[Federal Register Volume 80, Number 197 (Tuesday, October 13, 2015)]
[Notices]
[Pages 61527-61529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25865]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76086; File No. SR-BOX-2015-33]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Rule 7270 (Block Trades)
October 6, 2015.
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 October 2, 2015, BOX Options Exchange LLC (the ``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 self-regulatory organization. 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 Rule 7270 (Block Trades). 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 purpose of the proposed rule change is to amend Rule 7270
(Block Trades) to permit an Order Flow Provider (``OFP'') initiating a
Facilitation Auction, at its option, to designate a lower amount for
which it will retain certain priority and trade allocation privileges
upon the conclusion of the Facilitation Auction.
Background
The Facilitation Auction mechanism allows OFPs to enter crossing
transactions where the OFP represents a block-size order as agent
(``Agency Order'') and (1) is trading against the Agency Order as
principal (i.e., facilitating the Agency Order) and/or (2) has
solicited an order to take the opposite side of the Agency Order.\3\
The Facilitation Auction allows block-size order executions against
facilitated or solicited orders, or against a combination of
facilitated or solicited orders. The Facilitation Auction is limited to
orders of fifty (50) contracts or more.
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\3\ See Rule 7270(a).
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OFPs must be willing to execute the entire size of the Agency
Orders entered into the Facilitation Auction through the submission of
a contra ``Facilitation Order.'' Upon the entry of an Agency
[[Page 61528]]
Order and Facilitation Order in the Facilitation Auction, a broadcast
message is sent to Participants, giving them the opportunity to submit
responses with the prices and sizes at which they would be willing to
participate in the facilitation opposite the Agency Order. Responses
must be priced at the price of the Agency Order or at a better price
and must not exceed the size of the Agency Order to be facilitated. At
the end of the period given for the entry of responses, the
Facilitation Order will be automatically executed with the Agency
Order.
Unless there is sufficient size to execute the entire Agency Order
at a better price, Public Customer bids (offers) and Public Customer
responses at the time the Agency Order is executed that are priced
higher (lower) than the facilitation price are executed at the
facilitation price. Non-Public Customer and Market Maker bids (offers)
and Non-Public Customer and Market Maker responses at the time the
Agency Order is executed that are priced higher (lower) than the
facilitation price are executed against the Agency Order at their
stated price, which provides Agency Order execution at a better price
for the number of contracts associated with such higher bids (lower
offers) and responses.
The facilitating OFP is allocated priority for at least forty
percent (40%) of the original size of the Facilitation Order, but only
after better-priced bids (offers) and responses, as well as Public
Customer bids (offers) and responses at the facilitation price, are
executed in full. After the facilitating OFP has executed his forty
percent (40%), Non-Public Customer and Market Maker bids (offers) and
responses at the facilitation price will participate in the execution
of the Agency Order based upon price and time priority.
Proposed Changes
The Exchange is now proposing to amend the Facilitation Auction to
permit an OFP to designate a lower amount for which it will retain
certain priority and trade allocation privileges at the conclusion of
the Facilitation Auction. Specifically, this proposal will permit an
OFP, when starting a Facilitation Auction, to submit the Facilitation
Order to BOX with a designation to identify the total size of the
Agency Order that the OFP is willing to ``surrender'' to other
Participants (``Surrender Quantity''), resulting in the OFP potentially
being allocated less than the forty percent (40%) to which it is
entitled.\4\ For example, when an OFP submits an Agency Order and
Facilitation Order for 100 contracts and a Surrender Quantity of 70
contracts, the OFP is designating that it is willing to surrender
seventy percent (70%) of the Agency Order to other Participants.
Therefore, the OFP is only retaining priority to thirty percent (30%)
of the Agency Order, rather than the forty percent (40%) it could have
received. The Facilitation Order shall continue to yield priority to
certain competing orders in the circumstances set forth in Rule
7270(a).
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\4\ The OFP will not be allowed to modify the Surrender Quantity
once the order has been submitted to the Exchange. Additionally, the
broadcast message sent to Participants at the start of the
Facilitation Auction will not include the Surrender Quantity amount,
if any.
