81 FR 51533 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Detail How Complex Orders Will Execute Through the Facilitation Auction Mechanism

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 150 (August 4, 2016)

Page Range		51533-51536
FR Document		2016-18471
Federal Register, Volume 81 Issue 150 (Thursday, August 4, 2016)
[Federal Register Volume 81, Number 150 (Thursday, August 4, 2016)]
[Notices]
[Pages 51533-51536]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-18471]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78444; File No. SR-BOX-2016-37]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Detail How Complex Orders Will Execute Through the Facilitation Auction 
Mechanism

July 29, 2016.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on July 26, 2016, BOX Options Exchange LLC (``BOX'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in

[[Page 51534]]

Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 detail how Complex Orders will execute 
through the Facilitation Auction mechanism. 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 Exchange 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 Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to detail how the 
Facilitation Auction mechanism will treat Complex Orders on the 
Exchange.\4\ Pursuant to BOX Rule 7270, the Exchange has two block-
sized auction mechanisms, the Facilitation Auction Mechanism and the 
Solicitation Auction Mechanism whereby Order Flow Providers (OFPs) can 
provide price improvement opportunities for a transaction where the OFP 
seeks to facilitate an order it represents as agent, and/or a 
transaction where the OFP solicited interest to execute against an 
order it represents as agent. Transactions executed through the 
Facilitation or Solicitation auction mechanisms are comprised of the 
order the OFP represents as agent (the ``Agency Order'') and the contra 
order for the full size of the Agency Order (either the 
``Facilitation'' or ``Solicitation'' Order).\5\ The contra order may 
represent interest for the Participant's own account or interest the 
Participant has solicited from one or more other parties, or a 
combination of both.
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    \4\ Complex Orders are not currently traded through the 
Facilitation Auction mechanism. Prior to implementation, BOX will 
issue an informational circular to inform Participants of the 
implementation date for Complex Orders to trade through the 
Facilitation Auction.
    \5\ The Exchange notes that it does not trade stock option 
orders.
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    This proposal only addresses how the Facilitation Auction mechanism 
will treat Complex Orders on the Exchange. Similar to the ISE's Block-
Trade rules,\6\ Complex Orders \7\ executed through the Facilitation 
auction on BOX function in substantially the same manner as single-leg 
orders executed through this mechanism. To detail how this mechanism 
treats Complex Orders, the Exchange proposes to insert IM-7270-7. IM-
7270-7 will state that Participants may use the Facilitation Mechanism 
according to paragraph (a) of Rule 7270 to execute block-size Complex 
Orders at a net price. The OFP must be willing to execute the entire 
size of the Agency Order through the submission of a contra order; and 
block-size Complex Orders executed through the Facilitation Mechanism 
will continue to be limited to Complex Orders of fifty (50) contracts 
per leg or more.\8\
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    \6\ See International Securities Exchange Rule 716 and 
Supplementary Material .08 to Rule 716.
    \7\ Under Rule 7240(a)(5) a ``Complex Order'' is defined as 
``any order involving the simultaneous purchase and/or sale of two 
or more different options series in the same underlying security, 
for the same account, in a ratio that is equal to or greater than 
one-to-three (.333) and less than or equal to three-to-one (3.00) 
and for the purpose of executing a particular investment strategy.) 
A Complex Order that does not meet this definition will be 
automatically rejected.
    \8\ Complex Orders comprised of less than fifty (50) contracts 
on each leg will automatically be rejected.
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    Upon the entry of a block-sized order into the Facilitation 
mechanism, a broadcast message will be sent to Options Participants, 
giving them one second to enter responses with the prices and sizes at 
which they would be willing to participate opposite the Agency Order 
(``Responses'').\9\ Responses to a Complex Order within the 
Facilitation Auction mechanism may be submitted for any size up to the 
size of the entire Complex Order, however, the Responses must be for 
all Legs of the unique Complex Order. Responses must be priced at the 
price of the Agency Order or at a better price and must not exceed the 
size of the Agency Order.\10\ At the end of the one second period for 
the entry of Responses, the block-sized Facilitation Complex Order will 
be automatically executed with the Agency Order.\11\ However, as is 
also the case for single-leg orders executed through the Facilitation 
mechanism, if the Facilitation Price is outside the NBBO at the end of 
the auction, the auction will be canceled.
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    \9\ The Exchange believes that 1 second is an adequate duration 
for the Facilitation Auction. Specifically, the Exchange believes 
customers are capable of responding within this duration and has not 
received any complaints regarding the duration of the Facilitation 
Auction broadcast since the mechanism was adopted in 2011.
    \10\ A Response that doesn't meet the requirements will be 
automatically rejected
    \11\ Assuming there are no Responses to the auction or interest 
on the BOX Book that could execute against the Agency Order.
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    Identical to the process for single-leg orders, Participants may 
enter Responses for Complex Orders in these auctions at net prices, and 
bids and offers for Complex Orders will participate in the execution of 
an order being executed as provided in paragraphs (a) and (b) of Rule 
7270. However, the execution rules for Complex Orders detailed in BOX 
Rule 7240(b)(2) and (3) will continue to apply.\12\ For example, if 
there is sufficient interest on the BOX Book for the individual legs to 
be executed at a permissible ratio, this ``Implied Order'' \13\ will 
have priority here and will execute against the Agency Order, provided 
that each of its component Legs is equal to or better than its 
respective NBBO.
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    \12\ The Exchange notes that this includes the Complex Order 
Filter outlined in BOX Rule 7240(b)(3)(iii).
    \13\ An ``Implied Order' is a Complex Order that is derived from 
the orders on the BOX Book for each component leg of a strategy.
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    If there is no execution against the Implied Order, the Agency 
Order can execute against the Complex Order interest. The priority 
rules for the Facilitation Auction,\14\ including the surrender 
quantity designation, will continue to apply. The following example 
illustrates the execution priority of interest on the BOX Book for a 
Complex Order within the Facilitation Auction. An OFP submits a Complex 
Order through the Facilitation Order to sell 500 A+B+C at $3.00. During 
the one second auction, BOX receives the following bids (offers) in 
time priority:
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    \14\ See BOX Rule 7270(a)(3).

