81 FR 91227 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing of Proposed Rule Change To Amend Interpretive Material to Rule 7150 (Price Improvement Period “PIP”) and Interpretive Material to Rule 7245 (Complex Order Price Improvement Period “COPIP”) To Make Permanent the Pilot Programs That Permit the Exchange To Have No Minimum Size Requirement for Orders Entered Into the PIP (“PIP Pilot Program”) and COPIP (“COPIP Pilot Program”)
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 242 (December 16, 2016)
Federal Register Volume 81, Issue 242 (December 16, 2016)
| Page Range | 91227-91230 | |
| FR Document | 2016-30258 |
[Federal Register Volume 81, Number 242 (Friday, December 16, 2016)] [Notices] [Pages 91227-91230] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-30258] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79531; File No. SR-BOX-2016-58] Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing of Proposed Rule Change To Amend Interpretive Material to Rule 7150 (Price Improvement Period ``PIP'') and Interpretive Material to Rule 7245 (Complex Order Price Improvement Period ``COPIP'') To Make Permanent the Pilot Programs That Permit the Exchange To Have No Minimum Size Requirement for Orders Entered Into the PIP (``PIP Pilot Program'') and COPIP (``COPIP Pilot Program'') December 12, 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 December 9, 2016, BOX Options Exchange LLC (the ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III 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 amend Interpretive Material to Rule 7150 (Price Improvement Period ``PIP'') and Interpretive Material to Rule 7245 (Complex Order Price Improvement Period ``COPIP'') to make permanent the pilot programs that permit the Exchange to have no minimum size requirement for orders entered into the PIP (``PIP Pilot Program'') and COPIP (``COPIP Pilot Program''). 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 purpose of the proposed rule change is to amend the BOX Rules to make permanent the pilot programs that permit the Exchange to have no minimum size requirement for orders entered into the PIP (``PIP Pilot Program'') and COPIP (``COPIP Pilot Program''), collectively known as the (``Programs''). In addition, BOX proposes to modify the requirements for the PIP where the National Best Bid and Offer (``NBBO'') is only $0.01 wide. Background The PIP Pilot Program was approved on a pilot basis with the establishment of BOX and the PIP in January 2004 \3\ and the COPIP Pilot Program was approved on a pilot basis with introduction of the COPIP in December 2013.\4\ Both Programs are scheduled to [[Page 91228]] expire on January 18, 2017.\5\ The Exchange believes that both the PIP and COPIP Pilot Programs have been successful and well-received by Participants and the investing public. --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release Nos. 49068 (January 13, 2004), 69 FR 2775 (January 20, 2004) (SR-BSE-2003-04) (``Order Granting Approval to Proposed Rule Change and Amendment No. 3 and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 4 Thereto by the Boston Stock Exchange, Inc. Establishing Trading Rules for the Boston Options Exchange Facility''); 66871 (April 27, 2012) 77 FR 26323 (May 3, 2012) (File No. 10-206, In the Matter of the Application of BOX Options Exchange LLC for Registration as a National Securities Exchange Findings, Opinion, and Order of the Commission), 67255 (June 26, 2012) 77 FR 39315 (July 2, 2013) (SR-BOX-2012-009) (Notice of Filing and Immediate Effectiveness of a Proposal To Extend a Pilot Program That Permits BOX to Have No Minimum Size Requirement for Orders Entered Into the Price Improvement Period), 69846 (June 25, 2013) 78 FR 39365 (July 1, 2013) (SR-BOX-2013-33) (Notice of Filing and Immediate Effectiveness of a Proposal To Extend a Pilot Program That Permits BOX to Have No Minimum Size Requirement for Orders Entered Into the Price Improvement Period), 72545 (July 7, 2014), 79 FR 40182 (July 11, 2014) (SR-BOX-2014-19) (Notice of Filing and Immediate Effectiveness of a Proposal To Extend a Pilot Program That Permits BOX to Have No Minimum Size Requirement for Orders Entered Into the Price Improvement Period and Complex Order Price Improvement Period), 75480 (July 17, 2015), 80 FR 43803 (July 23, 2015) (SR-BOX-2015-27) (Notice of Filing and Immediate Effectiveness of a Proposal To Extend a Pilot Program That Permits BOX to Have No Minimum Size Requirement for Orders Entered Into the Price Improvement Period and Complex Order Price Improvement Period). \4\ See Securities Exchange Act Release No. 71148 (December 19, 2013) 78 FR 78437 (December 26, 2013) (Notice of Filing of Amendment Nos. 1 and 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, to Permit Complex Orders to Participate in Price Improvement Periods). \5\ See Securities Exchange Act Release No. 78353 (July 18, 2016), 81 FR 47843 (July 22, 2016) (SR-BOX-2016-32). --------------------------------------------------------------------------- The PIP and COPIP Pilot Programs guarantee Participants the right to trade with their customer orders that are less than 50 contracts. In particular, any order entered into the PIP is guaranteed an execution at the end of the auction at a price at least equal to the NBBO. Any order entered into the COPIP is guaranteed an execution at the end of the auction at a price at least equal to or better than the cNBBO,\6\ cBBO \7\ and BBO on the Complex Order Book for the Strategy at the time of commencement. --------------------------------------------------------------------------- \6\ As defined in BOX Rule 7240(a)(3), 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. \7\ As defined in BOX Rule 7240(a)(1), the term ``cBBO'' means the best net bid and offer price for a Complex Order Strategy based on the BBO on