81 FR 7873 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Add Rule 7310 (Drill-Through Protection) To Implement a New Price Protection Feature
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 30 (February 16, 2016)
Federal Register Volume 81, Issue 30 (February 16, 2016)
| Page Range | 7873-7876 | |
| FR Document | 2016-02985 |
[Federal Register Volume 81, Number 30 (Tuesday, February 16, 2016)] [Notices] [Pages 7873-7876] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-02985] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77092; File No. SR-BOX-2016-03] Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Add Rule 7310 (Drill-Through Protection) To Implement a New Price Protection Feature 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 (``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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to add Rule 7310 (Drill-through Protection) to implement a new price protection feature. 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 is proposing to adopt a mechanism that will prevent BOX from experiencing dramatic price swings. Specifically, the Exchange proposes to add Rule 7310 (Drill-through Protection) to implement a new price protection feature on BOX. The new price protection feature is designed to prevent orders and quotes from drilling through and executing at multiple price points. This circumstance can exist if, for example, a Market Order,\3\ or aggressively priced Limit Order \4\ or quote is entered that is larger than the total volume of contracts quoted at the top-of-book across all U.S. options exchanges.\5\ Currently, without any protections in place, this could result in options executing at prices that have little or no relation to the theoretical price of the option. --------------------------------------------------------------------------- \3\ Market Orders submitted to BOX are executed at the best price obtainable for the total quantity available when the order reaches the BOX market. Any remaining quantity is executed at the next best price available for the total quantity available. This process continues until the Market Order is fully executed. Prior to execution at each price level, Market Orders are filtered pursuant to the procedures set forth in Rule 7130(b) to avoid trading through the NBBO. See Rule 7110(c)(3). \4\ Limit Orders entered into the BOX Book are executed at the price stated or better. Any residual volume left after part of a Limit Order has traded is retained in the BOX Book until it is withdrawn or traded (unless a designation described in Rule7110(d) is added which prevents the untraded part of a limit order from being retained). All Limit Orders (with the exception of those with a Good 'Til Cancelled (``GTC'') designation as described in Rule 7110(d)(1)) are automatically withdrawn by the Trading Host at market close. \5\ There are currently 12 options exchanges. --------------------------------------------------------------------------- For example, in a thinly traded option: Away Exchanges ---------------------------------------------------------------------------------------------------------------- Exchange Bid size Bid price Offer price Offer size ---------------------------------------------------------------------------------------------------------------- Away Exchange #1................................ 5 $2.00 $2.05 5 Away Exchange #2................................ 5 2.00 2.10 5 Away Exchange #3................................ 5 2.00 2.10 5 Away Exchange #4................................ 5 2.00 2.15 5 ---------------------------------------------------------------------------------------------------------------- [[Page 7874]] BOX Price Levels ---------------------------------------------------------------------------------------------------------------- Exchange Bid size Bid price Offer price Offer size ---------------------------------------------------------------------------------------------------------------- BOX order....................................... 5 $2.00 $2.05 5 BOX order....................................... .............. .............. 2.10 5 BOX order....................................... .............. .............. 3.20 5 BOX order....................................... .............. .............. 6.00 5 ---------------------------------------------------------------------------------------------------------------- If the Exchange receives a routable Market Order to buy 50 contracts, the system will respond as described below: 5 Contracts will be executed at $2.05 against BOX. 5 contracts will be executed at $2.05 against Away Exchange #1.\6\ --------------------------------------------------------------------------- \6\ Prior to routing an order to an Away Exchange, the order is first exposed on the BOX Book at the NBBO. See Rule 7130(b)(3). --------------------------------------------------------------------------- 5 contracts will be executed at $2.10 against BOX. 5 contracts will be executed at $2.10 against Away Exchange #2. 5 contracts will be executed at $2.10 against Away Exchange #3. 