[Federal Register Volume 81, Number 82 (Thursday, April 28, 2016)]
[Notices]
[Pages 25473-25475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09900]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77692; File No. SR-BOX-2016-16]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To (i)
Amend BOX Rule 7280 (Bulk Cancellation of Trading Interest) To Adopt a
Kill Switch and (ii) Amend BOX Rule 7110 (Order Entry) To Modify the
Circumstances That Will Prevent a Session Order From Being Cancelled
April 22, 2016.
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 April 11, 2016, BOX Options Exchange LLC (``BOX'' or 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 from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to (i) amend BOX Rule 7280 (Bulk Cancellation
of Trading Interest) to adopt a Kill Switch and (ii) amend BOX Rule
7110 (Order Entry) to modify the circumstances that will prevent a
Session Order from being cancelled. 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 is proposing enhancements to the risk controls on the
Exchange. Specifically, the Exchange is proposing to amend BOX Rule
7280 (Bulk Cancellation of Trading Interest) to adopt a Kill Switch and
to also amend BOX Rule 7110 (Order Entry) to modify the circumstances
that will prevent a Session Order from being cancelled.
Kill Switch
The Exchange proposes to amend Rule 7280 (Bulk Cancellation of
Trading Interest) to add new section (b) to adopt the Kill Switch. The
Kill Switch will be an optional tool that enables Participants to
initiate a message to the BOX system to remove a Participant's quotes
and/or cancel the Participant's orders. When submitting a request to
the system to remove/cancel quotes and/or orders, a Participant must
provide the Options Participant identification number (``Participant
ID''). Additionally, the Participant may, but is not required to,
specify a specific underlying security, class, or account type when
requesting the system to remove/cancel quotes and/or orders. The system
will send an automated message to the Participant when a Kill Switch
request has been processed by the system. A Participant may also call
the MOC \3\ directly to request initiation of the Kill Switch if the
Participant is not able to send the message to the BOX system directly.
---------------------------------------------------------------------------
\3\ The term ``MOC'' or ``Market Operations Center'' means the
BOX Market Operations Center, which provides market support for
Options Participants during the trading day.
---------------------------------------------------------------------------
When submitting a message to the system to initiate the Kill
Switch, Participants may specify a lock-out instruction. The lock-out
instruction prevents the entering of any additional orders and/or
quotes from the specific Participant ID until re-entry has been
enabled. If a lock-out is requested, all orders and quotes that
originate from the Participant ID will be canceled, regardless of any
other instructions in the message or any additional messages sent to
the system. The Participant ID will remain locked-out until the
Participant makes a verbal request to the MOC to re-enable the
Participant ID.
Session Orders
The Exchange currently offers a Session Order designation.\4\ An
order with a Session Order designation will remain active in the BOX
trading system until one of the following events (``Triggering Event'')
occurs: (1) The connection between the Participant and BOX that was
used to enter the order is interrupted; (2) there is a disconnection
between internal BOX components used to process orders, causing a
component to lose its connection to the Participant or the Trading Host
\5\ while in possession of the Session Order; (3) a component of the
Trading Host experiences a system error in which it is unable to
process open orders while in possession of the Session Order.
---------------------------------------------------------------------------
\4\ See Rule 7110(e)(1)(iii).
\5\ The term ``Trading Host'' means the automated trading system
used by BOX for the trading of options contracts.
---------------------------------------------------------------------------
Currently, a Session Order will not be cancelled and shall remain
active if the order is not allowed to be cancelled pursuant to another
Exchange Rule or it is being processed under certain Exchange Rules
when the Triggering Event occurs. Specifically, the Session Order will
not be cancelled when: (1) The order is being exposed to the BOX market
pursuant to Rule 7130(b); (2) the order is a Directed Order to which
the
[[Page 25474]]
Executing Participant (``EP'') has not yet responded pursuant to Rule
8040(d)(2); or (3) the order has been routed to an away exchange
pursuant to Rule 15030; provided however, that any remainder of a
Session Order returned by the away exchange will be cancelled upon its
return to BOX. The Exchange is now proposing to amend the circumstances
that will prevent a Session Order from being cancelled. Specifically,
the Exchange is now proposing to allow an order with a Session Order
designation to be cancelled when the order is being exposed to the BOX
market and/or the order is a Directed Order to which the EP has not yet
responded.\6\
---------------------------------------------------------------------------
\6\ See Proposed Rule 7110 (e)(1)(iii)(C).
---------------------------------------------------------------------------
The Exchange will provide Participants with notice, via Information
Circular, about the implementation date of these proposed enhancements
to the protections offered by the Exchange.
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 Section 6(b)(5) of the Act,\8\ in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, 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, by enhancing the risk protections available to
Participants. The proposal promotes policy goals of the Commission
which has encouraged execution venues, exchange and non-exchange alike,
to enhance risk protection tools and other mechanisms to decrease risk
and increase stability.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The individual firm benefits of enhanced risk protections flow
downstream to counterparties both at the Exchange and at other options
exchanges, thereby increasing systemic protections as well.
Additionally, because the Exchange offers this risk tool to all
Participants, the Exchange believes it will encourage liquidity
generally and remove impediments to and perfect the mechanism of a free
and open market and a national market system, and protect investors and
the public interest.
