83 FR 12627 - Self-Regulatory Organizations; BOX Options Exchange LLC; 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 Rule 7600(i) To Allow Split-Price Transactions on the BOX Trading Floor
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 56 (March 22, 2018)
Federal Register Volume 83, Issue 56 (March 22, 2018)
| Page Range | 12627-12630 | |
| FR Document | 2018-05794 |
[Federal Register Volume 83, Number 56 (Thursday, March 22, 2018)] [Notices] [Pages 12627-12630] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-05794] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82891; File No. SR-BOX-2017-36] Self-Regulatory Organizations; BOX Options Exchange LLC; 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 Rule 7600(i) To Allow Split-Price Transactions on the BOX Trading Floor March 16, 2018. I. Introduction On November 30, 2017, BOX Options Exchange LLC (the ``Exchange'' or ``BOX'') 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 adopt proposed Rule 7600(i) to allow split- price transactions on the BOX Trading Floor. The proposed rule change was published for comment in the Federal Register on December 19, 2017.\3\ On January 31, 2018, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change to March 19, 2018.\4\ The Exchange filed Amendment No. 1 to the proposal on March 7, 2018.\5\ The Commission is publishing this notice to solicit comment on Amendment No. 1 to the proposed rule change from interested persons and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 82315 (December 13, 2017), 82 FR 60256 (``Notice''). \4\ See Securities Exchange Act Release No. 82607 (January 31, 2018), 83 FR 5286 (February 6, 2018). \5\ In Amendment No. 1 the Exchange: (1) Further described how split-price priority transactions would execute if there is Public Customer interest on the BOX Book; (2) provided additional justification for the proposal being consistent with the Act; (3) provided additional examples of how split-price priority transactions will be handled and reported by the Exchange; and (4) proposed additional rule text to describe how the system will determine the allocation of a split-price QOO Order in situations where the allocation between two increments results in a fractional amount of contracts and provided justification for this change. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-box-2017-36/box201736-3206059-161998.pdf. --------------------------------------------------------------------------- II. Description of the Proposed Rule Change, as Modified by Amendment No. 1 [bds6] --------------------------------------------------------------------------- \6\ For a more detailed description of the proposed rule change, see Notice, supra note 3; Amendment No. 1, supra note 5. --------------------------------------------------------------------------- BOX proposes to adopt Rule 7600(i), which would establish priority principles for split-price transactions occurring in open-outcry on the Trading Floor.\7\ Under the proposed rule, if an order or offer (bid) for any number of contracts of a series is represented to the trading crowd, a Floor Participant \8\ that buys (sells) one or more contracts of that order or offer (bid) at one price would have priority over all other orders and quotes, except Public Customer Orders \9\ resting in the BOX Book,\10\ to buy (sell) up to the same number of contracts of those remaining from the same order or offer (bid) at the next lower (higher) price.\11\ For orders or offers (bids) of 100 or more contracts,\12\ a Floor Participant that buys (sells) 50 or more of the contracts of that order or offer (bid) at a particular price will have priority over all other orders and quotes to buy (sell) up to the same number of contracts of those remaining from the same order or offer (bid) at the next lower (higher) price.\13\ If the bids or offers of two or more Floor Participants are both entitled to split-price priority, priority would be afforded (to the extent practicable) on a pro-rata basis.\14\ --------------------------------------------------------------------------- \7\ See Rule 100(a)(67) (defining Trading Floor). \8\ The term ``Floor Participant'' includes Floor Brokers as defined in Rule 7540 and Floor Market Makers as defined in Rule 8510(b). See Rule 100(a)(26). \9\ The term ``Public Customer Order'' means an order for the account of a Public Customer, which is defined in the BOX Rules as a person that is not a broker or dealer in securities. See Rules 100(a)(52) and (53). \10\ 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 Rule 100(a)(10). \11\ See proposed Rule 7600(i)(1). \12\ Under the proposed rule, the Exchange would be permitted to increase the minimum qualifying size of 100 contracts. Any such changes would be announced to Participants via Regulatory Circular. See proposed Rule 7600(i)(2). \13\ See proposed Rule 7600(i)(2). See also Notice supra, note 3, at 60257 (providing an example of a split-price transaction for 100 contracts). \14\ See proposed Rule 7600(i)(3). --------------------------------------------------------------------------- According to the Exchange, in order to execute a split-price transaction, a Floor Broker would submit a Qualified Open Outcry (``QOO'') Order to the system in the same manner as done today on the Trading Floor, except that the QOO Order would be entered at a sub- minimum trading increment.\15\ [[Page 12628]] After receiving the QOO Order, the system would split the QOO Order into two transactions. The transactions would be separated by one tick that, when combined, would yield a net price equal to the original price entered by the Floor Broker.\16\ If this calculation results in a fractional contract amount, the number of contracts allocated will be rounded to the advantage of the initiating side.