5 contracts will be executed at $2.15 against Away Exchange #4. After these executions, there are no other known valid away exchange quotes. The National Best Bid/Offer (``NBBO'') is therefore comprised of the remaining interest on the BOX Book,\7\ specifically five (5) contracts at $3.20 and five (5) contracts at $6.00. In the absence of a price protection mechanism, the order would execute against the remaining interest at $3.20 and $6.00, resulting in a potential unexpected fill price. --------------------------------------------------------------------------- \7\ The term ``BOX Book'' means the electronic book of orders on each single option series maintained by the BOX Trading Host. See Rule 100(a)(10). --------------------------------------------------------------------------- To bolster the normal resilience and market behavior that persistently produces robust reference prices, BOX is proposing to create a level of protection that prevents the market from moving beyond set thresholds. The thresholds consist of a High Limit and Low Limit \8\ which give an acceptable range for the order or quote to execute. When an order or quote is initially received by the Trading Host,\9\ the Exchange will calculate the High Limit and Low Limit. These Limits present the applicable trading range within which the order or quote may execute (``Acceptable Trade Range''); an order or quote to buy (sell) will be allowed to execute up (down) to and including the maximum (minimum) price within the Acceptable Trade Range. The High Limit is calculated by adding the Price Collar,\10\ as defined in further detail below, to the National Best Offer (``NBO'') and the Low Limit is calculated by subtracting the Price Collar from the National Best Bid (``NBB'').\11\ If the NBBO on the opposite side of the order or quote is not available, the NBBO on the same side will be used for calculating the Limits.\12\ For Complex Orders, the cNBBO \13\ will be used when calculating the Limits. The High Limit and Low Limit are established upon initial entry of the order or quote; therefore, the Acceptable Trade Range remains the same for the complete processing of the order or quote. --------------------------------------------------------------------------- \8\ See Proposed Rule 7310(b). \9\ The term ``Trading Host'' means the automated trading system used by BOX for the trading of options contracts. See Rule 100(a)(66). \10\ See Proposed Rule 7310(b)(1). \11\ See propose Rule 7310(b). \12\ See proposed Rule 7310(b)(4). \13\ The term ``cNBBO'' means the best net bid and offer price for a Complex Order Strategy based on the NBBO for the individual options components of such Strategy. --------------------------------------------------------------------------- The Price Collar is calculated by first determining the acceptable number of ticks \14\ that an order or quote can trade away from the NBBO at the time the order or quote was received. The acceptable number of ticks is then multiplied by the minimum trading increment \15\ applicable to that option series. Under the proposed price protection, Participants will be allowed to submit values for the acceptable number of ticks that their orders or quotes can trade away from the NBBO at the time the order or quote was received.\16\ The Exchange will also supply default values on an underlying security basis. Unless determined otherwise by the Exchange and announced to Participants via Information Circular, the Exchange default value shall be three (3) ticks. The Exchange determined the default values based on Participant feedback and its own analysis. When calculating the Price Collar, and therefore the High Limit and Low Limit, the Exchange will use the most restrictive value for the acceptable number of ticks between the Participant-provided and the Exchange default.\17\ This is designed to give Participants flexibility in the level of protection that they want while allowing the Exchange to provide a minimum level of protection for orders and quotes on BOX. Participants will be able to set the value for the acceptable number of ticks on an underlying security basis and may update the values on a daily basis with such changes taking effect on the following trading day. Any changes to the Exchange default values would take effect no earlier than the following trading day. --------------------------------------------------------------------------- \14\ The term ``tick'' refers to one minimum trading increment for that options series. \15\ See Rule 7050. \16\ For non-complex orders, Participants will be permitted to provide values for this price protection mechanism based on the underlying security. For example, a Participant can provide different values for all series of Google and Apple options. For Complex Orders, Participants will be able to provide a value that will be applicable to all Complex Orders submitted by that Participant. \17\ The Participant must enter a value greater than zero (0). --------------------------------------------------------------------------- The proposed price protection mechanism will prevent eligible orders and quotes that are marketable from trading outside of the Acceptable Trade Range.