[Federal Register Volume 78, Number 150 (Monday, August 5, 2013)]
[Notices]
[Pages 47463-47465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-18751]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70063; File No. SR-BOX-2013-38]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing of a Proposed Rule Change To Modify the Complex Order Filter

July 30, 2013.
    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 July 22, 2013, BOX Options Exchange LLC (the ``Exchange'') filed 
with the Securities and Exchange Commission (``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 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 amend Rule 7240(b)(3)(iii) related to 
filtering of Complex Orders and Rule 7130 to clarify that exposed 
Complex Orders are included in the Exchange's High Speed Vendor Feed 
(``HSVF''). 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 its rules relating to filtering 
inbound Complex Orders \3\ (the ``Complex Order Filter''). The proposed 
rule change would make the existing exposure period available to all 
unexecuted Complex Orders with an exposure price equal to or better 
than cNBBO.\4\ The proposed rule change would further provide Exchange 
Participants with a mechanism to elect whether to participate in the 
exposure process and would clarify that the broadcast notice of each 
exposed Complex Order is provided to market participants. The Exchange 
believes the proposed Complex Order Filter will simplify the filtering 
procedure, provide greater flexibility to Participants submitting 
Complex Orders to BOX Market LLC, the Exchange's trading facility 
(``BOX'').
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    \3\ ``Complex Order'' is defined as ``any order involving the 
simultaneous purchase and/or sale of two or more different options 
series in the same underlying security, for the same amount, 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.'' See Exchange Rule 
7240(a)(5).
    \4\ See proposed Rule 7240(b)(3)(iii)(B).
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    The proposed Complex Order Filter is intended to expand the 
existing Complex Order Filter. The proposed Complex Order Filter will 
continue to apply to Complex Orders on standard strategies (two legs 
with a ratio of 1:1) and non-standard strategies (other than two legs 
with a ratio of 1:1). The proposed Complex Order Filter will not affect 
the Exchange's rules regarding execution of single options series on 
the BOX Book. The Exchange notes that, currently, orders on single 
option series may be subjected to an exposure period.\5\ However, while 
unexecutable orders on single option series may be routed away from the 
Exchange or rejected, Complex Orders are not routed away.
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    \5\ See Rule 7130(b)(4)(ii).
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    The Exchange's existing Complex Order Filter is contained in 
Exchange Rule 7240(b)(3)(iii) and provides that all inbound Complex 
Orders to BOX are filtered to ensure that each leg of a Complex Order 
will be executed at a price that is equal to or better than NBBO and 
BOX BBO for each of the component series.
    The proposed Complex Order Filter operates by a series of 
sequential steps, set forth in proposed Rule 7240(b)(3)(iii)(A), (B), 
(C) and (D), resulting in the Complex Order being fully or partially 
executed, cancelled or entered on the Complex Order Book.\6\ The 
proposed Complex Order Filter differs from the existing Complex Order 
Filter by allowing Limit Complex Orders that are not immediately 
executable to be subject to the exposure period.
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    \6\ ``Complex Order Book'' is defined as ``the electronic book 
of Complex Orders maintained by the BOX Trading Host.'' See Exchange 
Rule 7240(a)(6).
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    The first step in the Complex Order Filter is described in existing 
Rule 7240(b)(3)(iii)(A) and provides that inbound Complex Orders with 
execution prices equal to or better than both cNBBO and cBBO are first 
executed against existing interest on the BOX Book \7\ and the Complex 
Order Book. The Exchange proposes to retain this initial execution 
step, unchanged from the current Complex Order Filter, and adding the 
words, ``to the extent possible,'' to Rule 7240(b)(3)(iii)(A) to 
clarify that such execution may be only a partial execution of the 
Complex Order.
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    \7\ ``BOX Book'' is defined as ``the electronic book of orders 
on each single option series maintained by the BOX Trading Host.'' 
See Exchange Rule 100(a)(10).
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    Following the initial execution step, the current Complex Order 
Filter contemplates a series of steps set forth in existing Rule 
7240(b)(3)(iii) by which, depending upon the Complex Order type and 
price, certain Complex Orders are exposed and others are entered on the 
Complex Order Book. Exposed orders may be exposed for execution for a 
period of up to one second. Any executable, opposite side orders 
received during the exposure period immediately execute against the 
exposed Complex Order and any remaining unexecuted portion is 
cancelled. Currently, after any initial execution, Limit Complex Orders 
are directly entered on the Complex Order Book without an opportunity 
for exposure.\8\
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    \8\ See Exchange Rule 7240(b)(3)(iii)(C)(I) and Rule 
7240(b)(3)(iii)(D).
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    Currently, the Exchange permits BOX-Top and Market Complex Orders 
to be exposed for an exposure period of up to one second to the extent 
not executed in the initial execution step.\9\ The Exchange proposes to 
allow Limit Complex Orders with an exposure price

