[Federal Register Volume 79, Number 68 (Wednesday, April 9, 2014)]
[Notices]
[Pages 19695-19697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07885]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71855; File No. SR-BOX-2014-12]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Extend the Pilot Program That Suspends Certain Obvious Error Provisions
During Limit Up-Limit Down States in Securities That Underlie Options
Traded on the Exchange
April 3, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on April 2, 2014, 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 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 amend Interpretive Material 1 to Rule 7080
to extend, through February 20, 2015, the pilot program that suspends
certain obvious error provisions during limit up-limit down states in
securities that underlie options traded on the Exchange. 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 proposes to extend through February 20, 2015 the pilot
that permits the Exchange to suspend certain provisions in BOX Rule
7170 (Obvious and Catastrophic Errors) during limit up-limit down
states in securities that underlie options traded on the Exchange
(``Pilot''). The Pilot is currently scheduled to expire on April 8,
2014.\3\
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\3\ See Securities Exchange Act Release No. 69368 (April 12,
2013) 78 FR 23323 (April 18, 2013) (SR-BOX-2013-20).
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The Pilot allows the Exchange to exclude transactions executed
during a Limit State or Straddle State from provisions in BOX Rule
7170. This does not include Rule 7170(e) and (f), which specify when a
trade resulting from an erroneous print or quote in the underlying
security may be adjusted or busted.
The remaining provisions in BOX Rule 7170 provide a process by
which a transaction may be busted or adjusted when the execution price
of a transaction deviates from the option's theoretical price by a
certain amount. Under these provisions, the theoretical price is the
national best bid price for the option with respect to a sell order and
the national best offer for the option with respect to a buy order.\4\
During a Limit State or Straddle State, options prices may deviate
substantially from those available prior to or following the limit
state. Consequently, the Exchange
[[Page 19696]]
believed that these provisions would be impracticable given the lack of
a reliable national best bid or offer in the options market during
Limit States and Straddle States, and could produce undesirable
effects.
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\4\ Rule 7170 provides that if there are no quotes from other
options exchanges for comparison purposes, the theoretical price
will be determined by designated personnel in the MRC. However,
given that options market makers and other industry professionals
will have difficulty pricing options during Limit States and
Straddle States, the Exchange does not believe it would be
reasonable for BOX personnel to derive theoretical prices to be
applied to transactions executed during such unusual market
conditions.
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The Exchange proposes to extend the operation of this Pilot to
analyze the impact of the Limit and Straddle States.\5\ The Exchange
will also continue to evaluate whether adopting a provision for
reviewing trades on its own motion during Limit and Straddle States is
necessary and appropriate.
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\5\ During the Pilot, the Exchange will provide the Commission
with data regarding how the Limit and Straddle States affect the
quality of the options market.
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Additionally, the Exchange represents that it will conduct its own
analysis concerning the elimination of the obvious error rule during
Limit and Straddle States and agrees to provide the Commission with
relevant data to assess the impact of the Pilot. As part of its
analysis, the Exchange will evaluate (1) the options market quality
during Limit and Straddle States, (2) assess the character of incoming
order flow and transactions during Limit and Straddle States, and (3)
review any complaints from members and their customers concerning
executions during Limit and Straddle States. The Exchange also agrees
to provide to the Commission data requested to evaluate the impact of
the elimination of the obvious error rule, including data relevant to
assessing the various analyses noted above.
Specifically, the Exchange agrees to provide the following data to
the Commission to help evaluate the impact of the Pilot. By September
30, 2014 the Exchange shall provide an assessment that evaluates the
statistical and economic impact of Limit and Straddle States on
liquidity and market quality in the options markets; and assess whether
the lack of obvious error rules in effect during the Straddle and Limit
States is problematic. On a monthly basis, the Exchange shall provide
both the Commission and public a dataset containing the data for each
Straddle and Limit State in optionable stocks.\6\ Further, the Exchange
will provide the Commission a historical dataset from the beginning of
the Pilot at the Exchange's earliest convenience.\7\
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\6\ The dataset will include the options for each underlying
security that reaches a limit or straddle state and has at least one
(1) trade on the Exchange during the straddle or limit state. For
each of those options affected the data record will contain the
stock symbol, option symbol, time at the start of the straddle or
limit state, an indicator for whether it is a straddle or limit
state. For activity on the Exchange the data record will contain the
executed volume, time-weighted quoted bid-ask spread, time-weighted
average quoted depth at the bid, time-weighted average quoted depth
at the offer, high execution price, low execution price, number of
trades for which a request for review for error was received during
straddle or limit states, an indicator variable for whether those
options outlined above have a price change exceeding 30% during the
underlying stock's straddle or limit state compared to the last
available option price as reported by OPRA before the start of the
straddle or limit state (1 if observe 30% and 0 otherwise), and
another indicator variable for whether the option price within five
minutes of the underlying stock leaving straddle or limit state (or
halt if applicable) is 30% away from the price before the start of
the straddle or limit state.
\7\ Id.
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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, in that it is designed to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism for a free and open market and a national market
system and, in general, to protect investors and the public interest.
In particular, the proposed extension will allow the Pilot to remain in
effect until the end of the pilot period of the Plan to Address
Extraordinary Market Volatility (``Plan'').\10\ The Exchange believes
that it continues to be necessary and appropriate in the interest of
promoting fair and orderly markets to exclude transactions executed
during a Limit State or Straddle State from the provision of BOX Rule
7170. Specifically the Exchange believes the application of the current
rule will be impracticable given the lack of a reliable national best
bid or offer in the options market during Limit States and Straddle
States, and that the resulting actions (i.e., busted trades or adjusted
prices) may not be appropriate given market conditions.
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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 No. 71649 (March 5,
2014), 79 FR 13696 (March 11, 2014) (Joint Industry Plan; Notice of
Filing of the Seventh Amendment to the National Market System Plan
to Address Extraordinary Market Volatility).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Because the proposed rule change does not impose any new or
additional burden on BOX Options Participants, and only extends the
current Pilot, 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
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 for 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 \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)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Exchange stated that waiver of this requirement is
consistent with the protection of investors and the public interest
because it will permit the Pilot, scheduled to end on April 8, 2014, to
continue without interruption. The Exchange also stated that it
believes the proposal is necessary and appropriate to assure a fair and
orderly market during Limit States and Straddle States. For these
reasons, the Commission believes that the proposed rule change presents
no novel issues and that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Therefore, the Commission designates the proposed rule change to be
operative upon filing.\13\
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\13\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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
[[Page 19697]]
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-2014-12 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-2014-12. 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 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; 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-2014-12 and should be
submitted on or before April 30, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07885 Filed 4-8-14; 8:45 am]
BILLING CODE 8011-01-P