Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the BOX Price Improvement Period (“PIP”) Rule 7150, 17249-17251 [2013-06402]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 54 (Wednesday, March 20, 2013)]
[Notices]
[Pages 17249-17251]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06402]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69135; File No. SR-BOX-2013-11]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the BOX Price Improvement Period (``PIP'') Rule 7150

March 14, 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 7, 2013, 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 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 the BOX Price Improvement Period 
(``PIP'') Rule 7150, to provide that in instances where a Primary 
Improvement Order is matched by only one competing order, the 
Initiating Participant may retain priority for up to fifty percent 
(50%) of the size of the PIP Order.\3\ 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 https://boxexchange.com.
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    \3\ ``PIP Order'' is defined within Rule 7150 to mean a Customer 
Order designated for the PIP.
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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
    The Exchange proposes to amend the BOX Price Improvement Period 
(``PIP'') Rule 7150, to provide that in instances where a Primary 
Improvement Order is matched by only one competing order, the 
Initiating Participant may retain priority for up to fifty percent 
(50%) of the size of the PIP Order.\4\ This is a competitive filing 
that is based on price improvement auction rules of the Chicago Board 
Option Exchange, Inc. (``CBOE'') \5\ and NASDAQ OMX PHLX LLC 
(``Phlx'').\6\
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    \4\ ``PIP Order'' is defined within Rule 7150 to mean a Customer 
Order designated for the PIP.
    \5\ See CBOE Rule 6.74A(b)(3)(F).
    \6\ See PHLX Rule 1080(n)(ii)(E)(2)(a).
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    Upon conclusion of the PIP, BOX Rule 7150(g) allows the Initiating 
Participant to retain certain priority and trade allocation privileges 
for both Single-Priced Primary Improvement Orders and Max Improvement 
Primary Improvement Orders (``Improvement Orders''). Currently, Rule 
7150(g)(1) provides that when a Single-Priced Primary Improvement Order 
is matched by or matches any competing Improvement Order(s) \7\ and/or 
non-Public Customers' Unrelated Order(s) at any price level, the 
Initiating Participant retains priority for only forty percent (40%) of 
the original size of the PIP Order, notwithstanding the time priority 
of the Primary Improvement Order, competing Improvement Order(s) or 
non-Public Customer Unrelated

[[Page 17250]]