the BOX Book for the individual options components of such Strategy. --------------------------------------------------------------------------- BOX first introduced the PIP auction process for obtaining customer price improvement to the options market place when it launched in 2004. As part of BOX's commitment to price improvement, the Exchange sought to provide small customer orders with benefits not available under the rules of the other exchanges by having no minimum size requirements for orders entered into the PIP. After concerns were raised that this lack of size requirement would promote internalization and inferior price improvement within the PIP and also lead to reduced order flow and market quality on the regular BOX Book,\8\ BOX began the PIP Pilot Program. --------------------------------------------------------------------------- \8\ See September 12, 2003 Letter from Michael J. Simon, Vice President and Secretary, ISE, to Jonathan Katz, Secretary, Commission regarding SR-BSE-2002-15; and see generally letters to Jonathan Katz, Secretary, Commission regarding SR-BSE-2002-15, February 28, 2003 Letter from Philip DeFeo, Chairman and Chief Executive Officer, PCX; February 14, 2003 Letter from William Brodsky, Chairman and Chief Executive Officer, CBOE; February 14, 2003 Letter from Michael Ryan, General Counsel, AMEX; February 12, 2003 Letter from Michael J. Simon, Secretary, ISE; February 12, 2003 Letter from Meyer S. Frucher, Chairman and Chief Executive Officer, PHLX. --------------------------------------------------------------------------- In June of 2005 concerns were also raised when BOX introduced Market Orders \9\ to the Exchange and detailed how these orders, as well BOX-Top Orders,\10\ would be treated when entered while a PIP is in progress. Specifically, submission to BOX of a Market Order or BOX- Top Order on the same side as a PIP Order prematurely terminates the PIP when, at the time of submission of the Market Order or BOX-Top 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 Commission was concerned that this premature termination of the PIP could result in a PIP Order being disadvantaged by the early conclusion of a PIP, in that the PIP Order would not have received the full exposure period in which to receive price improvement. BOX then agreed to include in its monthly reports additional information with respect to situations in which the PIP is terminated prematurely or a Market Order or BOX-Top Order interacts with a PIP Order before the PIP's conclusion.\11\ --------------------------------------------------------------------------- \9\ See Securities Exchange Act Release No. 51821 (June 10, 2005), 70 FR 35143 (June 16, 2005) (Order Approving SR-BSE-2004-51). \10\ BOX-Top Orders have since been removed from the BOX Rulebook. See Securities Exchange Act Release No. 71374 (January 23, 2014), 79 FR 4783 (January 29, 2014) (Notice of Filing and Immediate Effectiveness of SR-BOX-2014-05). \11\ See supra, note 9. --------------------------------------------------------------------------- The Exchange then established the COPIP in January 2014 to further BOX's commitment to price improvement.\12\ The COPIP mechanism allows Complex Orders to be submitted to the COPIP in substantially the same manner as orders for single options series instruments currently are submitted to the PIP. Because of the similarities between the PIP and COPIP, the Exchange proposed a COPIP Pilot Program and agreed to provide certain information, periodically as required by the Commission, to support that, among other things, there is meaningful competition for all size COPIP orders, that there is significant price improvement for all orders executed through the COPIP and that an active and liquid market is functioning on BOX outside of the COPIP mechanism. --------------------------------------------------------------------------- \12\ See Securities Exchange Act Release No. 71148 (December 19, 2013), 78 FR 78437 (December 26, 2013) (Order Approving SR-BOX-2013- 43). --------------------------------------------------------------------------- PIP Pilot Program The Exchange believes that the data submitted to the Commission on a monthly and confidential basis for the PIP Pilot Program, as well as the data reference [sic] below covering January through June 2015 establishes that it has not placed an undue burden on competition; lessened the amount of price improvement in the PIP; nor reduced order flow and liquidity to the BOX Book. The Exchange therefore believes that it appropriate to approve the no minimum size requirement on a permanent basis. In fact, since the launch of the PIP customers have received over $841 million in savings through better executions on BOX, including $12.6 million in October 2016. Order flow and liquidity on BOX has also remained strong through this entire period, with an average daily volume of approximately 434,000 contracts for the first six ten months of 2016. Further, many of the exchanges which first raised concerns have recognized the benefits of price improvement auctions, and have adopted similar mechanisms with no minimum order size since 2004.