(1) Market Maker Complex Order Response to buy 500 of A+B+C at $3.00
(2) Public Customer Complex Order Response to buy 40 A+B+C at $3.00

Interest on the BOX Book (Implied Order):

 Market Maker Option A--Order to buy 500 at $1.00
 Market Maker Option B--Order to buy 500 at $1.00
 Broker Dealer Option C--Order to buy 500 at $1.00


[[Page 51535]]


    Since it is possible to execute the entire Complex Order against 
interest on the BOX Book (Implied Order) at the same price, the sell 
order will execute against the bids on A, B and C at $1.00 for 100 
contracts each. And since this execution will exhaust the sell order, 
all the Responses, including the Public Customer's Response and the 
OFP's Facilitation Order will receive no trade allocation.
    The pricing provision in BOX Rule 7270(a)(3)(i) will apply to 
Public Customer Complex Orders and Public Customer Responses. If there 
is not sufficient size to execute the entire Agency Order at a better 
price and there are Public Customer Complex Order bids (offers) and 
Public Customer Responses on BOX at the time the Agency Order is 
executed that are priced higher (lower) than the facilitation price, 
these will maintain their price priority but execute at the 
Facilitation Price.\15\ Non-Public Customer and Market Maker bids 
(offers) and Non-Public Customer and Market Maker Responses on BOX at 
the time the Agency Order is executed that are priced higher (lower) 
than the facilitation price will be executed against the Agency Order 
at their stated price, providing the Agency Order [sic] execution at a 
better price for the number of contracts associated with such higher 
bids (lower offers) and Responses. When an Implied Order executes 
against an Agency Order, the Implied Order will be executed at its 
stated price.\16\
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    \15\ If there is sufficient interest to execute the Agency Order 
at a better price, Public Customer Complex Order bids (offers) will 
receive their stated price.
    \16\ See IM-7270-7. The Exchange notes that the provisions of 
BOX Rule 7270(a)(3)(i) do not apply to Implied Orders created from 
BOX Book interest.
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    The following example illustrates the allocation priority of BOX 
Rule 7270(a)(3)(ii). An OFP submits a Complex Order through the 
Facilitation auction to sell 500 A+B+C at $3.00. During the one second 
auction, BOX receives the following bids (offers) in time priority:

