[Federal Register Volume 83, Number 64 (Tuesday, April 3, 2018)]
[Notices]
[Pages 14304-14305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06690]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82959; File No. SR-BOX-2018-06]


Self-Regulatory Organizations; BOX Options Exchange LLC; Order 
Approving a Proposed Rule Change To Adopt IM-8040-3 To Exchange Rule 
8040 to Permit Directed Orders To Be Submitted With an Auction Only 
Designation

March 28, 2018.

I. Introduction

    On February 5, 2018, BOX Options Exchange LLC (``BOX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt IM-8040-3 to Exchange Rule 8040 to permit 
Directed Orders \3\ to be submitted with an Auction Only designation. 
The proposed rule change was published for comment in the Federal 
Register on February 16, 2018.\4\ The Commission received no comment 
letters on the proposed rule change. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The term ``Directed Order'' means any Customer Order to buy 
or sell contracts on a single option series that has been directed 
to a particular market maker by an Order Flow Provider (``OFP''). 
See Exchange Rule 100(a)(19).
    \4\ See Securities Exchange Act Release No. 82690 (February 12, 
2018), 83 FR 7084 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to adopt IM-8040-3 to Exchange Rule 8040 to 
allow Options Participants \5\ to apply a new optional Auction Only 
designation to Directed Orders. A Directed Order with an Auction Only 
designation will be cancelled if it is not entered into the Price 
Improvement Period (``PIP'') \6\ by the Executing Participant 
(``EP'').\7\
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    \5\ The term ``Options Participant'' or ``Participant'' means a 
firm, or organization that is registered with the Exchange pursuant 
to the BOX Rule 2000 Series for purposes of participating in options 
trading on BOX as an OFP or Market Maker. See Exchange Rule 
100(a)(41).
    \6\ See Exchange Rule 7150.
    \7\ An Executing Participant (``EP'') is a market maker that 
desires to accept Directed Orders. See Notice, supra note 4, at 7085 
n.4.
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    Market Makers \8\ may receive and handle Directed Orders on an 
agency

[[Page 14305]]

basis, in accordance with the procedures set forth in Exchange Rule 
8040(d). Upon receipt of a Directed Order from an OFP,\9\ an EP must 
either submit the Directed Order to the PIP, or send the Directed Order 
to the BOX Book.\10\ In addition, the BOX Trading Host will send the 
Directed Order to the BOX Book: (i) If the EP has not taken action 
within one second of receipt of a Directed Order; \11\ (ii) if the 
Market Maker that the order is directed to has not systematically 
indicated that it is an EP; \12\ (iii) upon receipt of a subsequent 
Directed Order for the same EP for the same series and side of the 
market if a Guaranteed Directed Order (``GDO'') \13\ has been 
automatically generated and is pending; \14\ or (iv) if a Directed 
Order is modified once the BOX Trading Host has established a GDO.\15\
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    \8\ 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 BOX Rule 8000 Series. 
All Market Makers are designated as specialists on the Exchange for 
all purposes under the Act or Rules thereunder. See Exchange Rule 
100(a)(31).
    \9\ An OFP is an Options Participant representing as agent 
Customer Orders on the Exchange or a non-Market Maker Participant 
conducting proprietary trading. See Exchange Rule 100(a)(46).
    \10\ See Exchange Rule 8040(d)(3).
    \11\ See Exchange Rule 8040(d)(4).
    \12\ See Exchange Rule 8040(d)(1).
    \13\ If a Directed Order is executable against the current 
national best bid or offer (``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 guarantee the EP's execution of the 
Directed Order for at least the price and size of the EP's quote. 
This guarantee is the GDO, and the EP's quote will not be 
reestablished until the Directed Order has been processed pursuant 
to Exchange Rule 8040(d). See Exchange Rule 8040(d)(2)(i).
    \14\ See Exchange Rule 8040(d)(2)(ii).
    \15\ See Exchange Rule 8040(d)(5).
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    As noted above, BOX proposes that if a Directed Order with an 
Auction Only designation would be sent to the BOX Book for any reason, 
it will instead be cancelled back to the OFP that submitted the 
Directed Order.\16\ The Exchange notes that, under the proposal, the 
Auction Only designation will be automatically applied by the system, 
and the designation will not be disclosed to the EP.\17\
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    \16\ The Exchange notes that interest on the BOX Book may still 
interact with a Directed Order that has an Auction Only designation 
via the PIP allocation. See Exchange Rule 7150(g).
    \17\ The Exchange notes that existing restrictions on an EP's 
behavior will continue to apply. Specifically, an EP shall not 
submit to the Exchange a contra order to the Directed Order for its 
proprietary account during the one second following submission of 
the Directed Order to the Exchange. See Exchange Rule 8040(d)(6)(i).
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    The Exchange represents that it will provide at least two weeks' 
notice to Participants via Circular prior to the launch of the proposed 
change, which the Exchange anticipates will be during the second 
quarter of 2018.\18\
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    \18\ See Notice, supra note 4, at 7085.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\19\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\20\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating 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, 
and not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers. The Commission also finds that the 
proposed rule change is consistent with Section 6(b)(8) of the Act,\21\ 
which requires that the rules of an exchange not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \19\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that the Auction Only designation will 
provide OFPs with greater control over how their Directed Orders are 
handled by the EP, as OFPs will have certainty that their Directed 
Orders with the Auction Only designation will either be executed in the 
PIP or cancelled.\22\ In addition, should the Directed Order be entered 
into the PIP, the Directed Order will receive the opportunity for price 
improvement.\23\ Moreover, the Commission notes that an EP will not be 
notified whether a Directed Order was submitted with the Auction Only 
designation,\24\ and current restrictions on an EP's behavior with 
respect to Directed Orders will continue to apply.\25\ Accordingly, the 
Commission believes that the Exchange's proposal is consistent with the 
Act.
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    \22\ The Exchange notes that, pursuant to Exchange 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 and as such, the order is guaranteed to be fully executed. See 
Notice, supra note 4, at 7085 n.13.
    \23\ See Exchange Rule 7150.
    \24\ See proposed IM-8040-3 to Exchange Rule 8040.
    \25\ See supra note 17.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-BOX-2018-06) be, and hereby 
is, approved.
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    \26\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Jill Peterson,
Assistant Secretary.
[FR Doc. 2018-06690 Filed 4-2-18; 8:45 am]
 BILLING CODE 8011-01-P