[Federal Register Volume 81, Number 102 (Thursday, May 26, 2016)]
[Notices]
[Pages 33568-33570]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12385]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77877; File No. SR-BOX-2016-22]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend BOX Rule 12140 (Imposition of Fines for Minor Rule Violations) To 
Amend the Sanctions for Quotation Parameters and Permit the Aggregation 
of Violations for the Purpose of Determining What Is an Occurrence

May 20, 2016.
    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 May 11, 2016, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend BOX Rule 12140 (Imposition of Fines 
for Minor Rule Violations) to amend the sanctions for Quotation 
Parameters and permit the aggregation of violations for the purpose of 
determining what is an occurrence. 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 12140 (Imposition of Fines 
for Minor Rule Violations) to amend the sanctions for Quotation 
Parameters (Rule 12140(d)(5)) and permit the aggregation of violations 
for the purpose of determining what is an occurrence.
    The purpose of the proposed rule change is to amend the sanctions 
that relate to Rule 8040(a)(7) regarding spread parameters for Market 
Maker quotations under the Exchange's Minor Rule Violation Plan or 
(``MRVP''). BOX Rule 8040(a)(7) \3\ governs quotation parameters which 
establish the maximum permissible width between the bid and offer in a 
particular series.\4\ The Exchange believes the proposed rule changes 
[sic] will add clarity as to what is considered a violation with 
respect to these quotation parameters under the MRVP.
---------------------------------------------------------------------------

    \3\ The Exchange's MRVP consists of preset fines, pursuant to 
Rule 19d-1(c) under the Act 17 CFR 240.19d-1(c).
    \4\ See Rule 8040(a)(7). The Exchange sets the maximum width at 
no more than $5 between the bid and offer.
---------------------------------------------------------------------------

    First, the Exchange proposes to amend the sanctions applicable to 
violations of Rule 8040(a)(7) pursuant to the Exchange's MRVP which are 
laid out in BOX Rule 12140(d)(5). The sanctions would now consist of 
Letters of Caution respecting the first three occurrences and three 
fines thereafter ($250, $500 and $1,000), before the seventh occurrence 
would result in referral to the Hearing Committee for disciplinary 
action. In addition, the fine schedule would be administered on a one 
year running calendar basis, such that violations within one year of 
the last occurrence would count as the next ``occurrence''. The 
Exchange then proposes to add language that will allow BOX to aggregate 
individual quotation violations and treat such violations as a single 
offense.
    The Exchange believes that these changes are appropriate because 
quoting on the Exchange is entirely electronic. Specifically, firms 
rely on their quote

[[Page 33569]]

technology and computer models to establish an option's price and 
generate the quote electronically to the Exchange. The Exchange 
believes when there is an electronic quoting error, it may affect every 
series the Participant is quoting on in that particular technology, 
generating potentially hundreds or thousands of instances of quote 
spread parameter violations within a short amount of time. Rather than 
fine the Participant for or submit each event to Formal Disciplinary 
Action for an isolated technological error, the proposed changes would 
allow the Exchange to treat an electronic quoting error as single 
occurrence by aggregating the violations.\5\ The Exchange notes that 
due to the nature of quotation parameter violations, aggregation is a 
common practice in the options industry.\6\ Under the proposed rule 
change a Market Maker on BOX would in most instances receive a Letter 
of Caution before being subject to a sanction. The Exchange believes 
this is appropriate because the relevant Letters of Caution or monetary 
fines should serve as a deterrent against future violations, while 
recognizing that a single programming error can have widespread effect. 
Further, the Exchange believes that sanctions on quotation parameter 
violations should not be considered [sic] excessively punitive; as this 
could encourage a Market Maker [sic] only meet its minimum quoting 
requirements, which would remove liquidity from the exchange.
---------------------------------------------------------------------------

    \5\ The Exchange notes that there is very little advantage to a 
Market Maker quoting wide, when this happens they are no longer 
considered part of the marketplace and any incoming orders will go 
elsewhere.
    \6\ The Minor Rule Violation Plans at most options exchanges 
allow for aggregation of quotation parameter violations and EDGX 
recently filed to add this language as well. See Securities Exchange 
Act Release No. 77181 (February 19, 2016), 81 FR 9566 (February 25, 
2016) (Notice of Filing and Immediate Effectiveness SR-EDGX-2016-
03).
---------------------------------------------------------------------------