\17\ --------------------------------------------------------------------------- \15\ For example, a Floor Broker would be permitted to enter a QOO Order at a price of $1.03 when the minimum trading increment for the series is $0.05. See Notice, supra, note 3, at 60256, n.5. Split price QOO Orders can be submitted with up to three decimal places (e.g., $1.025). See Amendment No. 1, supra note 5, at 6 n.6. \16\ For example, if a Floor Broker submitted a split price QOO Order with a price of $1.025 for 100 contracts in a series with a minimum trading increment of $0.05, the system would split the QOO Order into two transactions; a transaction for the purchase of 50 contracts at $1.00 and a transaction for the purchase of 50 contracts at $1.05. See Notice supra, note 3, at 60256. \17\ See proposed Rule IM-7600-7; Amendment No. 1, supra note 5, at 6. For example, if a Floor Broker submitted a split price QOO Order with a price of $1.025 for 301 contracts in a series with a minimum trading increment of $0.05, 150.5 contracts would need to be executed at $1.00 and 150.5 contracts would need to be executed at $1.05 to achieve a net price of $1.025. If the initiating side of such an order were a sell order, the system would instead split the order into 151 contracts at $1.05 and 150 at $1.00, resulting in a net execution price of $1.0251, which is a better price for the initiating sell order. See Amendment No. 1, supra note 5, at 6. --------------------------------------------------------------------------- The Exchange represents that the process by which a Floor Broker brings an order to the Trading Floor would be the same for a split- price QOO Order as it is for all other QOO Orders.\18\ Specifically, a Floor Broker would be permitted to bring a single-sided order (i.e., the initiating side of a QOO Order) to the Trading Floor in order to seek liquidity (i.e., the contra-side of a QOO Order). In such case, the Floor Broker would announce the single-sided order to the trading crowd in an attempt to find contra-side liquidity. If Floor Participants respond with sufficient liquidity to satisfy the single- sided order, the Floor Broker would be able to submit a two-sided QOO Order to the system as required by Rule 7600.\19\ If, however, a Floor Participant responds by providing liquidity at two separate prices, then the Floor Broker would submit the QOO Order at a sub-minimum trading increment which would result in a split-price transaction.\20\ For example, according to the Exchange, a Floor Market Maker might be willing to buy half of the contracts at one price provided that the Floor Market Maker could then buy the other half at one tick lower.\21\ --------------------------------------------------------------------------- \18\ The Exchange notes that the Floor Broker would be permitted to utilize the book sweep size, as provided in Rule 7600(h), when entering a split-price QOO Order. See Notice, supra note 3, at 60257 and 60258 (providing an example of a split-price QOO Order and book sweep size). According to the Exchange, this may result in the contra-side of a split price order receiving a net price that is worse than the price at which the QOO Order was originally entered. See Amendment No. 1, supra note 5, at 5 (providing an example of the execution of a split-price transaction that executes in part against a Public Customer Order on the BOX Book). A split-price QOO Order will be rejected if the initiating side of the transaction would trade through a resting Public Customer Order because the initiating side of a QOO Order must be filled in its entirety pursuant to Rule 7600(a)(1). See Amendment No. 1, supra note 5, at 5 n.4. \19\ See Rule 7600(a). \20\ The Exchange notes that nothing would prevent a Floor Participant from responding for the full amount of the order at a better price for the Floor Broker's customer. For example, if a Floor Broker announced an order for a customer looking to buy at $0.30 and $0.35, a Floor Participant could respond to sell the full quantity at $0.30 instead of selling part at $0.30 and part at $0.35. See Notice, supra note 3, at 60256 n.7. \21\ See Notice, supra note 3, at 60256. --------------------------------------------------------------------------- Alternatively, the Floor Broker may have both sides of the QOO Order (i.e., the initiating side and the contra-side) when the order is brought to the Trading Floor and the Floor Broker may wish to execute the order at two separate prices in an attempt to have a net execution price with a sub-minimum trading increment. In such a situation, under the proposed rule, the Floor Broker would announce the QOO Order to the trading crowd and state that they are attempting to execute the QOO Order as a split-price transaction. Floor Participants then would have an opportunity to respond.\22\ --------------------------------------------------------------------------- \22\ See id. (providing an example of the execution of a single- sided order as a split-price transaction). --------------------------------------------------------------------------- The use of the proposed split-price priority rule would be subject to certain conditions. First, split-price priority would be available only for open outcry transactions (i.e., QOO Orders) and would not apply to Complex Orders.\23\ Second, a Floor Participant would be required to make its bid (offer) at the next lower (higher) price for the second (or later) transaction at the same time as the first bid (offer) or promptly following the announcement of the first (or earlier) transaction.\24\ Third, the second (or later) purchase (sale) must represent the opposite side of a transaction with the same order or offer (bid) as the first (or earlier) purchase (sale).