81 FR 7853 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 7070 (Opening the Market) To Implement a New Price Protection Feature for the Opening

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 30 (February 16, 2016)

Page Range		7853-7856
FR Document		2016-02987
Federal Register, Volume 81 Issue 30 (Tuesday, February 16, 2016)
[Federal Register Volume 81, Number 30 (Tuesday, February 16, 2016)]
[Notices]
[Pages 7853-7856]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-02987]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77095; File No. SR-BOX-2016-04]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Rule 7070 (Opening the Market) To Implement a New Price 
Protection Feature for the Opening

February 9, 2016.
    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 January 27, 2016, BOX Options Exchange LLC (the ``Exchange'') filed 
with the Securities and Exchange Commission

[[Page 7854]]

(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7070 (Opening the Market) to 
implement a new price protection feature for the opening. 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 Rule 7070 (Opening the Market) to 
enhance the price protections available during the opening by providing 
a process that helps mitigate the potential risk associated with orders 
and quotes trading at prices substantially away from the best available 
prices on other exchanges.
Background
    The Exchange currently employs certain protections during opening. 
Specifically, from the time that the Trading Host \3\ commences 
accepting orders and quotes at the start of the Pre-Opening Phase,\4\ 
the Trading Host will calculate and provide the Theoretical Opening 
Price (``TOP'') for the current resting orders and quotes on the BOX 
Book \5\ during the Pre-Opening Phase. The TOP is that price at which 
the Opening Match \6\ would occur at the current time, if that time 
were the opening, according to the Opening Match procedures described 
in Rule 7070(e). The quantity that would trade at this price is also 
calculated. The TOP is re-calculated and disseminated every time a new 
order or quote is received, modified or cancelled and where such event 
causes the TOP price or quantity to change. A TOP can only be 
calculated if an opening trade is possible. An opening trade is 
possible if: i) the BOX Book is crossed (highest bid is higher than the 
lowest offer) or locked (highest bid equals lowest offer), or ii) there 
are Market or Market-on-Opening Orders in the BOX Book and at least one 
order or quote on the opposite side of the market.
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    \3\ The term ``Trading Host'' means the automated trading system 
used by BOX for the trading of options contracts. See Rule 
100(a)(66).
    \4\ For some period of time of not less than one hour before the 
opening in the underlying security, the Trading Host will accept 
orders and quotes. During this period, known as the Pre-Opening 
Phase, orders and quotes are placed on the BOX Book but do not 
generate trade executions. Complex Orders and contingency orders 
(except ``Market-on-Opening'' orders) do not participate in the 
opening and are not accepted by the BOX Trading Host during this 
Pre-Opening Phase. Price Improvement Period orders and Complex Order 
Price Improvement Period orders are not accepted during the Pre-
Opening Phase.
    \5\ The term ``BOX Book'' means the electronic book of orders on 
each single option series maintained by the Trading Host. See Rule 
100(a)(10).
    \6\ The Opening Match is the process employed by the Exchange to 
open a series for trading. See Rule 7070(e).
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    Complex Orders and contingency orders do not participate in the 
Opening Match or in the determination of the opening price. The Trading 
Host establishes the opening price at the time of the Opening Match. 
The opening price is the TOP at the moment of the Opening Match. The 
Trading Host will process the series of a class in a random order, 
starting promptly after the opening for trading of the underlying 
security in the primary market. The TOP/opening price of a series is 
the ``market clearing'' price which will leave bids and offers which 
cannot trade with each other. In determining the priority of orders to 
be filled, the Trading Host gives priority to Market Orders first, then 
to Market-on-Opening orders, then to Limit Orders whose price is better 
than the opening price, and then to resting orders on the BOX Book at 
the opening price.
    The Exchange currently applies a protection mechanism that delays 
the opening of trading in the event of unusual quoting activity in a 
particular series or class of options. The BOX Trading Host will not 
open a series if one of the following conditions is met: (i) A Market 
Maker's quote crosses the TOP by more than ``P'' percent plus ``x'' 
amount \7\ of the theoretical opening price, or (ii) if the sum of the 
volume for all of the series within a class exceeds ``y'' series or 
``z'' contracts.\8\
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    \7\ The Market Regulation Center (``MRC'') shall distribute what 
the appropriate ``P'' percent and ``x'' amount is for each series 
via Regulatory Circular.
    \8\ The MRC shall distribute what the appropriate ``y'' series 
and ``z'' contracts are for each class via Regulatory Circular.
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Proposal
    The Exchange is now proposing to enhance the opening protections on 
the Exchange. Specifically, BOX is proposing to implement a new price 
protection feature designed to prevent orders and quotes on the opening 
from trading at prices that are away from the best available prices on 
other exchanges. The Exchange believes that the below-described 
protection feature will enhance the existing functionality and assist 
with the maintenance of fair and orderly markets by providing an 
automated process that helps mitigate the potential risks associated 
with orders and quotes trading at prices that are substantially away 
from the best available prices on other exchanges (thereby resulting in 
executions at prices that are extreme and potentially erroneous).
    As mentioned above, the Exchange calculates a TOP which is the 
price that the Opening Match would occur at the current time, if that 
time were the opening. The Exchange is now proposing to enhance the 
opening procedures to add a price protection which will validate the 
TOP against the best available prices on other exchanges, or if no TOP 
can be calculated because an opening trading is not possible, validate 
the highest Bid (lowest Ask) Limit Order or quote price against the 
best available prices on other exchanges. Specifically, the Exchange 
will not open trading if the TOP, or when there is no TOP, the highest 
Bid (lowest Ask) Limit Order or quote, is not at a valid price. For 
purposes of this rule filing, a valid price is a price that is equal to 
or within the High Limit and Low Limit; these Limits give a range of 
the acceptable prices that the opening can occur (``Acceptable Price 
Range'').\9\ The High Limit is the Away Best Offer (``ABO'') \10\ plus 
the Price Collar and the Low Limit