(1) Public Customer #1 Complex Order Response to buy 100 A+B+C at $3.00
(2) Public Customer #2 Complex Order Response to buy 100 A+B+C at $3.02
(3) Market Maker #1 Complex Order Response to buy 105 of A+B+C at $3.06
(4) Market Maker #2 Complex Order Response to buy 95 of A+B+C at $3.04

Interest on the BOX Book (Implied Order):

 Market Maker Option A--Order to buy 125 at $1.00
 Market Maker Option B--Order to buy 125 at $1.00
 Public Customer Option C--Order to buy 125 at $1.00

The Facilitated Complex Order will be allocated in the following order:

(1) 105 contracts at $3.06 to Market Maker #1 (price priority)
(2) 95 contracts at $3.04 to Market Maker #2 (price priority)
(3) 100 contracts at $3.00 to Public Customer #2 (the Public Customer 
retains its price priority, but executes at the facilitation price 
because there was not sufficient interest to execute the entire Agency 
Order at a Better Price)
(4) 125 contracts at $3.00 to BOX Book Interest (Implied Order) \17\
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    \17\ The Exchange notes that once an Implied Order is created 
from BOX Book interest, the Participant types composing the Implied 
Order are no longer relevant, and have no impact on execution and 
allocation priority.
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(5) 75 contracts at $3.00 to Public Customer #1 (remaining interest is 
allocated to the Public Customer at the facilitation price)

    The following example illustrates allocation priority of interest 
on the BOX Book over an OFP's allocation priority.\18\ An OFP submits a 
Complex Order through the Facilitation auction to sell 500 A+B+C at 
$3.00. During the one second auction, BOX receives the following bids 
(offers) in time priority:
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    \18\ Under BOX Rule 7270(a)(3)(ii) the OFP is entitled to at 
least 40% of the original size of the Facilitation Order after 
better-priced bids (offers) and Responses on BOX, as well as Public 
Customer bids (offers) and Responses at the facilitation price.

(1) Market Maker #1 Complex Order Response to buy 95 of A+B+C at $3.02
(2) Market Maker #2 Complex Order Response to buy 150 of A+B+C at $3.00

Interest on the BOX Book (Implied Order):

 Market Maker Option A--Order to buy 300 at $1.00
 Market Maker Option B--Order to buy 300 at $1.00
 Public Customer Option C--Order to buy 300 at $1.00

The Facilitated Complex Order will be allocated in the following order:

(1) 95 contracts at $3.02 to Market Maker #1 (price priority)
(2) 300 contracts at $3.00 to BOX Book Interest (Implied Order)
(3) 105 contracts at $3.00 to OFP's Facilitation Order (the OFP 
receives the remaining contracts as there is insufficient size to 
satisfy the full 40% allocation)

    The final example below illustrates allocation priority when the 
OFP has designated a surrender quantity under BOX Rule 7270(a)(3)(iii). 
An OFP submits a Complex Order through the Facilitation auction to sell 
300 A+B+C at $3.00 with a surrender quantity of 220. During the one 
second auction, BOX receives the following bids (offers) in time 
priority:

(1) Market Maker #1 Complex Order Response to buy 120 of A+B+C at $3.00

Interest on the BOX Book (Implied Order):

 Market Maker Option A--Order to buy 100 at $1.00
 Market Maker Option B--Order to buy 100 at $1.00
 Public Customer Option C--Order to buy 100 at $1.00

The Facilitated Complex Order will be allocated in the following order:

(1) 100 contracts at $3.00 to BOX Book Interest (Implied Order 
Priority)
(2) 80 contracts at $3.00 to OFP's Facilitation Order with a Surrender 
Quantity
(3) 120 contracts at $3.00 to Market Maker #1
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of section 6(b) of the Act,\19\ in general, and section 
6(b)(5) of the Act,\20\ in particular, in that it is 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. 
In particular, the Exchange believes that the proposed rule change to 
amend BOX Rule 7270 to provide for the execution of Complex Orders 
through the Facilitation Auction mechanism on BOX. [sic] This proposed 
rule change is designed to help BOX remain competitive among options 
exchanges and provide market participants additional opportunities to 
execute block-size crossing transactions.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The proposed change provides for the execution of Complex Orders 
through the Facilitation auction mechanism. As such, the Exchange does 
not believe that the proposed rule change will impose any burden on 
competition not

