[Federal Register Volume 78, Number 58 (Tuesday, March 26, 2013)]
[Notices]
[Pages 18413-18414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-06875]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69186; File No. SR-BOX-2013-12]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To Add
Interpretive Material to Rule 7080 in Connection With the
Implementation of the Limit Up-Limit Down Plan
March 20, 2013.
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 March 8, 2013, BOX Options Exchange LLC (``BOX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II, below, which Items
have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to add Interpretive Material to Rule 7080 in
connection with the implementation of Limit Up-Limit Down procedures
for securities that underlie options traded on BOX. 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Previously, the Commission approved a National Market System Plan
to Address Extraordinary Market Volatility across the equities markets
(as amended, the ``Plan'').\3\ The purpose of the proposed rule change
is to implement joint industry principles across the options exchanges
to address the implementation of the Plan. In particular, the proposed
rule change will address the trading conditions for options on BOX
Market LLC (the Exchange's options trading facility, ``BOX''), when an
underlying equity security enters a Limit State, or Straddle State, as
those terms are defined within the Plan.
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\3\ See Securities Exchange Act Release No. 67091 (May 31, 2012)
77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down Release'').
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The Exchange currently allows the entry of market orders, which are
orders to buy or sell at the best price available at the time of
execution (``Market Orders'').\4\ The purpose of this proposed rule
change is to add to the Exchange Rules new IM-7080-1 (Trading
Conditions During Limit State or Straddle State) to provide for how the
Exchange will treat orders during occurrences when an underlying NMS
stock is in a Limit State or a Straddle State. IM-7080-1 will provide
that if the underlying security has entered a Limit State or Straddle
State as those terms are defined within the Plan, certain conditions
shall apply during the Limit State or Straddle State. Specifically, all
Market Orders and BOX-Top Orders will be rejected and any resting
Market Orders and BOX-Top Orders will be cancelled.
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\4\ See BOX Rule 7110(c).
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The Limit Up/Limit-Down Plan is designed to prevent executions from
occurring outside of dynamic price bands disseminated to the public by
the single plan processor as defined in the Limit Up-Limit Down Plan.
Under the Plan, a Limit State will be declared if the national best
offer equals the lower price band and does not cross the national best
bid, or the national best bid equals the upper price band and does not
cross the national best offer. A Straddle State is when the national
best bid (offer) is below (above) the lower (upper) price band and the
security is not in a Limit State, and trading in that security deviates
from normal trading characteristics such that declaring a trading pause
would support the Plan's goal to address extraordinary market
volatility. Accordingly, when the underlying security is in a Limit
State or Straddle State, there will not be a reliable price for the
security to serve as a benchmark for the price of the related option.
In such a state, the Exchange does not believe that it should
permit the execution of Market Orders or BOX-Top Orders, which are un-
priced orders that execute at the best price available at the time the
Exchange receives such orders. However, limit orders, which are orders
to buy or sell at the price stated or better (``Limit Orders'), contain
a limit price that will protect them from being executed at inferior
prices.\5\ Limit Orders will not be rejected during the Limit or
Straddle State.\6\
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\5\ Id.
\6\ The Exchange will not reject pending transactions in the
Exchange's Facilitation or Solicitation Mechanisms (BOX Rule 7270),
as all such transactions are initiated with a limit price. Market
Orders received via the Exchange's Price Improvement mechanism (BOX
Rule 7150) will be rejected, while Limit Orders will be accepted.
However, if the PIP auction commences before the underlying has
moved into a Limit or Straddle State it will not be terminated or
canceled, as market conditions were reasonable when the auction
started. Subject to regulatory approval, the Exchange expects to
launch a Complex Order Offering. See Securities Exchange Act Release
No. 69027 (March 4, 2013), 78 FR 15093 (March 8, 2013) (SR-BOX-2013-
01) (Notice of Filing Regarding Complex Orders). When this
functionality is approved Complex Orders that are Market Orders will
be also be rejected when the underlying enters a Limit or Straddle
State.
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The Exchange believes that the rejection of Market Orders or BOX-
Top Orders when the underlying security is subject to a Limit State or
Straddle State will help to maintain a fair and efficient marketplace
for the execution of options. Furthermore, the Exchange will reject all
incoming Market Orders or BOX-Top Orders during the opening of in the
event that the underlying NMS stock is open, but has entered into a
Limit State or Straddle State. When this occurs, any resting Market
Orders will be eliminated and new Market Orders
[[Page 18414]]
will be rejected during the pre-opening. The series will open as
scheduled, but Market Orders and BOX-Top Orders will continue to be
rejected until the underlying NMS stock stays out of a Limit or
Straddle State.
Lastly, the Exchange proposes that current IM-7080-1 regarding
Trading Pause be renumbered to IM-7080-2.
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''),\7\ in general, and furthers the objections of Section
6(b)(4) of the Act,\8\ in particular, in that it is designed 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.
Specifically, the Exchange believes that the proposal is designed to
help maintain fair and orderly markets by imposing certain modified
conditions for Market Orders and BOX-Top Orders during times of
uncertainty regarding the price of the underlying security due to
extraordinary market volatility in such underlying security.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4).
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When the underlying equity security is in a Limit State or Straddle
State, there will not be a reliable price for the security to serve as
a benchmark for the price of the option. This circumstance raises
particular concerns for the quality of execution for retail customers
buying or selling options. Accordingly, the Exchange and its options
exchange competitors are proposing rules that will treat listed options
on the subject underlying security in a uniform fashion across the
various markets. As such, the Exchange believes it is in the interests
of the public and for investor protection to reject Market Orders and
BOX-Top Orders and cancel such resting orders when the underlying
equity security enters a Limit State or Straddle State.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange and its options exchange competitors are proposing
rules designed to treat listed options on any underlying equity
security affected as part of the Plan in a uniform fashion across the
various markets. As such, the Exchange believes the proposals among the
various options exchanges will impact all market participants equally,
and will benefit market participants in periods of extraordinary market
volatility and as consistent with the purposes of the Act. For this
reason, 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
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of 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
Exchange has satisfied this requirement.
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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) of the Act \11\ to determine whether the proposed
rule change should be approved or disapproved.
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\11\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-BOX-2013-12 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 No. SR-BOX-2013-12. 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 No. SR-BOX-2013-12 and should be
submitted on or before April 16, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06875 Filed 3-25-13; 8:45 am]
BILLING CODE 8011-01-P