[Federal Register Volume 78, Number 183 (Friday, September 20, 2013)]
[Notices]
[Pages 57911-57913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-22880]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70395; File No. SR-BOX-2013-38]
Self-Regulatory Organizations; BOX Options Exchange LLC; Order
Approving a Proposed Rule Change To Modify the Complex Order Filter
September 16, 2013.
I. Introduction
On July 22, 2013, 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 modify the Exchange's rules governing the
filtering of inbound Complex Orders. The proposed rule change was
published for comment in the Federal Register on August 5, 2013.\3\ The
Commission received no comments regarding the proposal. This order
approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 70063 (July 30,
2013), 78 FR 47463 (``Notice'').
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II. Description of the Proposal
BOX proposes to amend BOX Rule 7240(b)(3)(iii) to modify the
procedures governing the filtering of inbound Complex Orders. BOX also
proposes to amend BOX Rule 7130(a) to provide that the Exchange's High
Speed Vendor Feed (``HSVF'') is available to market participants and
that Complex Orders exposed during the Complex Order filtering process
are included in the HSVF.
A. Complex Order Filter
BOX's Complex Order Filter provides a process designed to assure
that each component leg of an inbound Complex Orders is executed at a
price that is equal to or better than the national best bid or offer
(``NBBO'') and BOX best bid or offer (``BBO'') for that series.\4\ BOX
proposes to revise its rules to specifically provide that the Complex
Order Filter operates in a series of
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sequential steps, set forth in BOX Rule 7240(b)(3)(iii)(A)-(D), that
result in a Complex Order being fully or partially executed, cancelled,
or entered on the Complex Order Book.\5\
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\4\ See BOX Rule 7240(b)(3)(iii).
\5\ See Notice, 78 FR at 47463.
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Under the first step in the filtering process, a Complex Order with
an execution price that is equal to or better than both the cNBBO and
the cBBO will be executed against existing interest on the BOX Book or
the Complex Order Book.\6\ BOX proposes to revise the rule to indicate
that such Complex Order will be executed ``to the extent possible,'' to
clarify that the Complex Order may receive a partial execution.\7\
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\6\ See BOX Rule 7240(b)(3)(iii)(A). The cBBO is the best net
bid and offer price for a Complex Order Strategy based on the BBO on
the BOX Book for the individual options components of that Strategy.
The cNBBO is the best net bid and offer price for a Complex Order
Strategy based on the NBBO for the individual options components of
that Strategy. See BOX Rule 7240(a)(1) and (3).
\7\ See BOX Rule 7240(b)(3)(iii)(A).
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Under the next step of the current filtering process, a BOX-Top
Complex Order or a Market Complex Order that is executable against the
cNBBO but that is not executable on BOX is exposed on the Complex Order
Book for a period of up to one second.\8\ In contrast, under current
BOX rules, a Limit Complex Order that is executable against the cNBBO
but that is not executable on BOX is not subject to exposure, but
instead is entered on the Complex Order Book.\9\ BOX proposes to amend
its rules to make the exposure period available to Limit Complex
Orders, as well as BOX-Top and Market Complex Orders, with an exposure
price equal to, or better than, the same side cNBBO. If the Complex
Order's exposure price is worse than the same side cNBBO, the Complex
Order will not be exposed and will be cancelled, except that a Limit
Complex Order with an exposure price worse than the same side cNBBO
that does not lock or cross the Complex Order Book will be entered on
the Complex Order Book.\10\
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\8\ See BOX Rule 7240(b)(3)(iii)(C)(II). In setting the exposure
period, BOX will take into consideration the technological ability
of Participants to respond and similar exposure periods implemented
by BOX and other exchanges. See Notice, 78 FR at 47464. BOX will
notify Participants of the duration of the exposure period, and any
changes to its duration, via regulatory circular. See id.
\9\ See BOX Rule 7240(b)(3)(iii)(C)(I).
\10\ See BOX Rule 7240(b)(3)(iii)(B).
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The revised rule provides that to the extent any inbound Limit,
BOX-Top, or Market Complex Order is not executable as provided in BOX
Rule 7240(b)(3)(iii)(A) (i.e., at a price that is equal to or better
than both the cNBBO and the cBBO), the inbound Complex Order will be
exposed to Participants for a time period established by BOX, not to
exceed one second, if the Complex Order's exposure price would be equal
to, or better than, the same side cNBBO. During the exposure period,
(i) a Limit Complex Order will be exposed at the order's limit price,
or if the limit price is equal to or better than the opposite side
cNBBO, at the opposite side cNBBO; (ii) a BOX-Top Complex Order will be
exposed at the opposite side cNBBO or, if a limit price has been
determined by a partial execution of the order, at the order's limit
price; and (iii) a Market Complex Order will be exposed at the opposite
side cNBBO.\11\
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\11\ See BOX Rule 7240(b)(3)(iii)(B).