[[Page 51536]]

necessary or appropriate in furtherance of the purposes of the Act. The 
Exchange does not believe the proposal will impose any burden on 
intermarket competition, as the proposed rule will allow BOX to compete 
with other options exchanges in the industry. Specifically, ISE has a 
similar mechanism in place.\21\ Additionally, the Exchange does not 
believe the proposal will impose any burden on intramarket competition, 
as the Facilitation Auction mechanism is available to all Participants 
and all OFPs may submit orders through the mechanism.
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    \21\ See supra note 5.
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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

    (a) This proposed rule change is filed pursuant to paragraph (A) of 
section 19(b)(3) of the Exchange Act \22\ and Rule 19b-4(f)(6) 
thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
under the Exchange Act requires the Exchange to give the Commission 
written notice of the Exchange's 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. BOX has satisfied this requirement.
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    (b) Because 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, it has become effective pursuant 
to section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) 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 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-2016-37 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-2016-37. 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-2016-37 and should be 
submitted on or before August 25, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18471 Filed 8-3-16; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 81, No. 150 / Thursday, August 4, 2016 / Notices 51533

Framework.3 Finally, ICC added minor The risk model enhancements and submission, all subsequent
clarifying details to the technical clarifying changes apply uniformly amendments, all written statements
calculation descriptions set forth in the across all market participants. with respect to the proposed rule
ICC Risk Management Model Therefore, ICC does not believe the change that are filed with the
Description document, specifically in proposed rule changes impose any Commission, and all written
the Recovery Rate Sensitivity Risk burden on competition that is communications relating to the
Analysis, Interest Rate Sensitivity Risk inappropriate in furtherance of the proposed rule change between the
Analysis, Spread Risk Analysis, and purposes of the Act. Commission and any person, other than
Guaranty Fund Size Estimation sections. those that may be withheld from the
Section 17A(b)(3)(F) of the Act 4 C. Self-Regulatory Organization’s public in accordance with the
requires, among other things, that the Statement on Comments on the provisions of 5 U.S.C. 552, will be
rules of a clearing agency be designed to Proposed Rule Change Received From available for Web site viewing and
promote the prompt and accurate Members, Participants or Others printing in the Commission’s Public
clearance and settlement of securities Written comments relating to the Reference Room, 100 F Street NE.,
transactions and, to the extent proposed rule change have not been Washington, DC 20549, on official
applicable, derivative agreements, solicited or received. ICC will notify the business days between the hours of
contracts, and transactions and to Commission of any written comments 10:00 a.m. and 3:00 p.m. Copies of such
comply with the provisions of the Act received by ICC. filings will also be available for
and the rules and regulations inspection and copying at the principal
thereunder. ICC believes that the III. Date of Effectiveness of the
office of ICE Clear Credit and on ICE
proposed rule changes are consistent Proposed Rule Change and Timing for
Clear Credit’s Web site at https://
with the requirements of the Act and the Commission Action www.theice.com/clear-credit/regulation.
rules and regulations thereunder Within 45 days of the date of All comments received will be posted
applicable to ICC, in particular, to publication of this notice in the Federal without change; the Commission does
Section 17(A)(b)(3)(F),5 because ICC Register or within such longer period not edit personal identifying
believes that the proposed rule changes up to 90 days (i) as the Commission may information from submissions. You
will promote the prompt and accurate designate if it finds such longer period should submit only information that
clearance and settlement of securities to be appropriate and publishes its you wish to make available publicly. All
transactions, derivatives agreements, reasons for so finding or (ii) as to which submissions should refer to File
contracts, and transactions, as the the self-regulatory organization Number SR–ICC–2016–010 and should
proposed changes provide clarity and consents, the Commission will: be submitted on or before August 25,
enhance risk policies, resulting in (A) by order approve or disapprove 2016.
enhanced stability and conservative bias the proposed rule change or For the Commission, by the Division of
of requirements, and thereby facilitate (B) institute proceedings to determine Trading and Markets, pursuant to delegated
ICC’s ability to promptly and accurately whether the proposed rule change authority.9
clear and settle its cleared CDS should be disapproved. Robert W. Errett,
contracts. In addition, the proposed Deputy Secretary.
IV. Solicitation of Comments
revisions are consistent with the [FR Doc. 2016–18475 Filed 8–3–16; 8:45 am]
relevant requirements of Rule 17Ad– Interested persons are invited to
BILLING CODE 8011–01–P
22.6 In particular, the risk model submit written data, views, and
enhancements proposed in the Risk arguments concerning the foregoing,
Management Model Description including whether the proposed rule
SECURITIES AND EXCHANGE
document will enhance the financial change is consistent with the Act.
COMMISSION
resources available to the clearing house Comments may be submitted by any of
by promoting stability and conservative the following methods: [Release No. 34–78444; File No. SR–BOX–
bias of requirements, and are therefore 2016–37]
Electronic Comments
reasonably designed to meet the margin Self-Regulatory Organizations; BOX
and financial resource requirements of • Use the Commission’s Internet
comment form (http://www.sec.gov/ Options Exchange LLC; Notice of
Rule 17Ad–22(b)(2–3).7 The risk model Filing and Immediate Effectiveness of
enhancements will also result in a more rules/sro.shtml); or
transparent and simplified liquidity • Send an email to rule-comments@ a Proposed Rule Change To Detail
sec.gov. Please include File Number SR– How Complex Orders Will Execute
charge approach, and are therefore Through the Facilitation Auction
consistent with the requirements of Rule ICC–2016–010 on the subject line.
Mechanism
17Ad–22(d)(8).8 Paper Comments
July 29, 2016.
B. Self-Regulatory Organization’s Send paper comments in triplicate to
Pursuant to section 19(b)(1) 1 of the
Statement on Burden on Competition Secretary, Securities and Exchange
Securities Exchange Act of 1934 (the
ICC does not believe the proposed Commission, 100 F Street NE.,
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
rule changes would have any impact, or Washington, DC 20549–1090.
notice is hereby given that on July 26,
impose any burden, on competition. All submissions should refer to File 2016, BOX Options Exchange LLC
Number SR–ICC–2016–010. This file (‘‘BOX’’ or the ‘‘Exchange’’) filed with
number should be included on the
sradovich on DSK3GMQ082PROD with NOTICES

