Document ID: SEC-2022-1032-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange LLC
Posted Date: 2022-08-03T04:00Z

[Federal Register Volume 87, Number 148 (Wednesday, August 3, 2022)]
[Notices]
[Pages 47475-47478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16548]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95381; File No. SR-BOX-2022-22]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend BOX Rule 
IM-5050-11

July 28, 2022.
    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 July 18, 2022, 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 BOX Rule IM-5050-11 to account for 
conflicts between different provisions within the Short Term Option 
Series Rules. 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.

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

1. Purpose
    The Exchange proposes to amend Rule IM-5050-11 to account for 
conflicts between different provisions within the Short Term Option 
Series Rules. The Exchange notes that this filing is based on a 
proposal recently submitted by Nasdaq ISE LLC (``Nasdaq ISE'') and 
approved by the Commission.\3\
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    \3\ See Securities Exchange Act Release No. 95085 (June 10, 
2022), 87 FR 36353 (June 16, 2022) (Order Approving a Proposed Rule 
Change, as Modified by Amendment No. 1, To Amend ISE Options 4, 
Section 5, Series of Options Contracts Open for Trading) (SR-ISE-
2022-10).
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    In 2021, BOX amended Rule 5050 to limit the intervals between 
strikes in equity options listed as part of the Short Term Option 
Series Program, excluding Exchange-Traded Fund Shares and ETNs, that 
have an expiration date more than twenty-one days from the listing date 
(``Strike Interval Proposal'').\4\ The Strike Interval Proposal adopted 
a new IM-5050-11 which included a table that intended to specify the 
applicable strike intervals that would supersede IM-5050-6(b)(5) \5\ 
for Short Term Option Series in equity options, excluding Exchange-
Traded Fund Shares and ETNs, which have an expiration date more than 
twenty-one days from the listing date. The Strike Interval Proposal was 
designed to reduce the density of strike intervals that would be listed 
in later weeks, within the Short Term Option Series Program, by 
utilizing limitations for intervals between strikes which have an 
expiration date more than twenty-one days from the listing date.
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    \4\ See Securities Exchange Act Release No. 92072 (May 28, 
2021), 86 FR 29856 (June 3, 2021) (SR-BOX-2021-12).
    \5\ The interval between strike prices on Short Term Option 
Series may be (i) $0.50 or greater where the strike price is less 
than $100, and $1 or greater where the strike price is between $100 
and $150 for all option classes that participate in the Short Term 
Options Series Program; (ii) $0.50 for option classes that trade in 
one dollar increments in Related non-short Term Options and are in 
the Short Term Option Series Program; or (iii) $2.50 or greater 
where the strike price is above $150. During the month prior to 
expiration of an option class that is selected for the Short Term 
Option Series Program pursuant to this rule (Short Term Option), the 
strike price intervals for the related non-Short Term Option shall 
be the same as the strike price intervals for the Short Term Option. 
BOX Rule IM-5050-6(b)(5).
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    At this time, the Exchange proposes to amend the rule text within 
IM-5050-11 to clarify the current rule text and amend the application 
of the table to account for potential conflicts within the Short Term 
Option Series Rules. Currently, the table within IM-5050-11 is as 
follows: \6\
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    \6\ The Share Price would be the closing price on the primary 
market on the last day of the calendar quarter and the Average Daily 
Volume would be the total number of options contracts traded in a 
given security for the applicable calendar quarter divided by the 
number of trading days in the applicable calendar quarter The 
Average Daily Volume would be the total number of options contracts 
traded in a given security for the applicable calendar quarter 
divided by the number of trading days in the applicable calendar 
quarter. Beginning on the second trading day in the first month of 
each calendar quarter, the Average Daily Volume shall be calculated 
by utilizing data from the prior calendar quarter based on Customer-
cleared volume at The Options Clearing Corporation. For options 
listed on the first trading day of a given calendar quarter, the 
Average Daily Volume shall be calculated using the quarter prior to 
the last trading calendar quarter.

