Document ID: SEC-2019-1798-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2019-12-02T05:00Z

[Federal Register Volume 84, Number 231 (Monday, December 2, 2019)]
[Notices]
[Pages 66049-66051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25961]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87613; File No. SR-BOX-2019-24]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule 
7600

November 25, 2019.

I. Introduction

    On August 8, 2019, BOX Exchange LLC (``BOX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Act of 1934 (``Act'') \1\ and 
Rule 19b-4 thereunder,\2\ a proposed rule change to amend BOX Rule 7600 
to permit split-price priority for Complex Qualified Open Outcry 
(``QOO'') Orders and multi-leg QOO Orders.\3\ The proposed rule change 
was published for comment in the Federal Register on August 27, 
2019.\4\ On October 9, 2019, pursuant to Section 19(b)(2) of the 
Act,\5\ the Commission extended to November 25, 2019, the time within 
which to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to approve or 
disapprove the proposed rule change.\6\ The Commission received no 
comment letters regarding the proposed rule change. On November 21, 
2019, BOX submitted Amendment No. 1 to the proposed rule change.\7\ 
Amendment No. 1 replaces and supersedes the original filing in its 
entirety. The Commission is publishing this notice to solicit comment 
on Amendment No. 1 to the proposed rule change from interested persons 
and is approving the proposed rule change, as modified by Amendment No. 
1, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ A QOO Order is a two-sided order that a Floor Broker submits 
to the BOX Trading Host for execution. QOO Orders include Complex 
Orders, as defined in BOX Rule 7240(a)(7) (``Complex QOO Orders''), 
and multi-leg orders that are not Complex Orders (``multi-leg QOO 
Orders''). Multi-leg QOO Orders must involve the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, for the same account, and for the purpose 
of executing a particular investment strategy. See BOX Rules 
7600(a)(4) and (c). A QOO Order has an initiating side and a contra 
side. The initiating side must be filled in its entirety, and the 
contra-side must guarantee the full size of the initiating side of 
the QOO Order and may provide book sweep size, as provided in BOX 
Rule 7600(h). See BOX Rule 7600(a)(1).
    \4\ See Securities Exchange Act Release No. 86723 (August 21, 
2019), 84 FR 44954 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 87266, 84 FR 55351 
(October 16, 2019).
    \7\ Amendment No. 1 revises the proposal to: (1) Add a paragraph 
to BOX Rule 7600(h) to describe the operation of book sweep size for 
Complex QOO Orders and multi-leg QOO Orders; (2) delete proposed BOX 
Rule 7600(i)(1)(i), which would have permitted split-price priority 
for Complex QOO and multi-leg QOO Orders with fewer than 100 
contracts on each component leg of the order; (3) modify proposed 
BOX Rule 7600(i)(3) to make clear that split-price priority is 
available for Complex QOO and multi-leg QOO orders with at least 100 
contracts on each component leg of the order and indicate that a 
Floor Participant must trade 50 or more contracts of each component 
leg of the Complex QOO or multi-leg QOO Order in a permissible ratio 
at a price that complies with the priority requirements of BOX Rule 
7600(c) to obtain split-price priority; (4) delete a sentence from 
proposed BOX Rule 7600(i)(3) indicating that a Complex QOO or multi-
leg QOO Order would have priority over all orders and quotes on the 
BOX Book and the Complex Order Book; (5) amend proposed BOX Rule 
7600(i)(3)(i) and (ii) to more clearly describe the availability of 
split-price priority when the width of a quote for a strategy is 
$0.01 based on interest in the Complex Order Book; and (6) modify 
examples and provide additional examples demonstrating the operation 
of the proposed functionality.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    BOX currently provides split-price priority for QOO Orders 
comprised of a single option series.\8\ BOX proposes to amend BOX Rule 
7600(i) to permit split-price priority for Complex QOO Orders and 
multi-leg QOO Orders.\9\ Split-price priority will be available only 
for open outcry transactions.\10\ Under proposed BOX Rule 7600(i)(3), 
if an order or offer (bid) of a Complex QOO Order or multi-leg QOO 
Order with at least 100 contracts on each leg of the order is 
represented to the trading crowd, a Floor Participant that buys (sells) 
50 or more contracts of each component leg at the permissible ratio of 
the Complex QOO Order or multi-leg QOO Order or offer (bid) at one 
price that complies with the priority requirements in BOX Rule 7600(c) 
will have priority over all other orders and quotes to buy (sell) up to 
the same number of contracts of those remaining from the same order or 
offer (bid) at the next lower (higher) price.\11\ To obtain split-price 
priority, a Floor Participant must make its bid (offer) at the next 
lower (higher) price for the second (or later) transaction at the same 
time as the first bid (offer) or promptly following the announcement of 
the first