\25\ --------------------------------------------------------------------------- \23\ See proposed Rule 7600(4)(i). \24\ See proposed Rule 7600(4)(ii). \25\ See proposed Rule 7600(4)(iii). --------------------------------------------------------------------------- Finally, the Exchange proposes an exception to the availability of split-price priority. Specifically, if the width of the quote for a series is the minimum increment for that series (e.g., $1.00-$1.05 for a series with a minimum increment of $0.05, or $1.00-$1.01 for a series with a minimum increment of $0.01), and both the bid and offer represent Public Customer Orders resting in the BOX Book, split-price priority pursuant to proposed Rule 7600(i) would not available to Floor Participants until the Public Customer Order(s) resting in the BOX Book on either side of the market trades.\26\ The Exchange represents that this exception is consistent with the Exchange's allocation and priority rules, which provide for Public Customer Orders to have priority at the best price in open outcry over QOO Orders.\27\ --------------------------------------------------------------------------- \26\ See proposed Rule 7600(5). \27\ See Notice, supra note 3, at 60257 (providing examples of the application of the exception). See also Rules 7600(c) and (d). --------------------------------------------------------------------------- To address potential concerns regarding Section 11(a) of the Act,\28\ the Exchange is proposing to adopt Rule IM-7600-6.\29\ Proposed Rule IM-7600-6 would make clear that Floor Brokers may avail themselves of the split-price priority rule, but must ensure compliance with Section 11(a). Specifically, proposed Rule IM-7600-6 would require a Floor Broker who bids (offers) on behalf of a non-Market-Maker BOX Participant broker-dealer (``BOX Participant BD'') to ensure that the BOX Participant BD qualifies for an exemption from Section 11(a)(1) of the Exchange Act or the transaction satisfies the requirements of Exchange Act Rule 11a2-2(T).\30\ According to the Exchange, pursuant to existing Rule IM-7600-5, a Participant may not utilize the Trading Floor to effect any transaction for its own account, the account of an associated person, or an account with respect to which it or an associated person thereof exercises investment discretion by relying on an exemption under Section 11(a)(1)(G) of the Exchange Act (the ``G Exemption'').\31\ Therefore, according to the Exchange, a Floor Broker bidding or offering on behalf of a BOX Participant must rely on exemptions from Section 11(a) other than the G Exemption.\32\ Otherwise a Floor Broker would not be permitted to execute a split-price transaction on the Trading Floor. The Exchange notes that the proposed rule change would not limit in any way the obligation of a BOX Participant, while acting as a Floor [[Page 12629]] Broker or otherwise, to comply with Section 11(a) or the rules thereunder.\33\ --------------------------------------------------------------------------- \28\ 15 U.S.C. 78k(a) \29\ See Notice, supra note 3, at 60258. See also proposed Rule IM-7600-6. \30\ See proposed Rule IM-7600-6. \31\ See Notice, supra note 3, at 60258. See also Securities Exchange Act Release No. 80720 (May 18, 2017), 82 FR 23657 (May 23, 2017) (Notice of Amendment 2 to SR-BOX-2016-48) at 23674 and 23681. See also Securities Exchange Act Release No. 81292 (August 2, 2017), 82 FR 37144 (August 8, 2017) (Order Approving SR-BOX-2016-48). \32\ See Notice, supra note 3, at 60258. \33\ See Notice, supra note 3, at 60258. --------------------------------------------------------------------------- The Exchange has represented that it will provide at least two weeks' notice to Participants via Circular prior to the launch of proposed Rule 7600(i).\34\ --------------------------------------------------------------------------- \34\ The Exchange stated that it anticipates launching its split-price priority rule in the first quarter of 2018. See Notice, supra note 3, at 60258. --------------------------------------------------------------------------- III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\35\ In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\36\ which requires, among other things, that the Exchange's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, 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. --------------------------------------------------------------------------- \35\ In approving this proposed rule change, as modified by Amendment No. 1, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \36\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed rule change would encourage Floor Participants to quote more aggressively, which in turn could lead to better-priced executions. In addition, the Exchange states that it believes that the proposal will induce Floor Participants to bid (offer) at better prices for an order or offer that may require execution at multiple prices (such as a large-size order), which would result in a better average price for the originating Floor Participant (or its customer).\37\ --------------------------------------------------------------------------- \37\ See Notice, supra note 3, at 60258. --------------------------------------------------------------------------- The Commission notes that the proposed change is substantively identical to the rules of another options exchange \38\ and therefore, the Commission does not believe that the adoption of proposed Rule 7600(i) raises any new regulatory issues. The Commission believes that the proposed rule change may encourage more aggressive quoting by Floor Participants in competition for large-sized orders, which, in turn, could lead to better-priced executions.