[[Page 7855]]

is the Away Best Bid (``ABB'') \11\ minus the Price Collar. If there is 
no ABB, the Low Limit is calculated by subtracting the Price Collar 
from the ABO. The proposed price protection feature will only apply to 
options that are multiply listed; it will not cover options that are 
exclusive to the Exchange. This is because the proposed price 
protection requires there to be prices available on other exchanges 
that can be used to calculate the Acceptable Price Range.
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    \9\ For Limit Orders and quotes when there is no TOP, if the Bid 
(Ask) price is equal to or lower than (higher than) the High (Low) 
Limit, then the Bid (Ask) price is valid and the series can open. 
See Proposed Rule 7070(m)(2).
    \10\ The ``ABO'' is the NBO not including the Exchange's Best 
Offer.
    \11\ The ``ABB'' is the NBB not including the Exchange's Best 
Bid.
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Price Collar
    The Price Collar is calculated by taking the acceptable number of 
ticks \12\ that the order or quote can trade away from the ABBO.\13\ 
The acceptable number of ticks is then multiplied by the minimum 
trading increment \14\ applicable to that series. The acceptable number 
of ticks will be determined by the Exchange on an underlying security 
basis.\15\ Unless determined otherwise by the Exchange and announced to 
Participants via Informational Circular, the acceptable number of ticks 
for all option series shall be three (3) ticks. The Price Collar is 
designed to give an acceptable range for orders or quotes to execute 
based on the best available market prices on other exchanges.
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    \12\ The term ``tick'' refers to one minimum trading increment 
for that option series.
    \13\ The ``ABBO'' is the NBBO not including the Exchange's Best 
Bid/Offer.
    \14\ See Rule 7050.
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    For example, if the Exchange determines that the acceptable number 
of ticks for a series that has a minimum trading increment of a penny 
($0.01) is three (3), the Price Collar applicable to that series will 
be $0.03 (3 * $0.01). If the series has an ABO of $1.25 and ABB of 
$1.20, then the High Limit would be $1.28 and the Low Limit would be 
$1.17 giving an Acceptable Price Range of $1.28 to $1.17. If the TOP is 
within or equal to the outside limits of the Acceptable Price Range, 
the TOP is at a valid price and the Exchange can open the series. If, 
however, no TOP is available but there is a Limit Order or quote 
present, it will be evaluated. Specifically, if the Bid (Ask) price of 
the highest Bid (lowest Ask) Limit Order or quote price is equal to or 
lower than (higher than) the High (Low) Limit, then the Bid (Ask) price 
is valid and the series can open.\16\
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    \16\ For example, if there is a Limit Order to buy at $1.25 it 
would be less than or equal to the High Limit of $1.30, therefore it 
would be at a valid price and the Exchange could open the series.
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Dynamic Opening Process
    If the proposed price protection prevents a series from opening, 
the Exchange will initiate a dynamic opening iteration process.\17\ 
Specifically, if the TOP, or if a TOP is not present, the highest Bid 
(lowest Ask) Limit Order or quote price, is not at a valid price the 
Exchange will initiate the dynamic opening iteration process outlined 
below. The Exchange will also initiate the dynamic opening process when 
the ABO and ABB prices are crossed or no ABO for the series exists.\18\ 
This proposed process will reevaluate whether a series can open for 
trading whenever there is an update to the TOP, ABO, ABB, or the 
highest Bid (lowest Ask) Limit Order or quote price, when applicable. 
When an update is received by the Exchange, the Exchange will 
reevaluate whether the TOP (or the highest Bid (lowest Ask) Limit 