3 Staff has confirmed this statement, corrected to
the Securities and Exchange
conform with the proposed revised Risk subject line if email is used. To help the Commission (the ‘‘Commission’’) the
Management Framework filed with the Commission process and review your
Commission, with ICC via email on July 26, 2016. proposed rule change as described in
4 15 U.S.C. 78q–1(b)(3)(F). comments more efficiently, please use
5 Id. only one method. The Commission will 9 17 CFR 200.30–3(a)(12).
6 17 CFR 240.17Ad–22. post all comments on the Commission’s 1 15 U.S.C. 78s(b)(1).
7 17 CFR 240.17Ad–22(b)(2–3). Internet Web site (http://www.sec.gov/ 2 15 U.S.C. 78a.
8 17 CFR 240.17Ad–22(d)(8). rules/sro.shtml). Copies of the 3 17 CFR 240.19b–4.

VerDate Sep<11>2014 18:12 Aug 03, 2016 Jkt 238001 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 E:\FR\FM\04AUN1.SGM 04AUN1
51534 Federal Register / Vol. 81, No. 150 / Thursday, August 4, 2016 / Notices

Items I and II below, which Items have ‘‘Solicitation’’ Order).5 The contra order second period for the entry of
been prepared by the Exchange. The may represent interest for the Responses, the block-sized Facilitation
Commission is publishing this notice to Participant’s own account or interest the Complex Order will be automatically
solicit comments on the proposed rule Participant has solicited from one or executed with the Agency Order.11
change from interested persons. more other parties, or a combination of However, as is also the case for single-
both. leg orders executed through the
I. Self-Regulatory Organization’s This proposal only addresses how the
Statement of the Terms of Substance of Facilitation mechanism, if the
Facilitation Auction mechanism will Facilitation Price is outside the NBBO at
the Proposed Rule Change treat Complex Orders on the Exchange. the end of the auction, the auction will
The Exchange proposes to detail how Similar to the ISE’s Block-Trade rules,6 be canceled.
Complex Orders will execute through Complex Orders 7 executed through the Identical to the process for single-leg
the Facilitation Auction mechanism. Facilitation auction on BOX function in orders, Participants may enter
The text of the proposed rule change is substantially the same manner as single- Responses for Complex Orders in these
available from the principal office of the leg orders executed through this auctions at net prices, and bids and
Exchange, at the Commission’s Public mechanism. To detail how this offers for Complex Orders will
Reference Room and also on the mechanism treats Complex Orders, the participate in the execution of an order
Exchange’s Internet Web site at http:// Exchange proposes to insert IM–7270–7. being executed as provided in
boxexchange.com. IM–7270–7 will state that Participants paragraphs (a) and (b) of Rule 7270.
II. Self-Regulatory Organization’s may use the Facilitation Mechanism However, the execution rules for
Statement of the Purpose of, and according to paragraph (a) of Rule 7270 Complex Orders detailed in BOX Rule
Statutory Basis for, the Proposed Rule to execute block-size Complex Orders at 7240(b)(2) and (3) will continue to
Change a net price. The OFP must be willing to apply.12 For example, if there is
execute the entire size of the Agency sufficient interest on the BOX Book for
In its filing with the Commission, the Order through the submission of a
Exchange included statements the individual legs to be executed at a
contra order; and block-size Complex permissible ratio, this ‘‘Implied
concerning the purpose of and basis for Orders executed through the Facilitation
the proposed rule change and discussed Order’’ 13 will have priority here and
Mechanism will continue to be limited will execute against the Agency Order,
any comments it received on the to Complex Orders of fifty (50) contracts
proposed rule change. The text of these provided that each of its component
per leg or more.8 Legs is equal to or better than its
statements may be examined at the Upon the entry of a block-sized order
places specified in Item IV below. The respective NBBO.
