[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9566-9568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-03572]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71543; File No. SR-BOX-2014-08]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing of Proposed Rule Change To Amend BOX Rule 8050 (Market Maker 
Quotations) To Modify the Quotation Requirement

February 12, 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 February 4, 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.
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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 amend BOX Rule 8050 (Market Maker 
Quotations) to modify the quotation requirement. 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

[[Page 9567]]

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 8050 (Market Maker 
Quotations) to modify the quotation requirement. This is a competitive 
filing that is based on a proposal submitted by NASDAQ Options Market 
(``NOM'').\3\
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    \3\ See Securities Exchange Act Release No. 58305 (August 5, 
2008), 73 FR 46696 (August 11, 2008) (Notice of Filing and Immediate 
Effectiveness of SR-NASDAQ-2008-063).
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Background
    Currently, the Exchange requires that a Market Maker's bid and 
offer for a series of options contracts shall be accompanied by the 
number of contracts at that price the Market Maker is willing to buy 
from or sell to Customers. Every Market Maker bid or offer must have an 
initial size of at least ten (10) contracts, except for Jumbo SPY 
Options that must have an initial size of at least one (1) contract.\4\ 
This initial minimum size applies regardless of whether a Market Maker 
receives an RFQ message,\5\ is called upon by an Exchange Official to 
post a quote,\6\ or otherwise.\7\ The initial size of the Market 
Maker's valid quote may subsequently be depleted in size below the 
minimum size of ten (10) contracts due to executions with the quote and 
the quote shall remain valid as long as the Market Maker's quote has 
not been changed or updated as to price or size. This depleted quote 
size shall remain valid until (i) the Market Maker's quoted size is 
completely exhausted, whereupon the Market Maker must once again post a 
valid quote with a valid initial size of ten (10) contracts, or (ii) 
the Market Maker updates or changes the posted quote, whereupon such 
quote must meet the minimum initial size of ten (10) contracts in order 
to be deemed valid.
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    \4\ See Rule 8050(b).
    \5\ If a Market Maker is not already posting a two-sided quote 
in a series in a class in which he is appointed as Market Maker, he 
must post an initial valid two-sided quote within three (3) seconds 
of receiving any RFQ message issued. A valid two-sided quote must be 
continuously maintained, without interruption for at least thirty 
(30) seconds. However, if during the 30 second time frame the quote 
becomes invalid, a Market Maker must as soon as practicable, but 
within five (5) seconds, post a valid quote. See Rule 8050(c)(2).
    \6\ A Market Maker may be called upon by an Exchange Official to 
submit a single valid two-sided quote in one or more of the series 
of an options class to which the Market Maker is appointed whenever, 
in the judgment of such official, it is necessary to do so in the 
interest of fair and orderly markets. The Market Maker must post the 
valid quote within three (3) seconds of receiving such message. A 
valid two-sided quote must be continuously maintained, without 
interruption by the Market Maker for at least thirty (30) seconds. 
However, if during the thirty (30) second time frame the quote 
becomes invalid, a Market Maker must as soon as practicable, but 
within five (5) seconds, post a valid quote. See Rule 8050(c)(4).
    \7\ See IM-8050-1 to Rule 8050.
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Proposal
    The Exchange proposes to lower the Market Maker bid or offer 
initial size requirement. Specifically, the Exchange proposes to make 
the required minimum number of contracts for a Market Maker's bid or 
offer in options one (1) contract. This reduction in the minimum number 
of contracts for a Market Maker's bid or offer shall apply regardless 
of whether a Market Maker receives an RFQ message, is called upon by an 
Exchange official to post a quote, or otherwise. The Exchange notes 
that a minimum quoting requirement of one (1) contract is not novel and 
certain exchanges have a minimum quoting requirement of one (1) 
contract for all classes.\8\ Additionally, certain exchanges set the 
minimum quoting requirement on a class-by-class basis, provided the 
minimum set by the exchange is at least one (1) contract.\9\
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    \8\ See NASDAQ Options Market (``NOM'') Rule Chapter VII, Sec. 
6(a), NASDAQ OMX BX (``BX'') Rule Chapter VII, Sec. 6 (Market Maker 
Quotations) and BATS Exchange, Inc. (``BATS'') Rule 22.6 (Market 
Maker Quotations).
    \9\ See Miami International Securities Exchange, LLC (``MIAX'') 
Rule 604 (Market Maker Quotations), International Securities 
Exchange, LLC (``ISE'') Rule 804 (Market Maker Quotations), NASDAQ 
OMX PHLX LLC (``Phlx'') Rule 1014 (Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders) and 
Chicago Board Options Exchange, Incorporated (``CBOE'') Rules 6.2B, 
8.7, 8.14 and 8.15A.
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    As part of this proposal the Exchange proposes to remove a portion 
of IM-8050-1. With the reduction of the minimum quoting requirement 
from ten (10) contracts to one (1) contract, the portion of IM-8050-1 
that deals with the depletion of a Market Maker's initial quote is no 
longer applicable. This portion of the current IM applied to situations 
where the size of a Market Maker's quote depletes below the minimum 
size of ten (10) contracts due to executions with the quote. Once the 
minimum quoting requirement is one (1) contract, it will no longer be 
possible for executions to reduce the quote below the minimum size.
    Additionally, the Exchange is proposing to remove the current 
exception for Jumbo SPY Options in Rule 8050(b). This exception sets 
the minimum initial size of a Market Maker's bid and offer in Jumbo SPY 
Options at one (1) contract. Now that the Exchange is proposing to make 
the minimum initial size of a Market Maker's bid and offer one (1) 
contract for all series of options, it is no longer necessary to have 
an exception for Jumbo SPY Options.
    The BOX Rules will continue to ensure that Market Makers actively 
quote. For example, BOX Rule 8050(e) states that, on a daily basis, a 
Market Maker must during regular market hours make markets and enter 
into any resulting transactions consistent with the applicable quoting 
requirements specified in these rules, such that on a daily basis a 
Market Maker must post valid quotes at least sixty percent (60%) of the 
time that the classes are open for trading. These obligations will 
apply to all of the Market Maker's appointed classes collectively, 
rather than on a class-by-class basis.
    The Exchange believes that the efficiency of its market can be 
enhanced by permitting Market Makers to enter quotations for one (1) or 
more contracts rather than requiring that they enter quotations for ten 
(10) or more contracts in series in which they are appointed. The 
Exchange believes that modifying the quotations requirements in this 
manner will encourage Market Makers to provide more liquidity to 
Participants. An overall increase in liquidity will benefit investors 
and serve the public interest. Additionally, the Exchange believes that 
modifying these quotations requirements could encourage Market Markets 
to quote in additional series. By reducing the quoting requirement 
Market Makers may be more willing to provide quotations in additional 
series that they would not otherwise quote in due to the risk 
associated with quoting at a higher number of contracts.
    The Exchange believes further that the proposed change to the 
quoting requirement of Market Makers is pro-competitive in that it will 
attract more Market Makers, and additional liquidity, onto the 
Exchange. This should be advantageous to all market participants 
trading on the Exchange.
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''),\10\ in general, and Section 6(b)(5) of the Act,\11\ 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