Order/quote price) is now within or equal to the limits of the 
Acceptable Price Range. If the ABO and/or the ABB are updated, the 
system will recalculate the High Limit and Low Limit and therefore an 
updated Acceptable Price Range will be calculated by the system. If the 
TOP (or the highest Bid (lowest Ask) Limit Order/quote price) is now 
within or equal to the limits of the new Acceptable Price Range, the 
system will allow the series to open at the price of the TOP (or the 
highest Bid (lowest Ask) Limit Order/quote price). If, instead, the 
system receives an update to the TOP or, the highest Bid (lowest Ask) 
Limit Order or quote price, when applicable, the system will evaluate 
the updated price to determine if it is within or equal to the limits 
of the Acceptable Price Range. If the updated price is now within or 
equal to the limits of the Acceptable Price Range, the system will 
allow the series to open at the updated price. This proposed process 
will continue until the TOP (or the highest Bid (lowest Ask) Limit 
Order/quote price) is within or equal to the limits of the Acceptable 
Price Range, or the Exchange intervenes and manually opens the series.
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    \17\ See proposed Rule 7070(m)(3).
    \18\ See proposed Rule 7070(m)(1)(C).
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    For example, assume again that a series has an ABO of $1.25 and ABB 
of $1.20 and a Price Collar of $0.03, thereby giving it an Acceptable 
Price Range of $1.28 to $1.17. Assume the TOP is at $1.33 so the system 
will not allow the series to open because it is outside of the 
Acceptable Price Range. If the system receives an updated ABO of $1.30, 
the new High Limit will be $1.33 and the Acceptable Price Range will be 
$1.33 to $1.17. The TOP will now be within or equal to the limits of 
the Acceptable Price Range so the series can open. If instead of 
receiving an update to the ABO, assume the system receives an updated 
TOP of $1.25. The new TOP is within the Acceptable Price Range of $1.28 
to $1.17 so the series will be allowed to open.
    The Exchange notes that the current protections at the opening will 
continue to apply; the proposed opening protections are designed to 
enhance the Exchange's current offerings, not replace them.\19\ 
Additionally, the Exchange may deviate from the proposed price 
protections at the open. Specifically, the Exchange can deviate from 
the standard manner of the opening procedure when it believes it is 
necessary in the interest of a fair and orderly market.\20\
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    \19\ The current protection in Rule 7070(g), that prevents a 
series from opening when a Market Maker's quote crosses the TOP by a 
certain amount, will occur after the TOP is validated by the 
proposed price protection.
    \20\ See Rule 7070(k).
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    The Exchange will provide Participants with notice, via Information 
Circular, about the implementation date of the proposed enhancements to 
the price protections.
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''),\21\ in general, and Section 6(b)(5) of the Act,\22\ 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, by enhancing the risk protections available to 
Participants. In particular, the propose [sic] rule change is 
consistent with these requirements in that it will reduce the negative 
impacts of sudden, unanticipated volatility in individual options, and 
serve to preserve an orderly market in a transparent and uniform 
manner, increase overall market confidence, and promote fair and 
orderly markets and the protection of investors. Specifically, BOX 
believes that the ABBO is a fair representation of then-available 
prices at the opening and accordingly the proposal helps to avoid 
executions at prices that are significantly worse than the ABBO. 
Additionally, the Exchange believes the proposal promotes policy goals 
of the Commission which has encouraged execution venues, exchange