into the Facilitation mechanism, a If there is no execution against the
Exchange has prepared summaries, set broadcast message will be sent to
forth in sections A, B, and C below, of Implied Order, the Agency Order can
Options Participants, giving them one execute against the Complex Order
the most significant parts of such second to enter responses with the
statements. interest. The priority rules for the
prices and sizes at which they would be Facilitation Auction,14 including the
(A) Self-Regulatory Organization’s willing to participate opposite the
surrender quantity designation, will
Statement of the Purpose of, and Agency Order (‘‘Responses’’).9
continue to apply. The following
Statutory Basis for, the Proposed Rule Responses to a Complex Order within example illustrates the execution
Change the Facilitation Auction mechanism priority of interest on the BOX Book for
may be submitted for any size up to the a Complex Order within the Facilitation
1. Purpose size of the entire Complex Order, Auction. An OFP submits a Complex
The purpose of the proposed rule however, the Responses must be for all Order through the Facilitation Order to
change is to detail how the Facilitation Legs of the unique Complex Order. sell 500 A+B+C at $3.00. During the one
Auction mechanism will treat Complex Responses must be priced at the price of second auction, BOX receives the
Orders on the Exchange.4 Pursuant to the Agency Order or at a better price following bids (offers) in time priority:
BOX Rule 7270, the Exchange has two and must not exceed the size of the
block-sized auction mechanisms, the Agency Order.10 At the end of the one (1) Market Maker Complex Order
Facilitation Auction Mechanism and the Response to buy 500 of A+B+C at
Solicitation Auction Mechanism 5 The Exchange notes that it does not trade stock $3.00
whereby Order Flow Providers (OFPs) option orders. (2) Public Customer Complex Order
can provide price improvement
6 See International Securities Exchange Rule 716 Response to buy 40 A+B+C at $3.00
and Supplementary Material .08 to Rule 716.
opportunities for a transaction where 7 Under Rule 7240(a)(5) a ‘‘Complex Order’’ is
Interest on the BOX Book (Implied
the OFP seeks to facilitate an order it defined as ‘‘any order involving the simultaneous Order):
represents as agent, and/or a transaction purchase and/or sale of two or more different • Market Maker Option A—Order to
where the OFP solicited interest to options series in the same underlying security, for buy 500 at $1.00
the same account, in a ratio that is equal to or
execute against an order it represents as
greater than one-to-three (.333) and less than or • Market Maker Option B—Order to buy
agent. Transactions executed through equal to three-to-one (3.00) and for the purpose of 500 at $1.00
the Facilitation or Solicitation auction executing a particular investment strategy.) A • Broker Dealer Option C—Order to buy
mechanisms are comprised of the order Complex Order that does not meet this definition 500 at $1.00
the OFP represents as agent (the will be automatically rejected.
8 Complex Orders comprised of less than fifty (50)
‘‘Agency Order’’) and the contra order contracts on each leg will automatically be rejected. 11 Assuming there are no Responses to the auction
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for the full size of the Agency Order 9 The Exchange believes that 1 second is an or interest on the BOX Book that could execute
(either the ‘‘Facilitation’’ or adequate duration for the Facilitation Auction. against the Agency Order.
12 The Exchange notes that this includes the
Specifically, the Exchange believes customers are
4 Complex Orders are not currently traded capable of responding within this duration and has Complex Order Filter outlined in BOX Rule
through the Facilitation Auction mechanism. Prior not received any complaints regarding the duration 7240(b)(3)(iii).
to implementation, BOX will issue an informational of the Facilitation Auction broadcast since the 13 An ‘‘Implied Order’ is a Complex Order that is

