Document ID: SEC-2014-0140-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2014-01-24T05:00Z

[Federal Register Volume 79, Number 16 (Friday, January 24, 2014)]
[Notices]
[Pages 4207-4209]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01400]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71346; File No. SR-BOX-2014-04]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To Add 
Rule 7290 (Price Protection for Limit Orders)

January 17, 2014.
    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 January 6, 2014, BOX Options 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 add Rule 7290 (Price Protection for Limit 
Orders) to codify an existing price protection feature. The text of the 
proposed rule change is available from the principal office of the 
Exchange, on the Exchange's Web site at http://boxexchange.com, at the 
Commission's Public Reference Room, and on the Commission's Web site at 
http://sec.gov.

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 is proposing to add BOX Rule 7290 (Price Protection 
for Limit Orders) to codify and clarify a price protection feature 
already available on the Exchange. Specifically, the Exchange currently 
has a price check feature in place that prevents incoming limit orders 
\3\ and limit order modifications from automatically executing at 
potentially erroneous prices. The Exchange believes this feature helps 
maintain a fair and orderly market by mitigating the risks associated 
with erroneously priced limit orders that have the potential to cause 
price dislocation.
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    \3\ See BOX Rule 7110(c)(1). Limit Orders entered into the BOX 
Book are executed at the price stated or better.
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    Proposed Rule 7290 will codify the price protection feature in the 
BOX Rulebook and provide clarity on its functionality. As set forth in 
proposed Rule 7290, the Exchange employs a filter on all incoming limit 
orders and limit order modifications, pursuant to which the Trading 
Host will cancel these orders if priced outside an acceptable price 
parameter set by the Exchange. Specifically, as the Exchange receives 
limit orders and limit order

[[Page 4208]]

modifications, the Trading Host compares the price of each order 
against the contra-side NBBO at the time of order entry to determine if 
the price is outside the acceptable price parameter.\4\ If the order is 
priced outside of the acceptable price parameter, it will be rejected.
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    \4\ The price parameter is set by the Exchange and is a 
percentage of the NBBO on the opposite side of the incoming order.
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    Unless determined otherwise by the Exchange and announced to the 
Participants via Informational Circular, the price parameters will be 
set at the price 100% greater than the NBO (for incoming buy orders), 
and 100% less than the NBB (for incoming sell orders), when the NBB/NBO 
is priced at or below $0.25; and the price parameters will be set at 
the price 50% greater than the NBO (for incoming buy orders), and 50% 
less than the NBB (for incoming sell orders), when the NBB/NBO is 
priced above $0.25. The Exchange will reject all incoming buy (sell) 
orders that are priced above (below) those parameters. For example, if 
the NBO is $1.20, a buy order priced at or above $1.80 ($1.20 * 1.50) 
will be rejected. Likewise, if the NBB is $1.10, a sell order priced at 
or below $0.55 ($1.10 * 0.50) will be rejected. If the NBO is $0.10, a 
buy order priced at or above $0.20 ($0.10*2.00) will be rejected. 
However, if the NBB is less than or equal to $0.25, the default limits 
set above will result in all incoming sell orders being accepted 
regardless of their limit.
    The price protection feature will be operational each trading day 
after the opening until the close of trading, and will apply only to 
incoming limit orders and limit order modifications.\5\ The Exchange 
further notes that this feature will be available to all Participants; 
however, it will be disabled until the Participant enables it by 
contacting the BOX Market Operations Center (``MOC'').
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    \5\ Pursuant to Rule 7110(g) orders can be modified once they 
are held in the BOX Book. If the price of a limit order on the BOX 
Book is modified by a Participant, the updated price will be checked 
against the contra-side NBBO to determine whether the order's new 
price is outside the acceptable price range. If the modified order 
price is outside the price range the order will be rejected, 
regardless of whether the original price of the limit order was 
within the price range.
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    The Exchange believes this feature will prevent the entry of limit 
orders that are priced so significantly beyond the prevailing market 
price that the execution of such orders could cause substantial price 
dislocation in the market. The Exchange also believes that this feature 
will further serve to mitigate the occurrence of erroneous executions.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\6\ in general, and Section 
6(b)(5) of the Act,\7\ 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, the Exchange believes 
that rejecting incoming limit orders which are priced a significant 
percentage away from the NBB or NBO assures that executions will not 
occur at erroneous prices, thereby promoting a fair and orderly market. 
Additionally, the Exchange believes that the proposed feature is 
reasonable as it will protect Participants by mitigating the risk of 
having orders executed at erroneous prices. Furthermore, Participants 
may choose whether or not to subscribe to this feature.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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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 Exchange believes the 
proposal will provide market participants with additional protection 
against erroneous executions. The Exchange does not believe the 
proposed rule change imposes any burden on intramarket competition as 
the feature is available to all Participants. The Exchange also notes 
that it is not mandatory for Participants to use this feature and it is 
only enabled when requested by the Participant. Thus, the Exchange does 
not believe the proposal creates any significant impact on competition.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ Because 
the 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 prior to 
30 days from the date on which it was filed, 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\10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 such 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-2014-04 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-2014-04. This file 
number should be included on the

[[Page 4209]]

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 
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; 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-2014-04, and should be submitted on or before 
February 14, 2014].

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01400 Filed 1-23-14; 8:45 am]
BILLING CODE 8011-01-P