\18\ Specifically, the Exchange will not automatically execute, expose, or route eligible orders or quotes that are marketable if the price that the execution, exposure or route would occur at is outside of the Acceptable Trade Range. If, after an initial execution within the Acceptable Trade Range, an order or quote reaches outside the Acceptable Trade Range, then the remaining quantity of the incoming order or quote will be cancelled. --------------------------------------------------------------------------- \18\ If an inbound order or quote trades against a Legging or an Implied Order, the proposed price protection mechanism will only apply to the incoming order or quote and not to any other order or quote of the other leg components or of the Complex Order Book involved in completing the trade. See proposed IM-7300-2 to Rule 7300. --------------------------------------------------------------------------- For the following examples, assume that a Participant provides that the acceptable number of ticks an order or quote can trade is two (2) and the Exchange default is three (3) ticks. The price protection will use the acceptable number of ticks provided by the Participant because it is more restrictive than the Exchange default. Assume also that the series is quoted in $0.01 increments so the Price Collar would be $0.02 (2*$0.01). If the series has a NBO of $1.25 and NBB of $1.20, then the High Limit would be $1.27 and the Low Limit would be $1.18 giving an Acceptable Trade Range of $1.27-$1.18. [[Page 7875]] Example #1 Assume the following interest is available in the applicable series: ------------------------------------------------------------------------ Exchange Offer price Size ------------------------------------------------------------------------ BOX order............................... $1.25 10 BOX order............................... 1.26 30 Away Exchange........................... 1.35 60 ------------------------------------------------------------------------ If the Exchange receives a Market Order to buy 100 contracts, the Exchange will respond as described below:10 Contracts will be executed at $1.25 against the order on BOX. 30 contracts will be executed at $1.26 against the order on BOX. The remaining 60 contracts will be canceled because there is no available interest within the Acceptable Trade Range. The order on the Away Exchange to sell 60 contracts at $1.35 is above the High Limit of $1.27 and therefore the order cannot trade at that level and the Exchange will not route the order to the Away Exchange. Example #2 Assume the following interest is available in the applicable series: ------------------------------------------------------------------------ Exchange Offer price Size ------------------------------------------------------------------------ BOX order............................... $1.25 50 BOX order............................... 1.26 100 Away Exchange........................... 1.27 50 BOX order............................... 1.32 50 ------------------------------------------------------------------------ If the Exchange receives a Market Order to buy 200 contracts, the Exchange will respond as described below: 50 contracts will execute at $1.25 against the order on BOX. 100 contracts will execute at $1.26 against the order on BOX. 50 contracts will be routed to the Away Exchange to execute at $1.27. Example #3 For this example, assume the same book interest exists as in example #2 above. However, assume that when the order is routed to the Away Exchange only 25 out of the 50 contracts are available to execute. The remaining 25 contracts would be returned to BOX. These 25 contracts would still have the same Acceptable Trade Range as when the order was first received by BOX ($1.27-$1.18); the Acceptable Trade Range does not get recalculated when an order returns from being routed. Therefore, the Exchange would cancel the remaining 25 orders because the only remaining interest is the order on BOX to sell at $1.32, which is outside the Acceptable Trade Range. The proposed price protection feature will be available to all Participants and will be mandatory. If a Participant does not provide values for this feature, the Exchange's default values will be applied. Additionally, this proposed price protection feature will be available each trading day after the opening until the close of trading.\19\ --------------------------------------------------------------------------- \19\ The proposed price protection feature will not cover the opening of the market. The opening of the market is covered by Rule 7070. --------------------------------------------------------------------------- The Exchange notes that the proposed price protections are intended to protect market participants from executions at prices that are significantly through the market. BOX believes that Participants who submit orders and quotes on the Exchange generally intend to receive executions at or near where the market was when the order or quote was received. Accordingly, the Exchange believes that the propose price protections will help prevent orders and quotes from trading at an excessive number of price points. BOX also believes that orders and quotes which trade at an excessive number of price points have the potential to create market volatility. As such, the Exchange believes these enhancements to the price protections available on BOX may also help limit unnecessary volatility. The Exchange will provide Participants with notice, via Information Circular, about the implementation date of these 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''),\20\ in general, and Section 6(b)(5) of the Act,\21\ 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. 