82 FR 22682 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Qualified Contingent Cross Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 94 (May 17, 2017)

[Federal Register Volume 82, Number 94 (Wednesday, May 17, 2017)]
[Notices]
[Pages 22682-22685]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-09931]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80661; File No. SR-BOX-2017-14]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Adopt Qualified Contingent Cross Orders

May 11, 2017.
    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 May 9, 2017, 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

[[Page 22683]]

comments on the proposed rule from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt Qualified Contingent Cross Orders. 
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 filing this proposal to adopt Qualified Contingent 
Cross Orders (``QCC Orders''), as described below.

Background

    The purpose of this filing is to adopt rules related to QCC Orders. 
The proposed rule change is based on the rules of other options 
exchanges, including an International Securities Exchange (``ISE'') 
proposal that was previously approved by the Securities and Exchange 
Commission (``Commission'').\3\
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    \3\ See Securities Exchange Act Release Nos. 63955 (February 24, 
2011), 76 FR 11533 (March 2, 2011) (SR-ISE-2010-73) (``ISE 
Approval''); 79942 (February 2, 2017), 82 FR 9804 (February 8, 2017) 
(Notice of Filing and Immediate Effectiveness of SR-EDGX-2017-11).
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    The Exchange is currently a party to the Options Order Protection 
and Locked/Crossed Market Plan (``Linkage Plan''), and has implemented 
Exchange rules in conjunction with that plan, which are set forth in 
Rule 15000 of the Exchange's Rules (the ``Linkage Rules''). Similar to 
Regulation NMS under the Act, the Linkage Plan requires, among other 
things, that the Exchange establish, maintain and enforce written 
policies and procedures that are reasonably designed to prevent 
``Trade-Throughs.'' \4\ A Trade-Through is a transaction in an options 
series at a price that is inferior to the best price available in the 
market.\5\ The Linkage Plan replaced the Plan for the Purpose of 
Creating and Operating an Intermarket Option Linkage (``Old Linkage 
Plan''). The Old Linkage Plan provided a limited Trade-Through 
exemption for ``Block Trades,'' defined to be trades of 500 or more 
contracts with a premium value of at least $150,000.\6\ However, as 
with Regulation NMS, the Linkage Plan does not provide a Block Trade 
exemption. Since its original adoption by the ISE in 2011, QCC has been 
offered by multiple options exchanges as a limited substitute for the 
Block Trade exemption.\7\
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    \4\ See Section 5(a) of the Linkage Plan
    \5\ See Section 2(21) of the Linkage Plan
    \6\ See Old Linkage Plan Sections 2(3) and 8(c)(i)(C).
    \7\ See ISE Rule 715(j), Supplementary Material .01 to ISE Rule 
715 and ISE Rule 721(b); see also CBOE Rule 6.53(u); NASDAQ PHLX 
Rule 1080(o); NYSE Arca Rule 6.62(bb), Commentary .02 to NYSE Arca 
Rule 6.62 and NYSE Arca Rule 6.90.
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Proposal Regarding Qualified Contingent Cross Orders
    The purpose of the proposed change is to provide market 
participants with the ability to submit to the Exchange Qualified 
Contingent Cross Orders, an order type offered by multiple other 
options exchanges.\8\ The proposed operation of Qualified Contingent 
Cross Orders on the Exchange is substantially similar in all material 
respects to the operation of such orders on such other exchanges.
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    \8\ See supra, note 7.
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    The Exchange proposes to adopt Rule paragraph (c)(6) to Rule 7110 
to govern the operation of Qualified Contingent Cross Orders. As 
proposed, a Qualified Contingent Cross Order would be an originating 
order to buy or sell at least 1,000 standard option contracts, or 
10,000 mini-option contracts, that is identified as being part of a 
qualified contingent trade (as that term is proposed to be defined in 
IM-7110-2), coupled with a contra-side order or orders totaling an 
equal number of contracts. As proposed under IM-7110-2, a ``qualified 
contingent trade'' is a transaction consisting of two or more component 
orders, executed as agent or principal, where: (1) At least one 
component is an NMS stock, as defined in Rule 600 of Regulation NMS 
under the Act; (2) all components are effected with a product or price 
contingency that either has been agreed to by all the respective 
counterparties or arranged for by a broker-dealer as principal or 
agent; (3) the execution of one component is contingent upon the 
execution of all other components at or near the same time; (4) the 
specific relationship between the component orders (e.g., the spread 
between the prices of the component orders) is determined by the time 
the contingent order is placed; (5) the component orders bear a 
derivative relationship to one another, represent different classes of 
shares of the same issuer, or involve the securities of participants in 
mergers or with intentions to merge that have been announced or 
cancelled; and (6) the transaction is fully hedged (without regard to 
any prior existing position) as a result of other components of the 
contingent trade.
    Additionally, as proposed, Qualified Contingent Cross Orders would 
be allowed to execute automatically on entry without exposure provided 
the execution: (i) Is not at the same price as a Public Customer \9\ 
Order on the BOX Book; \10\ and (ii) is at or between the NBBO.\11\ As 
such, the Exchange also proposes to specify that a Qualified Contingent 
Cross Order will be rejected if there is an ongoing auction (including 
PIP, COPIP, Facilitation, and Solicitation auctions) or an exposed 
order on the option series when the Qualified Contingent Cross Order is 
received by the Exchange. The proposed Rule would also specify that 
Qualified Contingent Cross Orders will be cancelled if they cannot be 
executed. Also, pursuant to the proposed rule, Qualified Contingent 
Cross Orders may only be entered in the standard increments applicable 
to the options class under Rule 7050.
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    \9\ The term ``Public Customer'' means a person that is not a 
broker or dealer in securities. See Rule 100(a)(51).
    \10\ 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).
    \11\ The NBBO means the national best bid or offer. See Rule 
100(a)(33).
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    The Exchange will track and monitor QCC Orders to determine which 
is the originating side of the order and which is the contra-side(s) of 
the order to ensure that Participants are complying with the minimum 
1,000 contract size limitation (or 10,000 mini-option contract minimum) 
on the originating side of the QCC Order. The Exchange will check to 
see if Participants are aggregating multiple orders to meet the 1,000 
contract minimum on the originating side (or 10,000 mini-option 
contract minimum) of the trade in violation of the requirements of the 
rule.

