Document ID: SEC-2013-1646-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange, LLC
Posted Date: 2013-09-23T04:00Z

[Federal Register Volume 78, Number 184 (Monday, September 23, 2013)]
[Notices]
[Pages 58364-58376]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23008]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70427; File No. SR-BOX-2013-43]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing of Proposed Rule Change To Permit Complex Orders To 
Participate in Price Improvement Periods

September 17, 2013.
    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 September 5, 2013, BOX Options Exchange LLC (the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I, II and III 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to add a new Rule 7245 to permit Complex 
Orders to participate in Price Improvement Periods (the ``COPIP'') and 
by making certain other conforming and clarifying changes to 
accommodate the new COPIP Rule. 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 the 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its rules related to trading of 
Complex Orders \3\ on BOX Market LLC (``BOX''), the options trading 
facility of the Exchange, to permit Complex Orders to be submitted to a 
price improvement period auction mechanism similar to the existing PIP 
mechanism for single option series on BOX.\4\ The Exchange believes 
this proposed Complex Order Price Improvement Period (``COPIP'') \5\ 
mechanism will result in more efficient transactions, reduced execution 
risk to BOX Options Participants, and greater opportunities for price 
improvement through the COPIP. The Exchange believes adoption of the 
proposal will result in tighter markets, and ensure that each order 
receives the best possible price.
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    \3\ As defined in Rule 7240(a)(5), the term ``Complex Order'' 
means any order involving the simultaneous purchase and/or sale of 
two or more different options series in the same underlying 
security, for the same account, in a ratio that is equal to or 
greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) and for the purpose of executing a particular investment 
strategy.
    \4\ See Rule 7150.
    \5\ As defined in proposed Rule 7245, the term ``COPIP'' means 
Complex Order Price Improvement Period.
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    The Exchange believes the proposed COPIP is an improvement over its 
current rules regarding Complex Order exposure and execution, and will 
benefit all market participants submitting Complex Order to BOX. The 
proposed change will require that Complex Orders on BOX will execute 
first against interest on the BOX Book where possible, as under the 
current rule.\6\
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    \6\ See Rule 7240(b)(3)(i) and proposed Rule 7245(f)(3)(i).
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Existing PIP
    The Exchange proposes to add new BOX Rule 7245 to allow Complex 
Orders to be submitted to the COPIP in substantially the same manner as 
orders for single options series instruments currently are submitted to 
the PIP.
    Currently, Options Participants executing agency orders for single 
options series instruments may designate Customer Orders for price

[[Page 58365]]

improvement and submission to the PIP. Customer Orders designated for 
the PIP (``PIP Orders'') may be submitted to BOX with a matching contra 
order (``Primary Improvement Order'') equal to the full size of the PIP 
Order. The Primary Improvement Order is on the opposite side of the 
market from the PIP Order and at a price equal to or better than that 
of the National Best Bid Offer (``NBBO'') at the time of the 
commencement of the PIP (the ``PIP Start Price''). BOX begins a PIP by 
broadcasting a message to market participants via the Exchange's High 
Speed Vendor Feed (``HSVF''). During the PIP, order flow providers 
(``OFPs'') and Market Makers (other than the Initiating Participant) 
may submit competing orders (``Improvement Orders'') for their own 
account and OFPs may also provide access to the PIP for the account of 
a Public Customer or for any account except Market Maker. Options 
Participants may continually submit competing Improvement Orders during 
the PIP and Improvement Orders are disseminated to market participants.
    At the conclusion of a PIP, the PIP Order is matched against the 
best prevailing quote(s) or order(s) on BOX (except any pre-PIP 
Broadcast proprietary quote or order from the Initiating Participant), 
in accordance with price/time priority as set forth in Rule 7130, 
whether Improvement Order(s) or Unrelated Order(s) received by BOX, or 
Legging Orders generated, during the PIP (excluding Unrelated Orders 
that were immediately executed during the interval of the PIP). Such 
orders may include agency orders on behalf of Public Customers, market 
makers at away exchanges and non-BOX Options Participant broker-
dealers, as well as non-PIP proprietary orders submitted by Options 
Participants.
    Unrelated Orders \7\ and Legging Orders \8\ on the same side as the 
PIP Order received during the PIP may cause the PIP to terminate early 
under certain circumstances.\9\ During a PIP, when an Unrelated Order 
is submitted to BOX or a Legging Order is generated on the same side as 
the PIP Order that would cause an execution to occur prior to the end 
of the PIP, the PIP ends early and the PIP Order is matched as if the 
PIP terminated on its regular schedule. Following the execution of the 
PIP Order, any remaining Improvement Orders are cancelled and the 
Unrelated Order or Legging Order is filtered normally.\10\
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    \7\ As defined in Rule 7150(a), the term ``Unrelated Order'' 
with respect to a PIP means a non-Improvement Order entered into the 
BOX market during a PIP.
    \8\ As defined in Rule 7240(c)(1), the term ``Legging Order'' 
means a Limit Order on the BOX Book that represents one side of a 
Complex Order that is to buy or sell an equal quantity of two 
options series resting on the Complex Order Book.
    \9\ See Rule 7150(i).
    \10\ See Rule 7130(b).
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    Unrelated Orders and Legging Orders on the opposite side of the PIP 
Order received during the PIP may be immediately executed under certain 
circumstances.\11\ During a PIP, when such an Unrelated Order is 
submitted to BOX or a Legging Order is generated on the opposite side 
of the PIP Order such that it would cause an execution to occur prior 
to the end of the PIP, the Unrelated Order or Legging Order is 
immediately executed against the PIP Order. Any remaining portion of 
the Unrelated Order or Legging Order is filtered normally.\12\ Any 
remaining portion of the PIP Order is executed at the conclusion of the 
PIP normally.\13\ Following the execution of the PIP Order, any 
remaining Improvement Orders are cancelled.
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    \11\ See Rule 7150(j).
    \12\ See Rule 7130(b).
    \13\ See Rule 7150(f)(3).
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Proposed COPIP on Complex Orders
    The Exchange proposes new Rule 7245 that would allow the submission 
of Complex Orders to a COPIP mechanism that is substantially similar to 
the PIP except as necessary to account for distinctions between regular 
orders on the BOX Book and Complex Orders or as otherwise noted 
below.\14\ References to Legging Orders do not appear in the proposed 
COPIP rules because Legging Orders interact only with the PIP. However, 
the proposed COPIP rules do include other provisions for interacting 
with interest on the BOX Book. The manner in which interest on the BOX 
Book interacts with the COPIP is explained in more detail below.
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    \14\ The Exchange notes that the provisions in proposed Rule 
7245 are substantially similar to those in Rule 7150, amended to 
reflect their applicability to a COPIP on a Complex Order Strategy 
as compared to a PIP on orders for single options series 
instruments.
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    The Exchange believes this proposal to permit price improvement 
auctions for Complex Orders will increase opportunities for execution 
of Complex Orders and interest on the BOX Book. The Exchange believes 
the proposed COPIP will provide greater flexibility to Participants 
trading Complex Orders on BOX Market LLC, the Exchange's trading 
facility (``BOX''). The Exchange further believes the proposed COPIP 
will provide additional opportunities for Participants to achieve 
better handling of Complex Orders and result in increased opportunities 
for execution and better pricing.
General COPIP Provisions
    For purposes of the COPIP, the term ``Improvement Order'' is 
defined as a competing Complex Order submitted to BOX by an OFP or 
Market Maker during a COPIP; the term ``Unrelated Order'' is defined as 
a non-Improvement Order entered on BOX during a COPIP or BOX Book 
Interest during a COPIP; and the term ``BOX Book Interest'' is defined 
as bids and offers on the BOX Book for the individual legs of a 
Strategy.\15\ These definitions are similar to those used in the PIP 
rule but, for the COPIP, Unrelated Orders are proposed to include BOX 
Book Interest capable of executing against COPIP Orders to permit 
COPIPs to interact with the BOX Book. BOX Book Interests are treated as 
Unrelated Orders for purposes of the COPIP except where specifically 
differentiated in proposed Rule 7245 and discussed below.
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    \15\ See proposed Rule 7245(a).
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    The Exchange proposes that Options Participants may use the COPIP 
to execute Complex Orders under certain circumstances subject to the 
procedures detailed within proposed Rule 7245. In compliance with these 
procedures, price improvement transactions for Customer Orders that are 
Complex Orders may be consummated with the Options Participant who 
submits the Complex Order, with other Options Participants, Improvement 
Orders or Unrelated Orders.\16\
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    \16\ See proposed Rule 7245(b).
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    The Exchange proposes that, when executing Customer Complex Orders 
by way of the COPIP, Options Participants must ensure that they comply 
with all the procedures set forth in these Rules for such transactions; 
that they act with due skill, care and diligence; and that the 
interests of their Customers are not prejudiced.\17\ An OFP may not 
execute, as principal, an order it represents as agent unless it 
complies with the provisions of Rule 7140 or the OFP sends the agency 
order to the COPIP process pursuant to the provisions of proposed Rule 
7245.\18\ An Options Participant must not use the COPIP process to 
create a misleading impression of market activity (i.e., the facilities 
may be used only where there is a genuine intention to execute a bona 
fide transaction).\19\ These provisions are substantially the same as 
the corresponding rules for the PIP.\20\
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    \17\ See proposed Rule 7245(c).
    \18\ See proposed Rule 7245(d).
    \19\ See proposed Rule 7245(e).
    \20\ See Rule 7150(c), (d) and (e).