\13\ Approving the PIP Pilot Program on a permanent basis will allow the PIP to continue to offer meaningful price improvement and will not have an adverse effect on the market functioning on the Exchange outside of the PIP. --------------------------------------------------------------------------- \13\ See Securities Exchange Act Release Nos. 53222 (February 3, 2006), 71 FR 7089 (February 10, 2006) (SR-CBOE-2005-60) (Order Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 to the Proposed Rule Change Relating to an Automated Improvement Mechanism); 63238 (November 3, 2010), 75 FR 68844 (November 9, 2010) (SR-C2-2010-008) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Update Rules Based on Chicago Board Options Exchange, Inc. Rules and Recent Chicago Board Options Exchange, Inc. Rule Filings); 72009 (April 23, 2014), 79 FR 24032 (April 29, 2014) (SR-MIAX-2014-09) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt the MIAX PRIME Price Improvement Mechanism and the MIAX PRIME Solicitation Mechanism); 63027 (October 1, 2010), 75 FR 62160 (October 7, 2010) (SR-Phlx-2010-108) (Order Granting Approval to a Proposed Rule Change Relating to a Proposed Price Improvement System, Price Improvement XL); 50819 (December 8, 2004), 69 FR 75093 (December 15, 2004) (SR-ISE-2003-06) (Order Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendments No. 2 and 3 Thereto by the International Securities Exchange, Inc. To Establish Rules Implementing a Price Improvement Mechanism); and 70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) (Order Granting the Application of Topaz Exchange, LLC for Registration as a National Securities Exchange). --------------------------------------------------------------------------- The Exchange provided the Commission with a summary report, included herein as Exhibit 3, which demonstrates the price improvement benefits of the PIP. Specifically, the Report contains eight categories of non-customer and customer auction data, as well as three categories of summary auction data, during the period January 2015 through June 2015. Each of the eight categories is divided into subcategories based on the spread of the NBBO at the time an auction was initiated. The data is further divided into the number of orders that were [[Page 91229]] auctioned within each particular subcategory. Finally, for each subcategory, Exchange identified the per contract price improvement that occurred at each NBBO spread; the average number of participants responding to the auctions plus the initiator; the total volume the initiator received; the average percentage of orders the initiator received; and the percentage of contracts received by the auction initiator. The various categories contained in the Report include: (1) Non-Public Customer Auction/Under 50 Contracts/BOX not at NBBO (2) Non-Customer Auction/Under 50 Contracts/BOX at NBBO (3) Non-Customer Auction/50 Contracts and over/BOX not at NBBO (4) Non-Customer Auction/50 Contracts and over/BOX at NBBO (5) Customer Auction/Under 50 Contracts/BOX not at NBBO (6) Customer Auction/Under 50 Contracts/BOX at NBBO (7) Customer Auction/50 Contracts and over/BOX not at NBBO (8) Customer Auction/50 Contracts and over/BOX at NBBO (9) Summary of all Non-Customer Auctions for the Period (10) Summary of all Customer Auctions for the Period (11) Summary of all Auctions for the Period BOX believes that the data gathered demonstrates there is an active and liquid market functioning on the Exchange outside of the auction mechanism. In the period between January and June 2015, 30.5 million contracts were executed through the BOX PIP, approximately 64% of BOX total contract volume. While during this period average daily contract volume traded through the PIP fell from 339,088 contracts per day in January 2015 to 255,150 contracts per day in June 2015, overall contract volume outside of the PIP also fell during that period. Additionally, with an average number of 4.0 participants in each auction, the data shows there is meaningful competition in PIP auctions for all size orders. The Exchange also believes there is significant price improvement and significant opportunity for price improvement in the PIP with one modification. Currently, a PIP Order may be submitted to BOX with a matching contra order (``Primary Improvement Order'') that is equal to the full size of the PIP Order and at a price equal to or better than that of the NBBO at the time of the commencement of the PIP (the ``PIP Start Price''), at any NBBO spread. BOX proposes to amend the PIP auction to reject any auction where the quoted NBBO spread \14\ is less than or equal to $0.01.\15\ While the Exchange believes that opportunities remain for price improvement where the NBBO spread is less than or equal to $0.01, the Exchange notes that the data for the current pilot shows small amounts of price improvement in these orders.\16\ --------------------------------------------------------------------------- \14\ The NBBO spread is the difference between the NBBO Bid and the NBBO Ask. \15\ All PIP Auctions where the NBBO spread is more than $0.01 will continue to be allowed. \16\ During the six month time period, .05% of auctions where the NBBO spread was less than or equal to $0.01 received price improvement. --------------------------------------------------------------------------- The Exchange does believe, however, that based on the data there is significant price improvement and significant opportunity for price improvement when the NBBO spread is greater than $0.01. During the period, there was an average price improvement of $0.05 per contract for contracts executed through the PIP when BOX was at the NBBO, and $0.01 per contract for contracts executed through the PIP when BOX was not at the NBOO regardless of size. The Exchange has also gathered data on the premature terminations in the PIP to determine if these could result in a PIP Order being disadvantaged by the early conclusion of a PIP. Between January and June 2015, the number of auctions that terminated early was less than 0.05% of all PIP auctions. COPIP The Exchange believes that the data submitted to the Commission on a monthly and confidential basis for the COPIP Pilot Program establishes that it has not placed an undue burden on competition; lessened the amount of price improvement in the COPIP; nor reduced order flow and liquidity to the Complex Order Book.