[Federal Register Volume 88, Number 121 (Monday, June 26, 2023)]
[Notices]
[Pages 41437-41439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13458]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97772; File No. SR-BOX-2023-02]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend BOX Rule 
4120 (Transactions of Certain Public Customers) and BOX Rule 100 
(Definitions) and Adopt IM-4120-1

June 20, 2023.
    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 June 5, 2023, BOX Exchange LLC (the ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared primarily by the Exchange. The Exchange filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\4\ such that the proposed rule change was 
immediately effective upon filing with the Commission. The Commission 
is publishing this notice to solicit comments on the proposed rule from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend BOX Rule 4120 (Transactions of 
Certain Public Customers) and BOX Rule 100 (Definitions) and adopt IM-
4120-1. 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 https://rules.boxexchange.com/rulefilings.

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 amend BOX Rule 4120 (Transactions of 
Certain Public Customers) and BOX Rule 100 (Definitions) and adopt IM-
4120-1. The purpose of the proposed rule change is to amend the BOX 
Rule that governs interested transactions to, among other things, 
clarify that clearing firms are not intended to be included within the 
scope of BOX Rule 4120. The Exchange notes that the proposed changes 
are similar to the scope of activities covered by existing rules at 
other options exchanges.\5\
---------------------------------------------------------------------------

    \5\ See NYSE Rule 407 and NYSE American Rule 407. The Exchange 
believes NYSE and NYSE American similarly do not include clearing 
firms within the scope of their rules.
---------------------------------------------------------------------------

Rule 4120 and Proposed IM-4120-1
    Presently, BOX Rule 4120 prohibits an OFP,\6\ without prior 
consent, from executing any transaction in securities or carrying a 
position in any security in which: (1) an officer or employee of the 
Exchange or any national securities exchange that is a participant of 
the Clearing Corporation,\7\ or an officer or employee of a corporation 
in which the Exchange, or such other exchange owns the majority of the 
capital stock, is directly or indirectly interested; or (2) a partner, 
officer, director, principal shareholder or employee of another OFP is 
directly or indirectly interested. In such circumstances, the OFP is 
required to receive written consent from the Exchange or consent of the 
other OFP prior to taking such action.
---------------------------------------------------------------------------

    \6\ 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 BOX Rule 100(a)(47). The term ``Customer Order'' means 
an agency order for the account of either a Public Customer, as 
defined herein, or a broker-dealer. See BOX Rule 100(a)(18). 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 Rule 8000 Series. All Market 
Makers are designated as specialists on the Exchange for all 
purposes under the Exchange Act or Rules thereunder. The term 
``Public Customer'' means a person that is not a broker or dealer in 
securities. See BOX Rule 100(a)(53).
    \7\ The term ``Clearing Corporation'' or ``OCC'' means The 
Options Clearing Corporation.
---------------------------------------------------------------------------

    This Rule 4120 is intended to govern conflicts of interest and 
regulate interested transactions.\8\ The Rule prohibits OFPs from 
engaging in specified interested actions without obtaining prior 
written consent from the Exchange or consent of the other OFP prior to 
taking such action. For example, under Rule 4120, an OFP may not 
execute a transaction in a security in which an employee of the 
Exchange is directly interested, without first obtaining written 
consent from the Exchange. The Exchange is proposing to amend BOX Rule 
4120 to clarify that clearing firms are not intended to be included 
within the scope of BOX Rule 4120. Specifically, the Exchange is 
proposing to add ``open a securities or commodities account'' and 
remove ``in securities or carry a position in any security'' within BOX 
Rule 4120(a) to amend the scope of this requirement, which is in line 
with the scope and language of other exchanges.\9\ The Exchange 
believes that this change removes unintended parties from the scope of 
the rule and thus allows for more effective supervision of interested 
transactions. At present, due to the broad language within Rule 4120(a) 
stating that no OFP shall ``carry a position in any security'' clearing 
firms are being captured within the scope of the Rule. The Exchange is 
proposing to amend Rule 4120 to remove the language relating to 
carrying a position in a security to clarify that clearing firms are 
not included in the scope of this Rule due to only carrying a position, 
which the Exchange believes is in line with the intent of the rule and 
existing practices at other exchanges.\10\
---------------------------------------------------------------------------

    \8\ BOX Rule 4120 governs direct or indirect conflicts of 
interest involving officers or employees of the Exchange or any 
national securities exchange that is a participant of the OCC, an 
officer or employee of a corporation in which the Exchange, or such 
other exchange owns the majority of the capital stock, and partners, 
officers, directors, principal shareholders or employees of another 
OFP. See BOX Rule 4120.
    \9\ See supra note 3.
    \10\ Id.