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The proposed rule change further provides that in no case shall the
OFP's use of the Surrender Quantity function result in an allocation to
the OFP that would be greater than the maximum allowable allocation the
OFP would otherwise receive in accordance with the Facilitation
allocation procedures set forth in Rule 7270(a).
The proposed rule change will modify the Trading Host's \5\ trade
allocation at the conclusion of the Facilitation Auction to account for
the Surrender Quantity. The proposal specifies that when the Trading
Host determines the priority and trade allocation amounts for the OFP
upon the conclusion of the Facilitation Auction, the Trading Host will
automatically adjust the trade allocations to other Participants
according to the priority set forth in Rule 7270(a), providing a total
amount to the other Participants up to the Surrender Quantity. The
Facilitation Order shall be allocated the remaining size of the Agency
Order, if any. If the aggregate size of responses and orders from
Participants is not equal to or greater than the Surrender Quantity,
then the remaining Surrender Quantity shall be left unfilled and the
Facilitation Order shall be allocated the remaining size of the Agency
Order. For example, an OFP submits an Agency Order and Facilitation
Order for 100 contracts and a Surrender Quantity of 70 contracts.
During the Facilitation Auction only one response for 25 contracts is
received. Even though the OFP was willing to surrender 70 contracts to
the other Participants, there is not enough competing size in this
instance to allocate 70 contracts to someone else. Therefore, the
Facilitation Order's requirement to completely fill the Agency Order
takes precedence, and the OFP is allocated the remaining 75 contracts.
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\5\ The term ``Trading Host'' means the automated trading system
used by BOX for the trading of options contracts.
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The Exchange will provide Participants with notice, via Information
Circular, about the implementation date of the Surrender Quantity prior
to its implementation in the trading system.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of section 6(b) of the Act,\6\ in general, and section
6(b)(5) of the Act,\7\ in particular, in that the proposed changes are
designed to promote just and equitable principles of trade, 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, by providing the opportunity for Participants, not
including the initiating Participant, to receive a greater allocation
at the conclusion of the Facilitation Auction. The Exchange believes
that the proposed changes will incentivize Participants to submit
additional orders to the Exchange which will benefit all Participants
and public customers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change will benefit
investors and Participants by allowing an OFP the flexibility to
designate a lower amount for which it will retain certain priority and
trade allocation privileges upon the conclusion of the Facilitation
Auction, thereby providing other Participants with the opportunity to
receive increased trade allocations. The proposed rule change is
designed to promote just and equitable principles of trade by assuring
that an OFP cannot use the Surrender Quantity to receive an allocation
greater than the maximum allowable percentage. The proposed rule change
will protect investors and the public interest because Public Customer
orders will still receive the same priority during the allocation
process.
The proposed changes are similar to Exchange rules applicable to
other auctions offered by the Exchange. Specifically, the Exchange
allows Participants to submit a surrender quantity when submitting
orders to the Price Improvement Period (``PIP'') and Solicitation
Auction.\8\
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\8\ See Rules 7150(h)(5)(i) and 7270(b)(2)(iv). The Solicitation
Auction's surrender quantity is slightly different in that the
Participant is surrendering its priority to interest on the BOX
Book, as opposed to the PIP and proposed Surrender Quantity where
the Participant is surrendering its interest to auction responses.
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[[Page 61529]]
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. In this regard and as indicated
above, the Exchange notes that the rule change is similar to rules of
the Exchange's PIP and Solicitation Auction. The Exchange believes that
the propose rule change should incent OFPs to continue submitting block
trades to the Facilitation Auction to the benefit of the Exchange and
its Participants and public customers. The Exchange believes that the
proposal will enhance competition by providing an opportunity for
Participants to receive a greater allocation at the end of the
Facilitation Auction.
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 \9\ and Rule 19b-4(f)(6)
thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6). 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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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. 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-2015-33 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2015-33. 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 Number SR-BOX-2015-33, and should be
submitted on or before November 3, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-25865 Filed 10-9-15; 8:45 am]
BILLING CODE 8011-01-P