\17\ From January 2015 through June 2015 COPIP volume accounted for 41% of all Complex Order volume on BOX. Further, the average price improvement amount (when improved) was $0.11 for this same period. The Exchange believes the COPIP Pilot program does not place an undue burden on competition. In fact, the average number of responders is higher for COPIP Orders of 50 contracts and under (0.23) when compared to COPIP Orders greater than 50 contracts (0.01). While the average numbers of responders in the COPIP is lower than that of the PIP, the Exchange believes that as volume in the COPIP increases, the overall average number of responders will also increase. --------------------------------------------------------------------------- \17\ The Exchange notes that the COPIP has been in place for significantly less time than the PIP and therefore has generated significantly less data. Given the similarities between the two mechanisms, the Exchange expects the COPIP, if operated on a pilot basis over a longer period of time, would generate data that is comparable to the PIP. --------------------------------------------------------------------------- The Exchange has also gathered data on the premature terminations in the COPIP to determine if these could result in a COPIP Order being disadvantaged by the early conclusion of or COPIP. Between January and June 2015, the number of auctions that terminated early was less than 0.09% of all COPIP auctions. 2. Statutory Basis The Exchange believes that the proposal is consistent with the requirements of Section 6(b) of the Act,\18\ in general, and Section 6(b)(5) of the Act,\19\ 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, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. --------------------------------------------------------------------------- \18\ 15 U.S.C. 78f(b). \19\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- In particular, the proposed change will allow the Exchange to continue the Programs free of any pilot conditions which the Exchange believes are no longer necessary. The Programs were put in place to determine the full impact that the lack of minimum size requirement would have on competitiveness and price improvement in the PIP and COPIP. The PIP Pilot Program has been in place for over ten years,\20\ and the COPIP PIP Program has been in place for over two years. During these time periods there has been no evidence to suggest that the Programs have had the negative effects predicted in the comment letters.\21\ As such, removal of the pilot restrictions is the logical next step. --------------------------------------------------------------------------- \20\ See supra, note 3. \21\ See supra, note 8. --------------------------------------------------------------------------- The Exchange believes that the change to the PIP auction which will reject any auction where the quoted NBBO spread is less than or equal to $0.01 will further price improvement for PIP Orders overall. The Exchange notes that statistics for the current pilot show relatively small amounts of price improvement for these orders. The Exchange believes the proposed change will therefore increase the price improvement that orders may receive in the PIP overall. [[Page 91230]] Permanent approval of the Pilot Programs would continue to provide investors with real and significant price improvement regardless of the size of the order. The Exchange believes that allowing price improvement to any size order removes impediments to a free and open market and national market system, therefore creating more competition for the best execution of all orders. The Exchange also believes that making the Pilot Programs permanent does not raise any unique regulatory concerns. Lastly, the Exchange also believes that the proposed rule change, which provides all market participants, including public investors, with opportunity to trade with small customer orders of less than 50 contracts in the PIP and COPIP, is appropriate in the public interest and for the protection of investors 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 either among BOX Participants, or among the various options exchanges, which is not necessary or appropriate in furtherance of the purposes of the Act. Specifically, the PIP and COPIP mechanisms are offered to all BOX Participants and making the Pilot Programs permanent will not impose a competitive burden on any participant. Additionally, the Exchange believes that the proposed change will not have impact on intermarket competition, as noted above many other exchanges have similar pilot programs in place in their auction mechanisms and are free to file to make these permanent as well. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be 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 CommentsUse 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-2016-58 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-2016-58. 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-2016-58 and should be submitted on or before January 6, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\22\ --------------------------------------------------------------------------- \22\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016-30258 Filed 12-15-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 242 / Friday, December 16, 2016 / Notices 91227
Comments may be submitted by any of SECURITIES AND EXCHANGE on the proposed rule change. The text
the following methods: COMMISSION of these statements may be examined at
the places specified in Item IV below.
Electronic Comments [Release No. 34–79531; File No. SR–BOX–
The self-regulatory organization has
2016–58]
• Use the Commission’s Internet prepared summaries, set forth in
comment form (http://www.sec.gov/ Self-Regulatory Organizations; BOX Sections A, B, and C below, of the most
rules/sro.shtml); or Options Exchange LLC; Notice of significant aspects of such statements.
