[Federal Register Volume 84, Number 93 (Tuesday, May 14, 2019)]
[Notices]
[Pages 21382-21384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09869]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85803; File No. SR-BOX-2019-16]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Adopt BOX Rule
7620 (Accommodation Transactions) Establishing Cabinet Trading on the
Exchange's Trading Floor
May 8, 2019.
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 April 25, 2019, BOX Exchange LLC (``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 establish BOX Rule 7620 (Accommodation
Transactions) which provides for cabinet trading on the Exchange's
Trading Floor. 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to establish BOX Rule 7620 (Accommodation
Transactions) which provides for cabinet trading \3\ on the Exchange's
Trading Floor. The Exchange notes that the proposed rule is
substantially similar to a rule on another exchange.\4\
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\3\ An ``accommodation'' or ``cabinet'' trade refers to trades
in listed options on the Exchange that are worthless or not actively
traded, often times conducted to establish tax losses. Cabinet or
accommodation trading of option contracts is intended to accommodate
persons wishing to effect closing transactions in those series of
options dealt in on the Exchange for which there is no auction
market. A cabinet trade is a transaction in which the per-contract
value of the cabinet trade is less than the per-contract value of a
trade at the specified minimum increment for the option contract.
\4\ See Nasdaq Phlx Rule 1059 (allowing for accommodation
trades).
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Proposed Rule 7620 defines the term ``cabinet order'' as a closing
limit order at a price of $1 per option contract for the account of a
customer or Floor Market Maker. Rule 7620 also states that an opening
order is not a ``cabinet order'' but may in certain cases be matched
with a cabinet order pursuant to subsection proposed Rule 7620(c) and
(d). For purposes of this rule filing, the Exchange specifies that an
``opening order'' is a contra-side opening order in response to a
Customer who submits a closing order to clear their position. The rule
further states that only Floor Brokers may represent cabinet orders.
Further, under proposed Rule 7620, cabinet trading shall be available
for each series of options open for trading on the Exchange under the
following terms and conditions (a) trading shall be conducted in
accordance with other Exchange rules except as otherwise provided
herein or unless the context otherwise requires; and (b) cabinet orders
may be submitted to Floor Brokers. Floor Brokers must use the
designated cabinet transaction forms provided by the Exchange to
document receipt of a cabinet order and the execution of a cabinet
transaction. Further, the proposed rule states that Rule 7580(e)(1)
shall not apply to orders placed in the cabinet or executed in the
cabinet.\5\
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\5\ Rule 7580(e)(1) provides for the use on the trading floor of
the Floor Broker's order entry mechanism to record all options
orders represented by such Floor Broker.
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The Exchange also proposes to add Rule 7620(c), (d), and (e) which
specifies the procedures to be followed by the Floor Broker and other
trading crowd participants to execute cabinet orders in two different
scenarios. In each case, the Floor Broker would be required to act in
the presence of at least one Market Maker and Options Exchange
Official.
Proposed Rule 7620(c) governs cases where a Floor Broker holds a
cabinet order but does not also hold contra-side interest. In that
case, the Floor Broker shall announce the terms of the cabinet order to
the trading crowd to solicit interest to participate on the closing
position. All matching cabinet orders shall be assigned priority based
upon the sequence in which such orders are received by the Floor
Broker. If there is no matching cabinet order, the Floor Broker may
match the cabinet order with a matching opening buy or sell limit order
priced at $1 per option contract. If there is no matching cabinet order
or opening order, the Floor Broker may seek matching bids or offers for
accounts of Floor Participants. Floor Participants can only participate
after all other orders have been matched.
Rule 7620(d) governs cases where a Floor Broker holds a cabinet
order and also a contra-side cabinet order. In that situation, the
Floor Broker is required to announce the terms of the cabinet orders to
the trading crowd. The cabinet orders shall then be immediately crossed
by the Floor Broker.
Finally, proposed Rule 7620(e) applies where a Floor Broker holds
both a cabinet order and a contra-side opening order. In that
situation, the Floor Broker is required to announce the terms of the
cabinet order to the trading crowd. If there is a matching cabinet
order, the Floor Broker shall match the two cabinet orders. If there is
no
[[Page 21383]]
matching cabinet order, the cabinet order shall then be immediately
crossed by the Floor Broker with the opening order held by the Floor
Broker.
