Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7170 (Obvious and Catastrophic Errors), 27453-27457 [2013-11140]
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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Notices
Section 19(b)(3)(A) 9 of the Act and Rule
19b–4(f)(6) thereunder.10
A proposed rule change filed under
19b–4(f)(6) normally may not become
operative prior to 30 days after the date
of filing.11 However, Rule 19b–
4(f)(6)(iii) 12 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 requested that the
Commission waive the 30-day operative
delay. The Exchange believes that the
proposed rule change will make the
Exchange’s proprietary market data fees
more transparent. The Commission
believes that permitting the Exchange to
make this change without delay is
consistent with the protection of
investors and the public interest.
Accordingly, the Commission
designates the proposed rule change to
be operative upon filing.13
At any time within 60 days of the
filing of such 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 rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2013–41 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
9 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
11 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule
19b–4(f)(6) requires a self-regulatory organization to
give the Commission written notice of its intent to
file 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.
12 Id.
13 For the purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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10 17
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100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSEArca-2013–41. 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 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
publicly available. All submissions
should refer to File Number SR–
NYSEArca–2013–41 and should be
submitted on or before May 31, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–11174 Filed 5–9–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69517; File No. SR–BOX–
2013–22]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
7170 (Obvious and Catastrophic
Errors)
May 6, 2013.
Pursuant to Section
of the
Securities Exchange Act of 1934 (the
14 17
1 15
PO 00000
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
Frm 00090
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on April 26,
2013, BOX Options Exchange LLC (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 7170 (Obvious and Catastrophic
Errors). Specifically, the Exchange
proposes to amend Rule 7170(h)(2) to
permit the nullification of trades
involving catastrophic errors in certain
situations specified below. 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.
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 proposal is to help
market participants better manage their
risk by addressing the situation where,
under current rules, a trade can be
adjusted to a price outside of a
customer’s limit. Specifically, the
Exchange proposes to amend Rule
7170(h) to enable a Public Customer 4
2 15
19(b)(1) 1
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27453
U.S.C. 78a.
CFR 240.19b–4.
4 Under BOX Rule 100(a)(51) the term ‘‘Public
Customer’’ means a person that is not a broker or
dealer in securities. This includes Professionals
under BOX Rule 100(a)(50), but not broker-dealers
or Market Makers.
3 17
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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Notices
who is the contra-side to a trade that is
deemed to be a catastrophic error to
have the trade nullified in instances
where the adjusted price would violate
the Public Customer’s limit price. Only
if the Public Customer, or his agent,
affirms the Public Customer’s
willingness to accept the adjusted price
through the Public Customer’s limit
price within 20 minutes of notification
of the catastrophic error ruling would
the trade be adjusted; otherwise it
would be nullified. Today, all
catastrophic error trades are adjusted,
not nullified, on all of the options
exchanges. This is a competitive filing
that is based on a proposal recently
submitted by NASDAQ OMX PHLX LLC
(‘‘PHLX’’) and approved by the
Commission.5
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Background
Currently, Rule 7170 governs obvious
and catastrophic errors. Obvious errors
are calculated under the rule by
determining a theoretical price and
determining, based on objective
standards, whether the trade should be
nullified or adjusted. The rule also
contains a process for requesting an
obvious error review. Certain more
substantial errors may fall under the
category of a catastrophic error, for
which a longer time period is permitted
to request a review and for which trades
can only be adjusted (not nullified).
Trades are adjusted pursuant to an
adjustment table that, in effect, assesses
an adjustment penalty. By adjusting
trades above or below the theoretical
price, the Rule assesses a ‘‘penalty’’ in
that the adjustment price is not as
favorable as the amount the party
making the error would have received
had it not made the error.
Proposal
At this time, the Exchange proposes to
change the catastrophic error process to
permit certain trades to be nullified. The
definition and calculation of a
catastrophic error would not change.6
First whether a transaction is a
catastrophic error is determined by the
Exchange’s MRC,7 if both parties to the
trade are Public Customers then the
trade would be adjusted under the
current rule. However, if only one of the
parties is a Public Customer, then the
adjusted price would be compared to
the limit price of the order. If the
adjusted price would violate the limit
price (in other words, be higher than the
5 See Securities Exchange Act Release No. 69304
(April 4, 2013), 78 FR 21482 (April 10, 2013) (Order
Approving SR–Phlx–2013–005).