---------------------------------------------------------------------------

[[Page 41438]]

    The proposed amended language within BOX Rule 4120(a) would 
provide, ``No OFP shall open a securities or commodities account or 
execute any transaction in which: (1) an officer or employee of the 
Exchange or any national securities exchange that is a participant of 
the Clearing Corporation, or an officer or employee of a corporation in 
which the Exchange, or such other exchange owns the majority of the 
capital stock, is directly or indirectly interested, without the prior 
written consent of the Exchange; or (2) a partner, officer, director, 
principal shareholder or employee of another OFP is directly or 
indirectly interested, without the consent of such other OFP.'' Rule 
4120 also requires that where the required consent has been granted, 
duplicate reports of the transaction and position shall promptly be 
sent to the Exchange or OFP, as the case may be. Additionally, the 
Exchange is proposing to adopt language to provide that the Exchange 
may, upon written request, and where good cause is shown, waive any 
requirements of Rule 4120. The Exchange notes that this proposed waiver 
language is identical to language found within NYSE American Rule 407 
and NYSE Rule 407.\11\ The Exchange believes that the adoption of this 
provision will provide the Exchange with greater flexibility, to allow 
for more effective and efficient supervision of the interested 
transactions that are governed by Rule 4120.
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

    The Exchange is also proposing to adopt IM-4120-1. Proposed IM-
4120-1 would provide that the term ``securities or commodities 
accounts'' as used in Rule 4120 shall include, but not be limited to, 
limited or general partnership interests in investment partnerships. As 
part of the proposed changes detailed above, the Exchange is adopting 
language within Rule 4120(a) to provide that no OFP shall ``open a 
securities or commodities account.'' The Exchange believes that 
adopting IM-4120-1, which provides that for the purposes of Rule 4120, 
securities or commodities accounts also include limited or general 
partnership interests in investment partnerships, will reduce the 
potential for investor confusion regarding what is included within the 
scope of the Rule. Additionally, proposed IM-4120-1 would require OFPs 
to develop and maintain written procedures for reviewing such accounts 
and transactions and assure that their associated persons are not 
improperly recommending or marketing such securities or products to 
others through Participants \12\ or Participant organizations. At 
present, Rule 4120 is silent on the requirements for how an OFP must 
ensure compliance with this Rule. The Exchange is now proposing to 
adopt language codifying the requirement for OFPs to develop and 
maintain written procedures for reviewing these transactions and 
accounts. The Exchange believes that OFPs already maintain such written 
procedures in practice and is looking to codify the requirement for 
clarity. The Exchange is adopting IM-4120-1 to provide more clarity on 
what is covered under the term ``securities or commodities accounts,'' 
and the obligation for OFPs to develop related written procedures.
---------------------------------------------------------------------------

    \12\ The term ``Participant'' means a firm, or organization that 
is registered with the Exchange pursuant to the Rule 2000 Series for 
purposes of participating in trading on a facility of the Exchange 
and includes an ``Options Participant'' and ``BSTX Participant.''
---------------------------------------------------------------------------

    The Exchange believes that proposed IM-4120-1, which provides 
greater clarity on the requirements of Rule 4120, will allow for more 
effective regulatory compliance. The Exchange also notes that proposed 
IM-4120-1 is substantively identical to an existing rule at NYSE 
American and NYSE.\13\
---------------------------------------------------------------------------

    \13\ See NYSE American Rule 407, Supplementary Material .11 and 
NYSE Rule 407, Supplementary Material .11.
---------------------------------------------------------------------------