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[[Page 58366]]

COPIP Mechanism
    Consistent with the PIP, the Exchange proposes that Options 
Participants, both OFPs and Market Makers, (``Initiating 
Participants'') executing agency orders may designate Complex Orders 
that are marketable Limit Orders, BOX-Top Orders or Market Orders for 
price improvement and submission to the COPIP. Complex Orders 
designated for the COPIP (``COPIP Orders'') will be submitted to BOX 
with a matching contra order (``Primary Improvement Order'') equal to 
the full size of the COPIP Order. The Primary Improvement Order will be 
on the opposite side of the market than that of the COPIP Order and 
represents either: (1) A single price (``Single-Priced Primary 
Improvement Order'') that is equal to or better than cNBBO,\21\ cBBO 
\22\ and BBO on the Complex Order Book for the Strategy at the time of 
the commencement of the COPIP; or (2) an auto-match submission that 
will automatically match both the price and size of all competing 
orders, including Improvement Orders and Unrelated Orders at any price 
level achieved during the COPIP or only up to a limit price (``Max 
Improvement Primary Improvement Order''). Either the Single-Priced 
Primary Improvement Order or the Max Improvement Primary Improvement 
Order will designate the COPIP auction start price (``COPIP Start 
Price''), which will be equal to or better than cNBBO, cBBO and BBO on 
the Complex Order Book for the Strategy at the time of commencement of 
the COPIP. BOX will commence a COPIP by broadcasting a message via the 
HSVF (the ``COPIP Broadcast'') that states that a Primary Improvement 
Order has been processed; contains information concerning Strategy 
identifier, size, COPIP Start Price, and side of market; and states 
when the COPIP will conclude.\23\ Unlike the PIP rule, the proposed 
Rule 7245 does not refer to quotes because quotes do not exist on 
Complex Orders. All market participants are able to receive broadcast 
notification of COPIPs and Improvement Orders via the HSVF. As a 
result, no Participants will have an information advantage.
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    \21\ As defined in Rule 7240(a)(3), the term ``cNBBO'' means the 
best net bid and offer price for a Complex Order Strategy based on 
the NBBO for the individual options components of such Strategy.
    \22\ As defined in Rule 7240(a)(1), the term ``cBBO'' means the 
best net bid and offer price for a Complex Order Strategy based on 
the BBO on the BOX Book for the individual options components of 
such Strategy.
    \23\ See proposed Rule 7245(f).
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    As in the PIP, the standard COPIP duration is proposed to be one 
hundred milliseconds,\24\ commencing upon the dissemination of the 
COPIP Broadcast. At the conclusion of the COPIP, the COPIP Order will 
be executed as described below. During a COPIP, OFPs and Market Makers 
(except for the Initiating Participant) may submit Improvement Orders 
for their own account. OFPs may submit Improvement Orders for the 
account of a Public Customer under any type of instruction they wish to 
accept. An Improvement Order submitted to the COPIP for the account of 
a Public Customer must be identified as a Public Customer Order. 
Options Participants who submit Improvement Orders for a COPIP will be 
deemed ``COPIP Participants'' for that specific COPIP only, and may 
continually submit competing Improvement Orders during that COPIP. 
During the COPIP, Improvement Orders will be broadcast via the HSVF but 
will not be disseminated through OPRA.\25\ The proposed COPIP rule text 
makes clear that the COPIP broadcast is disseminated via the HSVF. 
Complex Order information is not broadcast to OPRA.
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    \24\ The Exchange believes that 100 milliseconds is an adequate 
duration for the COPIP. The COPIP duration would be the same as the 
current duration of the PIP and, therefore, the Exchange believes 
the COPIP duration would not create any additional burden for 
Participants participating in a COPIP. The Exchange believes 
customers are capable of responding within the proposed duration and 
has not received any complaints regarding the duration of the PIP 
since the timer was reduced from one second to 100 milliseconds on 
February 13, 2012. The Exchange has had discussions with several BOX 
Participants, each of which has indicated that 100 milliseconds is 
more than adequate to process COPIP Orders. Similarly, CBOE recently 
reduced certain of its response times to as little as 20 
milliseconds (See, e.g., CBOE Regulatory Circular RG13-094, dated 
June 27, 2013 and effective August 1, 2013).
    \25\ See proposed Rule 7245(f)(1).
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    Consistent with the PIP, an Initiating Participant in a COPIP is 
not permitted to cancel or to modify the size of its Single-Priced 
Primary Improvement Order or the COPIP Order at any time during a 
COPIP, and may modify only the price of its Single-Priced Primary 
Improvement Order by improving it. The subsequent price modifications 
to a Single-Priced Primary Improvement Order are treated as new 
Improvement Orders for the sake of establishing priority in the COPIP 
process. The Initiating Participant is not permitted to cancel or 
modify the Max Improvement Primary Improvement Order, including the 
COPIP Start Price, the designated limit price or the size. Just as in a 
PIP, Options Participants that submit Improvement Orders in a COPIP 
may: (i) Submit competing Improvement Order(s) for any size up to the 
size of the COPIP Order; (ii) submit competing Improvement Order(s) for 
any price equal to or better than the COPIP Start Price; (iii) improve 
the price of their Improvement Order(s) at any point during the COPIP; 
and (iv) decrease the size of their Improvement Order(s) only by 
improving the price of that Complex Order. Improvement Orders may be 
submitted in one-cent increments.\26\
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    \26\ See proposed Rule 7245(f)(2).
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    At the conclusion of a COPIP, just as with a PIP,\27\ the COPIP 
Order is proposed to execute against the best prevailing order(s) on 
BOX (except any pre-COPIP Broadcast proprietary order from the 
Initiating Participant), in accordance with price/time priority, 
whether Improvement Order(s) or Unrelated Order(s) received by BOX 
during the COPIP (excluding all Unrelated Orders that were immediately 
executed during the interval of the COPIP). Such Unrelated Orders may 
include agency orders on behalf of Public Customers, market makers at 
away exchanges and non-BOX Options Participant broker-dealers, as well 
as non-COPIP proprietary orders submitted by Options Participants. Any 
portion of an Improvement Order left unfilled will be cancelled.\28\
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    \27\ See Rule 7150(f)(3).
    \28\ See proposed Rule 7245(f)(3).
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    Notwithstanding the foregoing execution rules for a COPIP, BOX Book 
Interest is proposed to execute in priority over Complex Orders at the 
same price \29\ so as to preserve the already established execution 
priority of interest on the BOX Book over Complex Orders.\30\
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    \29\ See proposed Rule 7245(f)(3)(i).
    \30\ The execution priority of interest on the BOX Book over 
Complex Orders is consistent with existing Rules 7240(b)(3)(i).
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Example 1: Execution of COPIP Order With BOX Book Interest Priority

    For example, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.