[[Page 7856]]

and non-exchange alike, to enhance risk protection tools and other 
mechanisms to decrease risk and increase stability.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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    BOX believes the proposed price protection functionality will 
remove impediments to and perfect the mechanism of a free and open 
market by providing greater control over the prices at which the 
opening occurs. Additionally, the Exchange believes that the proposed 
protection feature for the opening will enhance the existing 
functionality and assist with the maintenance of fair and orderly 
markets by providing an automated process that helps mitigate the 
potential risks associated with orders and quotes trading at prices 
that are substantially away from the best available prices on other 
exchanges (thereby resulting in executions at prices that are extreme 
and potentially erroneous).

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. BOX believes the proposal will 
provide market participants with additional price protection while 
submitting orders and quotes to the Exchange. The Exchange does not 
believe the proposal will impose a burden on competition among the 
options exchanges, because of vigorous competition for order flow among 
the options exchanges. The Exchange competes with many other options 
exchanges. In this highly competitive market, market participants can 
easily and readily direct order flow to competition venues.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \23\ and Rule 19b-4(f)(6) thereunder.\24\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \23\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \24\ 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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    A proposed rule change filed under Rule 19b-4(f)(6) \25\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\26\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the Exchange 
may implement the proposed price protections as soon as possible, which 
will benefit all market participants. In support of its request, the 
Exchange states the proposed rule change is designed to prevent 
executions on the opening at prices substantially away from the best 
prices available on other exchanges. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposed rule change 
operative upon filing.\27\
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    \25\ 17 CFR 240.19b-4(f)(6).
    \26\ 17 CFR 240.19b-4(f)(6)(iii).
    \27\ For purposes only of waiving the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

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-2016-04 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-2016-04. 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 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; 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-2016-04 and should be 
submitted on or before March 8, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-02987 Filed 2-12-16; 8:45 am]
BILLING CODE 8011-01-P
7854 Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices