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 NBBO is a fair representation of then-available prices and accordingly the proposal helps to avoid executions at prices that are significantly worse than the NBBO. --------------------------------------------------------------------------- \20\ 15 U.S.C. 78f(b). \21\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- BOX believes the proposed price protection functionality will remove impediments to and perfect the mechanism of a free and open market by providing Participants with greater flexibility and control over how orders and quotes interact. Instead of imposing a rigid one- size-fits-all price protection mechanism, the proposed functionality allows for customization and choice on the part of the Participant entering orders and quotes. As proposed, the Participant can select how many price points beyond the NBBO at the time the Exchange receives the order or quote [[Page 7876]] that the Participant would like the order to trade. BOX believes that providing default values and using the most restrictive value between the Participant-provided and default values is consistent with the stated goals of this feature and is necessary to achieve the proposed expansion of price protection on the Exchange. Providing default values will benefit the options market as a whole as this will ensure that all eligible orders and quotes have a minimal level of price protection. 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. The Exchange believes the proposal will provide market participants with additional price protection. The Exchange does not believe the proposed rule change imposes any burden on intramarket competition as the feature is available to all orders and quotes of all Participants. Nor will the proposal impose a burden on competition among the options exchanges because of the vigorous competition for order flow among the options exchanges. BOX competes with many other options exchanges. In this highly competitive market, market participants can easily and readily direct order flow to competing venues. Additionally, the proposed price protections are similar to those available on competing exchanges.\22\ --------------------------------------------------------------------------- \22\ See PHLX Rule 1080(p). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 will help to prevent dramatic price swings. 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\ --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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-2016-03 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-2016-03. 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-2016-03 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\ --------------------------------------------------------------------------- \28\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-02985 Filed 2-12-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices 7873
amendment to the Plan, provided that SECURITIES AND EXCHANGE II. Self-Regulatory Organization’s
the Parties are only adding to, deleting COMMISSION Statement of the Purpose of, and
from, or confirming changes to NSX Statutory Basis for, the Proposed Rule
rules in the Certification in conformance [Release No. 34–77092; File No. SR–BOX– Change
with the definition of Common Rules 2016–03] In its filing with the Commission, the
provided in the Plan. However, should self-regulatory organization included
the Parties decide to add a NSX rule to Self-Regulatory Organizations; BOX statements concerning the purpose of,
the Certification that is not substantially Options Exchange LLC; Notice of and basis for, the proposed rule change
similar to a FINRA rule; delete a NSX Filing and Immediate Effectiveness of and discussed any comments it received
rule from the Certification that is a Proposed Rule Change To Add Rule on the proposed rule change. The text
substantially similar to a FINRA rule; or 7310 (Drill-Through Protection) To of these statements may be examined at
leave on the Certification a NSX rule Implement a New Price Protection the places specified in Item IV below.
that is no longer substantially similar to Feature The self-regulatory organization has
a FINRA rule, then such a change would prepared summaries, set forth in
February 9, 2016. Sections A, B, and C below, of the most
constitute an amendment to the Plan,
which must be filed with the Pursuant to Section 19(b)(1) of the significant aspects of such statements.
Commission pursuant to Rule 17d–2 Securities Exchange Act of 1934 A. Self-Regulatory Organization’s
under the Act.17 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Statement of the Purpose of, and
notice is hereby given that on January Statutory Basis for, the Proposed Rule
IV. Conclusion
27, 2016, BOX Options Exchange LLC Change
This Order gives effect to the Plan (the ‘‘Exchange’’) filed with the
Securities and Exchange Commission 1. Purpose
filed with the Commission in File No.
4–694. The Parties shall notify all (‘‘Commission’’) the proposed rule The Exchange is proposing to adopt a
members affected by the Plan of their change as described in Items I and II mechanism that will prevent BOX from
rights and obligations under the Plan. below, which Items have been prepared experiencing dramatic price swings.
by the self-regulatory organization. The Specifically, the Exchange proposes to
It is therefore ordered, pursuant to add Rule 7310 (Drill-through Protection)
Commission is publishing this notice to
Section 17(d) of the Act, that the Plan to implement a new price protection
solicit comments on the proposed rule
in File No. 4–694, between FINRA and feature on BOX. The new price
from interested persons.
NSX, filed pursuant to Rule 17d–2 protection feature is designed to prevent
under the Act, is approved and declared I. Self-Regulatory Organization’s orders and quotes from drilling through
effective. Statement of the Terms of Substance of and executing at multiple price points.