Filing of Proposed Rule Change To
• Send an email to rule- A. Self-Regulatory Organization’s
Amend Interpretive Material to Rule Statement of the Purpose of, and
comments@sec.gov. Please include File
7150 (Price Improvement Period ‘‘PIP’’) Statutory Basis for, the Proposed Rule
Number SR–ISE–2016–29 on the subject and Interpretive Material to Rule 7245
line. Change
(Complex Order Price Improvement
Paper Comments Period ‘‘COPIP’’) To Make Permanent 1. Purpose
the Pilot Programs That Permit the The purpose of the proposed rule
• Send paper comments in triplicate Exchange To Have No Minimum Size change is to amend the BOX Rules to
to Brent J. Fields, Secretary, Securities Requirement for Orders Entered Into make permanent the pilot programs that
and Exchange Commission, 100 F Street the PIP (‘‘PIP Pilot Program’’) and permit the Exchange to have no
NE., Washington, DC 20549–1090. COPIP (‘‘COPIP Pilot Program’’) minimum size requirement for orders
All submissions should refer to File December 12, 2016. entered into the PIP (‘‘PIP Pilot
Number SR–ISE–2016–29. This file Pursuant to Section 19(b)(1) of the Program’’) and COPIP (‘‘COPIP Pilot
number should be included on the Securities Exchange Act of 1934 Program’’), collectively known as the
subject line if email is used. To help the (‘‘Act’’),1 and Rule 19b–4 thereunder,2 (‘‘Programs’’). In addition, BOX
Commission process and review your notice is hereby given that on December proposes to modify the requirements for
comments more efficiently, please use 9, 2016, BOX Options Exchange LLC the PIP where the National Best Bid and
only one method. The Commission will (the ‘‘Exchange’’) filed with the Offer (‘‘NBBO’’) is only $0.01 wide.
post all comments on the Commission’s Securities and Exchange Commission Background
Internet Web site (http://www.sec.gov/ (‘‘Commission’’) the proposed rule The PIP Pilot Program was approved
rules/sro.shtml). Copies of the change as described in Items I, II, and on a pilot basis with the establishment
submission, all subsequent III below, which Items have been of BOX and the PIP in January 2004 3
amendments, all written statements prepared by the self-regulatory
and the COPIP Pilot Program was
with respect to the proposed rule organization. The Commission is
approved on a pilot basis with
change that are filed with the publishing this notice to solicit
introduction of the COPIP in December
Commission, and all written comments on the proposed rule from
2013.4 Both Programs are scheduled to
communications relating to the interested persons.
proposed rule change between the I. Self-Regulatory Organization’s 3 See Securities Exchange Act Release Nos. 49068
Commission and any person, other than Statement of the Terms of Substance of (January 13, 2004), 69 FR 2775 (January 20, 2004)
those that may be withheld from the (SR–BSE–2003–04) (‘‘Order Granting Approval to
the Proposed Rule Change Proposed Rule Change and Amendment No. 3 and
public in accordance with the Notice of Filing and Order Granting Accelerated
provisions of 5 U.S.C. 552, will be The Exchange proposes to amend
Approval to Amendment No. 4 Thereto by the
available for Web site viewing and Interpretive Material to Rule 7150 (Price Boston Stock Exchange, Inc. Establishing Trading
printing in the Commission’s Public Improvement Period ‘‘PIP’’) and Rules for the Boston Options Exchange Facility’’);
Reference Room, 100 F Street NE., Interpretive Material to Rule 7245 66871 (April 27, 2012) 77 FR 26323 (May 3, 2012)
(Complex Order Price Improvement (File No. 10–206, In the Matter of the Application
Washington, DC 20549, on official of BOX Options Exchange LLC for Registration as
business days between the hours of Period ‘‘COPIP’’) to make permanent the a National Securities Exchange Findings, Opinion,
10:00 a.m. and 3:00 p.m. Copies of the pilot programs that permit the Exchange and Order of the Commission), 67255 (June 26,
to have no minimum size requirement 2012) 77 FR 39315 (July 2, 2013) (SR–BOX–2012–
filing also will be available for 009) (Notice of Filing and Immediate Effectiveness
for orders entered into the PIP (‘‘PIP
inspection and copying at the principal of a Proposal To Extend a Pilot Program That
Pilot Program’’) and COPIP (‘‘COPIP
office of the Exchange. All comments Permits BOX to Have No Minimum Size
Pilot Program’’). The text of the Requirement for Orders Entered Into the Price
received will be posted without change;
proposed rule change is available from Improvement Period), 69846 (June 25, 2013) 78 FR
the Commission does not edit personal 39365 (July 1, 2013) (SR–BOX–2013–33) (Notice of
the principal office of the Exchange, at
identifying information from Filing and Immediate Effectiveness of a Proposal To
the Commission’s Public Reference Extend a Pilot Program That Permits BOX to Have
submissions. You should submit only
Room and also on the Exchange’s No Minimum Size Requirement for Orders Entered
information that you wish to make
Internet Web site at http:// Into the Price Improvement Period), 72545 (July 7,
available publicly. All submissions 2014), 79 FR 40182 (July 11, 2014) (SR–BOX–2014–
boxexchange.com.
