Document ID: SEC-2018-0417-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange, LLC
Posted Date: 2018-03-14T04:00Z

[Federal Register Volume 83, Number 50 (Wednesday, March 14, 2018)]
[Notices]
[Pages 11281-11283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05162]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82845; File No. SR-BOX-2018-08]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Rule 7600(c) To State That the Qualified Open Outcry (``QOO'') 
Order is Subject to the Trade-Through Exceptions Outlined in Rule 
15010(b)

March 9, 2018.
    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 February 27, 2018, BOX Options 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 
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 Rule 7600(c) to state that the 
Qualified Open Outcry (``QOO'') Order is subject to the trade-through 
exceptions outlined in Rule 15010(b). 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.

[[Page 11282]]

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 purpose of the proposed rule change is to amend Rule 7600(c) to 
state that the Qualified Open Outcry (``QOO'') Order is subject to the 
trade-through exceptions in Rule 15010(b).\3\
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    \3\ The Exchange notes that, in practice, QOO Orders will rely 
on the exceptions detailed in Rule 15010(b)(4) and (7). Under BOX 
Rule 15010(b)(4), an exception to trade-through liability exists if 
the transaction that constitutes the Trade-Through is the execution 
of an order identified as an Intermarket Sweep Order (``ISO''), or 
the transaction that constitutes the Trade-Through is effected by 
BOX while simultaneously routing an ISO to execute against the full 
displayed size of any better-priced Protected Bid or Offer. Under 
BOX Rule 15010(b)(7), another exception to Trade-Through liability 
exists if the transaction that constituted the Trade-Through was 
effected as a portion of a Complex Trade. This may happen if the 
Participant has a Stock Option Complex Order. Because BOX does not 
trade equities, the Participant would direct that portion of the 
order to another exchange and execute the option portion on BOX.
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    Currently, BOX Participants must comply with Exchange rules and the 
terms of the Options Order Protection and Locked/Crossed Market Plan 
(``Linkage Plan'') by honoring any better-priced Protected Quotes.\4\ 
The Linkage Plan, as codified in BOX Rule 15000 Series, provides that 
Participants shall not effect trade-throughs of a Protected Bid or 
Offer (collectively, a ``Protected Quote''), except pursuant to an 
applicable exceptions that are outlined in Sections(b)(1) through (10) 
of Rule 15010. A Protected Quote is defined as a bid or offer in an 
options series that (1) is disseminated pursuant to the OPRA Plan and 
(2) is the best bid or offer, respectively, displayed by an eligible 
exchange.
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    \4\ See Securities Exchange Act Release No. 54551 (September 29, 
2006), 71 FR 59148 (October 6, 2006) (Order Approving NMS Linkage 
Plan).
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    The Exchange notes that it recently adopted rules for an open 
outcry Trading Floor.\5\ These rules included a statement in Rule 
7600(c) that both sides of the QOO Order must execute at a price equal 
to or better than the NBBO. The Exchange now proposes to add language 
to explain that this statement does not apply if the execution of the 
QOO Order is using one of the exceptions outlined in Rule 15010(b). 
Specifically, the Exchange proposes to state that ``when a Floor Broker 
executes the QOO Order, the execution price must be equal to or better 
than the NBBO, subject to the exceptions in Rule 15010(b).''
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    \5\ See Securities Exchange Act Release No. 81292 (August 2, 
2017), 82 FR 37144 (August 8, 2017)(Order Approving SR-BOX-2016-48 
as modified by Amendment Nos. 1 and 2).
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    Specifically, pursuant to Rule 15010(b)(4), a QOO Order with an ISO 
designation will be submitted to the Trading Host in the same manner as 
any other QOO Order.\6\ Without an ISO designation, a QOO Order priced 
worse than the NBBO would be rejected. The Exchange notes that the 
Floor Broker is the individual who marks the QOO Order with an ISO 
designation and is responsible for taking out all better-priced 
Protected Bids at away exchanges.\7\
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    \6\ The Exchange notes that the QOO Order with the ISO 
designation will be treated in the same manner as any other QOO 
Order on the Trading Floor. The ISO designation simply identifies 
that the QOO Order has an ISO designation and must no longer execute 
at a price equal to or better than the NBBO.
    \7\ The Exchange notes that this is identical to the process for 
electronic orders.
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    Upon identifying the QOO Order as an ISO, the system will execute 
the order, regardless of the NBBO.\8\ A Floor Broker must ensure that 
the routing of any outbound ISOs in connection with an execution of a 
QOO Order on the Trading Floor occur as contemporaneously as possible.
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    \8\ The Exchange notes that the ISO designation does not allow 
the QOO Order to ignore interest on the BOX Book.
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    For example, assume the following at the time the QOO Order is 
submitted to the BOX trading host:

NBBO: .97-1.00
Cboe: .97-1.00 \9\
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    \9\ Assume the away markets are all bidding for 10 contracts.
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Phlx: .97-1.02
Nasdaq ISE: .97-1.03
All other Exchanges: .95-1.05

    A QOO Order with an ISO designation is submitted to the Trading 
Host to sell 100 at .96. The QOO Order will execute regardless of the 
NBBO. Contemporaneously, the Floor Broker must take out all better-
priced Protected Bids. The Floor Broker would send the following orders 
to each exchange displaying a better-priced Protected Quote, for the 
full size of the Protected Quote, contemporaneous with the execution of 
the QOO Order on BOX:

Sell [email protected] Cboe
[email protected] Phlx
Sell [email protected] Nasdaq ISE

    The Exchange notes that other options exchanges with open outcry 
trading floors have made this distinction in the past in their 
respective Regulatory Circulars.\10\ The Exchange also notes that Arca 
and Cboe do not reference these exceptions in their trading floor 
rules. Further, the Exchange believes that referencing these exceptions 
in the BOX Trading Floor rules will provide clarity and transparency to 
BOX Participants.
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    \10\ See NYSE Arca (``Arca'') Options RB-16-04 available at 
https://www.nyse.com/publicdocs/nyse/markets/arca-options/rule-interpretations/2016/NYSE%20Arca%20Options%20RB%2016-04.pdf, see 
also Chicago Board Options Exchange, Incorporated (``Cboe'') 
Regulatory Circular RG09-117 available at https://www.cboe.org/publish/regcir/rg09-117.pdf. The Exchange notes that it recently 
issued a Regulatory Circular reminding BOX Participants of the rules 
that must be followed when trading in open out-cry on the BOX 
Trading Floor. See BOX Regulatory Circular RC-2017-17 available at 
https://boxoptions.com/assets/RC-2017-17-Order-Protection-Rules-in-Open-Outcry-Trading.pdf.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\11\ in general, and Section 
6(b)(5) of the Act,\12\ in particular, in that the proposed change is 
designed to promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general protect investors and the 
public interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that stating that both sides of the QOO Order 
must execute at a price equal to or better than the NBBO subject to the 
exceptions in Rule 15010(b) is reasonable because it will provide 
Participants with more clarity and transparency with regard to the 
Trading Floor rules; specifically, rules surrounding QOO Orders on the 
Trading Floor and their relationship with the Linkage Plan. Further, 
the Exchange believes that the proposed change is appropriate as other 
exchanges have made this clarification in their respective circulars.

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

    As discussed above, the Exchange notes that the proposed rule 
change is simply amending Rule 7600(c) to state

[[Page 11283]]

that the exceptions detailed in Rule 15010(b) apply to Trading Floor 
transactions. As mentioned above, other options exchanges with open 
out-cry trading floors have issued Regulatory Circulars addressing the 
Linkage Plan and how it relates to their respective trading floor 
rules. As such, 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.

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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\13\ and Rule 19b-4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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 the 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 pursuant to Rule 19b-4(f)(6) under the 
Act \15\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \16\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
notes that waiver of the operative delay would allow it to implement 
the proposal immediately and eliminate the potential for confusion with 
regard to QOO Orders on the Trading Floor and their relationship to the 
Linkage Plan. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because the proposed rule change is designed to provide 
clarity and transparency to BOX Participants with regard to QOO Orders 
on the Trading Floor and their relationship to the Linkage Plan. The 
Commission also notes that the proposed rule change is consistent with 
the practices of other options exchanges, which are set forth in 
regulatory circulars.\17\ Accordingly, the Commission hereby waives the 
operative delay and designates the proposal operative upon filing.\18\
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ See supra note 10.
    \18\ 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change 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-2018-08 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-2018-08. 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-2018-08 and should be submitted on 
or before April 4, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05162 Filed 3-13-18; 8:45 am]
 BILLING CODE 8011-01-P