Document ID: SEC-2013-0808-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2013-04-29T04:00Z

[Federal Register Volume 78, Number 82 (Monday, April 29, 2013)]
[Notices]
[Pages 25130-25132]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10018]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69429; File No. SR-BOX-2013-21]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 7170 To Clarify That the Exchange May Grant Obvious Error Relief 
in the Event of Unusual Circumstances

April 23, 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 April 18, 2013, BOX Options Exchange LLC (the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7170 (Obvious and Catastrophic 
Errors) to clarify that the Exchange may grant Obvious Error relief in 
the event of unusual circumstances, even if the Market Operations 
Center (``MOC'') of BOX Market LLC (``BOX'') was not notified within 
the time periods prescribed in the 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 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 7170 (Obvious and Catastrophic 
Errors) to clarify that the Exchange has the ability to grant Obvious 
Error relief in the event of unusual circumstances, even if the MOC was 
not notified within the time periods prescribed in the rule. This is a 
competitive filing that is based on the Obvious Error rules of the 
NASDAQ Stock Market LLC (``NOM''), NASDAQ OMX PHLX LLC (``PHLX''), 
Chicago Board Options Exchange (``CBOE''), C2 Options Exchange 
(``C2''), International Securities Exchange (``ISE''), NYSE Arca 
Options (``Arca''), NYSE MKT, LLC (``MKT''), BATS Exchange, Inc. 
(``BATS''), Miami International Securities Exchange LLC

[[Page 25131]]