should refer to File Number SR–ISE– 19) (Notice of Filing and Immediate Effectiveness of
2016–29 and should be submitted on or II. Self-Regulatory Organization’s a Proposal To Extend a Pilot Program That Permits
Statement of the Purpose of, and BOX to Have No Minimum Size Requirement for
before January 6, 2017. Orders Entered Into the Price Improvement Period
Statutory Basis for, the Proposed Rule and Complex Order Price Improvement Period),
For the Commission, by the Division of
Change 75480 (July 17, 2015), 80 FR 43803 (July 23, 2015)
Trading and Markets, pursuant to delegated
(SR–BOX–2015–27) (Notice of Filing and
mstockstill on DSK3G9T082PROD with NOTICES
authority.19 In its filing with the Commission, the Immediate Effectiveness of a Proposal To Extend a
Eduardo A. Aleman, self-regulatory organization included Pilot Program That Permits BOX to Have No
statements concerning the purpose of, Minimum Size Requirement for Orders Entered Into
Assistant Secretary. the Price Improvement Period and Complex Order
and basis for, the proposed rule change
[FR Doc. 2016–30257 Filed 12–15–16; 8:45 am] Price Improvement Period).
and discussed any comments it received 4 See Securities Exchange Act Release No. 71148
BILLING CODE 8011–01–P
(December 19, 2013) 78 FR 78437 (December 26,
1 15 U.S.C. 78s(b)(1). 2013) (Notice of Filing of Amendment Nos. 1 and
19 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. Continued
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![91228 Federal Register / Vol. 81, No. 242 / Friday, December 16, 2016 / Notices
expire on January 18, 2017.5 The Orders,10 would be treated when the no minimum size requirement on a
Exchange believes that both the PIP and entered while a PIP is in progress. permanent basis. In fact, since the
COPIP Pilot Programs have been Specifically, submission to BOX of a launch of the PIP customers have
successful and well-received by Market Order or BOX-Top Order on the received over $841 million in savings
Participants and the investing public. same side as a PIP Order prematurely through better executions on BOX,
The PIP and COPIP Pilot Programs terminates the PIP when, at the time of including $12.6 million in October
guarantee Participants the right to trade submission of the Market Order or BOX- 2016. Order flow and liquidity on BOX
with their customer orders that are less Top Order, the best Improvement Order has also remained strong through this
than 50 contracts. In particular, any is equal to or better than the NBBO on entire period, with an average daily
order entered into the PIP is guaranteed the same side of the market as the best volume of approximately 434,000
an execution at the end of the auction Improvement Order. The Commission contracts for the first six ten months of
at a price at least equal to the NBBO. was concerned that this premature 2016. Further, many of the exchanges
Any order entered into the COPIP is termination of the PIP could result in a which first raised concerns have
guaranteed an execution at the end of PIP Order being disadvantaged by the recognized the benefits of price
the auction at a price at least equal to early conclusion of a PIP, in that the PIP improvement auctions, and have
or better than the cNBBO,6 cBBO 7 and Order would not have received the full adopted similar mechanisms with no
BBO on the Complex Order Book for the exposure period in which to receive minimum order size since 2004.13
Strategy at the time of commencement. price improvement. BOX then agreed to Approving the PIP Pilot Program on a
BOX first introduced the PIP auction include in its monthly reports permanent basis will allow the PIP to
process for obtaining customer price additional information with respect to continue to offer meaningful price
improvement to the options market situations in which the PIP is improvement and will not have an
place when it launched in 2004. As part terminated prematurely or a Market adverse effect on the market functioning
of BOX’s commitment to price Order or BOX-Top Order interacts with on the Exchange outside of the PIP.
improvement, the Exchange sought to a PIP Order before the PIP’s The Exchange provided the
provide small customer orders with conclusion.11 Commission with a summary report,
benefits not available under the rules of The Exchange then established the included herein as Exhibit 3, which
the other exchanges by having no COPIP in January 2014 to further BOX’s demonstrates the price improvement
minimum size requirements for orders commitment to price improvement.12 benefits of the PIP. Specifically, the
entered into the PIP. After concerns The COPIP mechanism allows Complex Report contains eight categories of non-
were raised that this lack of size Orders to be submitted to the COPIP in customer and customer auction data, as
requirement would promote substantially the same manner as orders well as three categories of summary
internalization and inferior price for single options series instruments auction data, during the period January
improvement within the PIP and also currently are submitted to the PIP. 2015 through June 2015. Each of the
lead to reduced order flow and market Because of the similarities between the eight categories is divided into
quality on the regular BOX Book,8 BOX PIP and COPIP, the Exchange proposed subcategories based on the spread of the
began the PIP Pilot Program. a COPIP Pilot Program and agreed to NBBO at the time an auction was
In June of 2005 concerns were also provide certain information, initiated. The data is further divided
raised when BOX introduced Market periodically as required by the into the number of orders that were
