81 FR 83322 - Self-Regulatory Organizations; BOX Options Exchange LLC; Order Approving a Proposed Rule Change To Amend the Treatment of Quotes To Provide That All Quotes on BOX Are Liquidity Adding Only

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 224 (November 21, 2016)

[Federal Register Volume 81, Number 224 (Monday, November 21, 2016)]
[Notices]
[Pages 83322-83323]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-27891]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79311; File No. SR-BOX-2016-45]


Self-Regulatory Organizations; BOX Options Exchange LLC; Order 
Approving a Proposed Rule Change To Amend the Treatment of Quotes To 
Provide That All Quotes on BOX Are Liquidity Adding Only

November 15, 2016.

I. Introduction

    On September 13, 2016, BOX Options Exchange LLC (``BOX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend the treatment of quotes to provide that 
all quotes on BOX are liquidity adding only. The proposed rule change 
was published for comment in the Federal Register on October 3, 
2016.\3\ The Commission received no comments on the proposal. This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78946 (Septemeber 
27, 2016), 81 FR 68069 (October 3, 2016) (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend the treatment of incoming quotes to 
BOX so that they are only accepted if they are liquidity adding.\4\ 
Under the Exchange's proposed rule change, if an incoming quote or 
quote update is marketable because it would execute against a resting 
order or quote on the BOX Book,\5\ it will be rejected. The Exchange 
will not reject incoming quotes during the opening of the market.\6\ As 
is the case today, rejected quotes will not be considered when 
determining a Market Maker's quoting obligations.\7\
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    \4\ See Notice, supra note 3 (proposing a new IM-8050-3 to 
Exchange Rule 8050).
    \5\ The term ``Central Order Book'' or ``BOX Book'' means the 
electronic book of orders on each single option series maintained by 
the BOX Trading Host. See Exchange Rule 100(a)(10).
    \6\ Transactions occurring on the opening are deemed to neither 
add nor remove liquidity and therefore are exempt from the liquidity 
fees and credits on the Exchange. See Section II.C. of the BOX Fee 
Schedule.
    \7\ On a daily basis, a Market Maker must, during regular market 
hours, make markets and enter into any resulting transactions 
consistent with the applicable quoting requirements, such that on a 
daily basis a Market Maker must post valid quotes at least sixty 
percent (60%) of the time that the classes are open for trading. 
These obligations apply to all of the Market Maker's appointed 
classes collectively, rather than on a class-by-class basis. See 
Exchange Rule 8050(e); see also Exchange Rule 8040.
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    The Exchange also proposes to amend the treatment of incoming 
quotes after they interact with the Price Improvement Period 
(``PIP'').\8\ Currently, when an incoming quote is on the same side as 
a PIP Order, it may cause the PIP auction to end early, if, at the time 
of submission, the price of the incoming quote would cause an execution 
to occur prior to the end of the PIP.\9\ Under the proposal, the 
incoming quote will continue to cause the PIP auction to end early if 
the conditions of Rule 7150(i) exist. However, after the PIP auction is 
concluded, if the incoming quote is executable against resting orders 
or quotes on the BOX Book, it will be rejected. Additionally, 
currently, when an incoming quote on the opposite side of the PIP Order 
is received such that it would cause an execution to occur prior to the 
end of the PIP auction, the incoming quote will be immediately

[[Page 83323]]

executed.\10\ Under the proposal, any remaining balance of the incoming 
quote that did not execute against the PIP Order, and that would 
execute against a resting order or quote on the BOX Book, will be 
rejected.
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    \8\ Options Participants, both Order Flow Providers and Market 
Makers, executing agency orders may designate Market Orders and 
marketable limit Customer Orders for price improvement and 
submission to the PIP. Customer Orders designated for the PIP (``PIP 
Orders'') shall be submitted to BOX with a matching contra order 
equal to the full size of the PIP Order. See Exchange Rule 7150.
    \9\ Specifically, the submission to BOX of a Market Order on the 
same side as a PIP Order will prematurely terminate the PIP when, at 
the time of the submission of the Market Order, the best Improvement 
Order is equal to or better than the NBBO on the same side of the 
market as the best Improvement Order. The submission to BOX of an 
executable Limit Order or generation of an executable Legging Order 
on the same side as a PIP Order will prematurely terminate the PIP 
if at the time of submission: (1) The Buy (Sell) Limit Order or 
Legging Order price is equal to or higher (lower) than the National 
Best Offer (Bid) and either: (i) The BOX Best Offer (Bid) is equal 
to the National Best Offer (Bid); or (ii) the BOX Best Offer (Bid) 
is higher (lower) than the National Best Offer (Bid) and the price 
of the best Improvement Order is equal to or lower (higher) than the 
National Best Offer (Bid); or (2) the Buy (Sell) Limit Order or 
Legging Order price is lower (higher) than the National Best Offer 
(Bid) and its limit price equals or crosses the price of the best 
Improvement Order. See Exchange Rule 7150(i).
    \10\ Specifically, a Market Order on the opposite side of a PIP 
Order will immediately execute against the PIP Order when, at the 
time of the submission of the Market Order, the best Improvement 
Order does not cross the NBBO on the same side of the market as the 
PIP Order. The submission to BOX of an executable Limit Order or 
generation of an executable Legging Order on the opposite side of a 
PIP Order will immediately execute against a PIP Order when the Sell 
(Buy) Limit Order price is equal to or crosses the National Best Bid 
(Offer), and: (1) The BOX Best Bid (Offer) is equal to the National 
Best Bid (Offer); or (2) the BOX Best Bid (Offer) is lower (higher) 
than the National Best Bid (Offer) and neither the best Improvement 
Order nor BOX Best Offer (Bid) is equal to or crosses the National 
Best Bid (Offer). See Exchange Rule 7150(j).
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    The Exchange represents that it will provide BOX Participants with 
notice, via Information Circular, about the implementation date of the 
proposed rule change.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
and, in particular, with Section 6(b) of the Act.\11\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\12\ which requires, among other things, 
that a national securities exchange have rules 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 regulating, clearing, settling, processing 
information with respect to, and 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. The Commission believes that 
the proposed rule change is designed to help Market Makers more 
efficiently submit quotes to provide liquidity on BOX, which could 
benefit investors. The Commission notes that Market Makers still will 
be able to take liquidity on BOX by submitting orders in or out of 
their appointed classes.\13\ In addition, according to the Exchange, 
the proposed rule change will not alter a Market Maker's obligations 
pursuant BOX Rules 8040 and 8050, including the obligation to provide 
continuous two-sided quotes on a daily basis.\14\ Further, the 
Commission notes that other options exchanges offer liquidity adding 
only order types.\15\
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    \11\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
    \14\ Id. at 68070-71.
    \15\ See id. (citing International Securities Exchange, LLC 
(``ISE'') Rule 715(n) and NYSE Arca Options, Inc. (``NYSE Arca'') 
Rule 6.62(t)).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-BOX-2016-45) be, and hereby 
is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-27891 Filed 11-18-16; 8:45 am]
 BILLING CODE 8011-01-P