\39\ The Commission notes that the proposed rule change includes language that clarifies that Floor Brokers who avail themselves of the split-price priority rule are obligated to ensure compliance with Section 11(a) of the Act. --------------------------------------------------------------------------- \38\ See Cboe Exchange Inc. Rule 6.47. See also Nasdaq Phlx LLC Rule 1014(g)(i)(B), NYSE Arca Inc. Rule 6.75-O(h) and NYSE American LLC Rule 963NY(f). \39\ See Securities Exchange Act Release No. 77823 (May 12, 2016), 81 FR 31279 (May 18, 2016) (SR-CBOE-2016-034) (approving modifications to Cboe Option's split-price priority rule and adopting an exception when the width of a series quote is at the minimum increment width which is identical to BOX's proposed exception). --------------------------------------------------------------------------- For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with Section 6(b)(5) of the Act \40\ and the rules and regulations thereunder applicable to a national securities exchange. --------------------------------------------------------------------------- \40\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- IV. Solicitation of Comments on Amendment No. 1 Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether Amendment No. 1 to 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-2017-36 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-2017-36. 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 website (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 website 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 the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-BOX-2017-36 and should be submitted on or before [date 21 days from publication in the Federal Register]. V. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1, prior to the thirtieth day after the date of publication of the notice of Amendment No. 1 in the Federal Register. As discussed above, Amendment No. 1 clarifies how the proposed split-price priority rules would operate in conjunction with BOX's book sweep size mechanism, and its potential impact to the net execution price of the contra-side of a split-price QOO Order. In addition, Amendment No. 1 proposes additional rule text to describe how the system will determine split-price priority in situations where the allocation between two increments results in a fractional number of contracts. The Commission believes that Amendment No. 1 provides additional specificity regarding the operation of BOX's new priority principles for split-priced transactions in open-outcry on the Trading Floor. The Commission notes that the proposed new rule text and additional description and analysis set forth in Amendment 1 do not raise any novel regulatory issues and are designed to add clarity to the proposal. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Exchange Act,\41\ to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. --------------------------------------------------------------------------- \41\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\42\ that the [[Page 12630]] proposed rule change (SR-BOX-2017-36), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis. --------------------------------------------------------------------------- \42\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\43\ --------------------------------------------------------------------------- \43\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-05794 Filed 3-21-18; 8:45 am] BILLING CODE 8011-01-P
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Electronic Comments SECURITIES AND EXCHANGE II. Description of the Proposed Rule
COMMISSION Change, as Modified by Amendment
• Use the Commission’s internet No. 1 6
comment form (http://www.sec.gov/
rules/sro.shtml); or [Release No. 34–82891; File No. SR–BOX– BOX proposes to adopt Rule 7600(i),
2017–36] which would establish priority
• Send an email to rule-comments@ principles for split-price transactions
sec.gov. Please include File Number SR– Self-Regulatory Organizations; BOX occurring in open-outcry on the Trading
BOX–2018–09 on the subject line. Options Exchange LLC; Notice of Floor.7 Under the proposed rule, if an
Filing of Amendment No. 1 and Order order or offer (bid) for any number of
Paper Comments
Granting Accelerated Approval of a contracts of a series is represented to the
• Send paper comments in triplicate Proposed Rule Change, as Modified by trading crowd, a Floor Participant 8 that
to Secretary, Securities and Exchange Amendment No. 1, To Adopt Rule buys (sells) one or more contracts of that
Commission, 100 F Street NE, 7600(i) To Allow Split-Price order or offer (bid) at one price would
Washington, DC 20549–1090. Transactions on the BOX Trading Floor have priority over all other orders and
quotes, except Public Customer Orders 9
All submissions should refer to File March 16, 2018. resting in the BOX Book,10 to buy (sell)
Number SR–BOX–2018–09. This file up to the same number of contracts of
number should be included on the I. Introduction
those remaining from the same order or
subject line if email is used. To help the On November 30, 2017, BOX Options offer (bid) at the next lower (higher)
Commission process and review your Exchange LLC (the ‘‘Exchange’’ or price.11 For orders or offers (bids) of 100
comments more efficiently, please use ‘‘BOX’’) filed with the Securities and or more contracts,12 a Floor Participant
only one method. The Commission will Exchange Commission (‘‘Commission’’), that buys (sells) 50 or more of the
post all comments on the Commission’s pursuant to Section 19(b)(1) of the contracts of that order or offer (bid) at
internet website (http://www.sec.gov/ Securities Exchange Act of 1934 a particular price will have priority over
rules/sro.shtml). Copies of the (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a all other orders and quotes to buy (sell)
submission, all subsequent proposed rule change to adopt proposed up to the same number of contracts of
amendments, all written statements Rule 7600(i) to allow split-price those remaining from the same order or
with respect to the proposed rule offer (bid) at the next lower (higher)
transactions on the BOX Trading Floor.