6 Nor is the definition or process for obvious
errors changing.
7 The MRC is the BOX Market Regulation Center.
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limit price if it is a buy and lower than
the limit price if it is a sell order), then
the Public Customer would be offered
an opportunity to nullify the trade. If
the Public Customer (or the Public
Customer’s broker-dealer agent) does
not respond within 20 minutes, the
trade would be adjusted under the
current rule.
These changes should ensure that a
Public Customer is not forced into a
situation where the original limit price
is violated and thereby the Public
Customer is forced to spend additional
dollars for a trade at a price the
customer had no interest in trading and
may not be able to afford.
EXAMPLE 1—Resting Public
Customer forced to adjust through his
limit price and would prefer
nullification.
Day 1
8:00:00 a.m. (pre-market)
Customer A enters order on BOX to buy
10 GOOG May 750 puts for $25 (cost
of $25,000, Customer has $50,000 in
his trading account).
10:00:00 a.m.
GOOG trading at $750
May 750 puts $29.00–$31.00 (100×100)
on all exchanges
10:04:00 a.m.
GOOG drops to $690
May 750 puts $25–$100 (10×10) BOX
May 750 puts $20–$125 (10×10) CBOE
May 750 puts $10–$200 (100×100) on all
other exchanges
10:04:01 a.m.
Customer B enters order to sell 10 May
750 puts for $25 (credit of $25,000)
10:04:01 a.m.
10 May 750 puts execute at $25 ($35
under parity) 8 with Customer A buying
and Customer B selling.
10:04:02 a.m. (1 second later)
GOOG trading $690
May 750 puts $75–$78 (100×100) BOX
May 750 puts $75–$80 (10×10)
CBOEMay 750 puts $70–$80
(100×100) All other exchanges
No obvious error is filed within 20
minute notification time required by
rule. If this had been an obvious error
review, the trade would have been
nullified in accordance with Rule 7170
because one of the parties to the trade
was a non-market maker.
8 Parity is the intrinsic value of an option when
it is in-the-money. With respect to puts, it is
calculated by subtracting the price of the
underlying from the strike price of the put. With
respect to calls, it is calculated by subtracting the
strike price from the price of the underlying.
PO 00000
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4:00:00 p.m. (the close)
GOOG trading $710
May 750 puts $60–$63 (100×100) BOX
May 750 puts $55–$70 (10×10) CBOE
May 750 puts $50–$70 (100×100) All
other exchanges
Day 2
8:00:00 a.m. (pre-market)
Customer B, submits S10 GOOG May
750 puts at $25 under Catastrophic
Review. Trade meets the criteria of
Catastrophic Error and is adjusted to
$68 ($75 (the 10:04:02 a.m. price less $7
adjustment penalty).
9:30:00 a.m. (the opening)
GOOG trading $725
May 750 puts open $48.00–$51.00
(100×100) on all exchanges
Under current rule:
Without a choice, Customer A is forced
to spend $68 (cost of $68,000, with
only $25,000 in his account)
Puts are now trading $48, so Customer
A shows a loss of $20,000 ($68 less
$48×10 contracts × 100 multiplier)
Under proposed rule:
Customer A would be able to choose to
have the B10 GOOG May 750 puts
nullified avoiding both a loss, and an
expenditure of capital exceeding the
amount in his account.
Customer B would be relieved of the
obligation to sell the puts at 25
because the trade would be nullified.
EXAMPLE 2—Resting Public
Customer trades, sells out his position,
thus would choose to keep the adjusted
trade and avoid nullification.
Day 1
8:00:00 a.m. (pre-market)
Customer A enters order on BOX to Buy
10 BAC April 7.00 calls for $.01 (cost
of $10 total. (Customer has $3,000 in
his account).
10:00:00 a.m.
BAC trading $11
April 7 calls $4.50–$4.70 (100×100) on
all exchanges
10:04:00 a.m.
