Document ID: SEC-2019-0646-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange LLC
Posted Date: 2019-05-14T04:00Z

[Federal Register Volume 84, Number 93 (Tuesday, May 14, 2019)]
[Notices]
[Pages 21382-21384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09869]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85803; File No. SR-BOX-2019-16]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Adopt BOX Rule 
7620 (Accommodation Transactions) Establishing Cabinet Trading on the 
Exchange's Trading Floor

May 8, 2019.
    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 25, 2019, 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 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 establish BOX Rule 7620 (Accommodation 
Transactions) which provides for cabinet trading on the Exchange's 
Trading Floor. 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 establish BOX Rule 7620 (Accommodation 
Transactions) which provides for cabinet trading \3\ on the Exchange's 
Trading Floor. The Exchange notes that the proposed rule is 
substantially similar to a rule on another exchange.\4\
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    \3\ An ``accommodation'' or ``cabinet'' trade refers to trades 
in listed options on the Exchange that are worthless or not actively 
traded, often times conducted to establish tax losses. Cabinet or 
accommodation trading of option contracts is intended to accommodate 
persons wishing to effect closing transactions in those series of 
options dealt in on the Exchange for which there is no auction 
market. A cabinet trade is a transaction in which the per-contract 
value of the cabinet trade is less than the per-contract value of a 
trade at the specified minimum increment for the option contract.
    \4\ See Nasdaq Phlx Rule 1059 (allowing for accommodation 
trades).
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    Proposed Rule 7620 defines the term ``cabinet order'' as a closing 
limit order at a price of $1 per option contract for the account of a 
customer or Floor Market Maker. Rule 7620 also states that an opening 
order is not a ``cabinet order'' but may in certain cases be matched 
with a cabinet order pursuant to subsection proposed Rule 7620(c) and 
(d). For purposes of this rule filing, the Exchange specifies that an 
``opening order'' is a contra-side opening order in response to a 
Customer who submits a closing order to clear their position. The rule 
further states that only Floor Brokers may represent cabinet orders. 
Further, under proposed Rule 7620, cabinet trading shall be available 
for each series of options open for trading on the Exchange under the 
following terms and conditions (a) trading shall be conducted in 
accordance with other Exchange rules except as otherwise provided 
herein or unless the context otherwise requires; and (b) cabinet orders 
may be submitted to Floor Brokers. Floor Brokers must use the 
designated cabinet transaction forms provided by the Exchange to 
document receipt of a cabinet order and the execution of a cabinet 
transaction. Further, the proposed rule states that Rule 7580(e)(1) 
shall not apply to orders placed in the cabinet or executed in the 
cabinet.\5\
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    \5\ Rule 7580(e)(1) provides for the use on the trading floor of 
the Floor Broker's order entry mechanism to record all options 
orders represented by such Floor Broker.
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    The Exchange also proposes to add Rule 7620(c), (d), and (e) which 
specifies the procedures to be followed by the Floor Broker and other 
trading crowd participants to execute cabinet orders in two different 
scenarios. In each case, the Floor Broker would be required to act in 
the presence of at least one Market Maker and Options Exchange 
Official.
    Proposed Rule 7620(c) governs cases where a Floor Broker holds a 
cabinet order but does not also hold contra-side interest. In that 
case, the Floor Broker shall announce the terms of the cabinet order to 
the trading crowd to solicit interest to participate on the closing 
position. All matching cabinet orders shall be assigned priority based 
upon the sequence in which such orders are received by the Floor 
Broker. If there is no matching cabinet order, the Floor Broker may 
match the cabinet order with a matching opening buy or sell limit order 
priced at $1 per option contract. If there is no matching cabinet order 
or opening order, the Floor Broker may seek matching bids or offers for 
accounts of Floor Participants. Floor Participants can only participate 
after all other orders have been matched.
    Rule 7620(d) governs cases where a Floor Broker holds a cabinet 
order and also a contra-side cabinet order. In that situation, the 
Floor Broker is required to announce the terms of the cabinet orders to 
the trading crowd. The cabinet orders shall then be immediately crossed 
by the Floor Broker.
    Finally, proposed Rule 7620(e) applies where a Floor Broker holds 
both a cabinet order and a contra-side opening order. In that 
situation, the Floor Broker is required to announce the terms of the 
cabinet order to the trading crowd. If there is a matching cabinet 
order, the Floor Broker shall match the two cabinet orders. If there is 
no