[[Page 9568]]

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. The proposed changes are 
consistent with the statute in that they are designed to facilitate 
transactions in options on BOX by encouraging participants to provide 
liquidity through BOX. If the proposal succeeds in attracting 
additional liquidity providers and additional liquidity, then BOX will 
then match more buying and selling interest between and among all BOX 
Participants.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposal conforms Market Maker 
quotation requirements to those of competing markets and 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.
    The Exchange believes the proposal will allow Market Makers on the 
Exchange to follow rules that are similar to the rules of other options 
exchanges that do not impose a minimum quoting obligation of ten (10) 
contracts 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.
    Additionally, the Exchange believes the proposal removes a 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 twelve 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 initial size requirement of at least (10) 
contracts creates a burden on Market Makers that does not exist on 
numerous other competitive markets.

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 rule change is being proposed as a 
competitive response to a filing submitted by NOM.\12\ The Exchange 
believes the proposal to reduce the minimum quoting requirement for 
Market Makers from ten (10) contracts to one (1) contract is consistent 
with the market maker obligations on other option exchanges. The 
Exchange believes that its proposal is pro-competitive and should serve 
to attract market making activity and increase liquidity on the 
Exchange, which will benefit all Participants.
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    \12\ See supra, note 3.
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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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
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 prior to 
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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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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    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.

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-2014-08 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-2014-08. 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 such 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-2014-08 and should be 
submitted on or before March 12, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03572 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P