    A BOX Participant then initiates a COPIP Order to sell 30 A+B. The 
COPIP Order is opposite the Participant's Primary Improvement Order to 
buy 30 at $2.01. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01

[[Page 58367]]

COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, the BOX Book for each of A and B changes to generate 
BOX Book Interest to buy 20 A+B at $2.01. The orders for Strategy A+B 
at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 20 at $2.01

    The allocation of Strategies for execution with the COPIP Order to 
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 20 at $2.01
Primary Improvement Order to buy 10 at $2.01

    Note: The BOX Book Interest to buy 20 A+B at $2.01 is fully 
executed in first priority. The Primary Improvement Order is allocated 
the remaining 10 Strategies.
* * * * *
    Further, no Complex Order for a non-market maker broker-dealer 
account of an Options Participant will be executed before all Public 
Customer Complex Order(s), whether Improvement Order(s) or non-
Improvement Order(s), and all non-BOX Options Participant broker-dealer 
Complex Order(s) at the same price have been filled; provided however, 
that all Complex Orders on the Complex Order Book prior to the COPIP 
Broadcast, excluding any proprietary order(s) from the Initiating 
Participant, will be filled in time priority before any other Complex 
Order at the same price.\31\ These proposed rule features adapt the 
existing PIP mechanism for COPIP auctions while preserving the 
established execution priority rules for Complex Orders.
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    \31\ See proposed Rule 7245(f)(3)(ii).
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COPIP Trade Allocation Priority
    Subject to the execution priority of BOX Book Interests described 
above, the Initiating Participant is proposed to retain certain 
priority and trade allocation privileges upon conclusion of a 
COPIP.\32\ The priority and trade allocation privileges retained by 
Initiating Participants in a proposed COPIP are substantially similar 
to those currently afforded Initiating Participants in a PIP \33\ 
except as noted below. These privileges are described in more detail 
below.
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    \32\ See proposed Rule 7245(f)(3)(iii) and 7245(g).
    \33\ See Rule 7150(g)
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    In instances in which a Single-Priced Primary Improvement Order, as 
modified (if at all), is matched by or matches any Complex Order(s) or 
BOX Book Interest at any price level, the Initiating Participant would 
retain priority for up to forty percent (40%) of the original size of 
the COPIP Order, notwithstanding the time priority of the Primary 
Improvement Order or Complex Order(s). However, if only one Complex 
Order or BOX Book Interest matches or is better than the Initiating 
Participant's Single-Priced Primary Improvement Order, then the 
Initiating Participant may retain priority for up to fifty percent 
(50%) of the original size of the COPIP Order. The Initiating 
Participant will receive additional allocation only after all other 
Complex Orders have been filled at that price level.\34\ For purposes 
of calculating the Initiating Participant's priority allocation, BOX 
Book Interests are proposed to be included as competing orders in a 
COPIP.
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    \34\ See proposed Rule 7245(g)(1).
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Example 2: Primary Improvement Order Priority

Example 2(a)

    For example, suppose the orders for Strategy A+B at the end of a 
COPIP are as follows:

Orders for Strategy A+B:

Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
cNBBO is $2.00 bid, $2.10 offered

    In this case, there is only one competing Improvement Order and, 
therefore, the Primary Improvement Order receives an allocation of 50% 
of the original size of the COPIP Order.
    The allocation of Strategies for execution with the COPIP Order to 
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

Primary Improvement Order to buy 15 at $2.04
Improvement Order to buy 15 at $2.04

Example 2(b)

    Alternatively, suppose the orders for Strategy A+B at the end of a 
COPIP are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.04
COPIP Order to sell 30
BOX Book Interest to buy 20 at $2.04
cNBBO is $2.00 bid, $2.10 offered

    The BOX Book Interest has execution priority over Complex Orders, 
including the Primary Improvement Order, at the same price.
    The allocation of Strategies for execution with the COPIP Order to 
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 20 at $2.04
Primary Improvement Order to buy 10 at $2.04

    Note: The BOX Book Interest to buy 20 A+B at $2.04 is fully 
executed in first priority. The Primary Improvement Order is allocated 
the remaining 10 Strategies.

Example 2(c)

    Alternatively, suppose the orders for Strategy A+B at the end of a 
COPIP are as follows:

Orders for Strategy A+B:

Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 10 at $2.04
cNBBO is $2.00 bid, $2.10 offered

    Because the BOX Book Interest is considered to be a separate order 
for the determination of the 40/50% Initiating Participant priority for 
the Primary Improvement Order, the Primary Improvement Order retains 
execution priority for only 40% of the COPIP Order.
    The allocation of Strategies for execution with the COPIP Order to 
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 10 at $2.04
Primary Improvement Order to buy 12 at $2.04
Improvement Order to buy 8 at $2.04

    Note: The BOX Book Interest to buy 10 A+B at $2.04 is fully 
executed in first priority. The Primary Improvement Order is allocated 
12 Strategies (40% of the COPIP Order) and the remaining 8 Strategies 
are allocated to the Improvement Order.

Example 2(d)

    Alternatively, suppose the orders for Strategy A+B at the end of a 
COPIP are as follows:

Orders for Strategy A+B:

Improvement Order to buy 20 at $2.04

[[Page 58368]]

COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 20 at $2.04
cNBBO is $2.00 bid, $2.10 offered

    Because the BOX Book Interest is considered to be a separate order 
for the determination of the 40/50% Initiating Participant priority for 
the Primary Improvement Order, the Primary Improvement Order retains 
execution priority for only 40% of the COPIP Order.
    The allocation of Strategies for execution with the COPIP Order to 
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 20 at $2.04
Primary Improvement Order to buy 10 at $2.04

    Note: The BOX Book Interest to buy 20 A+B at $2.04 is fully 
executed in first priority. The Primary Improvement Order would be 
entitled to be allocated 12 Strategies (40% of the COPIP Order). 
However, instead, the Primary Improvement Order is allocated the 
remaining 10 Strategies and the Improvement Order does not receive any 
allocation.
* * * * *
    In instances in which a Max Improvement Primary Improvement Order 
is submitted by the Initiating Participant, the Initiating Participant 
would be allocated its full size at each price level, except where 
restricted by the designated limit price and subject to the limitations 
discussed in the next following paragraph below, until a price level is 
reached where the balance of the COPIP Order can be fully executed. 
Only at such price level would the Initiating Participant retain 
priority for up to forty percent (40%) of the remaining size of the 
COPIP Order. However, if only one competing Complex Order or BOX Book 
Interest matches the Initiating Participant at the final price level, 
then the Initiating Participant may retain priority for up to fifty 
percent (50%) of the remaining size of the COPIP Order.\35\ As with 
Single-Priced Primary Improvement Orders discussed above, for purposes 
of calculating the Initiating Participant's priority allocation, BOX 
Book Interests are proposed to be included as competing orders in a 
COPIP.
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    \35\ See proposed Rule 7245(g)(2).
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Example 3: Execution of COPIP Order at Multiple Price Levels With Max 
Improvement Primary Improvement Order

    For example, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The 
COPIP Order is opposite the Participant's Primary Improvement Order to 
buy 100 at $2.01. The Participant's Max Improvement Price is 2.03. The 
orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, two competing Improvement Orders are received: one 
Improvement Order to buy 30 A+B at $2.04 and one Improvement Order to 
buy 50 A+B at $2.03. The Primary Improvement Order improves to $2.03. 
Also, the BOX Book Interest changes to 40 A+B at $2.03. The orders for 
Strategy A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
Improvement Order to buy 50 at $2.03

    The allocation of Strategies for execution with the COPIP Order to 
sell 100 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 100 A+B:

Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 30 at $2.03

    Note: While the Primary Improvement Order had a right to buy 40 
Strategies at $2.03 (40% of original COPIP quantity of 100), the 
Initiating Participant is allocated only 30 Strategies because the BOX 
Book Interest has priority for its full amount at that price level.
* * * * *
    As in a PIP, the Primary Improvement Order is proposed to follow, 
in time priority, all Complex Orders on the Complex Order Book prior to 
the COPIP Broadcast that are equal to the Single Priced Primary 
Improvement Order price; or the execution price of a Max Improvement 
Primary Improvement Order that results in the balance of the COPIP 
Order being fully executed, except any proprietary order(s) from the 
Initiating Participant. Such proprietary order(s) would not be executed 
against the COPIP Order during or at the conclusion of the COPIP.\36\ 
As mentioned above, quotes are included in the PIP rules \37\ but are 
not part of the proposed COPIP rules because quotes are not provided on 
Complex Orders.
---------------------------------------------------------------------------

    \36\ See proposed Rule 7245(g)(3).
    \37\ See Rule 7150(g)(3).
---------------------------------------------------------------------------

    The Primary Improvement Order is proposed to yield priority to 
certain competing Complex Orders, including the priority of the 
Initiating Participant described above, in substantially the same 
circumstances as the PIP \38\ as follows.
---------------------------------------------------------------------------

    \38\ See Rule 7150(g)(4).
---------------------------------------------------------------------------