It is further ordered that NSX is the Proposed Rule Change This circumstance can exist if, for
relieved of those responsibilities example, a Market Order,3 or
The Exchange proposes to add Rule aggressively priced Limit Order 4 or
allocated to FINRA under the Plan in
7310 (Drill-through Protection) to quote is entered that is larger than the
File No. 4–694.
implement a new price protection total volume of contracts quoted at the
For the Commission, by the Division of feature. The text of the proposed rule top-of-book across all U.S. options
Trading and Markets, pursuant to delegated change is available from the principal exchanges.5 Currently, without any
authority.18 office of the Exchange, at the protections in place, this could result in
Brent J. Fields, Commission’s Public Reference Room options executing at prices that have
Secretary. and also on the Exchange’s Internet Web little or no relation to the theoretical
[FR Doc. 2016–02982 Filed 2–12–16; 8:45 am] site at http://boxexchange.com. price of the option.
BILLING CODE 8011–01–P For example, in a thinly traded
option:
AWAY EXCHANGES
Exchange Bid size Bid price Offer price Offer size
Away Exchange #1 .......................................................................................... 5 $2.00 $2.05 5
Away Exchange #2 .......................................................................................... 5 2.00 2.10 5
Away Exchange #3 .......................................................................................... 5 2.00 2.10 5
Away Exchange #4 .......................................................................................... 5 2.00 2.15 5
17 The Commission also notes that the addition to 3 Market Orders submitted to BOX are executed volume left after part of a Limit Order has traded
or deletion from the Certification of any federal at the best price obtainable for the total quantity is retained in the BOX Book until it is withdrawn
mstockstill on DSK4VPTVN1PROD with NOTICES
securities laws, rules, and regulations for which available when the order reaches the BOX market. or traded (unless a designation described in
FINRA would bear responsibility under the Plan for Any remaining quantity is executed at the next best Rule7110(d) is added which prevents the untraded
price available for the total quantity available. This
examining, and enforcing compliance by, common part of a limit order from being retained). All Limit
process continues until the Market Order is fully
members, also would constitute an amendment to executed. Prior to execution at each price level, Orders (with the exception of those with a Good ’Til
the Plan. Market Orders are filtered pursuant to the Cancelled (‘‘GTC’’) designation as described in Rule
18 17 CFR 200.30–3(a)(34). procedures set forth in Rule 7130(b) to avoid 7110(d)(1)) are automatically withdrawn by the
1 15 U.S.C. 78s(b)(1). trading through the NBBO. See Rule 7110(c)(3). Trading Host at market close.
4 Limit Orders entered into the BOX Book are 5 There are currently 12 options exchanges.
2 17 CFR 240.19b–4.
executed at the price stated or better. Any residual
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![Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices 7875
Example #1
Assume the following interest is
available in the applicable series:
Exchange Offer price Size
BOX order ................................................................................................................................................................ $1.25 10
BOX order ................................................................................................................................................................ 1.26 30
Away Exchange ....................................................................................................................................................... 1.35 60
If the Exchange receives a Market • The remaining 60 contracts will be Exchange will not route the order to the
Order to buy 100 contracts, the canceled because there is no available Away Exchange.
Exchange will respond as described interest within the Acceptable Trade
below: Example #2
Range. The order on the Away Exchange
• 10 Contracts will be executed at to sell 60 contracts at $1.35 is above the Assume the following interest is
$1.25 against the order on BOX. High Limit of $1.27 and therefore the
• 30 contracts will be executed at available in the applicable series:
order cannot trade at that level and the
$1.26 against the order on BOX.
