[Federal Register Volume 84, Number 231 (Monday, December 2, 2019)]
[Notices]
[Pages 66049-66051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25961]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87613; File No. SR-BOX-2019-24]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule
7600
November 25, 2019.
I. Introduction
On August 8, 2019, BOX Exchange LLC (``BOX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Act of 1934 (``Act'') \1\ and
Rule 19b-4 thereunder,\2\ a proposed rule change to amend BOX Rule 7600
to permit split-price priority for Complex Qualified Open Outcry
(``QOO'') Orders and multi-leg QOO Orders.\3\ The proposed rule change
was published for comment in the Federal Register on August 27,
2019.\4\ On October 9, 2019, pursuant to Section 19(b)(2) of the
Act,\5\ the Commission extended to November 25, 2019, the time within
which to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to approve or
disapprove the proposed rule change.\6\ The Commission received no
comment letters regarding the proposed rule change. On November 21,
2019, BOX submitted Amendment No. 1 to the proposed rule change.\7\
Amendment No. 1 replaces and supersedes the original filing in its
entirety. The Commission is publishing this notice to solicit comment
on Amendment No. 1 to the proposed rule change from interested persons
and is approving the proposed rule change, as modified by Amendment No.
1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ A QOO Order is a two-sided order that a Floor Broker submits
to the BOX Trading Host for execution. QOO Orders include Complex
Orders, as defined in BOX Rule 7240(a)(7) (``Complex QOO Orders''),
and multi-leg orders that are not Complex Orders (``multi-leg QOO
Orders''). Multi-leg QOO Orders must involve the simultaneous
purchase and/or sale of two or more different options series in the
same underlying security, for the same account, and for the purpose
of executing a particular investment strategy. See BOX Rules
7600(a)(4) and (c). A QOO Order has an initiating side and a contra
side. The initiating side must be filled in its entirety, and the
contra-side must guarantee the full size of the initiating side of
the QOO Order and may provide book sweep size, as provided in BOX
Rule 7600(h). See BOX Rule 7600(a)(1).
\4\ See Securities Exchange Act Release No. 86723 (August 21,
2019), 84 FR 44954 (``Notice'').
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 87266, 84 FR 55351
(October 16, 2019).
\7\ Amendment No. 1 revises the proposal to: (1) Add a paragraph
to BOX Rule 7600(h) to describe the operation of book sweep size for
Complex QOO Orders and multi-leg QOO Orders; (2) delete proposed BOX
Rule 7600(i)(1)(i), which would have permitted split-price priority
for Complex QOO and multi-leg QOO Orders with fewer than 100
contracts on each component leg of the order; (3) modify proposed
BOX Rule 7600(i)(3) to make clear that split-price priority is
available for Complex QOO and multi-leg QOO orders with at least 100
contracts on each component leg of the order and indicate that a
Floor Participant must trade 50 or more contracts of each component
leg of the Complex QOO or multi-leg QOO Order in a permissible ratio
at a price that complies with the priority requirements of BOX Rule
7600(c) to obtain split-price priority; (4) delete a sentence from
proposed BOX Rule 7600(i)(3) indicating that a Complex QOO or multi-
leg QOO Order would have priority over all orders and quotes on the
BOX Book and the Complex Order Book; (5) amend proposed BOX Rule
7600(i)(3)(i) and (ii) to more clearly describe the availability of
split-price priority when the width of a quote for a strategy is
$0.01 based on interest in the Complex Order Book; and (6) modify
examples and provide additional examples demonstrating the operation
of the proposed functionality.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
BOX currently provides split-price priority for QOO Orders
comprised of a single option series.\8\ BOX proposes to amend BOX Rule
7600(i) to permit split-price priority for Complex QOO Orders and
multi-leg QOO Orders.\9\ Split-price priority will be available only
for open outcry transactions.\10\ Under proposed BOX Rule 7600(i)(3),
if an order or offer (bid) of a Complex QOO Order or multi-leg QOO
Order with at least 100 contracts on each leg of the order is
represented to the trading crowd, a Floor Participant that buys (sells)
50 or more contracts of each component leg at the permissible ratio of
the Complex QOO Order or multi-leg QOO Order or offer (bid) at one
price that complies with the priority requirements in BOX Rule 7600(c)
will have priority over all other orders and quotes to buy (sell) up to
the same number of contracts of those remaining from the same order or
offer (bid) at the next lower (higher) price.\11\ To obtain split-price
priority, a Floor Participant must make its bid (offer) at the next
lower (higher) price for the second (or later) transaction at the same
time as the first bid (offer) or promptly following the announcement of
the first
[[Page 66050]]
(or earlier) transaction.\12\ The second (or later) purchase (sale)
must represent the opposite side of a transaction with the same order
or offer (bid) as the first (or earlier) purchase (sale).\13\
---------------------------------------------------------------------------
\8\ See BOX Rule 7600(i).