    When a Single-Priced or Max Improvement Primary Improvement Order 
for the proprietary account of an OFP is matched by or matches any 
competing Public Customer Complex Order(s), whether Improvement 
Order(s), Unrelated Order(s) or any non-BOX Options Participant broker-
dealer Complex Order(s) at any price level, it will yield priority to 
them.\39\
---------------------------------------------------------------------------

    \39\ See proposed Rule 7245(g)(4)(i).
---------------------------------------------------------------------------

Example 4: Initiating Participant Yields to Public Customer Order

    For example, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant that is a broker-dealer then initiates a COPIP 
Order to sell 30 A+B. The COPIP Order is opposite the Participant 
broker-dealer's Primary Improvement Order, for its own account, to buy 
30 at $2.01. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, a competing Improvement Order on behalf of a Public 
Customer is received to buy 20

[[Page 58369]]

A+B at $2.02. The Primary Improvement Order matches this price. The 
orders for Strategy A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.02
COPIP Order to sell 30
Public Customer Improvement Order to buy 20 at $2.02
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Ordinarily, the trade allocation at the end of the COPIP (all at 
$2.02) would be 15 Strategies (50%) to the Primary Improvement Order 
and the remaining 15 Strategies to the Improvement Order. However, in 
this example, the Primary Improvement Order must yield allocation to 
the Improvement Order because the Primary Improvement Order is for the 
account of a broker-dealer and the competing Improvement Order is for 
the account of a Public Customer.
    The allocation of Strategies for execution with the COPIP Order to 
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

Public Customer Improvement Order to buy 20 at $2.02
Primary Improvement Order to buy 10 at $2.02

    Note: If the Public Customer Improvement Order had been for 30 
Strategies, the Public Customer Improvement Order would have received 
the entire trade allocation.
* * * * *
    When an unmodified Single-Priced Primary Improvement Order for the 
account of a Market Maker is matched by any competing Public Customer 
Complex Order(s), whether Improvement Order(s), Unrelated Order(s) or 
any non-BOX Options Participant broker-dealer Complex Order(s) at the 
initial COPIP price level, it will yield priority to them.\40\
---------------------------------------------------------------------------

    \40\ See proposed Rule 7245(g)(4)(ii).
---------------------------------------------------------------------------

Example 5: Initiating Market Maker Yields to Public Customer Order at 
Single Price Level

    For example, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant that is a Market Maker then initiates a COPIP 
Order to sell 30 A+B. The COPIP Order is opposite the Participant 
Market Maker's Primary Improvement Order, for its own account, to buy 
30 at $2.01. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, a competing Improvement Order on behalf of a Public 
Customer is received to buy 20 A+B at $2.01. The orders for Strategy 
A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B (with buy orders displayed in time priority):

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
Public Customer Improvement Order to buy 20 at $2.01
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10

    Ordinarily, the trade allocation at the end of the COPIP (all at 
$2.01) would be 15 Strategies (50%) to the Primary Improvement Order 
and the remaining 15 Strategies to the Improvement Order. However, as 
the execution price of the COPIP Order is at the unmodified original 
COPIP start price of $2.01, the Primary Improvement Order must yield 
allocation to the Improvement Order because the Primary Improvement 
Order was initiated by a Market Maker and the competing Improvement 
Order is for the account of a Public Customer.
    The allocation of Strategies for execution with the COPIP Order to 
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

Public Customer Improvement Order to buy 20 at $2.01
Primary Improvement Order to buy 10 at $2.01

    Note: If the Public Customer Improvement Order had been for 30 
Strategies, the Public Customer Improvement Order would have received 
the entire trade allocation.
* * * * *
    When a Max Improvement or a modified Single-Priced Primary 
Improvement Order for the account of a Market Maker matches any 
competing Public Customer Complex Order(s), whether Improvement 
Order(s), Unrelated Order(s) or any non-BOX Options Participant broker-
dealer Complex Order(s) at subsequent price levels, it will yield 
priority to them.\41\
---------------------------------------------------------------------------

    \41\ See proposed Rule 7245(g)(4)(iii).
---------------------------------------------------------------------------

Example 6: Initiating Market Maker Yields to Public Customer at Any 
Price Level

    For example, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant that is a Market Maker then initiates a COPIP 
Order to sell 30 A+B. The COPIP Order is opposite the Participant 
Market Maker's Primary Improvement Order, for its own account, to buy 
30 at $2.01. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, a competing Improvement Order on behalf of a Public 
Customer is received to buy 20 A+B at $2.02. The Primary Improvement 
Order matches this price. The orders for Strategy A+B at the end of the 
COPIP then are as follows:

Orders for Strategy A+B (with buy orders displayed in time priority):

Public Customer Improvement Order to buy 20 at $2.02
Primary Improvement Order to buy 30 at $2.02
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00

    Ordinarily, the trade allocation at the end of the COPIP (all at 
$2.02) would be 15 Strategies (50%) to the Primary Improvement Order 
and the remaining 15 Strategies to the Improvement Order. However, as 
the Improvement Order for the account of a Public Customer has time 
priority over the Primary Improvement Order submitted by a Market Maker 
at this price, the Primary Improvement Order must yield allocation to 
the Improvement Order.
    The allocation of Strategies for execution with the COPIP Order to 
sell 30 A+B at the end of the COPIP is as follows:

[[Page 58370]]

Allocation for Execution of COPIP Order to Sell 30 A+B:

Public Customer Improvement Order to buy 20 at $2.02
Primary Improvement Order to buy 10 at $2.02

    Note: If the Public Customer Improvement Order had been for 30 
Strategies, the Public Customer Improvement Order would have received 
the entire trade allocation.
* * * * *
    Consistent with the PIP, when the Primary Improvement Order 
receives a trade allocation as discussed above, it is proposed to be 
entitled to a trade allocation of at least one (1) Strategy.\42\ This 
assures meaningful execution priority for Primary Improvement Orders.
---------------------------------------------------------------------------

    \42\ See proposed Rule 7245(g)(5).
---------------------------------------------------------------------------

    At its option, the Initiating Participant may designate a lower 
(but not higher) minimum priority and trade allocation privilege 
percentage upon the conclusion of the COPIP auction than it is 
otherwise entitled to. When starting a COPIP, the Initiating 
Participant may submit to BOX the Primary Improvement Order with a 
designation of the total amount of the COPIP Order it is willing to 
``surrender'' to the other COPIP Participants (``COPIP Surrender 
Quantity''). Under no circumstances will the Initiating Participant 
receive an allocation percentage preference of more than 50% with one 
competing order, including counting BOX Book Interest as a competing 
order, or 40% with multiple competing orders, including counting BOX 
Book Interest as a competing order.\43\
---------------------------------------------------------------------------

    \43\ See proposed Rule 7245(g)(6)(i).
---------------------------------------------------------------------------

    Upon the conclusion of the COPIP auction, when the Exchange's 
Trading Host determines the priority and trade allocation amounts for 
the Initiating Participant as described above, the Trading Host will 
automatically adjust the trade allocations to the other COPIP 
Participants up to the COPIP Surrender Quantity. The Primary 
Improvement Order will be allocated the remaining size of the COPIP 
Order above the COPIP Surrender Quantity, if any, as described above. 
If the aggregate size of other COPIP Participants' contra Complex 
Orders is not equal to or greater than the COPIP Surrender Quantity, 
then the remaining COPIP Surrender Quantity will be left unfilled and 
the Primary Improvement Order will be allocated the remaining size of 
the COPIP Order described above.\44\
---------------------------------------------------------------------------

    \44\ See proposed Rule 7245(g)(6)(ii).
---------------------------------------------------------------------------

Example 7: COPIP Surrender Quantity

    For example, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.