Orders 9 to the Exchange and detailed Commission, to support that, among
how these orders, as well BOX-Top other things, there is meaningful
13 See Securities Exchange Act Release Nos.
53222 (February 3, 2006), 71 FR 7089 (February 10,
competition for all size COPIP orders, 2006) (SR–CBOE–2005–60) (Order Granting
2 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment that there is significant price Approval of Proposed Rule Change and
Nos. 1 and 2, to Permit Complex Orders to improvement for all orders executed Amendment No. 1 Thereto and Notice of Filing and
Order Granting Accelerated Approval to
Participate in Price Improvement Periods). through the COPIP and that an active Amendment No. 2 to the Proposed Rule Change
5 See Securities Exchange Act Release No. 78353
and liquid market is functioning on Relating to an Automated Improvement
(July 18, 2016), 81 FR 47843 (July 22, 2016) (SR–
BOX–2016–32). BOX outside of the COPIP mechanism. Mechanism); 63238 (November 3, 2010), 75 FR
6 As defined in BOX Rule 7240(a)(3), the term
68844 (November 9, 2010) (SR–C2–2010–008)
PIP Pilot Program (Notice of Filing and Immediate Effectiveness of a
‘‘cNBBO’’ means the best net bid and offer price for Proposed Rule Change to Update Rules Based on
a Complex Order Strategy based on the NBBO for The Exchange believes that the data Chicago Board Options Exchange, Inc. Rules and
the individual options components of such submitted to the Commission on a Recent Chicago Board Options Exchange, Inc. Rule
Strategy.
7 As defined in BOX Rule 7240(a)(1), the term
monthly and confidential basis for the Filings); 72009 (April 23, 2014), 79 FR 24032 (April
PIP Pilot Program, as well as the data 29, 2014) (SR–MIAX–2014–09) (Notice of Filing of
‘‘cBBO’’ means the best net bid and offer price for Amendment No. 1 and Order Granting Accelerated
a Complex Order Strategy based on the BBO on the reference [sic] below covering January Approval of a Proposed Rule Change, as Modified
BOX Book for the individual options components through June 2015 establishes that it has by Amendment No. 1, To Adopt the MIAX PRIME
of such Strategy. not placed an undue burden on Price Improvement Mechanism and the MIAX
8 See September 12, 2003 Letter from Michael J.
competition; lessened the amount of PRIME Solicitation Mechanism); 63027 (October 1,
Simon, Vice President and Secretary, ISE, to 2010), 75 FR 62160 (October 7, 2010) (SR–Phlx–
Jonathan Katz, Secretary, Commission regarding price improvement in the PIP; nor 2010–108) (Order Granting Approval to a Proposed
SR–BSE–2002–15; and see generally letters to reduced order flow and liquidity to the Rule Change Relating to a Proposed Price
Jonathan Katz, Secretary, Commission regarding BOX Book. The Exchange therefore Improvement System, Price Improvement XL);
SR–BSE–2002–15, February 28, 2003 Letter from 50819 (December 8, 2004), 69 FR 75093 (December
Philip DeFeo, Chairman and Chief Executive
believes that it appropriate to approve
15, 2004) (SR–ISE–2003–06) (Order Granting
Officer, PCX; February 14, 2003 Letter from William Approval of Proposed Rule Change and
mstockstill on DSK3G9T082PROD with NOTICES
10 BOX-Top Orders have since been removed from
Brodsky, Chairman and Chief Executive Officer, Amendment No. 1 Thereto and Notice of Filing and
CBOE; February 14, 2003 Letter from Michael Ryan, the BOX Rulebook. See Securities Exchange Act Order Granting Accelerated Approval to
General Counsel, AMEX; February 12, 2003 Letter Release No. 71374 (January 23, 2014), 79 FR 4783 Amendments No. 2 and 3 Thereto by the
from Michael J. Simon, Secretary, ISE; February 12, (January 29, 2014) (Notice of Filing and Immediate International Securities Exchange, Inc. To Establish
2003 Letter from Meyer S. Frucher, Chairman and Effectiveness of SR–BOX–2014–05). Rules Implementing a Price Improvement
Chief Executive Officer, PHLX. 11 See supra, note 9.
Mechanism); and 70050 (July 26, 2013), 78 FR
9 See Securities Exchange Act Release No. 51821 12 See Securities Exchange Act Release No. 71148 46622 (August 1, 2013) (Order Granting the
(June 10, 2005), 70 FR 35143 (June 16, 2005) (Order (December 19, 2013), 78 FR 78437 (December 26, Application of Topaz Exchange, LLC for
Approving SR–BSE–2004–51). 2013) (Order Approving SR–BOX–2013–43). Registration as a National Securities Exchange).
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![91230 Federal Register / Vol. 81, No. 242 / Friday, December 16, 2016 / Notices
Permanent approval of the Pilot (B) institute proceedings to determine For the Commission, by the Division of
Programs would continue to provide whether the proposed rule change Trading and Markets, pursuant to delegated
investors with real and significant price should be disapproved. authority.22
improvement regardless of the size of Eduardo A. Aleman,
the order. The Exchange believes that IV. Solicitation of Comments Assistant Secretary.
allowing price improvement to any size Interested persons are invited to [FR Doc. 2016–30258 Filed 12–15–16; 8:45 am]
order removes impediments to a free submit written data, views and BILLING CODE 8011–01–P
and open market and national market
arguments concerning the foregoing,
system, therefore creating more
including whether the proposed rule
competition for the best execution of all SECURITIES AND EXCHANGE
change is consistent with the Act.
