013-25 and should be 
submitted on or before June 5, 2013.
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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\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11523 Filed 5-14-13; 8:45 am]
BILLING CODE 8011-01-P