Document ID: SEC-2019-1814-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2019-12-03T05:00Z

[Federal Register Volume 84, Number 232 (Tuesday, December 3, 2019)]
[Notices]
[Pages 66253-66255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26159]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87637; File No. SR-BOX-2019-33]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Add IM-7620-1 
(Sub-Penny Cabinet) To Allow Transactions To Take Place at a Price That 
is Below $1 per Option Contract

November 27, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 13, 2019, BOX Exchange LLC (the ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add IM-7620-1 (Sub-Penny Cabinet) to allow 
transactions to take place at a price that is below $1 per option 
contract. The text of the proposed rule change is available from the 
principal office of the Exchange, at the Commission's Public Reference 
Room and also on the Exchange's internet website at http://boxoptions.com.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to add Rule IM-7620-1 
(Sub-Penny Cabinet) to allow transactions to take place at a price that 
is below $1 per option contract. An ``accommodation'' or ``cabinet'' 
trade refers to trades in listed options on the Exchange that are 
worthless or not actively traded. Cabinet trading is conducted in 
accordance with the Exchange Rule 7620 which sets forth the terms and 
conditions for engaging in cabinet trades. Currently, a cabinet order 
is defined as a closing limit order at a price of $1 per option 
contract for the account of a customer or Floor Market Maker. In 
certain cases opening orders \3\ may be matched with a cabinet 
order.\4\ Only Floor brokers may represent cabinet orders on the BOX 
Trading Floor. Cabinet transactions occur via open outcry at a cabinet 
price of $1 per option contract in any options series open for trading 
in the Exchange. Once the cabinet order has been either crossed or 
matched, the Floor Broker must submit the designated cabinet form as 
soon as possible but no later than the close of business that trading 
day. Cabinet order transactions are reported as late trades on the 
Exchange.\5\
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    \3\ The Exchange notes an ``opening order'' is a contra-side 
opening order in response to a Customer who submits a closing order 
to clear their position.
    \4\ See BOX Rule 7620(c), (d), and (e).
    \5\ The Exchange notes there have been no issues in processing 
and clearing cabinet trade transactions since Rule 7620 has been 
implemented.
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    The purpose of this rule change is to add Rule IM-7620-1 to allow 
for transactions to take place in open outcry at a price of at least $0 
but less than $1 per option contract (``sub-penny cabinet orders''). 
These lower priced transactions would be traded pursuant to the same 
procedures applicable to $1 cabinet trades, except that (i) bids and 
offers for opening transactions would only be permitted to accommodate 
closing transactions in order to limit use of the procedure to 
liquidations of existing positions, and (ii) the procedures would also 
be made available for trading in option classes participating in the 
Penny Pilot

[[Page 66254]]

Program.\6\ The Exchange notes that the rule proposal is consistent 
with cabinet trading rules of other exchanges, previously approved by 
the Commission,\7\ and supports the purpose of cabinet trading by 
facilitating liquidations of worthless or inactive positions. The 
Exchange believes that allowing sub-penny cabinet orders will better 
accommodate the closing of options positions in series that are 
worthless or not actively traded, particularly due to market conditions 
which may result in a significant number of series being out-of-the-
money. For example, a market participant might have a long position in 
a call series with a strike price of $100 and the underlying stock 
might now be trading at $30. In such a case, there might not otherwise 
be a market for that person to close-out its position even at the $1 
cabinet price (e.g., the series might be quoted no bid).
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    \6\ The $1 cabinet trading procedures are not available in Penny 
Pilot Program classes because in those classes an option series can 
trade in a standard increment as low as $0.01 per share (or $1.00 
per option contract with a 100 share multiplier). Because this 
proposal would allow trading below $0.01 per share (or $1.00 per 
option contract with a 100 share multiplier), the procedures would 
be made available for all classes, including those classes 
participating in the Penny Pilot Program.
    \7\ See, e.g., NYSE Arca Options Commentary .01 to Rule 6.80-O; 
and NASDAQ Phlx Options 8, Sec. 33(d).
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    As with other cabinet trades, all transactions for less than $1 
must be reported to the Exchange no later than the close of business 
each day. The Exchange represents that there would be no operational 
issues in processing and clearing sub-penny cabinet trades. The 
Exchange does not believe that the Options Clearing Corporation 
(``OCC'') will have any operational issues with processing sub-penny 
cabinet trades, as they will be reported to and submitted by the 
Exchange like all other cabinet trades. Additionally, the Exchange 
notes that because sub-penny cabinets will be reported and processed 
like all other cabinet trades, market participants will not be impacted 
nor have to take on any additional reporting or processing burden.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\8\ in general, and Section 
6(b)(5) of the Act,\9\ in particular, in that sub-penny cabinet trades 
will promote just and equitable principles of trade, remove impediments 
to and perfect the mechanism of a free and open market, by allowing all 
market participants to submit and execute accommodation transactions at 
a price that is below $1 per option contract. Specifically, the rule 
proposal will offer market participants additional opportunities to 
trade away unwanted worthless option positions priced even lower than 
current cabinet trades. The Exchange believes this will help remove 
impediments to and better provides a free and open market because it 
facilitates the closing of options positions that are worthless or not 
actively traded. Additionally, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) \10\ requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers, because all market 
participants may avail themselves of sub-penny cabinet orders.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    The proposed rule does not propose to implement new or unique 
functionality that has not been previously filed with the Commission, 
found to be consistent with the Act, or is not available on other 
exchanges. The proposed change facilitates transactions in securities 
by ensuring that the rule covers cabinet trades in all series, not only 
those with a price of $1 per option contract. The Exchange also 
believes that the proposed change will protect investors because there 
would be no operational issues in processing and clearing sub-penny 
cabinet trades because sub-penny cabinet trades would be reported to 
the Exchange and submitted to the OCC like current cabinet trades. 
Additionally, because sub-penny cabinets will be reported and processed 
like all other cabinet trades, market participants will not be impacted 
nor have to take on any additional reporting or processing burden. As 
such, BOX believes the proposed rule change protects investors, and is 
therefore, consistent with the Act.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
liquidation trades promote competition and afford market participants 
the opportunity to close out their worthless options positions. The 
Exchange does not believe the proposed rule change will impose any 
burden on intramarket competition because the proposed sub-penny 
cabinet orders will be available to all market participants to execute 
in the same manner as they execute cabinet orders currently. The 
Exchange also does not believe that the proposed rule change will 
impose any burden on intermarket competition. As discussed above, the 
basis for the proposed rule change regarding sub-penny cabinets are the 
rules of other options exchanges, which have already been found 
consistent with the Act and approved by the Commission.\11\ In addition 
to this, other exchanges have substantially similar rules regarding 
sub-penny cabinet trading.\12\
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    \11\ See supra note 7.
    \12\ See id.
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    As such, the Exchange does not believe that the proposed rule 
change will impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

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

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay. The 
Exchange notes

[[Page 66255]]

that sub-penny cabinet orders are already allowed on other exchanges 
and that waiver of the operative delay would permit the Exchange to 
compete for sub-penny cabinet order flow. As the proposal raises no 
novel issues, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Accordingly, the Commission waives the 30-day operative delay 
and designates the proposed rule change operative upon filing.\17\
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BOX-2019-33 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BOX-2019-33. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BOX-2019-33 and should be submitted on 
or before December 24, 2019.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26159 Filed 12-2-19; 8:45 am]
 BILLING CODE 8011-01-P