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BOX also proposes to allow a Participant to elect not to subject
its Complex Order to the exposure period.\12\ Unless a Participant
specifies that its Complex Order not be exposed, the Complex Order will
be exposed by default.\13\ A Complex Order that is not subject to the
exposure period will be cancelled or submitted to the Complex Order
Book, in accordance with the Participant's instructions.\14\
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\12\ See BOX Rule 7240(b)(3)(iii)(B).
\13\ See Notice, 78 FR at 47464.
\14\ See BOX Rule 7240(b)(3)(iii)(B).
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Under current BOX rules, any unexecuted quantity of a Complex Order
remaining at the end of the exposure period will be cancelled. BOX
proposes to amend its rules to provide more specificity regarding when
any unexecuted quantity of a Complex Order remaining at the end of the
exposure period will be cancelled. Specifically, such unexecuted
quantity will be cancelled if: (i) The Participant submitting the order
provides instructions to cancel the order at that point; (ii) the
Complex Order is a Market Order; (iii) the Complex Order is a BOX-Top
Order, no part of which has been executed; or (iv) the Complex Order is
a BOX-Top or Limit Order at a limit price that could execute on BOX but
only at a price that is not equal to or better than the opposite side
cNBBO.\15\ Any unexecuted quantity of a Limit or BOX-Top Complex Order
that is not cancelled will be entered on the Complex Order Book at its
limit price.\16\
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\15\ In addition, a Participant may voluntarily cancel a Complex
Order at any time, including during the exposure period. See Notice,
78 FR at 47464. See also BOX Rule 7240(b)(3)(iii)(C).
\16\ See BOX Rule 7240(b)(3)(iii)(D).
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B. BOX Rule 7130
BOX proposes to revise BOX Rule 7130(a) to provide that (i) the
HSVF is made available to market participants, rather than displayed
only to Options Participants; and (ii) Complex Orders exposed during
the Complex Order filtering process are included in the HSVF.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\17\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\18\ which
requires, among other things, that the rules of a national securities
exchange 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.
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\17\ In approving the proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\18\ 15 U.S.C. 78f(b)(5).
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The proposal will expand the availability of the exposure period to
Limit Complex Orders that are executable against the cNBBO but are not
executable on BOX.\19\ Currently, such Limit Complex Orders would be
sent to the BOX Book. The Commission believes that making the exposure
period available to such Limit Complex Orders could benefit investors
by providing additional execution opportunities for such Limit Complex
Orders.\20\
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\19\ See BOX Rule 7240(b)(3)(iii)(B).
\20\ A Complex Order with an exposure price worse than the same
side cNBBO will be cancelled, except that a Limit Complex Order with
a price worse than the same side cNBBO that would not lock or cross
the Complex Order Book will be entered on the Complex Order Book.
See BOX Rule 7240(b)(3)(iii)(B).
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The proposal also revises the Complex Order filtering process to
allow a Participant to elect not to have its Complex Order subjected to
the exposure period, or to have any unexecuted portion of its order
cancelled at the conclusion of the exposure period.\21\ The Commission
believes that these changes could benefit market participants by
providing them with additional flexibility in determining how their
Complex Orders are processed.
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\21\ See BOX Rules 7240(b)(3)(iii)(B) and 7240(b)(3)(iii)(C)(i).
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The Commission believes that the new provisions in BOX Rule
7240(b)(3)(iii)(C) setting forth the circumstances in which any
unexecuted quantity of a Complex Order will be
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cancelled at the end of the exposure period (in addition to a
cancellation requested by the submitting Participant),\22\ and the
provisions in BOX Rule 7240(b)(3)(iii)(D) indicating that any
unexecuted quantity of a Limit or BOX-Top Order that is not cancelled
will be entered on the Complex Order Book, should benefit market
participants by providing additional transparency regarding the
operation of the Complex Order filtering process.
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\22\ See note 15, supra, and accompanying text.
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As noted above, BOX Rule 7130(a), as amended, indicates that
Complex Orders exposed during the exposure period are included in the
HSVF, and that the HSVF is available to market participants, rather
than only to Options Participants. The Commission notes that BOX Rule
7130(a)(2) currently states that BOX makes the HSVF available to all
market participants at no cost.\23\ The modifications to BOX Rule
7130(a) relating to the HSVF are designed to conform the rule to the
more specific language in BOX Rule 7130(a)(2) \24\ and to provide
additional information regarding the exposure of complex orders under
revised BOX Rule 7240.
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\23\ See Securities Exchange Act Release No. 68833 (February 5,
2013), 78 FR 9758 (February 11, 2013) (notice of filing and
immediate effectiveness of File No. SR-BOX-2013-04) (making the HSVF
available to all market participants).
\24\ BOX states that the changes to BOX Rule 7130 are
clarifications of the rule text and do not represent changes to the
operation of the Exchange. See Notice, 78 FR at 47464.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\25\ that the proposed rule change (SR-BOX-2013-38) is approved.
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\25\ 15 U.S.C. 78s(b)(2).
\26\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-22880 Filed 9-19-13; 8:45 am]
BILLING CODE 8011-01-P