[[Page 66050]]

(or earlier) transaction.\12\ The second (or later) purchase (sale) 
must represent the opposite side of a transaction with the same order 
or offer (bid) as the first (or earlier) purchase (sale).\13\
---------------------------------------------------------------------------

    \8\ See BOX Rule 7600(i).
    \9\ See proposed BOX Rule 7600(i)(3).
    \10\ See proposed BOX Rule 7600(i)(5)(i).
    \11\ See proposed BOX Rule 7600(i)(3) and Amendment No. 1.
    \12\ See proposed BOX Rule 7600(i)(5)(ii).
    \13\ See proposed BOX Rule 7600(i)(5)(iii).
---------------------------------------------------------------------------

    Split-price priority will not be available under certain 
circumstances. If the width of the quote for a strategy is $0.01 based 
on interest in the Complex Order Book, and both the bid and offer 
represent Implied Orders or Public Customer Complex Orders resting in 
the Complex Order Book (e.g., an Implied Order \14\ bidding $2.00 for a 
strategy and a Public Customer offering $2.01 for the strategy), split-
price priority pursuant will not be available to a Floor Participant 
until the Implied Order or the Public Customer Complex Order resting in 
the Complex Order Book on either side of the market trades or is 
cancelled.\15\ If the width of the quote for the strategy is $0.01 
based on interest in Complex Order Book, and the bid and the offer do 
not represent Implied Orders or Public Customer Complex Orders, split 
price priority will be available subject to BOX Rule 7600(c).\16\
---------------------------------------------------------------------------

    \14\ An Implied Order is a Complex Order at or within the 
Extended cNBBO (as defined in BOX Rule 7240(a)(5), derived from the 
orders at the BBO on the BOX Book for each component leg of a 
Strategy. See BOX Rule 7240(d)(1).
    \15\ See proposed BOX Rule 7600(i)(3)(i) and Amendment No. 1.
    \16\ See proposed BOX Rule 7600(i)(3)(ii) and Amendment No. 1.
---------------------------------------------------------------------------

    The proposal also amends BOX Rule 7600(h) to allow, but not 
require, a Floor Broker to provide a book sweep size for Complex QOO 
and multi-leg QOO Orders.\17\ The book sweep size is the number of 
contracts, if any, of the initiating side of the Complex QOO Order that 
the Floor Broker is willing to relinquish to orders and quotes on the 
BOX Complex Order Book and the BOX Book that have priority pursuant to 
BOX Rule 7240(b)(2) and (3).\18\ If the number of contracts on the BOX 
Complex Order Book or BOX Book that have priority over the contra-side 
order is greater than the book sweep size, the Complex QOO Order or 
multi-leg QOO Order will be rejected.\19\ If the number of contracts on 
the BOX Complex Order Book or BOX Book that have priority over the 
contra-side order is less than or equal to the book sweep size, then 
the Complex QOO Order or multi-leg QOO Order will execute.\20\
---------------------------------------------------------------------------

    \17\ See proposed BOX Rule 7600(h) and Amendment No. 1.
    \18\ See id.
    \19\ See id.
    \20\ See id.
---------------------------------------------------------------------------

    BOX notes that another options exchange with a physical trading 
floor currently offers split-price priority for complex orders.\21\
---------------------------------------------------------------------------

    \21\ See Notice, 84 FR at 44954, n.4, and Nasdaq PHLX LLC 
Options 8 Floor Trading Rules, Section 22(a)(2)(D)(ii).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\22\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\23\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, 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.
---------------------------------------------------------------------------

    \22\ In approving this proposed rule change, as modified by 
Amendment No. 1, the Commission notes that it has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Under the proposal, split-price priority will be available only for 
Complex QOO and multi-leg QOO Orders with at least 100 contracts on 
each component leg of the order.\24\ The Commission believes that 
permitting split-price priority for these orders could help to 
facilitate the execution of Complex QOO and multi-leg QOO Orders which, 
because of their size, may be executed at multiple prices. To obtain 
split-price priority, a Floor Broker would be required to execute at 
least 50 contracts of each component leg of the Complex QOO or multi-
leg QOO Order at the permissible ratio at a price that complies with 
the priority requirements in BOX Rule 7600(c).\25\ The Commission notes 
that these requirements are consistent with split-price priority 
requirements for single-leg QOO orders of 100 or more contracts.\26\ 
The Commission believes that the proposed book sweep functionality for 
Complex QOO and multi-leg QOO Orders would protect the priority of 
resting interest and provide additional execution opportunities for 
such interest by allowing, but not requiring, a Floor Broker to 
relinquish contracts from the initiating side to trading interest on 
the Complex Order Book and the BOX Book that has priority over the 
contra-side order.\27\ The proposal also protects resting interest by 
providing that split-price priority will not be available when the 
width of a quote for a strategy is $0.01 based on interest on the 
Complex Order Book and both the bid and offer represent Implied Orders 
or Public Customer Complex Orders.\28\
---------------------------------------------------------------------------