(‘‘Commission’’) the proposed rule calculate and provide the Theoretical (i) A Market Maker’s quote crosses the
change as described in Items I and II Opening Price (‘‘TOP’’) for the current TOP by more than ‘‘P’’ percent plus ‘‘x’’
below, which Items have been prepared resting orders and quotes on the BOX amount 7 of the theoretical opening
by the self-regulatory organization. The Book 5 during the Pre-Opening Phase. price, or (ii) if the sum of the volume for
Commission is publishing this notice to The TOP is that price at which the all of the series within a class exceeds
solicit comments on the proposed rule Opening Match 6 would occur at the ‘‘y’’ series or ‘‘z’’ contracts.8
from interested persons. current time, if that time were the
opening, according to the Opening Proposal
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of Match procedures described in Rule The Exchange is now proposing to
the Proposed Rule Change 7070(e). The quantity that would trade enhance the opening protections on the
at this price is also calculated. The TOP Exchange. Specifically, BOX is
The Exchange proposes to amend is re-calculated and disseminated every
Rule 7070 (Opening the Market) to proposing to implement a new price
time a new order or quote is received,
implement a new price protection protection feature designed to prevent
modified or cancelled and where such
feature for the opening. The text of the orders and quotes on the opening from
event causes the TOP price or quantity
proposed rule change is available from trading at prices that are away from the
to change. A TOP can only be calculated
the principal office of the Exchange, at best available prices on other exchanges.
if an opening trade is possible. An
the Commission’s Public Reference The Exchange believes that the below-
opening trade is possible if: i) the BOX
Room and also on the Exchange’s described protection feature will
Book is crossed (highest bid is higher
Internet Web site at http:// enhance the existing functionality and
than the lowest offer) or locked (highest
boxexchange.com. assist with the maintenance of fair and
bid equals lowest offer), or ii) there are
orderly markets by providing an
II. Self-Regulatory Organization’s Market or Market-on-Opening Orders in
the BOX Book and at least one order or automated process that helps mitigate
Statement of the Purpose of, and the potential risks associated with
Statutory Basis for, the Proposed Rule quote on the opposite side of the
market. orders and quotes trading at prices that
Change are substantially away from the best
Complex Orders and contingency
In its filing with the Commission, the orders do not participate in the Opening available prices on other exchanges
self-regulatory organization included Match or in the determination of the (thereby resulting in executions at
statements concerning the purpose of, opening price. The Trading Host prices that are extreme and potentially
and basis for, the proposed rule change establishes the opening price at the time erroneous).
and discussed any comments it received of the Opening Match. The opening As mentioned above, the Exchange
on the proposed rule change. The text price is the TOP at the moment of the calculates a TOP which is the price that
of these statements may be examined at Opening Match. The Trading Host will the Opening Match would occur at the
the places specified in Item IV below. process the series of a class in a random current time, if that time were the
The self-regulatory organization has order, starting promptly after the opening. The Exchange is now
prepared summaries, set forth in opening for trading of the underlying proposing to enhance the opening
Sections A, B, and C below, of the most security in the primary market. The procedures to add a price protection
significant aspects of such statements. TOP/opening price of a series is the which will validate the TOP against the
A. Self-Regulatory Organization’s ‘‘market clearing’’ price which will best available prices on other exchanges,
Statement of the Purpose of, and leave bids and offers which cannot trade or if no TOP can be calculated because
Statutory Basis for, the Proposed Rule with each other. In determining the an opening trading is not possible,
Change priority of orders to be filled, the validate the highest Bid (lowest Ask)
Trading Host gives priority to Market Limit Order or quote price against the
1. Purpose Orders first, then to Market-on-Opening best available prices on other exchanges.
The Exchange proposes to amend orders, then to Limit Orders whose price Specifically, the Exchange will not open
Rule 7070 (Opening the Market) to is better than the opening price, and trading if the TOP, or when there is no
enhance the price protections available then to resting orders on the BOX Book TOP, the highest Bid (lowest Ask) Limit
during the opening by providing a at the opening price. Order or quote, is not at a valid price.
process that helps mitigate the potential The Exchange currently applies a For purposes of this rule filing, a valid
risk associated with orders and quotes protection mechanism that delays the price is a price that is equal to or within
trading at prices substantially away opening of trading in the event of the High Limit and Low Limit; these
from the best available prices on other unusual quoting activity in a particular Limits give a range of the acceptable
exchanges. series or class of options. The BOX prices that the opening can occur
Background Trading Host will not open a series if (‘‘Acceptable Price Range’’).9 The High
one of the following conditions is met: Limit is the Away Best Offer (‘‘ABO’’) 10
The Exchange currently employs
certain protections during opening. plus the Price Collar and the Low Limit
Book but do not generate trade executions. Complex
Specifically, from the time that the Orders and contingency orders (except ‘‘Market-on-
7 The Market Regulation Center (‘‘MRC’’) shall
Trading Host 3 commences accepting Opening’’ orders) do not participate in the opening
and are not accepted by the BOX Trading Host distribute what the appropriate ‘‘P’’ percent and ‘‘x’’
orders and quotes at the start of the Pre- during this Pre-Opening Phase. Price Improvement amount is for each series via Regulatory Circular.
Opening Phase,4 the Trading Host will Period orders and Complex Order Price 8 The MRC shall distribute what the appropriate
mstockstill on DSK4VPTVN1PROD with NOTICES

Improvement Period orders are not accepted during ‘‘y’’ series and ‘‘z’’ contracts are for each class via
3 The term ‘‘Trading Host’’ means the automated the Pre-Opening Phase. Regulatory Circular.
trading system used by BOX for the trading of 5 The term ‘‘BOX Book’’ means the electronic 9 For Limit Orders and quotes when there is no

options contracts. See Rule 100(a)(66). book of orders on each single option series TOP, if the Bid (Ask) price is equal to or lower than
4 For some period of time of not less than one maintained by the Trading Host. See Rule (higher than) the High (Low) Limit, then the Bid
hour before the opening in the underlying security, 100(a)(10). (Ask) price is valid and the series can open. See
the Trading Host will accept orders and quotes. 6 The Opening Match is the process employed by Proposed Rule 7070(m)(2).
During this period, known as the Pre-Opening the Exchange to open a series for trading. See Rule 10 The ‘‘ABO’’ is the NBO not including the

Phase, orders and quotes are placed on the BOX 7070(e). Exchange’s Best Offer.