\9\ See proposed BOX Rule 7600(i)(3).
\10\ See proposed BOX Rule 7600(i)(5)(i).
\11\ See proposed BOX Rule 7600(i)(3) and Amendment No. 1.
\12\ See proposed BOX Rule 7600(i)(5)(ii).
\13\ See proposed BOX Rule 7600(i)(5)(iii).
---------------------------------------------------------------------------
Split-price priority will not be available under certain
circumstances. If the width of the quote for a strategy is $0.01 based
on interest in the Complex Order Book, and both the bid and offer
represent Implied Orders or Public Customer Complex Orders resting in
the Complex Order Book (e.g., an Implied Order \14\ bidding $2.00 for a
strategy and a Public Customer offering $2.01 for the strategy), split-
price priority pursuant will not be available to a Floor Participant
until the Implied Order or the Public Customer Complex Order resting in
the Complex Order Book on either side of the market trades or is
cancelled.\15\ If the width of the quote for the strategy is $0.01
based on interest in Complex Order Book, and the bid and the offer do
not represent Implied Orders or Public Customer Complex Orders, split
price priority will be available subject to BOX Rule 7600(c).\16\
---------------------------------------------------------------------------
\14\ An Implied Order is a Complex Order at or within the
Extended cNBBO (as defined in BOX Rule 7240(a)(5), derived from the
orders at the BBO on the BOX Book for each component leg of a
Strategy. See BOX Rule 7240(d)(1).
\15\ See proposed BOX Rule 7600(i)(3)(i) and Amendment No. 1.
\16\ See proposed BOX Rule 7600(i)(3)(ii) and Amendment No. 1.
---------------------------------------------------------------------------
The proposal also amends BOX Rule 7600(h) to allow, but not
require, a Floor Broker to provide a book sweep size for Complex QOO
and multi-leg QOO Orders.\17\ The book sweep size is the number of
contracts, if any, of the initiating side of the Complex QOO Order that
the Floor Broker is willing to relinquish to orders and quotes on the
BOX Complex Order Book and the BOX Book that have priority pursuant to
BOX Rule 7240(b)(2) and (3).\18\ If the number of contracts on the BOX
Complex Order Book or BOX Book that have priority over the contra-side
order is greater than the book sweep size, the Complex QOO Order or
multi-leg QOO Order will be rejected.\19\ If the number of contracts on
the BOX Complex Order Book or BOX Book that have priority over the
contra-side order is less than or equal to the book sweep size, then
the Complex QOO Order or multi-leg QOO Order will execute.\20\
---------------------------------------------------------------------------
\17\ See proposed BOX Rule 7600(h) and Amendment No. 1.
\18\ See id.
\19\ See id.
\20\ See id.
---------------------------------------------------------------------------
BOX notes that another options exchange with a physical trading
floor currently offers split-price priority for complex orders.\21\
---------------------------------------------------------------------------
\21\ See Notice, 84 FR at 44954, n.4, and Nasdaq PHLX LLC
Options 8 Floor Trading Rules, Section 22(a)(2)(D)(ii).
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\22\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\23\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, 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.
---------------------------------------------------------------------------
\22\ In approving this proposed rule change, as modified by
Amendment No. 1, the Commission notes that it has considered the
proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Under the proposal, split-price priority will be available only for
Complex QOO and multi-leg QOO Orders with at least 100 contracts on
each component leg of the order.\24\ The Commission believes that
permitting split-price priority for these orders could help to
facilitate the execution of Complex QOO and multi-leg QOO Orders which,
because of their size, may be executed at multiple prices. To obtain
split-price priority, a Floor Broker would be required to execute at
least 50 contracts of each component leg of the Complex QOO or multi-
leg QOO Order at the permissible ratio at a price that complies with
the priority requirements in BOX Rule 7600(c).\25\ The Commission notes
that these requirements are consistent with split-price priority
requirements for single-leg QOO orders of 100 or more contracts.\26\
The Commission believes that the proposed book sweep functionality for
Complex QOO and multi-leg QOO Orders would protect the priority of
resting interest and provide additional execution opportunities for
such interest by allowing, but not requiring, a Floor Broker to
relinquish contracts from the initiating side to trading interest on
the Complex Order Book and the BOX Book that has priority over the
contra-side order.\27\ The proposal also protects resting interest by
providing that split-price priority will not be available when the
width of a quote for a strategy is $0.01 based on interest on the
Complex Order Book and both the bid and offer represent Implied Orders
or Public Customer Complex Orders.\28\
---------------------------------------------------------------------------
\24\ See proposed BOX Rule 7600(i)(3) and Amendment No. 1.