[[Page 47476]]

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                                                                                                            Share price
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                Tier                         Average daily volume                           $25 to less     $75 to less    $150 to less       $500 or
                                                                           less than $25     than $75        than $150       than $500        greater
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1...................................  Greater than 5,000................           $0.50           $1.00           $1.00           $5.00           $5.00
2...................................  Greater than 1,000 to 5,000.......            1.00            1.00            1.00            5.00           10.00
3...................................  0 to 1,000........................            2.50            5.00            5.00            5.00           10.00
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    The first sentence of IM-5050-11 provides, ``With respect to 
listing Short Term Option Series in equity options, excluding Exchange-
Traded Fund Shares and ETNs, which have an expiration date more than 
twenty-one days from the listing date, the strike interval for each 
option class will be based on the below table.''
    First, the Exchange proposes to amend the first sentence of IM-
5050-11 to instead provide, ``With respect to listing Short Term Option 
Series in equity options, excluding Exchange-Traded Fund Shares and 
ETNs, which have an expiration date more than twenty-one days from the 
listing date, the following table, which specifies the applicable 
interval for listing will apply. To the extent there is a conflict 
between applying IM-5050-6(b)(5) and the below table, the greater 
interval would apply.'' The table within IM-5050-11 provides for the 
listing of intervals based on certain parameters (average daily volume 
and share price). The Exchange proposes to amend the language in IM-
5050-11 to make clear that the only permitted intervals are as 
specified in the table within IM-5050-11, except in the case where IM-
5050-6(b)(5) provides for a greater interval as described in more 
detail below.
    Today, there are instances where a conflict is presented as between 
the application of the table within IM-5050-11 and the rule text within 
IM-5050-6(b)(5) with respect to the correct interval. Adding the 
proposed language would make clear to Participants the applicable 
intervals where there is a conflict between the rule text within IM-
5050-11 and the rule text within IM-5050-6(b)(5) thereby providing 
certainty as to the outcome. The Exchange proposes to insert the words 
``greater interval'' because it proposes to permit IM-5050-6(b)(5) to 
govern only in the event that the interval would be greater. The same 
analysis would not be conducted where the result would be a lesser 
interval. By way of example,
    Example 1: Assume a Tier 1 stock that closed on the last day of Q1 
with a quarterly share price higher than $75 but less than $150. 
Therefore, utilizing the table within IM-5050-11, the interval would be 
$1.00 for strikes added during Q2 even for strikes above $150. Next, 
assume during Q2 the share price rises above $150. Utilizing only the 
table within IM-5050-11, the interval would be $1.00 even though the 
stock is now trading above $150 because the Share Price for purposes of 
IM-5050-11 was calculated utilizing data from the prior calendar 
quarter. However, a separate rule, IM-5050-6(b)(5), provides that the 
Exchange may list a Short Term Option Series at $2.50 intervals where 
the strike price is above $150. In other words, there is a potential 
conflict between the permitted strike intervals above $150. In this 
example, IM-5050-11 would specify a $1.00 interval whereas IM-5050-
6(b)(5) would specify a $2.50 interval. As proposed, the Exchange 
proposes to apply the greater interval. The greater interval would then 
be $2.50 as per IM-5050-6(b)(5) in this scenario. Therefore, the 
following strikes would be eligible to list: $152.5 and $157.5. For 
strikes less than $150, the following strikes would be eligible to 
list: $149 and $148 because Short Term Option Series with expiration 
dates more than 21 days from the listing date as well as Short Term 
Option Series with expiration dates less than 21 days from the listing 
date would both be eligible to list $1 intervals pursuant to IM-5050-11 
and IM-5050-6(b)(5).
    Example 2: Assume a Tier 2 stock that closed on the last day of Q1 
with a quarterly share price less than $25. Therefore, utilizing the 
table within IM-5050-11, the interval would be $1.00 for strikes added 
during Q2 even for strikes above $25. Next, assume during Q2 the share 
price rises above $100. Utilizing only the table within IM-5050-11, the 
interval would be $1.00 even though the stock is now trading above $100 
because the Share Price for purposes of IM-5050-11 was calculated 
utilizing data from the prior calendar quarter. However, IM-5050-
6(b)(5) provides that the Exchange may list a Short Term Option Series 
at $1.00 intervals where the strike price is above $100. As proposed, 
the Exchange would apply the greater interval, however, the $1.00 
interval is the same in both cases in this scenario and, therefore, 
there is no conflict. Now, assume during Q2 the share price rises above 
$150. Utilizing only the table within IM-5050-11, the interval would 
continue to be $1.00 because the Share Price relied on data from the 
prior calendar quarter, however, pursuant to IM-5050-6(b)(5), the 
interval would be $2.50 for strike prices above $150. The greater 
interval would then be $2.50 as per IM-5050-6(b)(5) in this scenario.
    Example 3: Assume a Tier 3 stock that closed on the last day of Q1 
with a quarterly share price less than $25. Therefore, utilizing the 
table within IM-5050-11, the interval would be $2.50 for strikes added 
during Q2 even for strikes above $25. Next, assume during Q2 the share 
price rises above $100. Utilizing only the table within IM-5050-11, the 
interval would be $2.50 even though the stock was trading above $100 
because the Share Price for purposes of IM-5050-11 was calculated 
utilizing data from the prior calendar quarter. However, IM-5050-
6(b)(5) provides that the Exchange may list a Short Term Option Series 
at $1.00 intervals where the strike price is above $100. The greater 
interval would then be $2.50 as per the table in IM-5050-11 in this 
scenario.
    The Exchange proposes to delete the last sentence of the first 
paragraph of IM-5050-11 which states, ``The below table indicates the 
applicable strike intervals and supersedes IM-5050-6(b)(4) above, which 
permits additional series to be opened for trading on the Exchange when 
the Exchange deems it necessary to maintain an orderly market, to meet 
customer demand or when the market price of the underlying security 
moves substantially from the exercise price or prices of the series 
already opened.'' The table within IM-5050-11 impacts strike intervals, 
while IM-5050-6(b)(4) describes adding series of options. The table 
within IM-5050-11 supersedes other rules pertaining to