    A BOX Participant then initiates a COPIP Order to sell 30 A+B. The 
COPIP Order is opposite the Participant's Primary Improvement Order. 
The Participant indicates a surrender quantity of 30 Strategies. The 
orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, a competing Improvement Order is received to buy 20 
A+B at $2.04. The Primary Improvement Order matches this price. Also, 
the BOX Book Interest changes to 10 A+B at $2.04. The orders for 
Strategy A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 10 at $2.04

    The allocation of Strategies for execution with the COPIP Order to 
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 10 at $2.04
Improvement Order to buy 20 at $2.04

    Note: While the Primary Improvement Order had a right to 12 
Strategies at $2.04 (40% of original COPIP quantity of 30), the 
Initiating Participant indicated a surrender quantity of 30, which 
means the Initiating Participant was willing to yield the entire 
quantity to competing Improvement Orders. As a result, the competing 
Improvement Order at $2.04 is filled in its entirety and the Primary 
Improvement Order receives no trade allocation.
    However, if the Primary Improvement Order had indicated a surrender 
quantity of 22 Strategies, allocation of Strategies for execution with 
the COPIP Order to sell 30 A+B at the end of the COPIP would be as 
follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 10 at $2.04
Primary Improvement Order to buy 8 at $2.04
Improvement Order to buy 12 at $2.04
* * * * *
    Unlike a PIP, the COPIP is not proposed to include Customer COPIP 
Orders (``CPOs''). In a PIP, certain orders on the BOX Book on single 
option series trade in minimum increments greater than one cent while a 
PIP Order on the same series can operate in one cent increments. A CPO 
allows a Public Customer to submit an order on a single option series, 
through an OFP, specifying one price for entry on the BOX Book (in the 
applicable minimum increment for that series) and a different price for 
interaction with a PIP (in one cent increments).\45\ Since all Complex 
Orders already trade in one cent increments, as would the COPIP, no 
benefit would be gained by proposing CPOs for the COPIP. Public 
Customers may submit Complex Orders to the Exchange and Improvement 
Orders to interact with a COPIP.
---------------------------------------------------------------------------

    \45\ See Rule 7150(h).
---------------------------------------------------------------------------

Immediate Execution Prior to the End of a COPIP
    Executions prior to the regular ending time of a COPIP are handled 
substantially the same as in a PIP,\46\ with necessary changes to 
account for differences between Complex Orders and orders on single 
series options instruments. Legging Orders do not apply in a COPIP and 
BOX Book Interests are included as Unrelated Orders in a COPIP.
---------------------------------------------------------------------------

    \46\ See Rule 7150(i) and (j).
---------------------------------------------------------------------------

    In cases where an Unrelated Order is submitted to BOX on the same 
side as the COPIP Order such that it would cause an execution to occur 
prior to the end of the COPIP, the COPIP will be deemed concluded and 
the COPIP Order will be matched as described above.\47\ BOX Book 
Interest will be fully executed at each price level prior to any other 
executions. Specifically, the submission to BOX of a BOX-Top Complex 
Order or Market Complex Order on the same side as a COPIP Order will 
prematurely terminate the COPIP when, at the time of the submission of 
such orders, the best Complex Order or BOX Book Interest is equal to or 
better than the cNBBO on the opposite side of the COPIP Order. The 
submission to BOX of executable BOX Book Interest or an executable 
Limit Complex Order on the same side as a

[[Page 58371]]

COPIP Order will prematurely terminate the COPIP if, (i) at the time of 
submission of the Limit Complex Order, the Limit Complex Order price is 
equal to or better than cNBBO, and BBO on the Complex Order Book or 
cBBO is equal to or better than the cNBBO, on the opposite side of the 
market or (ii) at the time of submission of the BOX Book Interest, the 
BOX Book Interest is executable against the Complex Order Book. 
Following the conclusion of the COPIP, any remaining Improvement Orders 
are cancelled, any remaining non-Improvement Orders are filtered 
pursuant to Rule 7240(b)(3)(iii) and any remaining BOX Book Interest is 
filtered pursuant to Rule 7130(b).\48\
---------------------------------------------------------------------------

    \47\ Execution rules are set forth in proposed Rule 7245(f)(3).
    \48\ See proposed Rule 7245(h).
---------------------------------------------------------------------------

Example 8: Early Termination of COPIP Due to Unrelated Order on Same 
Side as COPIP Order

Example 8(a)

    For example, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The 
COPIP Order is opposite the Participant's Primary Improvement Order. 
The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    During the COPIP, two competing Improvement Orders are received: 
One Improvement Order to buy 30 A+B at $2.05 and one Improvement Order 
to buy 50 A+B at $2.03. The Primary Improvement Order has improved to 
$2.03. Also, the BOX Book Interest changes to 40 A+B at $2.03. The 
orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.05
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
BOX Book Interest to sell 10 at $2.10
Improvement Order to buy 50 at $2.03
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, the BOX Book Interest changes to 
sell 5 A+B at $2.05. Because the BOX Book Interest could execute 
against the Improvement Order to buy 30 A+B at $2.05, the COPIP instead 
terminates early and executes.
    The allocation of Strategies for execution with the COPIP Order to 
sell 100 A+B upon the early termination of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 100 A+B:

Improvement Order to buy 30 at $2.05
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 30 at $2.03

    The BOX Book Interest to sell 5 A+B at $2.05 caused the COPIP to 
terminate early \49\ and cannot execute because it is on the same side 
as the COPIP Order and, after early termination and execution of the 
COPIP, no executable buy-side interest at that price exists. As a 
result, the BOX Book Interest is entered on the Complex Order Book as 
an Implied Order. The Complex Order Book for Strategy A+B then is as 
follows:
---------------------------------------------------------------------------

    \49\ The Exchange proposes that an Unrelated Order on the same 
side as the COPIP Order would cause the COPIP auction to terminate 
early. Because the COPIP auction already was in progress before the 
Unrelated Order arrived on BOX, the Exchange proposes that the COPIP 
order be executed first. The Exchange notes that this proposed 
process is the same as the process in the PIP. See Rule 7150(i).
---------------------------------------------------------------------------

Complex Order Book for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
Implied Order to sell 5 at $2.05
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.05 offered.

Example 8(b):

    Alternatively, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The 
COPIP Order is opposite the Participant's Primary Improvement Order. 
The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00 BOX
Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    During the COPIP, the BOX Book Interest changes to buy 20 A+B at 
$2.02. The Primary Improvement Order has improved to $2.02. The orders 
for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.02
COPIP Order to sell 100
BOX Book Interest to buy 20 at $2.02
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, two competing Improvement Orders 
are received: One Improvement Order to buy 10 A+B at $2.05 and one 
Improvement Order to buy 15 A+B at $2.03. Also, the BOX Book Interest 
changes to buy 40 A+B at $2.03. The orders for Strategy A+B then are as 
follows:

Orders for Strategy A+B:

Improvement Order to buy 10 at $2.05
COPIP Order to sell 100
Improvement Order to buy 15 at $2.03
BOX Book Interest to sell 10 at $2.10
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 100 at $2.02
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, the BOX Book Interest changes to 
sell 5 A+B at $2.05. Because the BOX Book Interest to sell 5 A+B at 
$2.05 could execute against the Improvement Order to buy 10 A+B at 
$2.05, the COPIP instead terminates early and executes.
    The allocation of Strategies for execution with the COPIP Order to 
sell 100 A+B at the early termination of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 100 A+B:

Improvement Order to buy 10 at $2.05
BOX Book Interest to buy 40 at $2.03
(at this point, the next best available BOX Book Interest is to buy 20 
at $2.02)
Improvement Order to buy 15 at $2.03
BOX Book Interest to buy 20 at $2.02
(at this point, the next best available BOX Book Interest is to buy 10 
at $2.00)
Primary Improvement Order to buy 15 at $2.02

    The BOX Book Interest to sell 5 A+B at $2.05 caused the COPIP to 
terminate early \50\ and cannot execute because it is on the same side 
as the COPIP Order and, after early termination and

[[Page 58372]]

execution of the COPIP, no executable buy-side interest at that price 
exists. As a result, the BOX Book Interest is entered on the Complex 
Order Book as an Implied Order. The Complex Order Book for Strategy A+B 
then is as follows:
---------------------------------------------------------------------------

    \50\ The Exchange proposes that an Unrelated Order on the same 
side as the COPIP Order would cause the COPIP auction to terminate 
early. Because the COPIP auction already was in progress before the 
Unrelated Order arrived on BOX, the Exchange proposes that the COPIP 
order be executed first. The Exchange notes that this proposed 
process is the same as the process in the PIP. See Rule 7150(i).
---------------------------------------------------------------------------