This optional risk tool, as noted above, will be offered to all
Participants on BOX. The Exchange further represents that its proposal
will operate consistently with the firm quote obligations of a broker-
dealer pursuant to Rule 602 of Regulation NMS and that the
functionality is not mandatory. Specifically, any interest that is
executable against a Participant's quotes or orders that are received
by the Exchange prior to the time the Kill Switch is processed by the
system will automatically execute at the price up to the Participant's
size. The Kill Switch message will be accepted by the system in the
order of receipt in the queue and will be processed in that order so
any interest that is already accepted into the system will be processed
prior to the Kill Switch message.
Market Makers' obligations to provide continuous two-sided quotes
on a daily basis are not diminished by the removal of such quotes and/
or orders by utilizing the Kill Switch. Market Makers will be required
to provide continuous two-sided quotes on a daily basis. Market Makers
that utilize the Kill Switch will not be relieved of the obligation to
provide continuous two-sided quotes on a daily basis, nor will it
prohibit the Exchange from taking disciplinary action against a Market
Maker for failing to meet the continuous quoting obligations each
trading day.
With respect to the proposed changes to the Session Order
designation, the Exchange believes they are reasonable because they
will expand the protections available to Participants transacting on
the Exchange. Specifically, the proposed changes will protect investors
and the public interest by allowing Participants to cancel their orders
when a system issue occurs that infringes on the ability of a
Participant to communicate with the Exchange's systems.
The Exchange believes the proposed changes to the Session Order
designation, specifically the deletion of the two exceptions to the
Triggering Events dealing with an order being exposed and an order that
is a Directed Order,\9\ is reasonable because they are not considered
core exchange functions and the deletion of these exceptions to the
Triggering Events will not affect a fair and orderly market and
national market system. Further, the Exchange believes it is reasonable
to keep the remaining exception to the Triggering Events, specifically
when an order has been routed to an away exchange pursuant to Rule
15030, in the rule text because it is out of the Exchange's control.
---------------------------------------------------------------------------
\9\ See supra note 6.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes the
proposal will provide market participants with additional protections.
The proposed rule change is meant to protect Participants in the event
the Participant is suffering from a systems issue or from the
occurrence of unusual or unexpected market activity that would require
them to withdraw from the market. Reducing such risk will enable
Participants to enter quotes and orders without fear of inadvertent
exposure of excessive risk, which in turn will benefit investors
through increased liquidity for the execution of their orders. Such
increased liquidity benefits investors because they receive better
prices and because it lowers volatility in the options market. The
proposal does not impose an undue burden on intramarket competition
because all Participants may avail themselves of the Kill Switch, which
functionality will be optional. Additionally, the proposed protections
relating to the Kill Switch are similar to those available on competing
exchanges.\10\ For these reasons, the Exchange does not believe this
proposal imposes an undue burden on inter-market competition; rather,
the proposed rule change will have no impact on competition.
---------------------------------------------------------------------------
\10\ See Ch. VI, Sec. 6(d) of the NASDAQ OMX BX, Inc. (``BX'')
Rules, Ch. VI, Sec. 6(d) of the NASDAQ OMX (``NOM'') Rules. See also
Securities Exchange Act Release Nos. 76116 (October 8, 2015), 80 FR
199 (October 15, 2015) (Order Approving SR-BX-2015-50) and 76123
(October 9, 2015), 80 FR 62591 (October 16, 2015) (Order Approving
SR-NASDAQ-2015-096).
---------------------------------------------------------------------------
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 \11\ and Rule 19b-4(f)(6) thereunder.\12\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on
[[Page 25475]]
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 \13\ and Rule 19b-4(f)(6)
thereunder.\14\
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6).
\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ In addition, Rule 19b-4(f)(6)(iii) 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.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) under the Act
\15\ normally does not become operative for 30 days after the date of
filing. However, Rule 19b-4(f)(6)(iii) \16\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. 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 states that
the proposed rule change is designed to protect Participants in the
event a Participant is suffering from a systems issue or from the
occurrence of unusual or unexpected market activity.\17\ To the extent
that the Exchange's proposal provides member firms with greater control
over their quotes and orders, and allows firms to remove quotes and
cancel orders in an appropriate manner, then the proposal may encourage
firms to provide liquidity on the Exchange and thus contribute to fair
and orderly markets in a manner that protects the public interest,
protects investors, and is not designed to permit unfair
discrimination. The Commission notes that the proposal is similar to
the rules of other exchanges \18\ and therefore does not raise any new,
unique or substantive issues. Based on the foregoing, the Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest.\19\ The Commission
hereby grants the Exchange's request and designates the proposal
operative upon filing.
---------------------------------------------------------------------------
\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ See supra Section II.A.2.
\18\ See supra note 10.
\19\ 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).
---------------------------------------------------------------------------
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-2016-16 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-2016-16. 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-2016-16, and should be
submitted on or before May 19, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Brent J. Fields,
Secretary.
[FR Doc. 2016-09900 Filed 4-27-16; 8:45 am]
BILLING CODE 8011-01-P