[[Page 21383]]

matching cabinet order, the cabinet order shall then be immediately 
crossed by the Floor Broker with the opening order held by the Floor 
Broker.
    The proposed priority rules focus on the cabinet order at the time 
it is represented by a Floor Broker in the trading crowd. Thus, as 
proposed, each Floor Broker holding a cabinet order only would be 
required to assign priority to cabinet orders he holds based upon the 
sequence in which he receives such orders, therefore, each Floor Broker 
would not be required to cede priority to a cabinet order represented 
in the crowd at an earlier time by another Floor Broker.
    The Floor Broker is then to assign matching cabinet orders from the 
crowd based upon the sequence in which the orders are received by that 
floor broker representing such order. For example, the ``Floor Broker 
A'' receives a cabinet order to buy 500 contracts and represents to the 
trading crowd. At the time of representation to the crowd, ``Floor 
Broker B'' has a matching cabinet order for 250 contracts and ``Floor 
Broker C'' enters the trading crows after ``Floor Broker B'' with a 
matching cabinet order for 500 contracts. ``Floor Broker A'' then 
proceeds to match his 500 contracts to buy cabinet order with the 
matching cabinet order from ``Floor Broker B'' for 250 contracts and 
matching the balance of 250 contracts with ``Floor Broker C''. The 
Floor Broker matched the cabinet orders based on the sequence in which 
the orders were received in the crowd at the time the cabinet order was 
represented. If there are no matching cabinet orders from the crowd, 
the Floor Broker may match the cabinet order with a matching opening 
order from the crowd. If however the Floor Broker holds both a cabinet 
order and a contra side cabinet order, the Floor Broker would be 
required to immediately cross those orders after announcing their terms 
in the crowd, regardless of cabinet orders held by other Floor Brokers.
    In addition, the Exchange proposes Rule 7620(f) which requires 
that, once the cabinet order has been either crossed or matched, the 
Floor Broker must submit the designated cabinet form as soon as 
possible to the Exchange's Market Operations staff for clearance and 
reporting. Finally, the Exchange proposes Rule 7620(g) which states 
that Floor Market Makers shall not be subject to the requirements of 
Rule 8510 in respect to orders placed pursuant to this proposed rule. 
Further, proposed Rule 7620(g) states that the provisions of Rule 
7040(a) through (c), and Rule 7050 would not apply to orders placed in 
the cabinet.\6\ The proposed rule is substantially similar to that of 
another Exchange because it will give market participants the ability 
to close out positions in which the value of the contract is less than 
the value of the contract at the minimum increment.\7\
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    \6\ Exchange Rule 8510 discusses the obligations and 
restrictions applicable to floor market makers. Exchange Rule 7040 
sets out the meanings for premium quotes and orders, and Exchange 
Rule 7050 details minimum trading increments for options contracts 
traded on BOX.
    \7\ See supra, note 4. The Exchange's proposed rule differs in 
one material respect, by allowing the Market Operations Center staff 
to clear and report cabinet trades immediately rather than at the 
close of the business day.
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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''),\8\ in general, and Section 6(b)(5) of the Act,\9\ 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. In particular, by adopting the proposed cabinet rule 
above, the Exchange will provide the ability for market participants to 
close out positions in which the value of the contract is less than the 
value of the contract at the minimum increment. The proposed rule 
change will permit market participants to execute cabinet trades on the 
Exchange, even without the participation of Floor Market Makers. The 
proposed rule promotes just and equitable principles of trade by 
setting forth priority rules for trade executions, and by requiring use 
of Exchange designated cabinet transaction forms to record information 
and the submission of the forms to Market Operations Center staff for 
the clearance and reporting of the cabinet trades.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The proposed rule would give market participants' the ability to 
execute cabinet transactions on the Exchange's Trading Floor, in an 
open manner and in compliance with new procedures specified by this 
rule.

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 proposed rule would apply 
to all Floor Brokers. In this regard and as indicated above, the 
Exchange notes that the proposed rule is substantially similar to Phlx 
rule that was approved by the Commission.\10\
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    \10\ See supra, note 4.
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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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder. \12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 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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    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:

[[Page 21384]]

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-2019-16 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-2019-16. 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-2019-16 and should be submitted on 
or before June 4, 2019.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09869 Filed 5-13-19; 8:45 am]
 BILLING CODE 8011-01-P