[Federal Register Volume 77, Number 217 (Thursday, November 8, 2012)]
[Notices]
[Pages 67040-67042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-27294]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68141; File No. SR-BOX-2012-016]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposal Regarding Quote
Mitigation
November 2, 2012.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on October 26, 2012, BOX Options Exchange LLC (the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange has
designated the proposed rule change as constituting a non-controversial
rule change under Rule 19b-4(f)(6) under the Act,\3\ which renders the
proposal effective upon filing with the Commission. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
BOX Options Exchange LLC (the ``Exchange'') proposes to amend Rule
7250 (Quote Mitigation) and refine the current quote mitigation
strategy for its options trading facility, BOX Market LLC (``BOX'') by
replacing the current quote mitigation rule with a ``holdback timer''
mechanism. The text of the proposed rule change is available from the
principal office of the Exchange, on the Exchange's Internet Web site
at http://boxexchange.com, and at the Commission's Public Reference
Room.
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 Exchange 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 Exchange 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 proposes to refine the BOX quote mitigation strategy.
Specifically, the Exchange proposes to amend Rule 7250 (Quote
Mitigation) and replace the current rule with a mechanism that
systemically limits the dissemination of quotations and other changes
to the BOX best bid and offer according to prescribed time criteria (a
``holdback timer''). For instance, if there is a change in the price of
a security underlying an option, multiple market participants may
adjust the price or size of their quotes. Rather than disseminating
each individual change, the holdback timer permits BOX to wait until
multiple Participants have adjusted their quotes and then disseminates
a new quotation. This mechanism will help to prevent the ``flickering''
of quotations.
The Exchange believes the proposed modification to its holdback
timer mechanism within the overall BOX quote mitigation strategy will
allow the Exchange to more effectively monitor quotation traffic and
mitigate as needed. BOX's current Quote Mitigation mechanism was
adopted as a response to the implementation of Penny Pilot Program \4\
amid concerns that market
[[Page 67041]]
quality and system capacity would be overwhelmed by the increase in
options market data traffic created by the Program. The Exchange sought
to reduce both peak and overall market data traffic by bundling order
updates within a certain timeframe. The current mechanism subjects all
order updates to bundling when the underlying instrument has been
listed for more than ten (10) trading days and for which open interest
is fewer than 300 to 400 contracts. The frequency at which these
updates are bundled varies from 200 to 1000 milliseconds and depends on
a number of factors.\5\ Additionally, the current rule provides that at
a minimum, all updates for instruments listed for at least 10 days and
having open interest below 50 contracts will be bundled at 200
millisecond intervals.
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\4\ See Securities Exchange Act Release Nos. 55073 (January 19,
2007) 72 FR 2047 (January 17, 2007)(Order Approving BSE Quote
Mitigation Plan)(SR-BSE-2006-48), and 55155 (January 23, 2007) 72 FR
4714 (February 1, 2007)(Order Approving Penny Pilot Program on
BSE)(SR-BSE-2006-49).
\5\ See BOX Rule 7250(b)(1) through (3).
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The Exchange believes that replacing the current mechanism with a
holdback timer will allow BOX to more efficiently reduce quotation
traffic when necessary instead of bundling all order updates that meet
the restrictive criteria set forth in the current rule. The Exchange
believes that the holdback timer mechanism taken together with the
other tools it currently employs as part of the overall BOX quote
mitigation strategy will allow BOX to continue to effectively mitigate
quote message traffic.
The other tools in place are:
Monitoring. BOX actively monitors the quotation activity
of its market makers. When the Exchange detects that a market maker is
disseminating an unusual number of quotes, the Exchange contacts that
market maker and alerts it to such activity. Such monitoring frequently
reveals that the market maker may have internal system issues or has
incorrectly set system parameters that were not immediately apparent.
Alerting a market maker to possible excessive quoting usually leads the
market maker to take steps to reduce the number of its quotes.
Delisting. BOX has a policy of withdrawing approval of
underlying securities with low trading volume, thereby eliminating the
quotation traffic attendant to such listings.\6\
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\6\ See BOX Rule 5030(b)(3).
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Further, BOX notes that the holdback timer mechanism is currently
part of the quote mitigation strategies of the International Securities
Exchange's (``ISE''), C2 Options Exchange (``C2''), and the Chicago
Board Options Exchange (``CBOE'') \7\; and the Exchange believes
implementation of this proposed change on BOX will increase uniformity
among the exchanges and cause less confusion among market participants.
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\7\ See Securities Exchange Act Release Nos. 55166 (January 24,
2007) 72 FR 62024 (February 1, 2007) (Order Approving ISE Rule
804(h)) (SR-ISE-2006-62), 61152 (December 10, 2009) 74 FR 66699
(December 16, 2009) (Order Approving C2 Application as National
Securities Exchange and Finding the C2 Rules, including Rule
6.34(b), Consistent with the Act), and 55772 (May 16, 2007), 72 FR
28732 (May 22, 2007) (SR-CBOE-2007-45) (Notice of Filing and
Immediate Effectiveness of CBOE Rule 6.23A(b)).
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BOX will utilize a holdback timer that delays quotation updates to
OPRA for no longer than one (1) second. BOX may vary the holdback timer
by option class. BOX does not intend to disclose the length of the
holdback timer to its Participants or non-Participants. BOX notes that
the holdback timer addresses the dissemination to OPRA of quotation
updates and other changes to BOX's best bid and offer, and not the
execution of orders.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\8\ in general, and Section
6(b)(5) of the Act,\9\ in particular, that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, to remove impediments to and to
perfect the mechanism for a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Several of the options exchanges have codified their use of a holdback
timer as a quote mitigation strategy which has been endorsed over the
last few years by the Securities Information and Financial Markets
Association. The Exchange believes the addition of the holdback timer
mechanism within its quote mitigation strategy will more effectively
allow BOX to monitor quotation traffic and mitigate as needed.
Additionally, this mechanism is currently part of the quote mitigation
strategies of the International Securities Exchange's (``ISE''), C2
Options Exchange (``C2''), and the Chicago Board Options Exchange
(``CBOE'')\10\; and the Exchange believes implementation of this
proposed change on BOX will increase uniformity among the exchanges and
cause less confusion among Participants. As such, the Exchange believes
the proposed change is consistent with the Act.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ See Securities Exchange Act Release Nos. 55166 (January 24,
2007) 72 FR 62024 (February 1, 2007) (Order Approving ISE Rule
804(h)) (SR-ISE-2006-62), 61152 (December 10, 2009) 74 FR 66699
(December 16, 2009) (Order Approving C2 Application as National
Securities Exchange and Finding the C2 Rules, including Rule
6.34(b), Consistent with the Act), and 55772 (May 16, 2007), 72 FR
28732 (May 22, 2007) (SR-CBOE-2007-45) (Notice of Filing and
Immediate Effectiveness of CBOE Rule 6.23A(b)).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Commission notes that the Exchange has satisfied this
requirement.
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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.
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
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Number SR-BOX-2012-016 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2012-016. 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 a.m. and 3 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-2012-016 and
should be submitted on or before November 29, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27294 Filed 11-7-12; 8:45 am]
BILLING CODE 8011-01-P