    As with other violations covered under the Exchange's MRVP, the 
Exchange may elect to forgo the MRVP and enforce any egregious 
violation of its rules under the Exchange's formal disciplinary 
process.
    The Exchange notes that the proposed rule change is substantially 
similar to the rules of the NASDAQ OMX PHLX, Inc. (``Phlx'') and the 
sanctions that relate to the spread parameters for Market Maker 
quotations on PHLX.\7\
---------------------------------------------------------------------------

    \7\ See PHLX Rule 1014(c)(i)(A) [sic] and Securities Exchange 
Act Release No. 62147 (May 21, 2010), 75 FR 29792 (Order Approving 
SR-Phlx-2010-43).
---------------------------------------------------------------------------

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''),\8\ in general, and Section 6(b)(5) of the Act,\9\ 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. In particular, the Exchange believes that its proposal 
is consistent with Sections 6(b)(1) and (6) of the Act,\10\ which 
require that the rules of an exchange enforce compliance with, and 
provide appropriate discipline for, violations of Commission and 
Exchange rules. In addition, because existing BOX Rule 12140 provides 
procedural rights to a person fined under the Exchange's MRVP to 
contest the fine and permits a hearing on the matter, the Exchange 
believes that the proposal is consistent with Sections 6(b)(7) and 
6(d)(1) of the Act,\11\ by providing a fair procedure for the 
disciplining of Participants and persons associated with Participants.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(1) and (6).
    \11\ 15 U.S.C. 78f(b)(7) and (d)(1).
---------------------------------------------------------------------------

    In requesting the proposed changes to the sanctions under BOX Rule 
12140(d)(5), the Exchange in no way minimizes the importance of 
compliance with Exchange Rules and all other rules subject to the 
imposition of fines under the MRVP. However, the MRVP provides a 
reasonable means of addressing rule violations that do not rise to the 
level of large sanctions and requiring formal disciplinary proceedings, 
while providing greater flexibility in handling certain violations. The 
Exchange will continue to conduct surveillance with due diligence and 
make a determination based on its findings, on a case-by-case basis, 
whether a fine of more or less than the recommended amount is 
appropriate for a violation under the MRVP or whether a violation 
requires a formal disciplinary action.

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 is 
similar to the rules of PHLX.\12\ The Exchange believes that the 
proposals will provide Participants protection from minor rule 
violation sanctions that are a result of electronic quoting errors. The 
proposed rule change is meant to take into account the possibility of 
programming or technology errors that result in a Participant violating 
the quote parameters set out in the Rule 8040(a)(7). The proposed rule 
change will enable Participants to enter quotes without fear of 
hundreds or thousands of minor rule violations, which in turn will 
benefit investors through increased liquidity on the exchange. While 
the Exchange believes that the proposed Letters of Caution and 
subsequent fines should serve as a deterrent against future violations, 
the Exchange may determine whether a violation is not minor in nature 
and thereafter refer it to the Hearing Committee for disciplinary 
action.\13\
---------------------------------------------------------------------------

    \12\ See supra, note 7.
    \13\ See Rule 12140(a).
---------------------------------------------------------------------------

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)(iii) of the Act \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing.\16\ 
Rule 19b-4(f)(6)(iii), however, permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest.\17\ The Exchange has asked the 
Commission to waive the 30-day operative delay so that the proposal may 
become operative upon filing. The Exchange has stated that the proposed 
rule change is

[[Page 33570]]

substantially similar to the rules of Phlx, in particular, the 
sanctions for violations of the spread parameters for Market Maker 
quotations. Waiver of the 30-day operative delay will allow BOX to 
aggregate violations of its spread parameter rule under its MRVP 
without delay. Furthermore, the Commission notes that the Exchange's 
MRVP and quote spread parameter rules are already in place; waiver will 
clarify the Exchange's expectations of its Participants. For these 
reasons, the Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Therefore, the Commission designates the proposed rule change 
to be operative upon filing.\18\
---------------------------------------------------------------------------

    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ Id.
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or 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-2016-22 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-2016-22. 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 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-2016-22, 
and should be submitted on or before June 16, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-12385 Filed 5-25-16; 8:45 am]
 BILLING CODE 8011-01-P