Complex Order Book for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 5 at $2.05
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.05 offered.
* * * * *
    In cases where an Unrelated Order that is a non-Improvement Order 
is submitted to BOX on the opposite side of the COPIP order, such that 
it would cause an execution to occur prior to the end of the COPIP, the 
non-Improvement Order will be immediately executed against the COPIP 
Order up to the lesser of the size of the COPIP Order or the size of 
the non-Improvement Order, at a price equal to either: (i) At least one 
penny better than the cBBO, if the cBBO on the opposite side of the 
market from the non-Improvement Order is equal to or better than the 
cNBBO at the time of execution; or (ii) the cNBBO. Specifically, a BOX-
Top Complex Order or a Market Complex Order on the opposite side of a 
COPIP Order will immediately execute against the COPIP Order when, at 
the time of the submission of such Complex Order, the best Improvement 
Order does not cross the cNBBO on the same side of the market as the 
COPIP Order. The submission to BOX of an executable Limit Complex Order 
on the opposite side of a COPIP Order will immediately execute against 
a COPIP Order when the Limit Complex Order price is equal to or crosses 
any of the cNBBO, cBBO or BBO on the Complex Order Book for the 
Strategy.\51\ In cases where an Unrelated Order that is a BOX Book 
Interest exists on the opposite side of the COPIP order, such that it 
would cause an execution to occur prior to the end of the COPIP, the 
BOX Book Interest will immediately be executed against the COPIP Order 
up to the lesser of the size of the COPIP Order or the size of the BOX 
Book Interest, at a price equal to the BOX Book Interest price.\52\ The 
remainder of the Unrelated Order, if any, will be filtered according to 
the existing Complex Order filter rules.\53\ The remainder of the COPIP 
Order, if any, will be executed at the conclusion of the COPIP as 
described above.\54\ Following the conclusion of the COPIP, any 
remaining Improvement Orders are cancelled.\55\
---------------------------------------------------------------------------

    \51\ See proposed Rule 7245(i)(1).
    \52\ See proposed Rule 7245(i)(2).
    \53\ See Rule 7240(b)(3)(iii) for existing Complex Order filter 
rules.
    \54\ Execution rules are set forth in proposed Rule 7245(f)(3).
    \55\ See proposed Rule 7245(i)(3).
---------------------------------------------------------------------------

Example 9: Immediate Execution of Unrelated Order Opposite COPIP Order

Example 9(a):

    For example, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
Exposed \56\ Complex Order to sell 10 at $2.08
---------------------------------------------------------------------------

    \56\ An ``exposed'' Complex Order is a Complex Order that is in 
the process of being exposed to Participants pursuant to Rule 
7240(b)(3)(iii) prior to being entered on the Complex Order Book. 
Pursuant to Rule 7240(c), Legging Orders are not generated from 
Complex Orders during the exposure period.
---------------------------------------------------------------------------

Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The 
COPIP Order is opposite the Participant's Primary Improvement Order. 
The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at $2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10

    During the COPIP, two competing Improvement Orders are received: 
One Improvement Order to buy 30 A+B at $2.04 and one Improvement Order 
to buy 50 A+B at $2.03. The Primary Improvement Order to buy 100 A+B 
has improved to $2.03. Also, the BOX Book Interest changes to buy 40 
A+B at $2.03. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, the BOX Book Interest changes to 
buy 8 A+B at $2.08. Because this BOX Book Interest is executable 
against the exposed Complex Order to sell 10 at $2.08, the BOX Book 
Interest to buy 8 A+B immediately executes against the COPIP Order to 
sell 10 and the COPIP continues.
    The orders for Strategy A+B at the end of the COPIP then are as 
follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 92
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 32 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Note: If the BOX Book had changed to reflect BOX Book Interest to 
buy a quantity of 100 A+B at $2.04, the BOX Book Interest would have 
immediately executed against the COPIP Order in full and the COPIP 
would have terminated.

Example 9(b):

    For example, suppose the Complex Order Book for Strategy A+B is 
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at $2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
cNBBO is $2.00 bid, $2.10 offered.

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The 
COPIP Order is opposite the Participant's Primary Improvement Order. 
The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at $2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10

    During the COPIP, two competing Improvement Orders are received: 
One Improvement Order to buy 30 A+B at $2.04 and one Improvement Order 
to buy 50 A+B at $2.03. The Primary Improvement Order has improved to 
$2.03. Also, the BOX Book Interest changes to buy 40 A+B at $2.03. The 
orders for Strategy A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03

[[Page 58373]]

BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, a Complex Order to buy 8 A+B at 
$2.08 is received. Because the Complex Order is executable against the 
exposed Complex Order to sell 10 A+B at $2.08, the Complex Order to buy 
8 A+B at $2.08 immediately executes against the COPIP Order at $2.07 
and the COPIP then continues.\57\
---------------------------------------------------------------------------

    \57\ This operation is consistent with the existing PIP auction 
mechanism (see Rule 7150(j)) and execution at $2.07 is consistent 
with Rule 7240(b)(2).
---------------------------------------------------------------------------

    The orders for Strategy A+B at the end of the COPIP then are as 
follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 92
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Note: If the BOX Book had changed to reflect BOX Book Interest to 
buy a quantity of 100 A+B at $2.04, the BOX Book Interest would have 
immediately executed against the COPIP Order in full and the COPIP 
would have terminated.
* * * * *
Improvement Orders
    Improvement Orders on a COPIP are treated substantially the same as 
the Exchange's existing PIP \58\ with necessary changes to account for 
differences between Complex Orders and orders on single series options 
instruments. Improvement Orders must be submitted in increments no 
smaller than one penny. Improvement Orders will be broadcast via the 
HSVF, but will not be disseminated to OPRA.\59\
---------------------------------------------------------------------------

    \58\ See Rule 7150(k).
    \59\ See proposed Rule 7245(j).
---------------------------------------------------------------------------

    Generally, Improvement Orders may not be executed unless the price 
is equal to or better than the cNBBO at the commencement of the COPIP. 
An exception to this rule occurs where an Exchange Official determines 
that quotes from one or more particular markets in one or more classes 
of options are not reliable, the Exchange Official may direct the 
senior person in charge of the BOX MOC to exclude the unreliable quotes 
from the Improvement Period determination of the cNBBO for Complex 
Order Strategies of which such option class(es) are a component. The 
Exchange Official may determine quotes in one or more particular 
options classes in a market are not reliable only in the following 
circumstances: (i) Quotes Not Firm: A market's quotes in a particular 
options class are not firm based upon direct communication to the 
Exchange from the market or the dissemination through OPRA of a message 
indicating that disseminated quotes are not firm; (ii) Confirmed Quote 
Problems: A market has directly communicated to the Exchange or 
otherwise confirmed that the market is experiencing systems or other 
problems affecting the reliability of its disseminated quotes. An 
exception to the general rule also occurs where the away options 
exchange posting orders on a single option series comprising the cNBBO 
is conducting a trading rotation in that options class.\60\
---------------------------------------------------------------------------

    \60\ See proposed Rule 7245(k).
---------------------------------------------------------------------------

    As in the PIP,\61\ the Exchange's Trading Host will not accept 
Improvement Orders that lock or cross the Complex Order Book on the 
same side of the market as the COPIP Order.\62\
---------------------------------------------------------------------------

    \61\ See IM-7150-4.
    \62\ See proposed IM-7245-4.
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COPIP Trading Conduct
    As with the PIP,\63\ the Exchange proposes to prohibit conduct 
inconsistent with just and equitable principles of trade related to a 
COPIP. It is proposed that it be considered conduct inconsistent with 
just and equitable principles of trade for any Initiating Participant 
to engage in a pattern of conduct where the Initiating Participant 
submits Primary Improvement Orders into the COPIP process for two 
Strategies or less for the purpose of manipulating the COPIP process in 
order to gain a higher allocation percentage than the Initiating 
Participant would have otherwise received in accordance with the 
proposed allocation procedures. It is proposed that it be considered 
conduct inconsistent with just and equitable principles of trade for 
any Participant to submit a non-Improvement Order, or an order that 
results in the generation of an Unrelated Order, to BOX for the purpose 
of disrupting or manipulating the COPIP process.\64\
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    \63\ See IM-7150-2.
    \64\ See proposed IM-7245-2.
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Overlapping Auctions
    The Exchange proposes to prohibit multiple auctions of the same 
type, which is substantially the same as in its PIP rules.\65\ A COPIP 
will not run simultaneously with another COPIP in the same Complex 
Order Strategy, nor will COPIPs interact, queue or overlap in any 
manner. Any request to initiate a COPIP while a COPIP is already in 
progress in the same Strategy will be rejected.\66\
---------------------------------------------------------------------------

    \65\ See IM-7150-3.
    \66\ See proposed IM-7245-3.
---------------------------------------------------------------------------