VerDate Sep<11>2014 22:15 Feb 12, 2016 Jkt 238001 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 E:\FR\FM\16FEN1.SGM 16FEN1
Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices 7855

is the Away Best Bid (‘‘ABB’’) 11 minus Exchange will initiate a dynamic update to the ABO, assume the system
the Price Collar. If there is no ABB, the opening iteration process.17 receives an updated TOP of $1.25. The
Low Limit is calculated by subtracting Specifically, if the TOP, or if a TOP is new TOP is within the Acceptable Price
the Price Collar from the ABO. The not present, the highest Bid (lowest Ask) Range of $1.28 to $1.17 so the series will
proposed price protection feature will Limit Order or quote price, is not at a be allowed to open.
only apply to options that are multiply valid price the Exchange will initiate The Exchange notes that the current
listed; it will not cover options that are the dynamic opening iteration process protections at the opening will continue
exclusive to the Exchange. This is outlined below. The Exchange will also to apply; the proposed opening
because the proposed price protection initiate the dynamic opening process protections are designed to enhance the
requires there to be prices available on when the ABO and ABB prices are Exchange’s current offerings, not replace
other exchanges that can be used to crossed or no ABO for the series them.19 Additionally, the Exchange may
calculate the Acceptable Price Range. exists.18 This proposed process will deviate from the proposed price
reevaluate whether a series can open for protections at the open. Specifically, the
Price Collar Exchange can deviate from the standard
trading whenever there is an update to
The Price Collar is calculated by the TOP, ABO, ABB, or the highest Bid manner of the opening procedure when
taking the acceptable number of ticks 12 (lowest Ask) Limit Order or quote price, it believes it is necessary in the interest
that the order or quote can trade away when applicable. When an update is of a fair and orderly market.20
from the ABBO.13 The acceptable received by the Exchange, the Exchange The Exchange will provide
number of ticks is then multiplied by will reevaluate whether the TOP (or the Participants with notice, via Information
the minimum trading increment 14 highest Bid (lowest Ask) Limit Order/ Circular, about the implementation date
applicable to that series. The acceptable quote price) is now within or equal to of the proposed enhancements to the
number of ticks will be determined by the limits of the Acceptable Price Range. price protections.
the Exchange on an underlying security If the ABO and/or the ABB are updated, 2. Statutory Basis
basis.15 Unless determined otherwise by the system will recalculate the High
the Exchange and announced to Limit and Low Limit and therefore an The Exchange believes that the
Participants via Informational Circular, updated Acceptable Price Range will be proposal is consistent with the
the acceptable number of ticks for all calculated by the system. If the TOP (or requirements of Section 6(b) of the
option series shall be three (3) ticks. The the highest Bid (lowest Ask) Limit Securities Exchange Act of 1934 (the
Price Collar is designed to give an Order/quote price) is now within or ‘‘Act’’),21 in general, and Section 6(b)(5)
acceptable range for orders or quotes to equal to the limits of the new of the Act,22 in particular, in that it is
execute based on the best available Acceptable Price Range, the system will designed to prevent fraudulent and
market prices on other exchanges. allow the series to open at the price of manipulative acts and practices, to
For example, if the Exchange the TOP (or the highest Bid (lowest Ask) promote just and equitable principles of
determines that the acceptable number Limit Order/quote price). If, instead, the trade, to foster cooperation and
of ticks for a series that has a minimum system receives an update to the TOP coordination with persons engaged in
trading increment of a penny ($0.01) is or, the highest Bid (lowest Ask) Limit facilitating transactions in securities, to
three (3), the Price Collar applicable to Order or quote price, when applicable, remove impediments to and perfect the
that series will be $0.03 (3 * $0.01). If the system will evaluate the updated mechanism of a free and open market
the series has an ABO of $1.25 and ABB price to determine if it is within or and a national market system, and, in
of $1.20, then the High Limit would be equal to the limits of the Acceptable general to protect investors and the
$1.28 and the Low Limit would be $1.17 Price Range. If the updated price is now public interest, by enhancing the risk
giving an Acceptable Price Range of within or equal to the limits of the protections available to Participants. In
$1.28 to $1.17. If the TOP is within or Acceptable Price Range, the system will particular, the propose [sic] rule change
equal to the outside limits of the allow the series to open at the updated is consistent with these requirements in
Acceptable Price Range, the TOP is at a price. This proposed process will that it will reduce the negative impacts
valid price and the Exchange can open continue until the TOP (or the highest of sudden, unanticipated volatility in
the series. If, however, no TOP is Bid (lowest Ask) Limit Order/quote individual options, and serve to
available but there is a Limit Order or price) is within or equal to the limits of preserve an orderly market in a
quote present, it will be evaluated. the Acceptable Price Range, or the transparent and uniform manner,
Specifically, if the Bid (Ask) price of the Exchange intervenes and manually increase overall market confidence, and
highest Bid (lowest Ask) Limit Order or opens the series. promote fair and orderly markets and
quote price is equal to or lower than For example, assume again that a the protection of investors. Specifically,
(higher than) the High (Low) Limit, then series has an ABO of $1.25 and ABB of BOX believes that the ABBO is a fair
the Bid (Ask) price is valid and the $1.20 and a Price Collar of $0.03, representation of then-available prices
series can open.16 thereby giving it an Acceptable Price at the opening and accordingly the
Dynamic Opening Process Range of $1.28 to $1.17. Assume the proposal helps to avoid executions at
TOP is at $1.33 so the system will not prices that are significantly worse than
If the proposed price protection allow the series to open because it is the ABBO. Additionally, the Exchange
prevents a series from opening, the outside of the Acceptable Price Range. believes the proposal promotes policy
11 The ‘‘ABB’’ is the NBB not including the
If the system receives an updated ABO goals of the Commission which has
Exchange’s Best Bid.
of $1.30, the new High Limit will be encouraged execution venues, exchange
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12 The term ‘‘tick’’ refers to one minimum trading $1.33 and the Acceptable Price Range
increment for that option series. will be $1.33 to $1.17. The TOP will 19 The current protection in Rule 7070(g), that