[[Page 47477]]

strike intervals, but the table does not supersede rules governing the 
addition of options series. Therefore, the table within IM-5050-11 and 
IM-5050-6(b)(4) do not conflict with each other. Deleting the reference 
to IM-5050-6(b)(4) will avoid confusion.
    Finally, the Exchange provides within IM-5050-11(g), 
``Notwithstanding the limitations imposed by IM-5050-11, this IM-5050-
11 does not amend the range of strikes for Short Term Option Series 
that may be listed pursuant to IM-5050-6(b)(5) above.'' The Exchange 
proposes to remove this rule text. While the range limitations continue 
to be applicable to the table within IM-5050-11, the strike ranges do 
not conflict with strike intervals and therefore the sentence is not 
necessary. Removing IM-5050-11(g) will avoid confusion.
Implementation
    The Exchange proposes to implement this rule on August 1, 2022. The 
Exchange will issue an Informational Circular to notify Participants of 
the implementation date.
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''),\7\ in general, and Section 6(b)(5) of the Act,\8\ 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. The Strike Proposal continues to limit the intervals 
between strikes listed in the Short Term Option Series Program that 
have an expiration date more than twenty-one days.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to add clarifying language to IM-5050-11, 
is consistent with the Act because it will make clear that the only 
permitted intervals are as specified in the table within IM-5050-11, 
except in the case where IM-5050-6(b)(5) provides for a greater 
interval. This amendment will bring greater transparency to the rule.
    Adopting new language within IM-5050-11 to address a potential 
conflict between the Short Term Option Series Program rules, 
specifically as between the application of the table within IM-5050-11 
and the rule text within IM-5050-6(b)(5) with respect to the correct 
interval is consistent with the Act. This new rule text will make clear 
to Participants the applicable intervals when there is a conflict 
between the rule text within IM-5050-11 and the rule text within IM-
5050-6(b)(5), thereby providing certainty as to the outcome. The 
proposed new rule text promotes just and equitable principles of trade 
by adding transparency to the manner in which BOX implements its 
listing rules, and protects investors and the general public by 
removing uncertainty.
    Removing the last sentence of the first paragraph of IM-5050-11 is 
consistent with the Act because the table within IM-5050-11 impacts 
strike intervals, while IM-5050-6(b)(4) describes the addition of 
options series. The table within IM-5050-11 supersedes other rules 
pertaining to strike intervals, but the table does not supersede rules 
governing the addition of options series. Therefore, the table within 
IM-5050-11 and IM-5050-6(b)(4) do not conflict with each other. 
Deleting the reference to IM-5050-6(b)(4) will avoid confusion.
    Removing IM-5050-11(g) is consistent with the Act because while the 
range limitations continue to be applicable, the strike ranges do not 
conflict with strike intervals, rendering the sentence unnecessary. 
Removing IM-5050-11(g) will avoid confusion.
    The Strike Interval Proposal was designed to reduce the density of 
strike intervals that would be listed in later weeks, within the Short 
Term Option Series Program, by utilizing limitations for intervals 
between strikes which have an expiration date more than twenty-one days 
from the listing date. The Exchange's proposal intends to continue to 
remove certain strike intervals where there exist clusters of strikes 
whose characteristics closely resemble one another and, therefore, do 
not serve different trading needs,\9\ rendering these strikes less 
useful. Also, the Strike Interval Proposal continues to reduce the 
number of strikes listed on BOX, allowing Market Makers to expend their 
capital in the options market in a more efficient manner, thereby 
improving overall market quality on BOX.
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    \9\ For example, two strikes that are densely clustered may have 
the same risk properties and may also be the same percentage out-of-
the money.
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    Additionally, by making clear that the greater interval would 
control as between the rule text within IM-5050-11 and the rule text 
within IM-5050-6(b)(5), the Exchange is reducing the number of strikes 
listed in a manner consistent with the intent of the Strike Interval 
Proposal, which was to reduce strikes which were farther out in time. 
The result of this clarification is to select wider strike intervals 
for Short Term Option Series in equity options which have an expiration 
date more than twenty-one days from the listing date. This rule change 
would harmonize strike intervals as between inner weeklies (those 
having less than twenty-one days from the listing date) and outer 
weeklies (those having more than twenty-one days from the listing date) 
so that strike intervals are not widening as the listing date 
approaches.

