[Federal Register Volume 82, Number 72 (Monday, April 17, 2017)]
[Notices]
[Pages 18171-18173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07634]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80428; File No. SR-BOX-2017-10]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change to 
Expand the Execution Range for a Customer Cross Order

April 11, 2017.
    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 March 29, 2017, 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 
change 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 expand the execution range for a Customer 
Cross Order. 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
    Same as Item 3a in the 19b-4 Purpose section. [sic] Make sure all 
the footnotes copy correctly. [sic] The Exchange proposes to amend BOX 
Rule 7110(c)(5) (Customer Cross Order) to expand the execution range 
for a Customer Cross Order. This is a competitive filing that is based 
on the rules of another exchange.\3\
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    \3\ See MIAX Rule 515(h)(1). The Exchange is not copying all 
aspects of MIAX Rule 515(h)(1). Specifically, BOX is not copying the 
references to a liquidity refresh pause or route timer because the 
Exchange does not offer these functionalities.
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    A Customer Cross Order is comprised of a non-Professional, Public 
Customer Order to buy and a non-Professional, Public Customer Order to 
sell at the same price and for the same quantity.\4\ Rule 7110(c)(5) 
provides that Customer Cross Orders are automatically executed upon 
entry provided that the execution is between the best bid and offer on 
BOX and will not trade through the NBBO. Customer Cross Orders are 
automatically canceled if they cannot be executed. Customer Cross 
Orders may only be entered in the regular trading increments applicable 
to the options classes under Rule 7050. IM-7140-1 \5\ applies to the 
entry and execution of Customer Cross Orders.
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    \4\ See Rule 7110(c)(5).
    \5\ This Rule prevents an Options Participant executing agency 
orders to increase its economic gain from trading against the order 
without first giving other trading interest on BOX an opportunity to 
trade with the agency order pursuant to Rule 7150 (Price Improvement 
Period), Rule 7245 (Complex Order Price Improvement Period) or Rule 
7270 (Block Trades). However, the Exchange recognizes that it may be 
possible for an Options Participant to establish a relationship with 
a Customer or other person (including affiliates) to deny agency 
orders the opportunity to interact on BOX and to realize similar 
economic benefits as it would achieve by executing agency orders as 
principal. It will be a violation of this Rule for an Options 
Participant to circumvent this Rule by providing an opportunity for 
a Customer or other person (including affiliates) to execute against 
agency orders handled by the Options Participant immediately upon 
their entry into the Trading Host.
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    The Exchange is now proposing to expand the execution range for 
Customer Cross Orders. Specifically, a Customer Cross Order will 
automatically execute if the execution price is at or between the best 
bid and offer on BOX, provided that it is not at the same price as a 
Public Customer Order on the BOX Book. This is opposed to the current 
requirement that the execution price be strictly between the best bid 
and offer on BOX. The

[[Page 18172]]

requirement that the Customer Cross Order not trade through the NBBO 
will remain the same. The Exchange notes this is the same execution 
parameters of another exchange.\6\
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    \6\ See supra, note 3.
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    The following examples are designed to illustrate the current 
behavior of a Customer Cross Order in addition to how a Customer Cross 
Order will behave after the proposed change.
Example 1
    The Exchange receives a Customer Cross Order for 100 contracts in 
ABC at 3.13. The NBBO for ABC is 3.08-3.13. The following interest is 
present on the BOX Book when the Customer Cross Order is received.

                                                                    BOX Book for ABC
--------------------------------------------------------------------------------------------------------------------------------------------------------
                              Account                                    Quantity           Buy              Sell           Quantity         Account
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MM.................................................................              10             3.08             3.13               10               MM
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Pursuant to Rule 7110(c)(5), the Customer Cross Order would be 
rejected because the execution price (3.13) is at the best offer on the 
BOX Book, not between the best bid and offer on BOX. After the proposed 
change is implemented, the Customer Cross Order would be accepted. The 
Customer Cross Order will execute at 3.13 because, after the proposed 
change, a Customer Cross Order can execute at a price at or between the 
best bid and offer on BOX. Additionally, the execution price of 3.13 
will not trade through the NBBO.
Example 2
    Assume the same situation as Example 1 with the exception that the 
ABC sell order on the BOX Book is for the account of a Public Customer 
not a Market Maker. Pursuant to Rule 7110(c)(5), the Customer Cross 
Order would be rejected because the execution price (3.13) is at the 
best offer on the BOX Book, not between the best bid and offer on BOX. 
After the proposed change is implemented, the Customer Cross Order 
would still be rejected; however, it would be due to the fact that 
there is a Public Customer Order on the BOX Book at the execution 
price, not because the execution price is equal to the best offer on 
the BOX Book.
    Lastly, the Exchange proposes to detail the additional 
circumstances of when a Customer Cross Order is rejected. Specifically, 
the Exchange will reject a Customer Cross Order if there is an ongoing 
auction \7\ or an exposed order on the option series. The Exchange 
notes that this has been in place on the Exchange for PIP and exposed 
orders.\8\ BOX now proposes to expand the rejection of Customer Cross 
Orders to all ongoing auctions, including COPIP, Facilitation and 
Solicitation Auctions.
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    \7\ BOX's auction mechanisms include the Price Improvement 
Period (``PIP''), Complex Order Price Improvement Period 
(``COPIP''), Facilitation Auction and Solicitation Auction.
    \8\ See IC-2012-004 available at http://boxexchange.com/assets/Informational_Circular_2012-004_Customer_Cross_Orders.pdf. In this 
Circular, BOX states that Customer Cross Orders are not accepted on 
an option instrument while there is a PIP auction in progress or 
while an order is being exposed for the same option instrument.
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    The Exchange anticipates implementing the proposed change during 
the second quarter of 2017. The Exchange will provide notice of the 
exact implementation date, via Circular, prior to implementing the 
proposed change.
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''),\9\ in general, and Section 6(b)(5) of the Act,\10\ 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 the proposed 
rule change to amend BOX Rule 7110(c)(5) to expand the execution range 
of a Customer Cross Order on BOX is designed to help BOX remain 
competitive among options exchanges. The proposal to expand the 
execution range is designed to facilitate transactions, to remove 
impediments to and perfect the mechanism for a free and open market to 
the benefit of market participants by increasing opportunities for 
Customer Cross Orders to execute on the Exchange. Further, the Exchange 
believes that the proposed change is reasonable and appropriate as 
another options exchange in the industry has a similar rule currently 
in place at their exchange.\11\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See supra, note 3.
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    The Exchange believes that detailing the additional circumstances 
for when a Customer Cross Order may be rejected is reasonable and 
appropriate because it will make clear to Participants these 
circumstances and in turn will eliminate any potential for investor 
confusion.

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 the rules of another exchange.\12\ The Exchange 
does not believe the proposal will impose any burden on intermarket 
competition, as the proposed rule will allow BOX to compete with other 
options exchanges in the industry. The Exchange notes that it operates 
in a highly competitive market in which market participants can readily 
direct order flow to competing venues who offer similar functionality.
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    \12\ Id.
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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

    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

[[Page 18173]]

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 \13\ and Rule 19b-4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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.
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    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. 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-2017-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2017-10. 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-2017-10, and should be 
submitted on or before May 8, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07634 Filed 4-14-17; 8:45 am]
BILLING CODE 8011-01-P