change that are filed with the price.13 If the bids or offers of two or
The proposed rule change was
Commission, and all written more Floor Participants are both entitled
published for comment in the Federal
communications relating to the to split-price priority, priority would be
Register on December 19, 2017.3 On afforded (to the extent practicable) on a
proposed rule change between the January 31, 2018, the Commission
Commission and any person, other than pro-rata basis.14
extended the time period within which According to the Exchange, in order
those that may be withheld from the to approve the proposed rule change, to execute a split-price transaction, a
public in accordance with the disapprove the proposed rule change, or Floor Broker would submit a Qualified
provisions of 5 U.S.C. 552, will be institute proceedings to determine Open Outcry (‘‘QOO’’) Order to the
available for website viewing and whether to disapprove the proposed system in the same manner as done
printing in the Commission’s Public rule change to March 19, 2018.4 The today on the Trading Floor, except that
Reference Room, 100 F Street NE, Exchange filed Amendment No. 1 to the the QOO Order would be entered at a
Washington, DC 20549, on official proposal on March 7, 2018.5 The sub-minimum trading increment.15
business days between the hours of Commission is publishing this notice to
10:00 a.m. and 3:00 p.m. Copies of the solicit comment on Amendment No. 1 6 For a more detailed description of the proposed
filing also will be available for to the proposed rule change from rule change, see Notice, supra note 3; Amendment
No. 1, supra note 5.
inspection and copying at the principal interested persons and is approving the 7 See Rule 100(a)(67) (defining Trading Floor).
office of the Exchange. All comments proposed rule change, as modified by 8 The term ‘‘Floor Participant’’ includes Floor
received will be posted without change. Amendment No. 1, on an accelerated Brokers as defined in Rule 7540 and Floor Market
Persons submitting comments are basis. Makers as defined in Rule 8510(b). See Rule
cautioned that we do not redact or edit 100(a)(26).
9 The term ‘‘Public Customer Order’’ means an
personal identifying information from 1 15 U.S.C. 78s(b)(1). order for the account of a Public Customer, which
comment submissions. You should 2 17 CFR 240.19b–4. is defined in the BOX Rules as a person that is not
submit only information that you wish 3 See Securities Exchange Act Release No. 82315 a broker or dealer in securities. See Rules 100(a)(52)
(December 13, 2017), 82 FR 60256 (‘‘Notice’’). and (53).
to make available publicly. All 10 The term ‘‘Central Order Book’’ or ‘‘BOX Book’’
4 See Securities Exchange Act Release No. 82607
submissions should refer to File means the electronic book of orders on each single
(January 31, 2018), 83 FR 5286 (February 6, 2018).
Number SR–BOX–2018–09 and should 5 In Amendment No. 1 the Exchange: (1) Further option series maintained by the BOX Trading Host.
be submitted on or before April 12, See Rule 100(a)(10).
described how split-price priority transactions
11 See proposed Rule 7600(i)(1).
2018. would execute if there is Public Customer interest
12 Under the proposed rule, the Exchange would
on the BOX Book; (2) provided additional
For the Commission, by the Division of justification for the proposal being consistent with be permitted to increase the minimum qualifying
Trading and Markets, pursuant to delegated the Act; (3) provided additional examples of how size of 100 contracts. Any such changes would be
split-price priority transactions will be handled and announced to Participants via Regulatory Circular.
authority.14
See proposed Rule 7600(i)(2).
daltland on DSKBBV9HB2PROD with NOTICES
reported by the Exchange; and (4) proposed
Eduardo A. Aleman, additional rule text to describe how the system will 13 See proposed Rule 7600(i)(2). See also Notice
Assistant Secretary. determine the allocation of a split-price QOO Order supra, note 3, at 60257 (providing an example of
in situations where the allocation between two a split-price transaction for 100 contracts).