circular to inform Participants of the mechanism was adopted in 2011. derived from the orders on the BOX Book for each
implementation date for Complex Orders to trade 10 A Response that doesn’t meet the requirements component leg of a strategy.
through the Facilitation Auction. will be automatically rejected 14 See BOX Rule 7270(a)(3).

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Federal Register / Vol. 81, No. 150 / Thursday, August 4, 2016 / Notices 51535

Since it is possible to execute the • Market Maker Option A—Order to The final example below illustrates
entire Complex Order against interest on buy 125 at $1.00 allocation priority when the OFP has
the BOX Book (Implied Order) at the • Market Maker Option B—Order to buy designated a surrender quantity under
same price, the sell order will execute 125 at $1.00 BOX Rule 7270(a)(3)(iii). An OFP
against the bids on A, B and C at $1.00 • Public Customer Option C—Order to submits a Complex Order through the
for 100 contracts each. And since this buy 125 at $1.00 Facilitation auction to sell 300 A+B+C
execution will exhaust the sell order, all The Facilitated Complex Order will be at $3.00 with a surrender quantity of
the Responses, including the Public allocated in the following order: 220. During the one second auction,
Customer’s Response and the OFP’s (1) 105 contracts at $3.06 to Market BOX receives the following bids (offers)
Facilitation Order will receive no trade Maker #1 (price priority) in time priority:
allocation. (2) 95 contracts at $3.04 to Market (1) Market Maker #1 Complex Order
The pricing provision in BOX Rule Maker #2 (price priority) Response to buy 120 of A+B+C at
7270(a)(3)(i) will apply to Public (3) 100 contracts at $3.00 to Public $3.00
Customer Complex Orders and Public Customer #2 (the Public Customer Interest on the BOX Book (Implied
Customer Responses. If there is not retains its price priority, but Order):
sufficient size to execute the entire executes at the facilitation price
Agency Order at a better price and there • Market Maker Option A—Order to
because there was not sufficient buy 100 at $1.00
are Public Customer Complex Order interest to execute the entire
bids (offers) and Public Customer • Market Maker Option B—Order to buy
Agency Order at a Better Price) 100 at $1.00
Responses on BOX at the time the (4) 125 contracts at $3.00 to BOX Book
Agency Order is executed that are • Public Customer Option C—Order to
Interest (Implied Order) 17 buy 100 at $1.00
priced higher (lower) than the (5) 75 contracts at $3.00 to Public
facilitation price, these will maintain The Facilitated Complex Order will be
Customer #1 (remaining interest is
their price priority but execute at the allocated in the following order:
allocated to the Public Customer at
Facilitation Price.15 Non-Public the facilitation price) (1) 100 contracts at $3.00 to BOX Book
Customer and Market Maker bids Interest (Implied Order Priority)
(offers) and Non-Public Customer and The following example illustrates (2) 80 contracts at $3.00 to OFP’s
Market Maker Responses on BOX at the allocation priority of interest on the Facilitation Order with a Surrender
time the Agency Order is executed that BOX Book over an OFP’s allocation Quantity
are priced higher (lower) than the priority.18 An OFP submits a Complex (3) 120 contracts at $3.00 to Market
facilitation price will be executed Order through the Facilitation auction Maker #1
against the Agency Order at their stated to sell 500 A+B+C at $3.00. During the
one second auction, BOX receives the 2. Statutory Basis
price, providing the Agency Order [sic]
execution at a better price for the following bids (offers) in time priority: The Exchange believes that the