13 The ‘‘ABBO’’ is the NBBO not including the
now be within or equal to the limits of prevents a series from opening when a Market
Exchange’s Best Bid/Offer. Maker’s quote crosses the TOP by a certain amount,
14 See Rule 7050.
the Acceptable Price Range so the series will occur after the TOP is validated by the
16 For example, if there is a Limit Order to buy
can open. If instead of receiving an proposed price protection.
20 See Rule 7070(k).
at $1.25 it would be less than or equal to the High
17 See proposed Rule 7070(m)(3). 21 15 U.S.C. 78f(b).
Limit of $1.30, therefore it would be at a valid price
and the Exchange could open the series. 18 See proposed Rule 7070(m)(1)(C). 22 15 U.S.C. 78f(b)(5).

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7856 Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices

and non-exchange alike, to enhance risk Significantly affect the protection of Electronic Comments
protection tools and other mechanisms investors or the public interest; (ii)
to decrease risk and increase stability. impose any significant burden on • Use the Commission’s Internet
BOX believes the proposed price competition; and (iii) become operative comment form (http://www.sec.gov/
protection functionality will remove prior to 30 days from the date on which rules/sro.shtml); or
impediments to and perfect the it was filed, or such shorter time as the • Send an email to rule-comments@
mechanism of a free and open market by Commission may designate, if sec.gov. Please include File Number SR–
providing greater control over the prices consistent with the protection of BOX–2016–04 on the subject line.
at which the opening occurs. investors and the public interest, the
Additionally, the Exchange believes that proposed rule change has become Paper Comments
the proposed protection feature for the effective pursuant to Section 19(b)(3)(A)
opening will enhance the existing • Send paper comments in triplicate
of the Act and Rule 19b–4(f)(6)(iii)
functionality and assist with the to Secretary, Securities and Exchange
thereunder.
maintenance of fair and orderly markets A proposed rule change filed under Commission, 100 F Street NE.,
by providing an automated process that Rule 19b–4(f)(6) 25 normally does not Washington, DC 20549–1090.
helps mitigate the potential risks become operative prior to 30 days after All submissions should refer to File
associated with orders and quotes the date of the filing. However, pursuant Number SR–BOX–2016–04. This file
trading at prices that are substantially to Rule 19b4(f)(6)(iii),26 the Commission number should be included on the
away from the best available prices on may designate a shorter time if such subject line if email is used. To help the
other exchanges (thereby resulting in action is consistent with the protection
executions at prices that are extreme Commission process and review your
of investors and the public interest. The comments more efficiently, please use
and potentially erroneous). Exchange has asked the Commission to only one method. The Commission will
B. Self-Regulatory Organization’s waive the 30-day operative delay so that post all comments on the Commission’s
Statement on Burden on Competition the Exchange may implement the
Internet Web site (http://www.sec.gov/
proposed price protections as soon as
The Exchange does not believe that rules/sro.shtml). Copies of the
possible, which will benefit all market
the proposed rule change will impose submission, all subsequent
participants. In support of its request,
any burden on competition not amendments, all written statements
the Exchange states the proposed rule
necessary or appropriate in furtherance with respect to the proposed rule
change is designed to prevent
of the purposes of the Act. BOX believes change that are filed with the
executions on the opening at prices
the proposal will provide market Commission, and all written
substantially away from the best prices