[FR Doc. 2018–05792 Filed 3–21–18; 8:45 am] 14 See proposed Rule 7600(i)(3).
increments results in a fractional amount of
BILLING CODE 8011–01–P contracts and provided justification for this change. 15 For example, a Floor Broker would be
Amendment No. 1 is available at: https:// permitted to enter a QOO Order at a price of $1.03
www.sec.gov/comments/sr-box-2017-36/box201736- when the minimum trading increment for the series
14 17 CFR 200.30–3(a)(12). 3206059-161998.pdf. Continued
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Broker or otherwise, to comply with priced executions.39 The Commission printing in the Commission’s Public
Section 11(a) or the rules thereunder.33 notes that the proposed rule change Reference Room, 100 F Street NE,
The Exchange has represented that it includes language that clarifies that Washington, DC 20549 on official
will provide at least two weeks’ notice Floor Brokers who avail themselves of business days between the hours of
to Participants via Circular prior to the the split-price priority rule are obligated 10:00 a.m. and 3:00 p.m. Copies of the
launch of proposed Rule 7600(i).34 to ensure compliance with Section 11(a) filing also will be available for
of the Act. inspection and copying at the principal
III. Discussion and Commission For the foregoing reasons, the office of the Exchange. All comments
Findings Commission finds that the proposed received will be posted without change.
After careful review, the Commission rule change, as modified by Amendment Persons submitting comments are
finds that the proposed rule change, as No. 1, is consistent with Section 6(b)(5) cautioned that we do not redact or edit
modified by Amendment No. 1, is of the Act 40 and the rules and personal identifying information from
consistent with the requirements of the regulations thereunder applicable to a comment submissions. You should
Act and the rules and regulations national securities exchange. submit only information that you wish
thereunder applicable to a national IV. Solicitation of Comments on to make available publicly. All
securities exchange.35 In particular, the Amendment No. 1 submissions should refer to File
Commission finds that the proposed Number SR–BOX–2017–36 and should
rule change, as modified by Amendment Interested persons are invited to be submitted on or before [date 21 days
No. 1, is consistent with Section 6(b)(5) submit written data, views and from publication in the Federal
of the Act,36 which requires, among arguments concerning the foregoing, Register].
other things, that the Exchange’s rules including whether Amendment No. 1 to
the proposed rule change is consistent V. Accelerated Approval of Proposed
be designed to prevent fraudulent and Rule Change, as Modified by
manipulative acts and practices, to with the Act. Comments may be
submitted by any of the following Amendment No. 1
promote just and equitable principles of
trade, to remove impediments to and methods: The Commission finds good cause to
perfect the mechanism of a free and Electronic Comments approve the proposed rule change, as
open market and a national market modified by Amendment No. 1, prior to
• Use the Commission’s internet the thirtieth day after the date of
system, and, in general, to protect
comment form (http://www.sec.gov/ publication of the notice of Amendment
investors and the public interest.
rules/sro.shtml); or No. 1 in the Federal Register. As
The Exchange believes that the • Send an email to rule-comments@
proposed rule change would encourage discussed above, Amendment No. 1
sec.gov. Please include File Number SR– clarifies how the proposed split-price
Floor Participants to quote more BOX–2017–36 on the subject line.
aggressively, which in turn could lead priority rules would operate in
to better-priced executions. In addition, Paper Comments conjunction with BOX’s book sweep
the Exchange states that it believes that • Send paper comments in triplicate size mechanism, and its potential
the proposal will induce Floor to Secretary, Securities and Exchange impact to the net execution price of the
Participants to bid (offer) at better prices Commission, 100 F Street NE, contra-side of a split-price QOO Order.
for an order or offer that may require Washington, DC 20549–1090. In addition, Amendment No. 1 proposes
execution at multiple prices (such as a additional rule text to describe how the
All submissions should refer to File system will determine split-price
large-size order), which would result in Number SR–BOX–2017–36. This file
a better average price for the originating priority in situations where the
number should be included on the allocation between two increments
Floor Participant (or its customer).37 subject line if email is used. To help the
The Commission notes that the results in a fractional number of
Commission process and review your contracts.
proposed change is substantively comments more efficiently, please use
identical to the rules of another options The Commission believes that
only one method. The Commission will
exchange 38 and therefore, the Amendment No. 1 provides additional
post all comments on the Commission’s
Commission does not believe that the specificity regarding the operation of
internet website (http://www.sec.gov/
adoption of proposed Rule 7600(i) raises BOX’s new priority principles for split-
rules/sro.shtml). Copies of the
any new regulatory issues. The priced transactions in open-outcry on
submission, all subsequent
Commission believes that the proposed the Trading Floor. The Commission
amendments, all written statements
rule change may encourage more notes that the proposed new rule text
with respect to the proposed rule
aggressive quoting by Floor Participants and additional description and analysis
change that are filed with the
in competition for large-sized orders, set forth in Amendment 1 do not raise
Commission, and all written
which, in turn, could lead to better- any novel regulatory issues and are
communications relating to the
designed to add clarity to the proposal.
