[Federal Register Volume 77, Number 243 (Tuesday, December 18, 2012)]
[Notices]
[Pages 74902-74904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30376]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68412; File No. SR-BOX-2012-022]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Eliminate Market Maker Pre-Opening Obligations on BOX

December 12, 2012.
    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 December 4, 2012, BOX Options Exchange LLC (the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Exchange has designated 
the proposed rule change as constituting a non-controversial rule 
change under Rule 19b-4(f)(6) under the Act,\3\ which renders the 
proposal effective upon filing with the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    BOX Options Exchange LLC (the ``Exchange'') proposes to amend Rule 
8050 (Market Maker Quotations) to eliminate market maker pre-opening 
obligations on its options trading facility BOX Market LLC (``BOX''). 
The Exchange also proposes to amend Rule 7070 (Opening the Market) and 
Rule 8040 (Obligations of Market Makers) to conform them to the change 
proposed to Rule 8050. The text of the proposed rule change is 
available from the principal office of the Exchange, on the Exchange's 
Internet Web site at http://boxexchange.com, and at the Commission's 
Public Reference Room.

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 Exchange 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

[[Page 74903]]

places specified in Item IV below. The Exchange has prepared summaries, 
set forth in Sections A, B, and C below, of the most significant 
aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to amend Exchange Rule 
8050 (Market Maker Quotations) to eliminate pre-opening obligations 
imposed on market makers (``Market Makers'') on BOX Market LLC 
(``BOX''),\4\ that they participate in the pre-opening phase in terms 
of continuous quotes. The Exchange also proposes to amend Rule 7070 
(Opening the Market) and Rule 8040 (Obligations of Market Makers) to 
conform them to the change proposed to Rule 8050.\5\ This is done to 
put BOX Market Makers on par with the market makers on other options 
Exchanges that do not have pre-market continuous quoting 
obligations.\6\
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    \4\ BOX operates as an options trading facility of the Exchange.
    \5\ Exchange Rule 100(a)(30) defines ``Market Maker'' to mean an 
Options Participant registered with the Exchange for the purpose of 
making markets in options contracts traded on the Exchange and that 
is vested with the rights and responsibilities specified in the Rule 
8000 Series regarding Market Makers. All Market Makers are 
designated as specialists on the Exchange for all purposes under the 
Exchange Act or Rules thereunder.
    \6\ NASDAQ Options Market (``NOM''), NASDAQ OMX Phlx (``Phlx''), 
and International Securities Exchange, LLC (``ISE'') have market 
pre-opening phases. However, NOM, Phlx and ISE do not, as discussed 
in the proposal, impose pre-opening obligations on their respective 
options market makers; none of the exchanges require continuous 
quoting prior to the regular options trading market. The regular 
trading market opens on these exchanges at 9:30 Eastern Time.
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    Currently, Exchange Rule 8050 requires that a Market Maker must 
enter continuous bids and offers in options classes in which the Market 
Maker is appointed on BOX, an all-electronic market. Specifically, Rule 
8050(e) requires that on a daily basis, a Market Maker must: (1) 
Participate in the pre-opening phase; and (2) thereafter make markets 
consistent with the applicable quoting requirements specified in the 
Exchange rules, such that a Market Maker must post valid quotes at 
least sixty percent (60%) of the time that the classes to which the 
Market Maker is appointed are open for trading. The Exchange does not 
propose to change any of the continuous quoting requirements applicable 
to a Market Maker (e.g. continuous quoting 60% of the time in the 
Market Maker's appointed classes) \7\ other than to eliminate the 
requirement to participate in the pre-opening phase in Rule 8050(e) 
noted above.
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    \7\ The BOX trading day, which represents the regular market 
hours, is 9:30 a.m. to 4:00 p.m. Eastern Time, except for option 
contracts on Exchange-Traded Fund Shares or broad-based indexes 
which will close as of 4:15 p.m. Eastern Time. See Exchange Rule 
7020.
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    Subsequent to this proposal, a Market Maker will continue to have 
all of the other quoting obligations that the Market Maker now has 
pursuant to Rule 8050, and pursuant to Rule 8050(e), during regular 
market hours will be responsible to post valid quotes on a continuous 
basis at least sixty percent (60%) of the time that the classes in 
which the Market Maker is appointed are open for trading. The change 
that the Exchange is proposing to Rule 8050(e) is removal of the Market 
Maker pre-opening quoting obligation and the insertion of text 
clarifying that the quoting obligation applies during regular market 
hours. As a result of the Exchange's proposed rule filing, the 
continuous quoting requirement for BOX Market Makers will not have a 
pre-opening quoting obligation, just as other options exchanges (e.g., 
NOM, Phlx and ISE) do not impose a pre-opening obligation on their 
electronic market makers.
    NOM, Phlx and ISE have a continuous quoting obligation during their 
regular market hours, which are similar to the BOX market hours.\8\ 
However, NOM, Phlx and ISE do not have an obligation for their market 
makers to participate in a pre-opening phase. On Phlx, for example, a 
Remote Streaming Quote Trader (``RSQT''),\9\ which is similar in nature 
to a BOX Market Maker, has an obligation during trading hours to quote 
markets in not less than 60% of the series in which such RSQT is 
assigned (this is akin to BOX Market Maker appointment in a series). 
Unlike a BOX Market Maker, which currently has a pre- opening 
obligation, a Phlx RSQT does not have a pre-opening market maker 
obligation.\10\ As a second example, there is a quoting requirement for 
an ISE market maker. However, just like Phlx, and unlike BOX, ISE does 
not have a pre-opening market maker obligation.\11\ This proposed rule 
change establishes that BOX Market Makers, like Phlx and ISE market 
makers, will not have a pre-opening quoting obligation prior to market 
open.\12\
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    \8\ Id.
    \9\ A Phlx RSQT is a Registered Options Trader that is a member 
or member organization with no physical trading floor presence that 
may generate and submit option quotations electronically in assigned 
options. See Phlx Rule 1014(b)(ii)(B). While the designation of RSQT 
does not exist on BOX, a BOX Market Maker enters quotes 
electronically on BOX just as an RSQT does on Phlx pursuant to 
specific quoting obligations. See Exchange Rule 8050(e), and Phlx 
Rule 1014(b)(ii)(D).
    \10\ For the Phlx continuous quoting rule, see Phlx Rule 
1014(b)(ii)(D)(1).
    \11\ ISE rule 804(e)(2)(iii) states, in relevant part, that a 
Competitive Market Maker must maintain continuous quotations in an 
options class to which it is appointed and at least 60% of the 
series of the options class listed on the Exchange until the close 
of trading that day.
    \12\ The two-sided quote obligation is noted also in Exchange 
Rule 8040(a)(1), which states that during trading hours a Market 
Maker must maintain a two-sided market, pursuant to Rule 8050(c)(1), 
in those options in which the Market Maker is appointed, in a manner 
that enhances the depth, liquidity and competitiveness of the 
market.
    Recognizing the requirement to maintain a two-sided market 
during trading hours per Rule 8040(a)(1), the Exchange is removing 
reference in Rule 8040(a)(2) to a Market Maker having to enter two-
sided quotes before market open by participating in opening the 
market. This is done for purposes of conforming Rule 8040(a)(2) with 
proposed Rule 8050(e), which eliminates quoting obligations in the 
pre-opening phase before the market opens.
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    BOX Market Makers have noted that unlike BOX, other options 
exchanges do not have a pre-opening quoting obligation for their market 
makers, and have requested BOX to eliminate the pre-opening obligation 
so that the Exchange rules for trading on BOX are similar to those of 
other options exchanges such as, for example, Phlx. The Exchange 
believes this proposed rule change levels the playing field in respect 
of pre-opening obligations while leaving all other BOX quoting 
requirements intact.\13\
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    \13\ Exchange Rule 8050(e).
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    Moreover, the Exchange believes that its proposal to put BOX Market 
Makers in the same position as market makers on other exchanges will 
not have a negative effect on BOX market participants and investors. In 
particular, the Exchange believes the removal of pre-opening market 
maker obligations on BOX will have no impact on the functioning of the 
BOX opening process and in turn will not negatively impact BOX market 
participants.\14\
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    \14\ The BOX process for Opening the Market is described within 
Rule 7070. Note that Rule 7070(d) currently specifies that during 
the pre-opening phase, BOX Market Makers holding an assignment on a 
given options class are obliged, as part of their obligations to 
ensure a fair and orderly market, to provide continuous two-sided 
quotes according to the BOX minimum standards at the opening of the 
market for the underlying security. In conformance with the proposed 
change to Rule 8050(e), the Exchange is removing this reference to 
BOX Market Makers pre-opening quoting obligation.
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    The Exchange believes further that the proposed rule change 
eliminating pre-opening obligations should be pro-competitive in that 
it will attract more Market Makers, and additional liquidity, onto BOX. 
This should be advantageous

