Document ID: SEC-2015-1637-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2015-10-13T04:00Z

[Federal Register Volume 80, Number 197 (Tuesday, October 13, 2015)]
[Notices]
[Pages 61527-61529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25865]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76086; File No. SR-BOX-2015-33]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Rule 7270 (Block Trades)

October 6, 2015.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 2, 2015, 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 7270 (Block Trades). 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 purpose of the proposed rule change is to amend Rule 7270 
(Block Trades) to permit an Order Flow Provider (``OFP'') initiating a 
Facilitation Auction, at its option, to designate a lower amount for 
which it will retain certain priority and trade allocation privileges 
upon the conclusion of the Facilitation Auction.
Background
    The Facilitation Auction mechanism allows OFPs to enter crossing 
transactions where the OFP represents a block-size order as agent 
(``Agency Order'') and (1) is trading against the Agency Order as 
principal (i.e., facilitating the Agency Order) and/or (2) has 
solicited an order to take the opposite side of the Agency Order.\3\ 
The Facilitation Auction allows block-size order executions against 
facilitated or solicited orders, or against a combination of 
facilitated or solicited orders. The Facilitation Auction is limited to 
orders of fifty (50) contracts or more.
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    \3\ See Rule 7270(a).
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    OFPs must be willing to execute the entire size of the Agency 
Orders entered into the Facilitation Auction through the submission of 
a contra ``Facilitation Order.'' Upon the entry of an Agency

[[Page 61528]]