proposed rule change between the
33 See Notice, supra note 3, at 60258. Commission and any person, other than Accordingly, the Commission finds
34 The Exchange stated that it anticipates those that may be withheld from the good cause, pursuant to Section 19(b)(2)
launching its split-price priority rule in the first
public in accordance with the of the Exchange Act,41 to approve the
quarter of 2018. See Notice, supra note 3, at 60258. proposed rule change, as modified by
35 In approving this proposed rule change, as provisions of 5 U.S.C. 552, will be
available for website viewing and Amendment No. 1, on an accelerated
modified by Amendment No. 1, the Commission
notes that it has considered the proposed rule’s basis.
daltland on DSKBBV9HB2PROD with NOTICES
impact on efficiency, competition, and capital 39 See Securities Exchange Act Release No. 77823
formation. See 15 U.S.C. 78c(f).
VI. Conclusion
(May 12, 2016), 81 FR 31279 (May 18, 2016) (SR–
36 15 U.S.C. 78f(b)(5).
CBOE–2016–034) (approving modifications to Cboe It is therefore ordered, pursuant to
37 See Notice, supra note 3, at 60258. Option’s split-price priority rule and adopting an Section 19(b)(2) of the Act,42 that the
38 See Cboe Exchange Inc. Rule 6.47. See also exception when the width of a series quote is at the
Nasdaq Phlx LLC Rule 1014(g)(i)(B), NYSE Arca minimum increment width which is identical to
Inc. Rule 6.75–O(h) and NYSE American LLC Rule BOX’s proposed exception). 41 15 U.S.C. 78s(b)(2).
963NY(f). 40 15 U.S.C. 78f(b)(5). 42 15 U.S.C. 78s(b)(2).
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![12630 Federal Register / Vol. 83, No. 56 / Thursday, March 22, 2018 / Notices
proposed rule change (SR–BOX–2017– European Senior Non-Preferred used as part of the determination of risk
36), as modified by Amendment No. 1, Financial Corporate, and to provide for requirements.8
be, and hereby is, approved on an revised risk management practices. ICE Clear Europe proposed changes to
accelerated basis. its LGD framework at the Risk Factor
A. Changes to ICE Clear Europe CDS level with respect to the LGD
For the Commission, by the Division of Procedures
Trading and Markets, pursuant to delegated calculation. Specifically, ICE Clear
authority.43 ICE Clear Europe proposed amending Europe proposed a change to its
Eduardo A. Aleman, Paragraph 4.3(c)(ii) of its CDS approach by incorporating more
Assistant Secretary. Procedures, which sets forth the consistency in the calculation of the P/
requirements for Trade Particulars for LGD by using the same recovery rate
[FR Doc. 2018–05794 Filed 3–21–18; 8:45 am]
CDS that are submitted for Clearing, to scenarios applied to the different Risk
BILLING CODE 8011–01–P
reference the Standard European Senior Sub-Factors which are part of the
Non-Preferred Financial Corporate considered Risk Factor. For each Risk
transaction type.5 Factor, ICE Clear Europe would
SECURITIES AND EXCHANGE
ICE Clear Europe also proposed continue to calculate an ‘‘extreme
COMMISSION
amending Paragraph 11.3(i) to revise the outcome’’ as the sum of the worst Risk
[Release No. 34–82890; File No. SR–ICEEU–
definition of ‘‘Non-STEC Single Name Sub-Factor P/LGDs across all scenarios
2018–002] and also would, for each Risk Factor,
Contract’’ to include the Standard
European Senior Non-Preferred calculate an ‘‘expected outcome’’ as the
Self-Regulatory Organizations; ICE worst sum of all the Risk Sub-Factors P/
Clear Europe Limited; Order Granting Financial Corporate transaction type in
the list of Reference Entities eligible to LGDs across all of the same scenarios.