[[Page 74904]]

to traders and investors executing trading and hedging strategies on 
BOX. In addition, orders and quotes executed during the opening process 
on BOX will continue to be protected by the National Best Bid or Offer 
(``NBBO''). As such, the Exchange believes that BOX participants will 
continue to have a similar experience and quality of execution on the 
opening on BOX as they do today.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\15\ in general, and Section 
6(b)(5) of the Act,\16\ in particular, in that it is designed 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. The Exchange believes the proposal to conform Market Maker 
obligations to the requirements of competing markets will promote the 
application of consistent trading practices. Therefore, the Exchange 
believes the proposal promotes just and equitable principles of trade 
and serves to protect investors and the public interest.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    Additionally, the Exchange believes the proposal removes a market 
maker quoting requirement that is unnecessary, as evidenced by the fact 
that it does not exist on other competitive markets. The Exchange 
operates in a highly competitive market comprised of ten U.S. options 
exchanges in which sophisticated and knowledgeable market participants 
can, and do, send order flow to competing exchanges if they deem 
trading practices at a particular exchange to be onerous or cumbersome. 
With this proposal, the Market Maker will be relieved of a market maker 
requirement that does not materially improve the quality of the 
markets. On the contrary, the pre-open phase obligation creates an 
additional obligation and burden on BOX Market Makers that does not 
exist on numerous other competitive markets. The Exchange believes that 
in this competitive marketplace, the impact of the pre-open trading 
practice that exists on BOX today compels this proposal. It will allow 
Market Makers on BOX to follow rules that are similar to the rules of 
other options exchanges that do not impose pre-opening obligations on 
their market makers, and will allow Market Makers to focus on aspects 
of their operations that contribute to the market in a more efficient 
and meaningful way.

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. To the contrary, the Exchange 
proposal to eliminate the pre-opening obligation on BOX Market Makers 
is consistent with the market maker obligations on other options 
exchanges, which do not impose pre-opening obligations on market 
makers. The Exchange believes that its proposal is pro-competitive and 
should serve to attract market making activity and increase liquidity 
on BOX which will benefit all BOX market participants.

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

    No written comments were either solicited or received.

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6)(iii) thereunder.\18\ At any time within 60 days of the filing 
of such 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.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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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 [email protected]. Please include 
File Number SR-BOX-2012-022 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-2012-022. 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-2012-022 and should be 
submitted on or before January 8, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30376 Filed 12-17-12; 8:45 am]
BILLING CODE 8011-01-P