\25\ See id.
\26\ See BOX Rule 7600(i)(2) (providing that if an order or
offer (bid) of 100 or more contracts of a series is represented to
the trading crowd, a Floor Participant that buys (sells) 50 or more
of the contracts of that order or offer (bid) at one price will have
priority over all other orders and quotes to buy (sell) up to the
same number of contracts of those remaining from the same order or
offer (bid) at the next lower (higher) price). See also Amendment
No. 1 (noting that the required quantities of at least 100 contracts
per leg of the Complex QOO Order or multi-leg QOO order and at least
50 contracts per leg at the permissible ratio at the first price are
the same quantities used for single leg orders using the split-price
priority functionality, which could avoid investor confusion).
\27\ See BOX Rule 7600(h) and Amendment No. 1.
\28\ See proposed BOX Rule 7600(i)(3)(i).
---------------------------------------------------------------------------
IV. Solicitation of Comments on Amendment No. 1
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether Amendment No. 1
to 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-2019-24 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-2019-24. 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
[[Page 66051]]
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-
2019-24 and should be submitted on or before December 23, 2019.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of notice of Amendment No. 1 in the Federal
Register. As noted above, Amendment No. 1 revised the proposal to add
text to BOX Rule 7600(h) to describe the operation of the book sweep
functionality for Complex QOO and multi-leg QOO Orders, limit the
availability of split-price priority to Complex QOO and multi-leg QOO
Orders with at least 100 contracts on each component leg of the order,
make clear that split-price priority is available for Complex QOO and
multi-leg QOO orders with at least 100 contracts on each component leg
of the order and indicate that a Floor Participant must trade 50 or
more contracts of each component leg of the Complex QOO or multi-leg
QOO Order in a permissible ratio at a price that complies with the
priority requirements of BOX Rule 7600(c) to obtain split-price
priority, more clearly describe the circumstances under which split-
price priority is not available when the width of the market for a
strategy is $0.01 based on interest in the Complex Order Book, and
modify examples and provide additional examples showing the operation
of the proposed rules. The Commission notes that Amendment No. 1
provides that split-price priority is available only to Complex QOO and
multi-leg QOO Orders with at least 100 contracts on each component leg
of the order and that a Floor Broker seeking split-price priority must
execute 50 or more contracts of each component leg at the permissible
ratio at the first price to obtain priority over the same number of
contracts at the next less aggressive price, thereby assuring that
split-price priority is available only to large Complex QOO and multi-
leg QOO Orders and that a Floor Broker must trade a substantial portion
of such an order at the first price to obtain split-price priority. In
addition, Amendment No. 1 revises the text of BOX Rule 7600(h) to add a
paragraph to the rule describing the operation of book sweep size for
Complex and multi-leg QOO Orders, thereby assuring that the text of the
rule indicates the availability and functioning of book sweep with
respect to these orders.\29\ The Commission believes that Amendment No.
1 provides additional clarity and detail to the rule text and
additional analysis and examples of several aspects of the proposal,
thereby facilitating the Commission's ability to make the findings set
forth above to approve the proposal. For these reasons, the Commission
finds good cause, pursuant to Section 19(b)(2) of the Act,\30\ to
approve the proposed rule change, as modified by Amendment No. 1, on an
accelerated basis.
---------------------------------------------------------------------------
\29\ The Notice included an example showing the use of book
sweep size for a Complex QOO Order. See Notice, 84 FR at 44956.
\30\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\31\ that the proposed rule change (SR-BOX-2019-24), as
modified by Amendment No. 1, is approved on an accelerated basis.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78s(b)(2).
\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-25961 Filed 11-29-19; 8:45 am]
BILLING CODE 8011-01-P