80 FR 30291 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Authorize the Exchange To Share Any Participant-Designated Risk Settings in the Trading System With the Clearing Participant That Clears Transactions on Behalf of the Participant

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 101 (May 27, 2015)

[Federal Register Volume 80, Number 101 (Wednesday, May 27, 2015)]
[Notices]
[Pages 30291-30293]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-12686]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75001; File No. SR-BOX-2015-20]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To 
Authorize the Exchange To Share Any Participant-Designated Risk 
Settings in the Trading System With the Clearing Participant That 
Clears Transactions on Behalf of the Participant

May 20, 2015.
    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 May 13, 2015, 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 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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[[Page 30292]]

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

    The Exchange proposes to amend BOX Rule 7000 (Access to and Conduct 
on the BOX Market) to authorize the Exchange to share any Participant-
designated risk settings in the trading system with the Clearing 
Participant that clears transactions on behalf of the Participant. 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 Web site at http://boxexchange.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 amend BOX Rule 7000 (Access to and Conduct 
on the BOX Market) to authorize the Exchange to share any Participant-
designated risk settings in the trading system with the Clearing 
Participant \3\ that clears transactions on behalf of the 
Participant.\4\ Rule 7000 states that ``[u]nless otherwise provided in 
the Rules, no one but an Options Participant or a person associated 
with an Options Participant shall effect any BOX Transactions.'' \5\ 
The Exchange proposes to amend the rule by adding the following 
sentence: ``The Exchange may share any Participant-designated risk 
settings in the trading system with the Clearing Participant that 
clears transactions on behalf of the Participant.'' This is a 
competitive filing that is based on a proposal recently submitted by 
the International Securities Exchange, LLC (``ISE'').\6\
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    \3\ The term ``Clearing Participant'' means an Options 
Participant that is self-clearing or an Options Participant that 
clears BOX Transactions for other Options Participants of BOX. See 
Rule 100(a)(13).
    \4\ The term ``Options Participant'' or ``Participant'' means a 
firm, or organization that is registered with the Exchange pursuant 
to the Rule 2000 Series for purposes of participating in options 
trading on BOX as an ``Order Flow Provider'' or ``Market Maker''. 
See Rule 100(a)(40).
    \5\ See Rule 7000(a).
    \6\ See Securities Exchange Act Release No. 74623 (April 1, 
2015), 80 FR 18447 (April 6, 2015) (Notice of SR-ISE-2015-12).
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    Rule 7200 provides that every Clearing Participant shall be 
responsible for the clearance of BOX Transactions \7\ of such Clearing 
Participants and of each Participant that gives up such Clearing 
Participant's name pursuant to a letter of authorization, letter of 
guarantee or other authorization given by such Clearing Participant to 
such Participant, which authorization must be submitted to the 
Exchange.\8\ The Exchange believes that because Clearing Participants 
guarantee all transactions on behalf of a Participant, and therefore, 
bear the risk associated with those transactions, it is appropriate for 
Clearing Participants to have knowledge of what risk settings a 
Participant may utilize within the trading system.
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    \7\ The term ``BOX Transaction'' means a transaction involving 
an options contract that is effected on or through BOX or its 
facilities or systems. See Rule 100(a)(8).
    \8\ See Rule 7200(b).
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    The Exchange notes that while not all Participants are Clearing 
Participants, all Participants require a Clearing Participant's consent 
to clear transactions on their behalf in order to conduct business on 
the Exchange. As the Clearing Participant ultimately bears all the risk 
for a trade they clear on any Participant's behalf, the Exchange 
believes it is reasonable to provide Clearing Participants with 
information relating to the risk settings used by each Participant 
whose transactions they are clearing. To the extent that a Clearing 
Participant might reasonably require a Participant to provide access to 
its risk settings as a prerequisite to continue to clear trades on the 
Participant's behalf, the Exchange's proposal to share those risk 
settings directly reduces the administrative burden on Participants and 
ensures that Clearing Participants are receiving information that is 
up-to-date and conforms to the settings active in the trading system.
    The Exchange further notes that any broker-dealer is free to become 
a clearing member of the Options Clearing Corporation (the ``OCC''), 
which would enable that Participant to avoid sharing risk settings with 
any third party, if they so choose. For these reasons, the Exchange 
believes that the proposal is consistent with the Act as it provides 
Clearing Participants with additional risk-related information that may 
aid them in complying with the Act, notably Rule 15c3-5 and, as noted, 
Participants that do not wish to share such settings with a Clearing 
Participant can do so by becoming a clearing member of the OCC.
    The risk settings that would be shared pursuant to the proposed 
rule are currently codified in Rule 8130.\9\ The risk settings are 
designed to mitigate the potential risks of multiple executions against 
a Participant's trading interest that, in today's highly automated and 
electronic trading environment, can occur simultaneously across 
multiple series and multiple option classes. The proposed rule will 
allow the Exchange to share a Participant's risk settings with the 
Clearing Participant that guarantees the Participant's transactions, 
and therefore has a financial interest in understanding the risk 
tolerance of a Participant.
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    \9\ Under BOX Rule 8130 there are five triggering parameters 
that Market Makers can enable on a class-by-class basis. These are 
when the Market Maker: (1) Experiences a duration of no technical 
connectivity for between one and nine seconds; (2) trades a 
specified number of contracts in the aggregate across all series of 
an options class; (3) trades a specified absolute dollar value of 
contracts bought and sold in a class; (4) trades a specified number 
of contracts in a class of the net between (i) calls purchased plus 
puts sold, and (ii) calls sold and puts purchased; or, (5) trades a 
specified absolute dollar value of the net position in a class 
between (i) calls purchased and sold, (ii) puts and calls purchased; 
(iii) puts purchased and sold; or (iv) puts and calls sold.
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    Because the letter of guarantee codifies the relationship between a 
Participant and the Clearing Participant, the Exchange is on notice of 
which Clearing Participants have relationships with which Participants. 
The proposed rule change would simply provide the Exchange with 
authority to directly provide Clearing Participants with information 
that may otherwise be available to such Clearing Participants by virtue 
of their relationship with the respective Participant.
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''),\10\ in general, and Section 6(b)(5) of the Act,\11\ 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

