[Federal Register Volume 83, Number 33 (Friday, February 16, 2018)]
[Notices]
[Pages 7084-7086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03199]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82690; File No. SR-BOX-2018-06]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing of Proposed Rule Change To Adopt IM-8040-3 to Rule 8040

February 12, 2018.
    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 February 5, 2018, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to adopt IM-8040-3 to Rule 8040. 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 website at http://boxoptions.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.

[[Page 7085]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt IM-8040-3 to Rule 8040. 
Specifically, the Exchange is proposing that Directed Orders \3\ may be 
submitted with an Auction Only designation. Further, the Exchange is 
proposing that a Directed Order with an Auction Only designation will 
be cancelled if it is not entered into the PIP by the Executing 
Participant (``EP'').\4\
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    \3\ The term ``Directed Order'' means any Customer Order to buy 
or sell contracts on a single option series which has been directed 
to a particular Market Maker by an Order Flow Provider. See Rule 
100(a)(19). Unlike all other orders submitted to the BOX Trading 
Host, Directed Orders are not anonymous. The Options Participant 
identification number (``Participant ID'') of the OFP sending the 
Directed Order will be given to the Market Maker recipient. See Rule 
8040(d).
    \4\ An Executing Participant (``EP'') is a Market Maker who 
desires to accept Directed Orders.
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    Pursuant to Rule 8040(d), upon receipt of a Directed Order from an 
Order Flow Provider (``OFP'') \5\ an EP must either submit the Directed 
Order to the PIP process or send the Directed Order to the BOX Book. 
Further, a Directed Order is sent to the BOX Book if (i) the EP has not 
taken action within one second of receipt of a Directed Order,\6\ (ii) 
the Market Maker that the order is directed to has not systematically 
indicated that it is an EP,\7\ (iii) a Guaranteed Directed Order \8\ 
has been automatically generated and is pending, then upon receipt of a 
subsequent Directed Order for the same EP for the same series and side 
of the market,\9\ or (iv) a Directed Order is modified once the Trading 
Host has established a GDO.\10\ Therefore, under the proposal, if the 
Directed Order with an Auction Only designation is to be sent to the 
BOX Book, regardless of the reason, it will instead be cancelled back 
to the OFP that submitted the Directed Order.\11\ The Auction Only 
designation is automatically applied by the system and the designation 
is not disclosed to the EP. Therefore, the Exchange does not believe 
the proposed designation will alter the behavior of the EP or provide 
any advantage to the EP.\12\
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    \5\ The terms ``Order Flow Provider'' or ``OFP'' mean those 
Options Participants representing as agent Customer Orders on BOX 
and those non-Market Maker Participants conducting proprietary 
trading. See Rule 100(a)(46).
    \6\ See Rule 8040(d)(4).
    \7\ See Rule 8040(d)(1).
    \8\ If a Directed Order is executable against the current NBBO 
and the EP is also quoting at such NBBO on the opposite side of the 
Directed Order, then the Trading Host will immediately upon receipt 
of the Directed Order take down the EP's quote and shall guarantee 
the EP's execution of the Directed Order for at least the price and 
size of the EP's quote. This guarantee shall be called a Guaranteed 
Directed Order (``GDO''). The EP's quote shall not be reestablished 
until the Directed Order has been processed pursuant to Rule 
8040(d). See Rule 8040(d)(2)(i).
    \9\ See Rule 8040(d)(2)(ii).
    \10\ See Rule 8040(d)(5).
    \11\ Interest on the BOX Book may still interact with a Directed 
Order that has the Auction Only designation via the PIP allocation. 
See Rule 7150(g).
    \12\ The Exchange notes that there currently are restrictions on 
an EP's behavior that will continue to apply. Specifically, an EP 
shall not submit to BOX a contra order to the Directed Order for his 
proprietary account during the one second following his submission 
of the Directed Order to BOX. See Rule 8040(d)(6)(i).
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    The Exchange notes that the proposed Auction Only designation is an 
optional designation that the submitting OFP may decide to utilize. The 
Exchange believes the proposed change will provide increased 
flexibility to OFPs when executing orders on the Exchange as well as 
provide execution certainty because the Directed Order will either 
execute via the PIP or be cancelled back. The Exchange further believes 
that the proposed designation will make the Directed Order process more 
attractive to Participants that are searching for liquidity \13\ and 
the potential for price improvement.
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    \13\ Pursuant to Rule 7150(f), a Customer Order that is 
submitted to the PIP must be submitted with a matching contra side 
order equal to the full size of the Customer Order, as such, the 
order is guaranteed to be fully executed.
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    The Exchange will provide at least two weeks' notice to 
Participants via Circular prior to the launch of the proposed change. 
The Exchange anticipates launching in the second quarter of 2018.
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''),\14\ in general, and Section 6(b)(5) of the Act,\15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes the proposed rule change is 
designed to remove impediments to and perfect the mechanisms of a free 
and open market and a national market system by providing an additional 
tool and greater flexibility for Participants executing orders on the 
Exchange as well as providing execution certainty. The Exchange also 
believes the proposal will provide opportunity for Participants to 
achieve better handling of orders by providing Participants with this 
additional functionality. As a result, adopting this proposal to allow 
Directed Orders to be submitted with the Auction Only designation will 
promote just and equitable principles of trade and foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities.
    As mentioned above, the EP is not notified that a Directed Order 
was submitted with the Auction Only designation and therefore there is 
no unfair advantage bestowed on the EP as a result of the proposal. As 
such, the proposal is designed to prevent fraudulent and manipulative 
acts and practices.
    The Exchange believes that the proposal removes impediments to and 
perfects the mechanism of a free and open market by enhancing the 
Exchange's market by providing market participants the ability to send 
Directed Orders with an Auction Only designation to the Exchange. As 
such, BOX believes that the proposed change will increase flexibility 
to OFPs when executing orders on the Exchange.
    The Exchange believes that the proposed Auction Only designation 
will provide OFPs with a valuable tool when executing orders on the 
Exchange. As such, the Exchange believes that the proposed change 
removes impediments to and perfects the mechanism of a free and open 
market because the proposed change further promotes competition among 
options exchanges. The Exchange believes that the proposed additional 
functionality for executing Directed Orders will protect investors and 
the public interest by providing OFPs with greater flexibility and 
opportunity for their orders on the Exchange. The Exchange believes 
this increased opportunity will lead to enhanced order flow to the 
Exchange, which in turn will benefit and protect investors and the 
public interest through the potential for greater volume of orders and 
executions on BOX. The Exchange believes that the proposed rule change 
is not designed to permit unfair discrimination between customers, 
issues, brokers, or dealers because the proposed additional tool for 
Directed Orders is open to all OFPs and is completely voluntary. As 
such, the Exchange believes the proposed change is consistent with the 
Act.

[[Page 7086]]

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 that is not necessary or appropriate 
in furtherance of the Act. On the contrary, the Exchange believes that 
the proposed feature to Directed Orders will enhance competition in the 
U.S. option markets by providing enhanced functionality thereby making 
the Exchange more competitive with other exchanges. Additionally, 
respecting intra-market competition, the additional feature for 
Directed Orders will be available to all OFPs that submit Directed 
Orders to the Exchange.

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 up to 90 days (i) as the 
Commission may designate 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-2018-06 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-2018-06. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BOX-2018-06, and should be submitted on 
or before March 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03199 Filed 2-15-18; 8:45 am]
BILLING CODE 8011-01-P