Exchange Offer price Size
BOX order ................................................................................................................................................................ $1.25 50
BOX order ................................................................................................................................................................ 1.26 100
Away Exchange ....................................................................................................................................................... 1.27 50
BOX order ................................................................................................................................................................ 1.32 50
If the Exchange receives a Market each trading day after the opening until designed to prevent fraudulent and
Order to buy 200 contracts, the the close of trading.19 manipulative acts and practices, to
Exchange will respond as described The Exchange notes that the proposed promote just and equitable principles of
below: price protections are intended to protect trade, to foster cooperation and
market participants from executions at coordination with persons engaged in
• 50 contracts will execute at $1.25 prices that are significantly through the facilitating transactions in securities, to
against the order on BOX. market. BOX believes that Participants remove impediments to and perfect the
• 100 contracts will execute at $1.26 who submit orders and quotes on the mechanism of a free and open market
against the order on BOX. Exchange generally intend to receive and a national market system, and, in
• 50 contracts will be routed to the executions at or near where the market general to protect investors and the
Away Exchange to execute at $1.27. was when the order or quote was public interest. In particular, the
received. Accordingly, the Exchange propose [sic] rule change is consistent
Example #3 believes that the propose price with these requirements in that it will
protections will help prevent orders and reduce the negative impacts of sudden,
For this example, assume the same quotes from trading at an excessive unanticipated volatility in individual
book interest exists as in example #2 number of price points. BOX also options, and serve to preserve an
above. However, assume that when the believes that orders and quotes which orderly market in a transparent and
order is routed to the Away Exchange trade at an excessive number of price uniform manner, increase overall
only 25 out of the 50 contracts are points have the potential to create market confidence, and promote fair
available to execute. The remaining 25 market volatility. As such, the Exchange and orderly markets and the protection
contracts would be returned to BOX. believes these enhancements to the of investors. Specifically, BOX believes
These 25 contracts would still have the price protections available on BOX may that the NBBO is a fair representation of
same Acceptable Trade Range as when also help limit unnecessary volatility. then-available prices and accordingly
the order was first received by BOX The Exchange will provide the proposal helps to avoid executions
($1.27–$1.18); the Acceptable Trade Participants with notice, via Information at prices that are significantly worse
Range does not get recalculated when an Circular, about the implementation date than the NBBO.
order returns from being routed. of these proposed enhancements to the BOX believes the proposed price
Therefore, the Exchange would cancel price protections. protection functionality will remove
the remaining 25 orders because the 2. Statutory Basis impediments to and perfect the
mechanism of a free and open market by
only remaining interest is the order on The Exchange believes that the providing Participants with greater
BOX to sell at $1.32, which is outside proposal is consistent with the flexibility and control over how orders
the Acceptable Trade Range. requirements of Section 6(b) of the and quotes interact. Instead of imposing
The proposed price protection feature Securities Exchange Act of 1934 (the
mstockstill on DSK4VPTVN1PROD with NOTICES
a rigid one-size-fits-all price protection
will be available to all Participants and ‘‘Act’’),20 in general, and Section 6(b)(5) mechanism, the proposed functionality
will be mandatory. If a Participant does of the Act,21 in particular, in that it is allows for customization and choice on
not provide values for this feature, the the part of the Participant entering
19 The proposed price protection feature will not
Exchange’s default values will be cover the opening of the market. The opening of the
orders and quotes. As proposed, the
applied. Additionally, this proposed market is covered by Rule 7070. Participant can select how many price
price protection feature will be available 20 15 U.S.C. 78f(b). points beyond the NBBO at the time the
21 15 U.S.C. 78f(b)(5). Exchange receives the order or quote
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![7876 Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices
that the Participant would like the order investors or the public interest; (ii) • Send an email to rule-comments@
to trade. impose any significant burden on sec.gov. Please include File Number SR–
BOX believes that providing default competition; and (iii) become operative BOX–2016–03 on the subject line.
values and using the most restrictive prior to 30 days from the date on which
value between the Participant-provided it was filed, or such shorter time as the Paper Comments
and default values is consistent with the Commission may designate, if • Send paper comments in triplicate
stated goals of this feature and is consistent with the protection of
necessary to achieve the proposed to Secretary, Securities and Exchange
investors and the public interest, the
expansion of price protection on the Commission, 100 F Street NE.,
proposed rule change has become
Exchange. Providing default values will effective pursuant to Section 19(b)(3)(A) Washington, DC 20549–1090.