[[Page 22684]]

The rule requires that the originating side of the trade consist of one 
party who is submitting a QCC Order for at least 1,000 contracts (or 
10,000 mini-option contracts). The Exchange represents that it will 
enforce compliance with this portion of the rule by checking to see if 
a Participants breaks up the originating side of the order in a post 
trade allocation to different clearing firms, allocating less than 
1,000 contracts (or 10,000 mini-option contracts) to a party or 
multiple parties. For example, a Participant enters a QCC Order into 
the system for 1,500 contracts and receives an execution. Subsequent to 
the execution, the Participant allocates the originating side of the 
order to two different clearing firms on a post trade allocation basis, 
thereby allocating 500 contracts to one clearing firm and 1,000 
contracts to another clearing firm. This type of transaction would not 
meet the requirements of a QCC Order under the current and proposed 
rule.
    With regard to order entry, a Participant will have to mark the 
originating side as the first order in the system and the contra-
side(s) as the second. The Exchange will monitor order entries to 
ensure that Participants are properly entering QCC Orders into the 
system.
    The Exchange anticipates implementing the proposed change during 
the second quarter of 2017. The Exchange will provide notice of the 
exact implementation date, via Circular, prior to implementing the 
proposed change.
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''),\12\ in general, and Section 6(b)(5) of the Act,\13\ 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. Specifically, the proposed change is designed to offer 
market participants greater flexibility by allowing such market 
participant to submit QCC Orders to BOX in the same way they are 
permitted to send QCC Orders to other options exchanges, thereby 
promoting just and equitable principles of trade, fostering cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, removing impediments to, and perfecting the mechanism of, a 
free and open market and a national market system.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The proposed rules are consistent with the protection of investors 
in that they are designed to prevent Trade-Throughs. In addition, the 
proposed rule change would promote a free and open market by permitting 
the Exchange to compete with other options exchanges for these types of 
orders. In this regard, competition would result in benefits to the 
investing public, whereas a lack of competition would serve to limit 
the choices that participants have for execution of their options 
business. As noted above, the proposed operation of Qualified 
Contingent Cross Orders on the Exchange is substantially similar in all 
material respects to the operation of such orders on such other 
exchanges.\14\ As such, permitting the Exchange to operate on an even 
playing field relative to other exchanges removes impediments to and 
perfects the mechanism for a free and open market and a national market 
system.
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    \14\ See supra, note 7.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change to 
adopt QCC Orders will impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. The 
Exchange's proposed functionality is open to all market participants. 
Further, the proposed rule will allow the Exchange to compete with 
other options exchanges that currently offer QCC Orders, thus 
alleviating the burden on competition that would arise if such 
exchanges were permitted to continue offering such functionality and 
the Exchange was not. For these reasons, the Exchange does not believe 
that the proposed rule changes will impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the Act, 
and believes the proposed change will enhance competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    (a) This proposed rule change is filed pursuant to paragraph (A) of 
section 19(b)(3) of the Exchange Act \15\ and Rule 19b-4(f)(6) 
thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    (b) This proposed rule change does not significantly affect the 
protection of investors or the public interest, does not impose any 
significant burden on competition, and, by its terms, does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest.
    The Exchange provided the Commission with written notice of its 
intent to file the proposed rule change, along with a brief description 
and text of the proposed rule change, prior to the date of filing the 
proposed rule change as required by Rule 19b-4(f)(6).
    The Exchange believes that the proposed rule change does not 
significantly affect the protection of investors or the public interest 
and does not impose any significant burden on competition. The 
Exchange's proposal to accept QCC Orders is not a novel concept but 
rather, is based on the acceptance of such orders on multiple other 
options exchanges.
    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-2017-14 on the subject line.

[[Page 22685]]

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-2017-14. 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, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m., located at 
100 F Street NE., Washington, DC 20549. 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-
2017-14 and should be submitted on or before June 7, 2017.

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09931 Filed 5-16-17; 8:45 am]
BILLING CODE 8011-01-P