    \24\ See proposed BOX Rule 7600(i)(3) and Amendment No. 1.
    \25\ See id.
    \26\ See BOX Rule 7600(i)(2) (providing that if an order or 
offer (bid) of 100 or more contracts of a series is represented to 
the trading crowd, a Floor Participant that buys (sells) 50 or more 
of the contracts of that order or offer (bid) at one price will have 
priority over all other orders and quotes to buy (sell) up to the 
same number of contracts of those remaining from the same order or 
offer (bid) at the next lower (higher) price). See also Amendment 
No. 1 (noting that the required quantities of at least 100 contracts 
per leg of the Complex QOO Order or multi-leg QOO order and at least 
50 contracts per leg at the permissible ratio at the first price are 
the same quantities used for single leg orders using the split-price 
priority functionality, which could avoid investor confusion).
    \27\ See BOX Rule 7600(h) and Amendment No. 1.
    \28\ See proposed BOX Rule 7600(i)(3)(i).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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-2019-24 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-2019-24. 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

[[Page 66051]]

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-
2019-24 and should be submitted on or before December 23, 2019.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the 30th day after the 
date of publication of notice of Amendment No. 1 in the Federal 
Register. As noted above, Amendment No. 1 revised the proposal to add 
text to BOX Rule 7600(h) to describe the operation of the book sweep 
functionality for Complex QOO and multi-leg QOO Orders, limit the 
availability of split-price priority to Complex QOO and multi-leg QOO 
Orders with at least 100 contracts on each component leg of the order, 
make clear that split-price priority is available for Complex QOO and 
multi-leg QOO orders with at least 100 contracts on each component leg 
of the order and indicate that a Floor Participant must trade 50 or 
more contracts of each component leg of the Complex QOO or multi-leg 
QOO Order in a permissible ratio at a price that complies with the 
priority requirements of BOX Rule 7600(c) to obtain split-price 
priority, more clearly describe the circumstances under which split-
price priority is not available when the width of the market for a 
strategy is $0.01 based on interest in the Complex Order Book, and 
modify examples and provide additional examples showing the operation 
of the proposed rules. The Commission notes that Amendment No. 1 
provides that split-price priority is available only to Complex QOO and 
multi-leg QOO Orders with at least 100 contracts on each component leg 
of the order and that a Floor Broker seeking split-price priority must 
execute 50 or more contracts of each component leg at the permissible 
ratio at the first price to obtain priority over the same number of 
contracts at the next less aggressive price, thereby assuring that 
split-price priority is available only to large Complex QOO and multi-
leg QOO Orders and that a Floor Broker must trade a substantial portion 
of such an order at the first price to obtain split-price priority. In 
addition, Amendment No. 1 revises the text of BOX Rule 7600(h) to add a 
paragraph to the rule describing the operation of book sweep size for 
Complex and multi-leg QOO Orders, thereby assuring that the text of the 
rule indicates the availability and functioning of book sweep with 
respect to these orders.\29\ The Commission believes that Amendment No. 
1 provides additional clarity and detail to the rule text and 
additional analysis and examples of several aspects of the proposal, 
thereby facilitating the Commission's ability to make the findings set 
forth above to approve the proposal. For these reasons, the Commission 
finds good cause, pursuant to Section 19(b)(2) of the Act,\30\ to 
approve the proposed rule change, as modified by Amendment No. 1, on an 
accelerated basis.
---------------------------------------------------------------------------

    \29\ The Notice included an example showing the use of book 
sweep size for a Complex QOO Order. See Notice, 84 FR at 44956.
    \30\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\31\ that the proposed rule change (SR-BOX-2019-24), as 
modified by Amendment No. 1, is approved on an accelerated basis.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(2).
    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-25961 Filed 11-29-19; 8:45 am]
 BILLING CODE 8011-01-P