(``MIAX''), and NASDAQ OMX BX (``BX'').\3\
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    \3\ See NOM Chapter V, Section 6(d), PHLX Rule 1092(e)(i)(A), 
CBOE Rule 6.25(b)(1), C2 Rule 6.15(b)(1), ISE Rule 720(b)(1), NYSE 
Arca Rule 6.87(b)(1), NYSE MKT Rule 975NY(b)(1), BATS Rule 20.6(d), 
MIAX Rule 521(e)(1) and BX Chapter V, Section 6(d).
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    The Obvious Error Rule was developed as part of an industry wide 
effort to address the need to handle errors in a fully electronic 
market where orders are executed automatically before an obvious error 
may be discovered and corrected by participants. The Obvious Error Rule 
assures that one participant is not permitted to receive a wind-fall at 
the expense of another participant that made an obvious error. Rule 
7170 provides the framework and procedures for determining whether a 
transaction was the result of an ``obvious error'' pursuant to 
objective standards. When a market marker (including a BOX Market Maker 
and any transactions sent by a market maker on another exchange where 
the order is designated with a market maker account type on BOX) 
believes that it participated in a transaction that was the result of 
an Obvious Error, it must notify the MOC within five (5) minutes of the 
execution. If a non-Market Maker Options Participant believes an order 
it executed on BOX was the result of an Obvious Error, it must notify 
the MOC within twenty (20) minutes of the execution. Currently, Rule 
7170(g) states that except as provided below, the Exchange will not 
grant relief under this Rule unless notification is made within the 
prescribed time periods.\4\ This exception references Rule 7170(i) 
which states that a party may request that the CRO provide obvious 
error relief in cases where the party failed to provide the 
notification required, but unusual circumstances merit special 
consideration.
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    \4\ See BOX Rule 7170(g)(1).
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    The purpose of this rule change is to amend Rule 7170(g)(1) to make 
it clear that the Exchange does have the flexibility to determine if an 
Obvious Error has occurred even if notification was given outside of 
the prescribed time periods. Specifically, the Exchange proposes to 
amend its Obvious Error Procedure in Rule 7170(g) to state that the 
Exchange may grant relief when notification was not made within the 
prescribed time periods but the transaction occurred under unusual 
circumstances. While this exception is rarely used, it gives the CRO 
the flexibility to look at all the circumstances surrounding the 
Participant's request so that Participants are not adversely affected 
by unforeseen issues that prevented them from notifying the Exchange 
about an erroneous transaction within the allotted time period. For 
example, this rule might allow relief when a broker-dealer believes an 
order was the result of an Obvious Error, but cannot immediately reach 
the customer it represents and is delayed in notifying the Exchange. 
Another possible ``unusual circumstance'' could occur if obvious error 
transactions occurred simultaneously on multiple exchanges and the 
Participant had to separately notify each of these exchanges, and 
therefore was delayed in notifying BOX. This exception could also apply 
when the notification is only slightly outside of the prescribed time 
periods due to a timing conflict.
    The Exchange believes that the proposed rule change is reasonable 
and objective and would serve to enhance the application of the 
Exchange's Obvious Error Rule by making Participants aware that the 
Exchange may grant Obvious Error relief even when they do not notify 
the Exchange in time, if unusual circumstances are present. The 
Exchange believes that the proposed rule change would strengthen its 
Obvious Error Rule because if would ensure that all Options 
Participants are informed about notification exception. This proposed 
rule change would align the Exchange's Obvious Error Procedure rule 
with the Obvious Error Procedure rules currently in place at the other 
exchanges.\5\
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    \5\ See supra, note 3.
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    Additionally, the Exchange proposes to make three non-substantive 
cross-reference corrections to its Obvious Error Rule. Specifically 
Rule 7170(e) (Erroneous Print in Underlying), Rule 7170(g)(2) (Adjust 
or Bust), and Rule 7170(i) (Request for Review) are being amended to 
update an incorrect rule cross-reference.
    This proposal does not seek to substantively change any portion of 
the Exchange's Obvious and Catastrophic Error Rule and is only intended 
to clarify that the Exchange has flexibility when deciding if the 
Options Participant met the notification requirements under the rule. 
If an Options Participant notifies the Exchange about an erroneous 
transaction outside the prescribed time period and the Exchange decides 
that unusual circumstances are present, the Exchange will then use the 
already existing objective criteria outlined in its Obvious and 
Catastrophic Error Rule to determine if relief should be granted.
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''),\6\ in general, and Section 6(b)(4) of the Act,\7\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general to protect investors and the 
public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes that the proposed rule change 
would benefit investors and market participants by aligning the 
Exchange's rule with respect to Obvious Errors with those of other 
exchanges. By creating uniformity with the other exchanges, the 
Exchange believes the proposed rule change will help foster greater 
certainty for market participants trading on multiple exchanges. 
Accordingly, the Exchange believes that the proposed rule change, 
combined with the continued objective nature of the Exchange's process 
for rendering and reviewing trade nullification determinations, is 
consistent with prior guidance from the Commission, is consistent with 
the Exchange Act and is consistent with the maintenance of a fair and 
orderly market and the protection of investors and the public interest.
    Further, the Exchange believes it is appropriate to make these non-
substantive cross-reference corrections to its Obvious Error Rule so 
that Exchange members and investors have a clear and accurate 
understanding of the meaning of the Exchange's rules. By making these 
cross-reference corrections, the Exchange is eliminating any potential 
for confusion about how the Obvious Error Rule operates.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to the Obvious Error rules currently in place at 
the NOM, PHLX, CBOE, C2,

[[Page 25132]]

ISE, Arca, MKT, BATS, MIAX and BX.\8\ The Exchange believes this 
proposed rule change is designed to permit fair competition among the 
options exchanges and to establish uniform rules regarding the 
treatment of erroneous transactions. Specifically, this proposal will 
promote investor certainty by clarifying that the Exchange has the 
ability to grant relief, even when [sic] has not been notified within 
the time periods prescribed in the rule.
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    \8\ See supra, note 3.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) 
\10\ thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-2013-21 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-2013-21. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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-2013-21 and should be 
submitted on or before May 20, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Elizabeth M. Murphy,
Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-10018 Filed 4-26-13; 8:45 am]
BILLING CODE 8011-01-P