number of contracts associated with (1) Market Maker #1 Complex Order proposal is consistent with the
such higher bids (lower offers) and Response to buy 95 of A+B+C at requirements of section 6(b) of the
Responses. When an Implied Order $3.02 Act,19 in general, and section 6(b)(5) of
executes against an Agency Order, the (2) Market Maker #2 Complex Order the Act,20 in particular, in that it is
Implied Order will be executed at its Response to buy 150 of A+B+C at designed to prevent fraudulent and
stated price.16 $3.00 manipulative acts and practices, to
The following example illustrates the Interest on the BOX Book (Implied promote just and equitable principles of
allocation priority of BOX Rule Order): trade, to remove impediments to, and
7270(a)(3)(ii). An OFP submits a • Market Maker Option A—Order to perfect the mechanism of, a free and
Complex Order through the Facilitation buy 300 at $1.00 open market and a national market
auction to sell 500 A+B+C at $3.00. • Market Maker Option B—Order to buy system, and, in general, to protect
During the one second auction, BOX 300 at $1.00 investors and the public interest. In
receives the following bids (offers) in • Public Customer Option C—Order to particular, the Exchange believes that
time priority: buy 300 at $1.00 the proposed rule change to amend BOX
(1) Public Customer #1 Complex Order The Facilitated Complex Order will be Rule 7270 to provide for the execution
Response to buy 100 A+B+C at allocated in the following order: of Complex Orders through the
$3.00 Facilitation Auction mechanism on
(2) Public Customer #2 Complex Order (1) 95 contracts at $3.02 to Market
BOX. [sic] This proposed rule change is
Response to buy 100 A+B+C at Maker #1 (price priority)
designed to help BOX remain
$3.02 (2) 300 contracts at $3.00 to BOX Book
competitive among options exchanges
(3) Market Maker #1 Complex Order Interest (Implied Order)
and provide market participants
Response to buy 105 of A+B+C at (3) 105 contracts at $3.00 to OFP’s
additional opportunities to execute
$3.06 Facilitation Order (the OFP receives
block-size crossing transactions.
(4) Market Maker #2 Complex Order the remaining contracts as there is
Response to buy 95 of A+B+C at insufficient size to satisfy the full (B) Self-Regulatory Organization’s
$3.04 40% allocation) Statement on Burden on Competition
Interest on the BOX Book (Implied 17 The Exchange notes that once an Implied Order
The proposed change provides for the
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Order): is created from BOX Book interest, the Participant execution of Complex Orders through
types composing the Implied Order are no longer the Facilitation auction mechanism. As
15 If there is sufficient interest to execute the relevant, and have no impact on execution and such, the Exchange does not believe that
Agency Order at a better price, Public Customer allocation priority. the proposed rule change will impose
Complex Order bids (offers) will receive their stated 18 Under BOX Rule 7270(a)(3)(ii) the OFP is
price. entitled to at least 40% of the original size of the
any burden on competition not
16 See IM–7270–7. The Exchange notes that the Facilitation Order after better-priced bids (offers)
19 15 U.S.C. 78f(b).
provisions of BOX Rule 7270(a)(3)(i) do not apply and Responses on BOX, as well as Public Customer
to Implied Orders created from BOX Book interest. bids (offers) and Responses at the facilitation price. 20 15 U.S.C. 78f(b)(5).

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Document Created: 2016-08-04 02:53:37
Document Modified: 2016-08-04 02:53:37
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 51533