participants with additional price communications relating to the
protection while submitting orders and available on other exchanges. The
Commission believes that waiving the proposed rule change between the
quotes to the Exchange. The Exchange Commission and any person, other than
does not believe the proposal will 30-day operative delay is consistent
with the protection of investors and the those that may be withheld from the
impose a burden on competition among
public interest. Therefore, the public in accordance with the
the options exchanges, because of
vigorous competition for order flow Commission hereby waives the provisions of 5 U.S.C. 552, will be
among the options exchanges. The operative delay and designates the available for Web site viewing and
Exchange competes with many other proposed rule change operative upon printing in the Commission’s Public
options exchanges. In this highly filing.27 Reference Room, 100 F Street NE.,
competitive market, market participants At any time within 60 days of the Washington, DC 20549 on official
can easily and readily direct order flow filing of the proposed rule change, the business days between the hours of
to competition venues. Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of such
temporarily suspend such rule change if filing also will be available for
C. Self-Regulatory Organization’s it appears to the Commission that such inspection and copying at the principal
Statement on Comments on the action is necessary or appropriate in the office of the Exchange. All comments
Proposed Rule Change Received From public interest, for the protection of
Members, Participants, or Others received will be posted without change;
investors, or otherwise in furtherance of the Commission does not edit personal
The Exchange has neither solicited the purposes of the Act. If the identifying information from
nor received comments on the proposed Commission takes such action, the
submissions. You should submit only
rule change. Commission shall institute proceedings
information that you wish to make
to determine whether the proposed rule
III. Date of Effectiveness of the should be approved or disapproved. available publicly. All submissions
Proposed Rule Change and Timing for should refer to File Number SR–BOX–
Commission Action IV. Solicitation of Comments 2016–04 and should be submitted on or
The Exchange has filed the proposed Interested persons are invited to before March 8, 2016.
rule change pursuant to Section submit written data, views and For the Commission, by the Division of
19(b)(3)(A)(iii) of the Act 23 and Rule arguments concerning the foregoing, Trading and Markets, pursuant to delegated
19b–4(f)(6) thereunder.24 Because the including whether the proposed rule authority.28
proposed rule change does not: (i) change is consistent with the Act. Brent J. Fields,
Comments may be submitted by any of
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Secretary.
23 15 U.S.C. 78s(b)(3)(A)(iii). the following methods:
24 17 CFR 240.19b–4(f)(6). As required under Rule [FR Doc. 2016–02987 Filed 2–12–16; 8:45 am]
19b–4(f)(6)(iii), the Exchange provided the BILLING CODE 8011–01–P
25 17 CFR 240.19b–4(f)(6).
Commission with written notice of its intent to file
26 17 CFR 240.19b–4(f)(6)(iii).
the proposed rule change, along with a brief
description and the text of the proposed rule 27 For purposes only of waiving the operative date

change, at least five business days prior to the date of this proposal, the Commission has considered
of filing of the proposed rule change, or such the proposed rule’s impact on efficiency,
shorter time as designated by the Commission. competition, and capital formation. 15 U.S.C. 78c(f). 28 17 CFR 200.30–3(a)(12).

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Document Created: 2016-02-13 03:13:39
Document Modified: 2016-02-13 03:13:39
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 7853