    Upon adoption of the proposal, the Exchange will operate price 
improvement auctions in both single options series and Complex Orders. 
The Exchange proposes that BOX will accept, however, orders designated 
for the PIP on a single option series where a COPIP on a Complex Order 
Strategy that includes such series may be in progress. BOX will also 
accept Complex Orders designated for the COPIP where a PIP on either of 
the component series may be in progress.\67\ Order execution at the 
conclusion of such PIPs will occur as described in the PIP rules \68\ 
and Complex Order execution at the conclusion of such COPIPs will occur 
as set forth in the proposed Rule 7245.\69\
---------------------------------------------------------------------------

    \67\ Exchange rules governing events occurring during permitted, 
simultaneous auctions are clear. Processes on the BOX system are 
sequential, which prevents any two orders (including PIP Orders and 
COPIP Orders) from having the same time stamp. Each order is 
processed in accordance with Exchange rules without race conditions.
    \68\ PIP execution rules are set forth in Rule 7150.
    \69\ See proposed IM-7245-3.
---------------------------------------------------------------------------

COPIP Pilot Program
    The Exchange proposes a COPIP Pilot Program during the initial 
period of the COPIP's operation. During the COPIP pilot period, the 
Exchange proposes to provide certain information, periodically as 
required by the Commission, to provide supporting evidence that, among 
other things, there is meaningful competition for all size COPIP 
orders, that there is significant price improvement for all orders 
executed through the COPIP and that an active and liquid market is 
functioning on BOX outside of the COPIP mechanism. Any data submitted 
to the Commission by the Exchange will be provided on a confidential 
basis.\70\ The Pilot Period is proposed to expire on July 18, 2014 and 
will be substantially similar to the pilot period currently in place 
with respect to the existing PIP.\71\
---------------------------------------------------------------------------

    \70\ See proposed IM-7245-1.
    \71\ See IM-7150-1.
---------------------------------------------------------------------------

    To aid the Commission in its evaluation of the COPIP Pilot Program, 
the Exchange proposes to provide the following information each month: 
(1) The number of orders of 50 Strategies or greater entered into the 
COPIP; (2) the percentage of all orders of 50 Strategies or greater 
submitted to the Exchange that are entered into the COPIP; (3) the 
spread, at the time a Complex Order of

[[Page 58374]]

50 Strategies or greater is submitted to the COPIP; (4) the percentage 
of COPIP trades executed at cNBBO, plus $.01, plus $.02, plus $.03, 
etc.; and (5) the number of COPIP Orders submitted by OFPs when the 
spread was at a particular increment (e.g., $.05, $.10, $.15, etc.). 
Also, with respect to item 5 above, for each spread increment, the 
Exchange proposes to provide the percentage of orders of fewer than 50 
Strategies submitted to the COPIP that were traded: (a) By the OFP that 
submitted the order to the COPIP; (b) by a BOX Participant other than 
the OFP that submitted the order to the COPIP; (c) by a Public 
Customer; and (d) as an Unrelated Order. Additionally, for each spread 
increment, the Exchange proposes to provide the percentage of orders of 
50 Strategies or greater submitted to the COPIP that were traded: (a) 
By the OFP that submitted the order to the COPIP; (b) by a BOX 
Participant other than the OFP that submitted the order to the COPIP; 
(c) by a Public Customer; and (d) as an Unrelated Order.
    The Exchange further proposes to provide, for the first and third 
Wednesday of each month: (a) The total number of COPIP auctions on that 
date; (b) the number of COPIP auctions where the order submitted to the 
COPIP was fewer than 50 Strategies; (c) the number of COPIP auctions 
where the order submitted to the COPIP was 50 Strategies or greater; 
(d) the number of COPIP auctions where the number of Participants 
(excluding the Initiating Participant) was each of zero, one, two, 
three, four, etc.
    Finally, during the COPIP pilot period, the Exchange proposes to 
provide information each month with respect to situations in which the 
COPIP is terminated prematurely or in which a Market Order, Limit 
Order, BOX-Top Order or BOX Book Interest immediately execute with a 
COPIP Order before the conclusion of the COPIP. The following 
information is proposed to be provided: (1) The number of times that a 
Market Order, Limit Order, BOX-Top Order or BOX Book Interest on the 
same side of the market as the COPIP Order prematurely terminated the 
COPIP, and (a) the number of times such orders were entered by the same 
(or affiliated) firm that initiated the COPIP that was terminated, and 
(b) the number of times such orders were entered by a firm (or an 
affiliate of such firm) that participated in the execution of the COPIP 
Order; (2) For the orders addressed in each of (1)(a) and (1)(b) above, 
the percentage of COPIP premature terminations due to the receipt, 
during the COPIP, of a Market Order, Limit Order, BOX-Top Order or BOX 
Book Interest on the same side of the market as the COPIP Order; and 
the average amount of price improvement provided to the COPIP Order 
where the COPIP is prematurely terminated; (3) the number of times that 
a Market Order, Limit Order, BOX-Top Order or BOX Book Interest on the 
opposite side of the market as the COPIP Order immediately executed 
against the COPIP Order, and (a) the number of times such orders were 
entered by the same (or affiliated) firm that initiated the COPIP, and 
(b) the number of times such orders were entered by a firm (or an 
affiliate of such firm) that participated in the execution of the COPIP 
Order; (4) for the orders addressed in each of (3)(a) and (3)(b) above, 
the percentage of COPIP early executions due to the receipt, during the 
COPIP, of a Market Order, Limit Order, BOX-Top Order or BOX Book 
Interest on the opposite side of the market as the COPIP Order; and the 
average amount of price improvement provided to the COPIP Order where 
the COPIP Order is immediately executed; and (5) the average amount of 
price improvement provided to the COPIP Order when the COPIP runs for 
one hundred milliseconds.
Conforming and Clarifying Changes
    The Exchange proposes to make certain miscellaneous conforming and 
clarifying changes to its rules consistent with the adoption of the 
proposed COPIP rule. These conforming and clarifying changes are 
consistent with the Exchange's treatment of the PIP. Rules 100, 3000, 
7070, 7110, 7130, 7140, 7150, and 7240 are proposed to be amended as 
described below.
    Rule 3000(b) is proposed to be amended to include COPIPs to be 
treated similarly to PIPs for purposes of identifying conduct 
inconsistent with just and equitable principles of trade.
    Rule 7070(a) is proposed to be amended to clarify that COPIP 
Orders, like PIP Orders, are not accepted by the BOX Trading Host 
during the Pre-Opening Phase. Rule 7070(a) is also corrected to reflect 
that Fill and Kill orders are not, and have never been, allowed to 
participate in the Pre-Opening Phase. Participation in the Pre-Opening 
Phase on BOX is entirely voluntary and the inclusion of Fill and Kill 
orders could be disruptive to the calculation of the Theoretical 
Opening Price, which is described in Rule 7070(b).
    Rule 7110(e)(1)(iii)(D) is proposed to be amended to clarify that, 
like PIP Orders, the Session Order duration type is not available for 
COPIP Orders.
    Rule 7130(a) is proposed to be amended to clarify that the HSVF, 
which is made available at no cost to all market participants, includes 
COPIP Order information as set forth in proposed Rule 7245.
    IM-7140-1, IM-7140-2, IM-7140-3 and IM-7140-4 to Rule 7140 are 
proposed to be amended to clarify that COPIPs are treated like PIPs for 
purposes of Rule 7140 regarding the ability of Options Participants to 
act as contra party to their own Customer Orders.
    The proposed amendments to Rule 7150(f) and (k) regarding the PIP 
do not change the operation of the Exchange's system but conform to the 
proposed COPIP rule and clarify that the PIP Broadcast, including 
competing Improvement Orders, are broadcast via the HSVF. Further, IM-
7150-3 to Rule 7150 is proposed to be amended to conform to proposed 
IM-7245-3 to Rule 7245 and to clarify that a PIP on a single option 
series and a COPIP on a Complex Order Strategy that includes such 
series may be conducted simultaneously.
    In order to conform to the new proposed COPIP rules, Rule 
7240(b)(4)(iii) is proposed to be amended to remove the existing 
prohibition on Complex Orders participating in Price Improvement 
Periods and Rule 100(a)(19) is amended to clarify that Directed Orders 
are limited to contracts on single option series.
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''),\72\ in general, and Section 6(b)(5) of the Act,\73\ 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.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78f(b).
    \73\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange proposes to add new BOX Rule 7245 to allow Complex 
Orders to be submitted to the COPIP in substantially the same manner as 
orders for single options series instruments currently are submitted to 
the PIP except as necessary to account for