Order(s). The Initiating Participant receives additional allocation 
only after all other orders have been filled at the final price level. 
Additionally, Rule 7150(g)(2) provides that when a Max Improvement 
Primary Improvement Order is submitted by the Initiating Participant, 
the Initiating Participant retains priority for 40% of the remaining 
size of the PIP Order at the price level where the balance of the PIP 
Order is fully executed. The result of both these current rules is that 
even when an Improvement Order is matched by only one competing order, 
the Initiating Participant's allocation priority remains at forty 
percent (40%) and the Participant who responded receives the remaining 
sixty percent (60%) of the PIP Order.
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    \7\ An Improvement Order is an order submitted on the opposite 
side of the PIP Order, competing with the Primary Improvement Order 
for execution against the PIP Order.
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    The Exchange proposes to amend both Rule 7150(g)(1) and 7150(g)(2) 
to increase the Initiating Participant's allocation priority to fifty 
percent (50%) when there is only one competing order for a Single 
Priced Primary Improvement Order or Max Improvement Primary Improvement 
Order.
    The Exchange believes that increasing the Initiating Participant's 
allocation priority in these instances fairly distributes the PIP Order 
when there are only two counterparties to the PIP Order involved, and 
that doing so is reasonable because of the value that Initiating 
Participants provide to the market. Initiating Participants guarantee 
the PIP Order an execution at the NBBO or at a better price, and are 
subject to market risk while the PIP Order is exposed to other BOX 
Participants. While other PIP Participants are also subject to market 
risk, those providing responses in the PIP through Improvement Orders 
are not permitted to cancel their orders, and may only modify their 
Improvement Order, including reducing their order quantity, by 
providing a better price. The Exchange believes that the Initiating 
Participant acts in a critical role in the PIP as their willingness to 
guarantee the customer PIP Order an execution at a price equal to or 
better than NBBO is the keystone to the customer order gaining the 
opportunity for price improvement.
    BOX's PIP allows for broad participation in its competitive auction 
by all types of market Participants (e.g. Public Customers, Broker 
Dealers and Market Makers). All Options Participants are able to 
receive the PIP Broadcasts and may respond by submitting competing 
Improvement Orders. The Exchange believes that this proposal will not 
discourage Participants from entering into or responding to a PIP 
Order, and is meant only to fairly distribute the allocation priority 
in instances where there is only one competing order within the 
auction.
    Finally, the Exchange proposes to amend Rule 7150(g)(6)(i) 
regarding the PIP Surrender Quantity to delete specific references to 
the trade allocation percentages and clarify how the trading system 
handles the Surrender Quantity functionality. These references provide 
that an Initiating Participant may designate a Surrender Quantity (a 
lower amount of the PIP Order for which it retains priority and trade 
allocation privileges), and changing the allocation when only one 
competing order matches an Improvement Order eliminates the necessity 
to define the surrender quantity that the Initiating Participant is 
entitled to within the first sentence of Rule 7150(g)(6)(i). The 
Exchange also proposes to amend this provision to clarify that under no 
circumstances can the Initiating Participant receive more than its 
maximum allowable allocation percentage upon conclusion of the PIP; 40% 
with multiple competing orders and 50% with only one competing order.
    For example, at the commencement of the PIP the Initiating 
Participant submits a PIP Order and Primary Improvement Order for 100 
contracts and a PIP Surrender Quantity of 55 contracts, designating 
that it is willing to surrender fifty-five (55%) of the PIP Order to 
other PIP Participants. Therefore, the Initiating Participant is only 
retaining priority of 45% of the PIP Order. If there is only competing 
order this will be accepted because the Initiating Participant could 
have received 50% of the PIP Order. However, when there is more than 
one competing order then the Initiating Participant's allocation will 
drop to its maximum allowable allocation percentage, or 40%.
    In the same scenario as above, but with the Initiating Participant 
designating a Surrender Quantity of seventy-five (75%), the Initiating 
Participant is only seeking to retain priority of 25% of the PIP Order. 
This would be allowed regardless of the number of competing orders. 
However, if the Initiating Participant designates a Surrender Quantity 
of forty (40%), seeking to retain priority of 60% of the PIP Order, 
this is not valid for either maximum allowable allocation percentage. 
Therefore the Initiating Participant's priority would be dropped to 50% 
(one competing order) or 40% (multiple competing orders.)
    After the notice of effectiveness of the proposed rule change, and 
at least one week prior to the operative date, the Exchange will issue 
an information circular to inform BOX Participants of the 
implementation date for the trade allocation percentage changes on the 
PIP.
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)(4) of the Act,\9\ 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed rule change 
protects investors and is in the public interest because it fairly 
distributes the allocation of the PIP Order between the Initiating 
Participant and the Options Participant who responded when those 
Participants are the only two counterparties to the PIP Order. The 
Exchange believes that this proposed rule change may increase the 
frequency with which Options Participants initiate a PIP Order which 
may result in greater opportunity for price improvement for customers.

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. This change is meant to more 
fairly distribute the allocation priority when there are only two 
counterparties to a PIP Order involved and BOX does not believe that 
this change will discourage any Participants from entering into the 
PIP.
    Furthermore, as indicated above the Exchange notes that the rule 
change is being proposed as a competitive response to similar 
provisions in the price improvement auction rules of the CBOE and PHLX 
that have been approved by the Commission.\10\ The Exchange believes 
this proposed rule change is necessary to permit fair competition among 
the options exchanges and to establish more

[[Page 17251]]

uniform price improvement auctions rules on the various exchanges.
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    \10\ See supra note 4[sic] and 5.
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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 foregoing 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, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its 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 fulfilled this requirement.
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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.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please 
include File Number SR-BOX-2013-11 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 Number SR-BOX-2013-11. 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 (https://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-2013-11 and should be 
submitted on or before April 10, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06402 Filed 3-19-13; 8:45 am]
BILLING CODE 8011-01-P