Technical Amendments
    In addition to the proposed amendments, the Exchange is proposing 
to amend Rule 100(a)(16) to update the cross references to the rules of 
the OCC within the definition of the term ``covered short position.'' 
The OCC has amended their Rule 610 since BOX adopted Rule 100(a)(16), 
so the Exchange is proposing to update the OCC cross references within 
BOX Rule 100(a)(16). The Exchange is proposing to update the cross 
reference to OCC Rule 610(f) to 610(A) and 610(B) and the cross 
reference to OCC Rule 610(g) to 610(C).\14\ The Exchange is not 
proposing to make any substantive changes to Rule 100(a)(16).
---------------------------------------------------------------------------

    \14\ See OCC Rules 610A (Member Specific Deposits), 610B (Third-
Party Specific Deposits), and 610C (Escrow Deposits).
---------------------------------------------------------------------------

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''),\15\ in general, and Section 6(b)(5) of the Act,\16\ 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Rule 4120 and Proposed IM-4120-1
    Together, the proposed amendment of Rule 4120 and the proposed 
adoption of IM-4120-1 are intended to amend the BOX Rule governing 
conflicts of interest by updating and adopting rules that regulate 
interested transactions.\17\ Specifically, the proposed changes are 
intended to clarify that clearing firms are not intended to be included 
within the scope of BOX Rule 4120. The Exchange believes that the 
proposed rule change may reduce potential investor or market 
participant confusion over which BOX Participants are covered under 
scope of BOX Rule 4120. As such, the proposed rule change would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------

    \17\ See supra notes 3 and 11.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed rule change may result 
in more efficient regulatory compliance, as the proposed updates are 
similar in relevant part to existing rules at NYSE American and 
NYSE.\18\ As such, the Exchange believes that the proposed rule change 
is in the public interest and therefore, is consistent with the Act.
---------------------------------------------------------------------------

    \18\ Id.
---------------------------------------------------------------------------

Technical Changes
    In addition, the Exchange believes that the proposed non-
substantive clarifying changes described above to update the OCC cross 
references within BOX Rule 100(a)(16) would add clarity to the 
Exchange's rules. The Exchange believes that adding such clarity would 
also be consistent with the public interest and the protection of 
investors because investors will not be harmed and in fact would 
benefit from increased clarity, thereby reducing potential confusion. 
In addition, the Exchange believes that amending the OCC cross 
references to accurately reflect the updated section numbers within the 
OCC Rulebook would promote fairness and consistency in the marketplace 
by providing investors with access to the appropriate citations as 
detailed within the Rules of the OCC. The proposed

[[Page 41439]]

change is not intended to make any substantive change to the definition 
of ``covered short position'' within the BOX Rulebook.

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 to 
clarify that clearing firms are not intended to be included within the 
scope of BOX Rule 4120. The Exchange notes that, the proposed updates 
are similar in relevant part to existing rules at NYSE American and 
NYSE.\19\ The proposed rule change does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
---------------------------------------------------------------------------

    \19\ See supra notes 3 and 11.
---------------------------------------------------------------------------

    The proposed rule change is not designed to address any competitive 
issues but rather to clarify that clearing firms are not intended to be 
included within the scope of BOX Rule 4120. The Exchange's proposal to 
amend BOX Rule 4120 does not impose an undue burden on competition as 
all Participants that conduct business with the public would be subject 
to the proposed rules.
    The proposed rule change is not designed to address any competitive 
issues but rather seeks to clarify that clearing firms are not intended 
to be included within the scope of BOX Rule 4120. The Exchange's 
proposal to adopt proposed IM-4120-1 does not impose an undue burden on 
competition as all Participants that conduct business with the public 
would be subject to the proposed rules.
Technical Amendments
    The Exchange's proposal to amend BOX Rule 100(a)(16) to update the 
cross references to the rules of the OCC within the definition of the 
term ``covered short position'' is a non-substantive amendment.

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

    (a) This proposed rule change is filed pursuant to paragraph (A) of 
section 19(b)(3) of the Exchange Act \20\ and Rule 19b-4(f)(6) 
thereunder.\21\
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    (b) This proposed rule change does not significantly affect the 
protection of investors or the public interest, does not impose any 
significant burden on competition, and, by its terms, does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest.
    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-2023-02 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-2023-02. 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, on official business days between the hours of 10:00 
a.m. and 3:00 p.m., located at 100 F Street NE, Washington, DC 20549. 
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-2023-02 and 
should be submitted on or before July 17, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-13458 Filed 6-23-23; 8:45 am]
BILLING CODE 8011-01-P