The proposed priority rules focus on the cabinet order at the time
it is represented by a Floor Broker in the trading crowd. Thus, as
proposed, each Floor Broker holding a cabinet order only would be
required to assign priority to cabinet orders he holds based upon the
sequence in which he receives such orders, therefore, each Floor Broker
would not be required to cede priority to a cabinet order represented
in the crowd at an earlier time by another Floor Broker.
The Floor Broker is then to assign matching cabinet orders from the
crowd based upon the sequence in which the orders are received by that
floor broker representing such order. For example, the ``Floor Broker
A'' receives a cabinet order to buy 500 contracts and represents to the
trading crowd. At the time of representation to the crowd, ``Floor
Broker B'' has a matching cabinet order for 250 contracts and ``Floor
Broker C'' enters the trading crows after ``Floor Broker B'' with a
matching cabinet order for 500 contracts. ``Floor Broker A'' then
proceeds to match his 500 contracts to buy cabinet order with the
matching cabinet order from ``Floor Broker B'' for 250 contracts and
matching the balance of 250 contracts with ``Floor Broker C''. The
Floor Broker matched the cabinet orders based on the sequence in which
the orders were received in the crowd at the time the cabinet order was
represented. If there are no matching cabinet orders from the crowd,
the Floor Broker may match the cabinet order with a matching opening
order from the crowd. If however the Floor Broker holds both a cabinet
order and a contra side cabinet order, the Floor Broker would be
required to immediately cross those orders after announcing their terms
in the crowd, regardless of cabinet orders held by other Floor Brokers.
In addition, the Exchange proposes Rule 7620(f) which requires
that, once the cabinet order has been either crossed or matched, the
Floor Broker must submit the designated cabinet form as soon as
possible to the Exchange's Market Operations staff for clearance and
reporting. Finally, the Exchange proposes Rule 7620(g) which states
that Floor Market Makers shall not be subject to the requirements of
Rule 8510 in respect to orders placed pursuant to this proposed rule.
Further, proposed Rule 7620(g) states that the provisions of Rule
7040(a) through (c), and Rule 7050 would not apply to orders placed in
the cabinet.\6\ The proposed rule is substantially similar to that of
another Exchange because it will give market participants the ability
to close out positions in which the value of the contract is less than
the value of the contract at the minimum increment.\7\
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\6\ Exchange Rule 8510 discusses the obligations and
restrictions applicable to floor market makers. Exchange Rule 7040
sets out the meanings for premium quotes and orders, and Exchange
Rule 7050 details minimum trading increments for options contracts
traded on BOX.
\7\ See supra, note 4. The Exchange's proposed rule differs in
one material respect, by allowing the Market Operations Center staff
to clear and report cabinet trades immediately rather than at the
close of the business day.
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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, by adopting the proposed cabinet rule
above, the Exchange will provide the ability for market participants to
close out positions in which the value of the contract is less than the
value of the contract at the minimum increment. The proposed rule
change will permit market participants to execute cabinet trades on the
Exchange, even without the participation of Floor Market Makers. The
proposed rule promotes just and equitable principles of trade by
setting forth priority rules for trade executions, and by requiring use
of Exchange designated cabinet transaction forms to record information
and the submission of the forms to Market Operations Center staff for
the clearance and reporting of the cabinet trades.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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The proposed rule would give market participants' the ability to
execute cabinet transactions on the Exchange's Trading Floor, in an
open manner and in compliance with new procedures specified by this
rule.
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. The proposed rule would apply
to all Floor Brokers. In this regard and as indicated above, the
Exchange notes that the proposed rule is substantially similar to Phlx
rule that was approved by the Commission.\10\
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\10\ See supra, note 4.
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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 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 \11\ and
subparagraph (f)(6) of Rule 19b-4 thereunder. \12\
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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its 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 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:
[[Page 21384]]
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-2019-16 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-2019-16. 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 the 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-2019-16 and should be submitted on
or before June 4, 2019.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09869 Filed 5-13-19; 8:45 am]
BILLING CODE 8011-01-P