Accelerated Approval of Proposed Under the proposed changes, ICE Clear
Rule Change Relating to the ICE Clear be cleared by ICE Clear Europe, and also
proposed amending Paragraph 11.3(j) to Europe would then combine the results
Europe Limited CDS Procedures, CDS of the ‘‘extreme outcome’’ calculation
Risk Policy, and CDS Risk Model remove a requirement providing that the
and the ‘‘expected outcome’’ calculation
Description relevant obligation must be ‘‘Senior
to compute the total LGD for each Risk
Level’’ and replace it with a requirement
March 16, 2018. Factor.9 ICE Clear Europe proposed to
that the relevant obligation be of the
apply a weight of 25% to the extreme
I. Introduction ‘‘applicable seniority level.’’ 6
outcome component in order to
On February 6, 2018 ICE Clear Europe B. Changes to ICE Clear Europe’s Risk implement certain requirements of
Limited (‘‘ICE Clear Europe’’) filed with Model Description relevant regulatory technical standards
the Securities and Exchange arising under the European Market
As currently constructed, ICE Clear Infrastructure Regulation.10
Commission (‘‘Commission’’), pursuant Europe’s risk management methodology
to Section 19(b)(1) of the Securities ICE Clear Europe also proposed to
takes into consideration the potential expand its LGD analysis to incorporate
Exchange Act of 1934 (‘‘Act’’),1 and losses associated with idiosyncratic
Rule 19b–4 thereunder,2 a proposed rule a new ‘‘Risk Factor Group’’ level. Under
credit events, which ICE Clear Europe the proposed changes, a set of related
change (SR–ICEEU–2018–002) to revise: refers to as ‘‘Loss-Given Default’’ or
(i) Its CDS Procedures to support the Risk Factors would form a Risk Factor
‘‘LGD.’’ ICE Clear Europe deems each Group based on either (1) having a
clearing of a new transaction type; and Single Name (‘‘SN’’) reference entity a
(ii) its CDS Risk Policy, and CDS Risk common majority parental sovereign
Risk Factor, and each combination of ownership (e.g. quasi-sovereigns and
Model Description document to definition, doc-clause, tier, and
incorporate certain modifications to its sovereigns), or (2) being a majority
currency for a given SN Risk Factor as owned subsidiary of a common parent
risk management methodology.3 The a SN Risk Sub-Factor. ICE Clear Europe
proposed rule change was published for entity according to the Bloomberg
currently measures losses associated Related Securities Analysis. ICE Clear
comment in the Federal Register on with credit events through a stress-
February 15, 2018.4 The Commission Europe noted that a Risk Factor Group
based approach incorporating three could consist of only one Risk Factor.11
did not receive comments on the recovery rate scenarios: a minimum Under the proposed revisions, ICE
proposed rule change. For the reasons recovery rate, an expected recovery rate, Clear Europe would calculate the total
discussed below, the Commission is and maximum recovery rate. ICE Clear quantity LGD on a Risk Factor Group
approving the proposed rule change on Europe combines exposures for Outright level, and account for the exposure due
an accelerated basis. and index-derived Risk Sub-Factors at to credit events associated with the
II. Description of the Proposed Rule each recovery rate scenario.7 reference entities within a given Risk
Change ICE Clear Europe currently uses the Factor Group. Where a Risk Factor
ICE Clear Europe proposed revisions results from the recovery rate scenarios Group contains only one Risk Factor,
to its CDS Procedures, CDS Risk Policy, as an input into the Profit/Loss-Given- ICE Clear Europe would compute the
and Risk Model Description document Default (‘‘P/LGD’’) calculations at both LGD as the risk exposure due to a credit
in order to provide for the clearing of a the Risk Sub-Factor and Risk Factor event for a given underlying reference
new transaction type, the Standard levels. For each Risk Sub-Factor, ICE
Clear Europe calculates the P/LGD as 8 Id.
9 Id.
43 17 CFR 200.30–3(a)(12). the worst credit event outcome, and for
10 See Commission Delegated Regulation (EU) No
1 15 U.S.C. 78s(b)(1). each Risk Factor, ICE Clear Europe
daltland on DSKBBV9HB2PROD with NOTICES
153/2013 supplementing Regulation (EU) No 648/
2 17 CFR 240.19b–4. calculates the P/LGD as the sum of the 2012 of the European Parliament and of the Council
3 Capitalized terms used in this order, but not worst credit outcomes per Risk Sub- with regard to regulatory technical standards on
defined herein, have the same meaning as in the Factor. These final P/LGD results are requirements for central counterparties. ICE Clear
ICE Clear Europe Rules, CDS Procedures, CDS Risk Europe is authorized as a central counterparty
Policy, or CDS Risk Model Description. under the European Market Infrastructure
5 Notice, 83 FR at 6909.
4 Securities Exchange Act Release No. 34–82678 Regulation and is subject to the requirements
6 Id. at 6909–10. thereof.
(February 9, 2018), 83 FR 6909 (February 15, 2018)
(SR–ICEEU–2018–002) (‘‘Notice’’). 7 Id. at 6910. 11 Notice, 83 FR at 6910.
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Document Created: 2018-03-22 01:25:10
Document Modified: 2018-03-22 01:25:10
| 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 | 83 FR 12627 |
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