Order and Facilitation Order in the Facilitation Auction, a broadcast 
message is sent to Participants, giving them the opportunity to submit 
responses with the prices and sizes at which they would be willing to 
participate in the facilitation opposite the Agency Order. Responses 
must be priced at the price of the Agency Order or at a better price 
and must not exceed the size of the Agency Order to be facilitated. At 
the end of the period given for the entry of responses, the 
Facilitation Order will be automatically executed with the Agency 
Order.
    Unless there is sufficient size to execute the entire Agency Order 
at a better price, Public Customer bids (offers) and Public Customer 
responses at the time the Agency Order is executed that are priced 
higher (lower) than the facilitation price are executed at the 
facilitation price. Non-Public Customer and Market Maker bids (offers) 
and Non-Public Customer and Market Maker responses at the time the 
Agency Order is executed that are priced higher (lower) than the 
facilitation price are executed against the Agency Order at their 
stated price, which provides Agency Order execution at a better price 
for the number of contracts associated with such higher bids (lower 
offers) and responses.
    The facilitating OFP is allocated priority for at least forty 
percent (40%) of the original size of the Facilitation Order, but only 
after better-priced bids (offers) and responses, as well as Public 
Customer bids (offers) and responses at the facilitation price, are 
executed in full. After the facilitating OFP has executed his forty 
percent (40%), Non-Public Customer and Market Maker bids (offers) and 
responses at the facilitation price will participate in the execution 
of the Agency Order based upon price and time priority.
Proposed Changes
    The Exchange is now proposing to amend the Facilitation Auction to 
permit an OFP to designate a lower amount for which it will retain 
certain priority and trade allocation privileges at the conclusion of 
the Facilitation Auction. Specifically, this proposal will permit an 
OFP, when starting a Facilitation Auction, to submit the Facilitation 
Order to BOX with a designation to identify the total size of the 
Agency Order that the OFP is willing to ``surrender'' to other 
Participants (``Surrender Quantity''), resulting in the OFP potentially 
being allocated less than the forty percent (40%) to which it is 
entitled.\4\ For example, when an OFP submits an Agency Order and 
Facilitation Order for 100 contracts and a Surrender Quantity of 70 
contracts, the OFP is designating that it is willing to surrender 
seventy percent (70%) of the Agency Order to other Participants. 
Therefore, the OFP is only retaining priority to thirty percent (30%) 
of the Agency Order, rather than the forty percent (40%) it could have 
received. The Facilitation Order shall continue to yield priority to 
certain competing orders in the circumstances set forth in Rule 
7270(a).
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    \4\ The OFP will not be allowed to modify the Surrender Quantity 
once the order has been submitted to the Exchange. Additionally, the 
broadcast message sent to Participants at the start of the 
Facilitation Auction will not include the Surrender Quantity amount, 
if any.
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    The proposed rule change further provides that in no case shall the 
OFP's use of the Surrender Quantity function result in an allocation to 
the OFP that would be greater than the maximum allowable allocation the 
OFP would otherwise receive in accordance with the Facilitation 
allocation procedures set forth in Rule 7270(a).
    The proposed rule change will modify the Trading Host's \5\ trade 
allocation at the conclusion of the Facilitation Auction to account for 
the Surrender Quantity. The proposal specifies that when the Trading 
Host determines the priority and trade allocation amounts for the OFP 
upon the conclusion of the Facilitation Auction, the Trading Host will 
automatically adjust the trade allocations to other Participants 
according to the priority set forth in Rule 7270(a), providing a total 
amount to the other Participants up to the Surrender Quantity. The 
Facilitation Order shall be allocated the remaining size of the Agency 
Order, if any. If the aggregate size of responses and orders from 
Participants is not equal to or greater than the Surrender Quantity, 
then the remaining Surrender Quantity shall be left unfilled and the 
Facilitation Order shall be allocated the remaining size of the Agency 
Order. For example, an OFP submits an Agency Order and Facilitation 
Order for 100 contracts and a Surrender Quantity of 70 contracts. 
During the Facilitation Auction only one response for 25 contracts is 
received. Even though the OFP was willing to surrender 70 contracts to 
the other Participants, there is not enough competing size in this 
instance to allocate 70 contracts to someone else. Therefore, the 
Facilitation Order's requirement to completely fill the Agency Order 
takes precedence, and the OFP is allocated the remaining 75 contracts.
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    \5\ The term ``Trading Host'' means the automated trading system 
used by BOX for the trading of options contracts.
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    The Exchange will provide Participants with notice, via Information 
Circular, about the implementation date of the Surrender Quantity prior 
to its implementation in the trading system.
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 the proposed changes are 
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 to protect investors and the 
public interest, by providing the opportunity for Participants, not 
including the initiating Participant, to receive a greater allocation 
at the conclusion of the Facilitation Auction. The Exchange believes 
that the proposed changes will incentivize Participants to submit 
additional orders to the Exchange which will benefit all Participants 
and public customers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change will benefit 
investors and Participants by allowing an OFP the flexibility to 
designate a lower amount for which it will retain certain priority and 
trade allocation privileges upon the conclusion of the Facilitation 
Auction, thereby providing other Participants with the opportunity to 
receive increased trade allocations. The proposed rule change is 
designed to promote just and equitable principles of trade by assuring 
that an OFP cannot use the Surrender Quantity to receive an allocation 
greater than the maximum allowable percentage. The proposed rule change 
will protect investors and the public interest because Public Customer 
orders will still receive the same priority during the allocation 
process.
    The proposed changes are similar to Exchange rules applicable to 
other auctions offered by the Exchange. Specifically, the Exchange 
allows Participants to submit a surrender quantity when submitting 
orders to the Price Improvement Period (``PIP'') and Solicitation 
Auction.\8\
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    \8\ See Rules 7150(h)(5)(i) and 7270(b)(2)(iv). The Solicitation 
Auction's surrender quantity is slightly different in that the 
Participant is surrendering its priority to interest on the BOX 
Book, as opposed to the PIP and proposed Surrender Quantity where 
the Participant is surrendering its interest to auction responses.

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[[Page 61529]]

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. In this regard and as indicated 
above, the Exchange notes that the rule change is similar to rules of 
the Exchange's PIP and Solicitation Auction. The Exchange believes that 
the propose rule change should incent OFPs to continue submitting block 
trades to the Facilitation Auction to the benefit of the Exchange and 
its Participants and public customers. The Exchange believes that the 
proposal will enhance competition by providing an opportunity for 
Participants to receive a greater allocation at the end of the 
Facilitation Auction.

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 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 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 \9\ and Rule 19b-4(f)(6) 
thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with 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.
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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 rule-comments@sec.gov. Please include 
File Number SR-BOX-2015-33 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2015-33. 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 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-2015-33, and should be 
submitted on or before November 3, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-25865 Filed 10-9-15; 8:45 am]
 BILLING CODE 8011-01-P