[[Page 47464]]

equal to, or better than, the same side cNBBO to also be exposed to the 
extent not previously executed in the initial execution step. However, 
if the Complex Order's exposure price would be worse than the same-side 
cNBBO, the Complex Order will not be exposed and will be cancelled; 
provided that a Limit Complex Order not exposed for this reason, and 
which would not lock or cross the Complex Order Book, will be entered 
on the Complex Order Book.\10\ The Exchange believes allowing inbound 
Limit Complex Orders that are not executable on BOX but are executable 
against the cNBBO to be subject to the exposure period will result in 
higher numbers of exposed Complex Orders and thereby improve order 
execution opportunities for Participants.
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    \9\ See Exchange Rule 7240(b)(3)(iii)(B) and (C)(II).
    \10\ See proposed Rule 7240(b)(3)(iii)(B).
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    The exposure period will not exceed one second and it will be set 
by the Exchange, taking into consideration the technological ability of 
Participants to respond and similar exposure periods implemented by the 
Exchange and other exchanges. The Exchange proposes to amend the 
exposure period language in Rule 7240(b)(3)(iii)(B) to state that the 
exposure period will be a time period established by the Exchange, not 
to exceed one second. This change conforms to language previously 
proposed by the Exchange with respect to Rule 7130(b)(4)(ii) for orders 
on single option series.\11\ The Exchange will notify Participants of 
the duration of the exposure period, and any changes to the duration, 
via regulatory circular.
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    \11\ See SR-BOX-2013-32.
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    Currently, a Participant may voluntarily cancel a Complex Order at 
any time, including during the exposure period, and no change to that 
ability is proposed. However, the Exchange now proposes to permit 
Participants the additional flexibility to specify, when submitting a 
Complex Order, whether or not the Complex Order will be subject to 
exposure before being entered on the Complex Order Book. If a 
Participant so elects, the exposure period in the proposed Complex 
Order Filter may be skipped for a specified Complex Order. If no 
preference is specified, the Complex Order will be exposed by default.
    The Exchange proposes that any unexecuted portion of a Complex 
Order remaining at the conclusion of the exposure period (or after the 
initial execution step, if the submitting Participant elects to forego 
the exposure period) then will be either entered on the Complex Order 
Book or cancelled.
    Complex Orders will be cancelled if (i) the Participant submitting 
the Complex Order provides instructions that the Complex Order is to be 
cancelled at that point, (ii) the Complex Order is a Market Order, 
(iii) the Complex Order is a BOX-Top Order, no part of which has been 
executed, or (iv) the Complex Order is a BOX-Top or Limit Order at a 
limit price that otherwise could execute against interest on BOX but 
only at a price that is not equal to or better than cNBBO.\12\
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    \12\ See proposed Rule 7240(b)(3)(iii)(C).
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    The Exchange proposes that any unexecuted Limit or BOX-Top Complex 
Orders will be entered on the Complex Order Book at the end of the 
exposure period (or after the initial execution step, if the submitting 
Participant elects to forego the exposure period) unless it is 
cancelled pursuant to proposed Rule 7240(b)(3)(iii)(C).\13\
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    \13\ See proposed Rule 7240(b)(3)(iii)(D).
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    The Exchange further proposes to amend its Rule 7130 to clarify 
that the HSVF is made available to market participants, rather than 
displayed to Options Participants \14\ and that exposed Complex Orders 
are included in the HSVF.\15\ The proposed changes to Rule 7130 do not 
represent changes to the operation of the Exchange but are simply 
clarifications of the rule text. The HSVF is made available to market 
participants but neither market participants nor Options Participants 
are required to receive the display.
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    \14\ See proposed change to Rule 7130(a).
    \15\ See proposed change to Rule 7130(a)(2)(vii).
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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''),\16\ in general, and Section 6(b)(5) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the rule filing is reasonable, equitable 
and not unfairly discriminatory because the benefits of simplicity, 
flexibility, visibility and increased opportunities for execution and 
better pricing are equally available to all Participants.
    The proposed Complex Order Filter differs from the existing Complex 
Order Filter by allowing Limit Complex Orders that are not executable 
on BOX but are executable against the cNBBO to be subject to the 
exposure period. The Exchange believes that broadening the range of 
Complex Orders that may be exposed will result in higher numbers of 
exposed Complex Orders, increase visibility and provide flexibility and 
thereby improve order execution opportunities for Participants. As a 
result, the Exchange believes the proposed rule changes 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.
    The Exchange proposes to permit Participants the additional 
flexibility to choose, when submitting a Complex Order, whether or not 
the Complex Order will be subject to exposure before being entered on 
the Complex Order Book. If a Participant so elects, the exposure period 
in the proposed Complex Order Filter may be skipped for a specified 
Complex Order. Providing this additional tool to Participants serves 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 proposed amendment of Rule 7130, while it 
does not change Exchange operations, adds clarity to its existing rule 
text by providing that the HSVF is made available to market 
participants, and not limited to BOX Options Participants, but neither 
market participants nor Options Participants are required to receive 
the display, which wider distribution and choice for market 
participants 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.
    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, for the purpose 
of clarity and in the

[[Page 47465]]

public interest, to adopt the proposed amendments to Rule 
7240(b)(3)(iii).

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. The 
features of the proposed rule change will apply equally to all 
Participants and are available to all Participants.
    Submitting a Complex Order is entirely voluntary and Participants 
will determine which type of order they wish to submit, if any, 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 any these 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 [email protected]. Please include 
File Number SR-BOX-2013-38 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-2013-38. 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. 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-2013-38, and should be submitted on or before August 
26, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-18751 Filed 8-2-13; 8:45 am]
BILLING CODE 8011-01-P