orders. The Exchange also believes that COMMISSION
Comments may be submitted by any of
making the Pilot Programs permanent [Release No. 34–79525; File No. SR–
does not raise any unique regulatory the following methods:
NYSEMKT–2016–111]
concerns. Electronic Comments
Lastly, the Exchange also believes that Self-Regulatory Organizations; NYSE
the proposed rule change, which • Use the Commission’s Internet MKT LLC; Notice of Filing and
provides all market participants, comment form (http://www.sec.gov/ Immediate Effectiveness of Proposed
including public investors, with rules/sro.shtml); or Rule Change To Amend Commentary
opportunity to trade with small • Send an email to rule-comments@ .02 to Rule 960NY in Order To Extend
customer orders of less than 50 sec.gov. Please include File Number SR– the Penny Pilot in Options Classes in
contracts in the PIP and COPIP, is BOX–2016–58 on the subject line. Certain Issues
appropriate in the public interest and
for the protection of investors Paper Comments December 12, 2016.
Pursuant to Section 19(b)(1) 1 of the
B. Self-Regulatory Organization’s • Send paper comments in triplicate Securities Exchange Act of 1934 (the
Statement on Burden on Competition to Secretary, Securities and Exchange ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
The Exchange does not believe that Commission, 100 F Street NE., notice is hereby given that on November
the proposed rule change will impose Washington, DC 20549–1090. 28, 2016, NYSE MKT LLC (the
any burden on competition either ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
All submissions should refer to File
among BOX Participants, or among the the Securities and Exchange
Number SR–BOX–2016–58. This file
various options exchanges, which is not Commission (the ‘‘Commission’’) the
necessary or appropriate in furtherance number should be included on the
proposed rule change as described in
of the purposes of the Act. Specifically, subject line if email is used. To help the
Items I, II, and III below, which Items
the PIP and COPIP mechanisms are Commission process and review your
have been prepared by the self-
offered to all BOX Participants and comments more efficiently, please use regulatory organization. The
making the Pilot Programs permanent only one method. The Commission will Commission is publishing this notice to
will not impose a competitive burden post all comments on the Commission’s solicit comments on the proposed rule
on any participant. Additionally, the Internet Web site (http://www.sec.gov/ change from interested persons.
Exchange believes that the proposed rules/sro.shtml). Copies of the
change will not have impact on submission, all subsequent I. Self-Regulatory Organization’s
intermarket competition, as noted above amendments, all written statements Statement of the Terms of Substance of
many other exchanges have similar pilot with respect to the proposed rule the Proposed Rule Change
programs in place in their auction change that are filed with the The Exchange proposes to amend
mechanisms and are free to file to make Commission, and all written Commentary .02 to Rule 960NY in order
these permanent as well. communications relating to the to extend the Penny Pilot in options
proposed rule change between the classes in certain issues (‘‘Pilot
C. Self-Regulatory Organization’s Commission and any person, other than Program’’ or ‘‘Pilot’’) previously
Statement on Comments on the those that may be withheld from the approved by the Securities and
Proposed Rule Change Received From public in accordance with the Exchange Commission (‘‘Commission’’)
Members, Participants, or Others
provisions of 5 U.S.C. 552, will be through June 30, 2017. The Pilot
The Exchange has neither solicited available for Web site viewing and Program is currently scheduled to
nor received comments on the proposed printing in the Commission’s Public expire on December 31, 2016. The
rule change. Reference Room, 100 F Street NE., proposed rule change is available on the
III. Date of Effectiveness of the Washington, DC 20549 on official Exchange’s Web site at www.nyse.com,
Proposed Rule Change and Timing for business days between the hours of at the principal office of the Exchange,
Commission Action 10:00 a.m. and 3:00 p.m. Copies of such and at the Commission’s Public
filing also will be available for Reference Room.
Within 45 days of the date of
inspection and copying at the principal II. Self-Regulatory Organization’s
publication of this notice in the Federal
office of the Exchange. All comments Statement of the Purpose of, and
Register or within such longer period (i)
received will be posted without change; Statutory Basis for, the Proposed Rule
as the Commission may designate up to
90 days of such date if it finds such the Commission does not edit personal Change
mstockstill on DSK3G9T082PROD with NOTICES
longer period to be appropriate and identifying information from
submissions. You should submit only In its filing with the Commission, the
publishes its reasons for so finding or self-regulatory organization included
(ii) as to which the self-regulatory information that you wish to make
organization consents, the Commission available publicly. All submissions 22 17 CFR 200.30–3(a)(12).
will: should refer to File Number SR–BOX– 1 15 U.S.C. 78s (b)(1).
(A) By order approve or disapprove 2016–58 and should be submitted on or 2 15 U.S.C. 78a.
the proposed rule change, or before January 6, 2017. 3 17 CFR 240.19b–4.
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Document Created: 2018-02-14 09:07:39
Document Modified: 2018-02-14 09:07:39
| 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 91227 |
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