[Federal Register Volume 79, Number 16 (Friday, January 24, 2014)]
[Notices]
[Pages 4186-4188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-01398]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71344; File No. SR-BOX-2014-02]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing of Proposed Rule Change To Amend BOX Rule 8130

January 17, 2014.
    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 January 6, 2014, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend BOX Rule 8130 (Automatic Quote 
Cancellation) to require Market Makers to enter values in at least one 
of the Exchange-provided risk parameters. 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 BOX Rule 8130 (Automatic Quote 
Cancellation) to require Market Makers \3\ to enter values in at least 
one of the Exchange-provided risk parameters. This is a competitive 
filing based on a proposal recently submitted by the International 
Securities Exchange, LLC (``ISE'') and approved by the Commission.\4\
---------------------------------------------------------------------------

    \3\ As defined in BOX Rule 100 (a)(30), the term ``Market 
Maker'' means 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. All Market Makers are designated 
as specialists on the Exchange for all purposes under the Exchange 
Act or Rules thereunder.
    \4\ See Securities Exchange Act Release No. 70132 (August 7, 
2013), 78 FR 49311 (August 13, 2013) (Order Approving SR-ISE-2013-
38).
---------------------------------------------------------------------------

    BOX Rule 8040 (Obligations of Market Makers) requires Market Makers 
to enter and maintain continuous quotations for the options classes to 
which they are appointed. This requirement creates a possibility of 
``rapid fire'' executions that could result in large and unintended 
principal positions and expose the Market Maker to unnecessary market 
risk. To lessen this risk, many

[[Page 4187]]

Market Makers employ their own proprietary quotation and risk 
management systems to determine the prices and sizes at which they 
quote. Additionally, under the current BOX Rule 8130 the Exchange 
offers Market Makers the ability to automatically cancel quotes in 
specified classes if certain triggering parameters are met.\5\ When 
enabled, these triggering parameters can help Market Makers manage 
their risk and protect them from a ``rapid fire'' execution scenario.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 55472 (March 14, 
2007), 72 FR 13322 (March 21, 2007) (Notice of Filing and Immediate 
Effectiveness of SR-BSE-2007-08).
---------------------------------------------------------------------------

    Specifically, under BOX Rule 8130 there are five triggering 
parameters that Market Makers can enable on a class-by-class basis. 
These are when the Market Maker: (1) Experiences a duration of no 
technical connectivity for between one and nine seconds; (2) trades a 
specified number of contracts in the aggregate across all series of an 
options class; (3) trades a specified absolute dollar value of 
contracts bought and sold in a class; (4) trades a specified number of 
contracts in a class of the net between (i) calls purchased plus puts 
sold, and (ii) calls sold and puts purchased; or, (5) trades a 
specified absolute dollar value of the net position in a class between 
(i) calls purchased and sold, (ii) puts and calls purchased; (iii) puts 
purchased and sold; or (iv) puts and calls sold.
    The risk to Market Makers is not limited to a single option series. 
Market Makers have exposure in all series of a particular options class 
in which they are appointed, requiring them to offset or hedge their 
overall position in each option to minimize risk. By limiting a Market 
Maker's exposure across series, the Exchange believes that a Market 
Maker is able to provide quotations at better prices. The Exchange 
believes that the Exchange-provided risk parameters help Market Makers, 
as key liquidity providers, to better manage their risk, aiding them in 
providing deeper and more liquid markets, beneficial to all 
Participants.
    Under Rule 8130, Market Makers are currently not required to use 
the Exchange-provided risk parameters and can program their own systems 
to perform similar functions if they prefer. The Exchange proposes to 
amend Rule 8130 to prevent Market Makers from inadvertently entering 
quotes without any internal or external risk-management parameters. 
Specifically, the Exchange proposes to make it mandatory for a Market 
Maker to enter values in at least one triggering parameter for each of 
their appointed options classes. The Exchange is not proposing to 
require values be entered for all five triggering parameters, as the 
Exchange is aware that Market Makers have different internal risk 
control mechanisms and therefore will use the tool differently. 
Additionally, Market Makers that currently use this feature have 
elected to use different parameters based on their specific needs.
    While entering values into at least one of the risk parameters will 
now be mandatory to prevent an inadvertent exposure to risk, Market 
Makers who prefer to use their own risk-management systems can enter 
values that will ensure the Exchange-provided parameters will not be 
triggered.\6\ Accordingly, the proposal does not require members to 
manage their risk using the Exchange-provided tools.
---------------------------------------------------------------------------

    \6\ For example, a Market Maker could set the value for the 
total number of contracts in the aggregate across all series of an 
options class at a level that exceeds the total aggregate number of 
contracts that the Market Maker actually quotes in all the series of 
the option class.
---------------------------------------------------------------------------

    The Exchanges notes that nothing under this proposed rule change 
relieves a Market Maker of its obligations to provide continuous, two 
sided quotes under Rule 8050.
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''),\7\ in general, and Section 6(b)(5) of the Act,\8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that requiring Market Makers to enter values 
for at least one of the triggering parameters will not be unreasonably 
burdensome, as Market Makers who prefer to use their own risk-
management systems can enter out-of-range values so that the Exchange-
provided parameters will not be triggered. Moreover, the Exchange is 
proposing this rule change in order to reduce the risk of a Market 
Marker inadvertently entering quotes without populating any of the 
triggering parameters. Reducing such risk will enable Market Makers to 
enter quotations with larger size, which in turn will benefit investors 
through increased liquidity for the execution of their orders. Such 
increased liquidity benefits investors because they receive better 
prices and because it lowers volatility in the options market.

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 proposed rule change is 
substantially similar to a filing submitted by ISE that was recently 
approved by the Commission.\9\ The proposal is meant to help Market 
Makers manage risk by preventing the inadvertent entry of quotes 
without any risk-management parameters, whether internal or external. 
As noted above, Market Makers who prefer to use their own risk-
management systems can enter out-of-range values so that the Exchange-
provided parameters will not be triggered. Accordingly, the proposal 
does not require members to manage their risk using this feature.
---------------------------------------------------------------------------

    \9\ See supra, note 4.
---------------------------------------------------------------------------

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)(ii) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(6). 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to

[[Page 4188]]

Rule 19b-4(f)(6)(iii) \13\ the Commission may designate a shorter time 
if such action is consistent with the protection of investors and the 
public interest. The Exchange requested that the Commission waive the 
30-day operative delay. The Exchange stated that waiver of the 
operative delay will allow the Exchange to quickly adopt an additional 
risk protection feature for Market Makers.
---------------------------------------------------------------------------

    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
because the Exchange will be able to implement promptly an amended 
automatic quote cancellation feature that will require a Market Maker 
to enter values for at least one of the triggering parameters, and thus 
the proposal may help Market Makers mitigate their quoting risk 
exposure.\14\
---------------------------------------------------------------------------

    \14\ As noted by the Exchange above, Market Makers who prefer to 
use their own risk-management systems can enter out-of-range values 
so that the Exchange-provided parameters will not be triggered. 
Thus, the proposal does not require members to manage their risk 
using the Exchange's automatic quote cancellation feature.
---------------------------------------------------------------------------

    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 [email protected]. Please include 
File Number SR-BOX-2014-02 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-2014-02. 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-2014-02 and should be 
submitted on or before February 14, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

 Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01398 Filed 1-23-14; 8:45 am]
BILLING CODE 8011-01-P