[[Page 58375]]

distinctions between regular orders on the BOX Book and Complex 
Orders.\74\
---------------------------------------------------------------------------

    \74\ The Exchange notes that the provisions in proposed Rule 
7245 are substantially similar to those in Rule 7150, amended to 
reflect their applicability to a COPIP on a Complex Order Strategy 
as compared to a PIP on orders for single options series 
instruments.
---------------------------------------------------------------------------

    The Exchange believes the proposed COPIP is an improvement over its 
current rules regarding Complex Orders, and will benefit all market 
participants submitting Complex Order to BOX. The Exchange believes 
that this rule filing is reasonable, equitable and not unfairly 
discriminatory to customers and Participants because it follows the 
fundamental principles of the Exchange's existing PIP mechanism \75\ 
and the Exchange's existing Complex Order priority rules,\76\ each of 
which has previously been approved by the Commission. The Exchange 
further believes the proposal is not unfairly discriminatory because 
the benefits of the proposed COPIP on BOX, like the PIP, are equally 
available to all Participants.
---------------------------------------------------------------------------

    \75\ See Rule 7150.
    \76\ See Rule 7240(b)(3)(i).
---------------------------------------------------------------------------

    The Exchange believes this proposal will increase opportunities for 
execution of Complex Orders and orders on the BOX Book. Further, the 
Exchange believes the proposed COPIP will provide greater flexibility 
to Participants trading Complex Orders on BOX. The Exchange also 
believes the proposed COPIP will provide additional opportunities for 
Participants to achieve better handling of Complex Orders and result in 
increased opportunities for execution and better pricing. These 
benefits have been realized for orders on single option series under 
its existing PIP mechanism and the same principles are expected to 
transfer readily to Complex Orders. As a result, adopting this proposal 
to allow a COPIP mechanism will promote just and equitable principles 
of trade, foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system
    For purposes of the COPIP, Unrelated Orders are proposed to include 
BOX Book Interest resting on the BOX Book.\77\ The concept of the COPIP 
interacting with BOX Book Interest does not apply to PIP and, 
therefore, is not directly analogous the existing PIP rules. Quotes and 
Legging Orders do not apply to COPIP and, therefore, are not included 
in the proposed COPIP rules. These proposed differences from the 
previously approved PIP provide clarity in the rules and promote just 
and equitable principles of trade.
---------------------------------------------------------------------------

    \77\ See proposed Rule 7245(a).
---------------------------------------------------------------------------

    The proposal requires that Complex Orders on BOX execute first 
against leg orders on the BOX Book, as under the current rules 
applicable to Complex Order execution. In the proposed COPIP, BOX Book 
Interest will execute in priority over Complex Orders at the same price 
\78\ so as to preserve the already established and approved execution 
priority of interest on the BOX Book over Complex Orders.\79\ These 
execution principles allow Complex Orders to interact with the BOX Book 
in a fair way and thereby promote just and equitable principles of 
trade, foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system.
---------------------------------------------------------------------------

    \78\ See proposed Rule 7245(f)(3)(i).
    \79\ The execution priority of interest on the BOX Book over 
Complex Orders is consistent with existing Rule 7240(b)(3)(i).
---------------------------------------------------------------------------

    The proposed COPIP rules differ from the existing PIP rules in 
that, for purposes of calculating the Initiating Participant's priority 
allocation, BOX Book Interests are proposed to be counted as competing 
orders in a COPIP. This treatment is consistent with the existing 
regular interaction of Complex Orders with interest on the BOX 
Book.\80\ This again preserves the already established and approved 
execution priority of interest on the BOX Book over Complex Orders 
while also preserving the incentive function of the Initiating 
Participant's priority allocation as in the existing PIP rules. This 
execution priority is designed to promote just and equitable principles 
of trade, to foster cooperation and coordination with persons engaged 
in facilitating transactions in securities and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.
---------------------------------------------------------------------------

    \80\ See proposed Rule 7245(g)(1) and (2).
---------------------------------------------------------------------------

    Upon adoption of the proposal, the Exchange will operate price 
improvement auctions in both single options series and Complex Orders. 
\81\ As with the PIP, the Exchange will not operate multiple, 
simultaneous COPIPs on the same Strategy. However, the Exchange 
proposes that BOX will accept orders designated for the PIP on a single 
option series where a COPIP on a Complex Order Strategy that includes 
such series may be in progress. BOX will also accept Complex Orders 
designated for the COPIP where a PIP on either of the component series 
may be in progress. Order execution at the conclusion of such PIPs will 
occur as described in the PIP rules \82\ and Complex Order execution at 
the conclusion of such COPIPs will occur as set forth in the proposed 
Rule 7245.\83\ The Exchange believes this simultaneous price 
improvement auction functionality will reduce order cancellation and, 
thereby remove impediments to, and perfect the mechanism of, a free and 
open market and a national market system.
---------------------------------------------------------------------------

    \81\ Exchange rules governing events occurring during permitted, 
simultaneous auctions are clear. Processes on the BOX system are 
sequential, which prevents any two orders (including PIP Orders and 
COPIP Orders) from having the same time stamp. Each order is 
processed in accordance with Exchange rules without race conditions.
    \82\ PIP execution rules are set forth in Rule 7150.
    \83\ See proposed IM-7245-3.
---------------------------------------------------------------------------

    The Exchange proposes that, as in the PIP, when executing Customer 
Complex Orders by way of the COPIP, Options Participants must ensure 
that they comply with all the procedures set forth in these Rules for 
such transactions; that they act with due skill, care and diligence; 
and that the interests of their Customers are not prejudiced.\84\ An 
Options Participant must not use the COPIP process to create a 
misleading impression of market activity (i.e., the facilities may be 
used only where there is a genuine intention to execute a bona fide 
transaction).\85\ These provisions are substantially the same as the 
corresponding rules for the PIP \86\ and are important customer 
protection features that prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade and protect 
investors and the public interest.\87\
---------------------------------------------------------------------------

    \84\ See proposed Rule 7245(c).
    \85\ See proposed Rule 7245(e).
    \86\ See Rule 7150(c), (d) and (e).
    \87\ The proposed COPIP rules are similar to the Exchange's 
existing PIP rules. As a result, the Exchange believes an analysis 
of Section 11(a) of the Securities Exchange Act of 1934 is not 
warranted here.
---------------------------------------------------------------------------

    All market participants are able to receive broadcast notification 
of COPIPs and Improvement Orders via the HSVF. As a result, no 
Participants will have an information advantage and the proposal serves 
to promote just and equitable principles of trade and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system.
    The Exchange proposes to make certain miscellaneous conforming and 
clarifying changes to Rules 100, 3000, 7070, 7110, 7130, 7140, 7150, 
and 7240 to make them consistent with the adoption of the proposed 
COPIP rule. These conforming and clarifying changes are required to 
make the COPIP

[[Page 58376]]

rules consistent with the Exchange's PIP rules and are necessary to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
    For the foregoing reasons, the Exchange believes this proposal is a 
reasonable modification to its rules, designed to facilitate increased 
interaction of Complex Orders on the Exchange, and to do so in a manner 
that ensures a dynamic, real-time trading mechanism that maximizes 
opportunities for trade executions for Complex Orders. The Exchange 
believes it is appropriate and consistent with the Act to adopt the 
proposed rule changes.

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

    The Exchange does not believe the proposed rule change represents 
any undue burden on competition or will impose any burden on 
competition among exchanges in the listed options marketplace not 
necessary or appropriate in furtherance of the purposes of the Act. 
Subject to the priority rules described above, the features of the 
proposed rule change will apply equally to all Participants and are 
available to all Participants.
    Submitting a Complex Order to the COPIP will be entirely voluntary 
and Participants will determine whether they wish to submit COPIP 
Orders to the Exchange. The Exchange operates in a highly competitive 
marketplace with other competing exchanges and market participants can 
readily direct their Complex Order flow to other exchanges if they so 
choose.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2013-43 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-2013-43. 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 on official business days between 
the hours of 10:00 a.m. and 3:00 p.m., located at 100 F Street NE., 
Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal offices 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-2013-43, and should be 
submitted on or before October 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\88\
---------------------------------------------------------------------------

    \88\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23008 Filed 9-20-13; 8:45 am]
BILLING CODE 8011-01-P