benefit the options market as a whole as of the Act and Rule 19b–4(f)(6)(iii) All submissions should refer to File
this will ensure that all eligible orders thereunder. Number SR–BOX–2016–03. This file
and quotes have a minimal level of price A proposed rule change filed under number should be included on the
protection. Rule 19b–4(f)(6) 25 normally does not subject line if email is used. To help the
become operative prior to 30 days after Commission process and review your
B. Self-Regulatory Organization’s
the date of the filing. However, pursuant comments more efficiently, please use
Statement on Burden on Competition
to Rule 19b4(f)(6)(iii),26 the Commission
The Exchange does not believe that only one method. The Commission will
may designate a shorter time if such
the proposed rule change will impose action is consistent with the protection post all comments on the Commission’s
any burden on competition not of investors and the public interest. The Internet Web site (http://www.sec.gov/
necessary or appropriate in furtherance Exchange has asked the Commission to rules/sro.shtml). Copies of the
of the purposes of the Act. The waive the 30-day operative delay so that submission, all subsequent
Exchange believes the proposal will the Exchange may implement the amendments, all written statements
provide market participants with proposed price protections as soon as with respect to the proposed rule
additional price protection. The possible, which will benefit all market change that are filed with the
Exchange does not believe the proposed participants. In support of its request, Commission, and all written
rule change imposes any burden on the Exchange states the proposed rule communications relating to the
intramarket competition as the feature is change will help to prevent dramatic proposed rule change between the
available to all orders and quotes of all price swings. The Commission believes Commission and any person, other than
Participants. Nor will the proposal that waiving the 30-day operative delay those that may be withheld from the
impose a burden on competition among is consistent with the protection of public in accordance with the
the options exchanges because of the investors and the public interest. provisions of 5 U.S.C. 552, will be
vigorous competition for order flow Therefore, the Commission hereby available for Web site viewing and
among the options exchanges. BOX waives the operative delay and printing in the Commission’s Public
competes with many other options designates the proposed rule change Reference Room, 100 F Street NE.,
exchanges. In this highly competitive operative upon filing.27
market, market participants can easily Washington, DC 20549 on official
At any time within 60 days of the
and readily direct order flow to business days between the hours of
filing of the proposed rule change, the
competing venues. Additionally, the Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of such
proposed price protections are similar to temporarily suspend such rule change if filing also will be available for
those available on competing it appears to the Commission that such inspection and copying at the principal
exchanges.22 action is necessary or appropriate in the office of the Exchange. All comments
public interest, for the protection of received will be posted without change;
C. Self-Regulatory Organization’s the Commission does not edit personal
Statement on Comments on the investors, or otherwise in furtherance of
the purposes of the Act. If the identifying information from
Proposed Rule Change Received From
Members, Participants, or Others Commission takes such action, the submissions. You should submit only
Commission shall institute proceedings information that you wish to make
The Exchange has neither solicited to determine whether the proposed rule available publicly. All submissions
nor received comments on the proposed should be approved or disapproved. should refer to File Number SR–BOX–
rule change. 2016–03 and should be submitted on or
IV. Solicitation of Comments
III. Date of Effectiveness of the before March 8, 2016.
Proposed Rule Change and Timing for Interested persons are invited to
submit written data, views and For the Commission, by the Division of
Commission Action Trading and Markets, pursuant to delegated
arguments concerning the foregoing,
The Exchange has filed the proposed including whether the proposed rule authority.28
rule change pursuant to Section change is consistent with the Act. Brent J. Fields,
19(b)(3)(A)(iii) of the Act 23 and Rule Comments may be submitted by any of Secretary.
19b–4(f)(6) thereunder.24 Because the the following methods: [FR Doc. 2016–02985 Filed 2–12–16; 8:45 am]
proposed rule change does not: (i)
Significantly affect the protection of Electronic Comments BILLING CODE 8011–01–P
• Use the Commission’s Internet
22 See PHLX Rule 1080(p). comment form (http://www.sec.gov/
mstockstill on DSK4VPTVN1PROD with NOTICES
23 15 U.S.C. 78s(b)(3)(A)(iii).
24 17 CFR 240.19b–4(f)(6). As required under Rule
rules/sro.shtml); or
19b–4(f)(6)(iii), the Exchange provided the
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 03:13:18
Document Modified: 2016-02-13 03:13:18
| 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 7873 |
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