[[Page 30293]]

general to protect investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change removes 
impediments to and perfects the mechanism of a free and open market by 
codifying that the Exchange may directly provide to Clearing 
Participants which guarantee that Participant's transactions on the 
Exchange the Participant-designated risk settings in the trading 
system, which are designed to mitigate the potential risk of ``rapid 
fire'' executions that could result in large and unintended principal 
positions and expose the Participant to unnecessary market risk. The 
Exchange believes that the proposed rule change is consistent with the 
protection of investors and the public interest because it will permit 
Clearing Participants with a financial interest in a Participant's risk 
settings to better monitor and manage the potential risks assumed by 
Participants with whom the Clearing Participant has entered into a 
letter of guarantee, thereby providing Clearing Participants with 
greater control and flexibility over setting their own risk tolerance 
and exposure.

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 as a 
response to a filing submitted by ISE.\12\ The proposed rule change is 
not designed to address any competitive issues and does not pose an 
undue burden on non-Clearing Participants because, unlike Clearing 
Participants, non-Clearing Participants do not guarantee the execution 
of a Participant's BOX Transactions. The proposed rule change would 
provide authority for the Exchange to directly share risk settings with 
Clearing Participants regarding the Participants with whom the Clearing 
Participant has executed a letter of guarantee so the Clearing 
Participant can better monitor and manage the potential risks assumed 
by the Participants, thereby providing them with greater control and 
flexibility over setting their own risk tolerance and exposure. The 
proposed rule change is structured to offer the same enhancement to all 
Clearing Participants, regardless of size, and would not impose a 
competitive burden on any participant.
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    \12\ See supra, note 6.
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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) of the Act \13\ and Rule 19b-
4(f)(6) \14\ thereunder. 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 will 
institute proceedings to determine whether the proposed rule change 
should be approved or disapproved.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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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-2015-20 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-2015-20. 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 Web site (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 Web site 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 will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BOX-2015-20 and should be 
submitted on or before June 17, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12686 Filed 5-26-15; 8:45 am]
 BILLING CODE 8011-01-P