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. The Strike Interval Proposal 
continues to limit the number of Short Term Option Series Program 
strike intervals available for quoting and trading on BOX for all BOX 
Participants.
    Adding language to the first sentence of IM-5050-11 to make clear 
which parameter the table within IM-5050-11 amends within the Short 
Term Option Series Program will bring greater transparency to the 
rules. Adopting new language to address potential conflicts as between 
the rule text within IM-5050-11 and the rule text within IM-5050-
6(b)(5), within the Short Term Option Series Program, will bring 
greater transparency to the manner in which BOX implements its listing 
rules. The table within IM-5050-11 impacts strike intervals, while IM-
5050-6(b)(4), describes adding series of options. The table within IM-
5050-11 supersedes other strike interval rules, but does not supersede 
the addition of series. Removing the last sentence of the first 
paragraph of IM-5050-11 does not impose an undue burden on competition 
because the table within IM-5050-11 supersedes other rules pertaining 
to strike intervals, but the table does not supersede rules governing 
the addition of options series. Also, deleting the reference to IM-
5050-6(b)(4) will avoid confusion. Finally, deleting IM-5050-11(g) will 
remove any potential confusion. While the range limitations continue to 
be applicable, the strike ranges do not conflict with strike intervals 
and are not necessary.
    While this proposal continues to limit the intervals of strikes 
listed on BOX, the Exchange continues to balance the needs of market 
participants by continuing to offer a number of strikes to meet a 
market participant's investment objective. The Exchange's

[[Page 47478]]

Strike Interval Proposal does not impose an undue burden on inter-
market competition as this Strike Interval Proposal does not impact the 
listings available at another self-regulatory organization.

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 does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ 
thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
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 satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the Exchange may implement the proposed rule change on August 1, 2022--
the same time other exchanges are implementing an identical change.\14\ 
The Exchange states that waiving the operative delay will allow the 
Exchange to harmonize its rules with other exchanges with similar 
rules. This, in turn, will reduce investor confusion and add 
transparency in the BOX rules. For these reasons, 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 operative delay.\15\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ See Securities Exchange Act Release No. 95085 (June 10, 
2022), 87 FR 36353 (June 16, 2022) (SR-ISE-2022-10) (Order Approving 
a Proposed Rule Change, as Modified by Amendment No. 1, to Amend ISE 
Options 4, Section 5, Series of Options Contracts Open for Trading).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission also 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 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule 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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2022-22 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-2022-22. 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-2022-22 and 
should be submitted on or before August 24, 2022.
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    \16\ 17 CFR 200.30-3(a)(12), (59).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16548 Filed 8-2-22; 8:45 am]
BILLING CODE 8011-01-P