BAC Trading $11
April 7 calls $.01–$4.70 (10×10) BOX
April 7 calls
$4.50–$4.70 (10×10) CBOE
April 7 calls $4.50–$4.70 (10×10)) All
other exchanges
10:04:01 a.m.
Customer B enters order to sell 10 April
7 calls at $.01 on BOX with an ISO
indicator (which allows trade
through)
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10:04:01 a.m.
10 April 7 calls execute at $.01 on BOX
Customer A buying and Customer B
selling.
10:04:02 a.m. (1 second later)
BAC is $11
April 7 calls $4.50–$4.70 (10×10) BOX
April 7 calls
$4.50–$4.70 (10×10) CBOE
April 7 calls $4.50–$4.70 (10×10)) All
other exchanges
No obvious error is filed within 20
minute notification time required by
rule. If this had been an obvious error
review, the trade would have been
nullified.
11:00:00 a.m.
BAC trading $9.60
April 7 calls $3.00–$3.25 (10×10) BOX
April 7 calls
$3.00–$3.25 (10×10) CBOE
April 7 calls $3.00–$3.25 (10×10)) All
other exchanges
Customer A sells 10 April 7 calls at
$3.00 (a total credit of $3,000 for a
$2,990 profit)
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3:00:00 p.m.
BAC trading $12.80
April 7 calls $5.80–$6.00 (10×10) BOX
April 7 calls
$5.80–$6.00 (10×10) CBOE
April 7 calls $5.80–$6.00 (10×10)) All
other exchanges
Customer A has now no position and
would be at risk of a loss if nullified.
3:20:00 p.m.
Customer B submits S10 BAC April 7
calls at $.01 under Catastrophic Error
Review. Trade meets the criteria of
Catastrophic Error and is adjusted to
$2.50 ($4.50 (the 10:04:02 a.m. price)
less $2 adjustment penalty).
Impact:
Under current Rule: Customer A would
be adjusted to $2.50 ($4.50 (the
10:04:02 a.m. price) less $2
adjustment penalty).
Under Proposed rule:
Illustrating the need for a choice,
Customer A chooses within 20
minutes to accept an adjustment to
$2.50 instead of a nullification,
locking in a gain of $500 instead of
$2.990 (B 10 at $2.50 vs. S10 at $3.00).
If not given a choice, Customer A would
be naked short 10 calls at $3.00 that
are now offered at $6.00 (a $3,000
loss).
These examples illustrate the need for
the Public Customer to have a choice in
order to manage his risk. By applying a
notification time limit of 20 minutes, it
lessens the likelihood that the Public
Customer will try to let the direction of
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the market for that option dictate his
decision for a long period of time, thus
exposing the contra side to more risk.
This 20 minute time period is akin to
the notification period currently used in
the rule respecting the notification
period for starting the obvious error
process for non-Market Maker Options
Participants.9
For a market maker or a broker-dealer,
the penalty that is part of the price
adjustment process is usually enough to
offset the additional dollars spent, and
they can often trade out of the position
with little risk and a potential profit. For
a Public Customer who is not immersed
in the day-to-day trading of the markets,
this risk may be unacceptable. A Public
Customer is also less likely to be
watching trading activity in a particular
option throughout the day and less
likely to be closely focused on the
execution reports the Public Customer
receives after a trade is executed.
Accordingly, the Exchange believes that
it is fair and reasonable, and consistent
with statutory standards, to change the
procedure for catastrophic errors for
Public Customers and not for other
Participants.
The Exchange believes that the
proposal is a fair way to address the
issue of a Public Customer’s limit price,
yet still balance the competing interests
of certainty that trades stand versus
dealing with true errors. In 2009, the
Exchange amended Rule 7170 to adopt
the catastrophic error provision. In
doing so, the Exchange stated that it had
‘‘weighed carefully the need to assure
that one market participant is not
permitted to receive a windfall at the
expense of another market participant
that made an Obvious Error, against the
need to assure that market participants
are not simply being given an
opportunity to reconsider poor trading
decisions. The Exchange stated that,
while it believed that the Obvious Error
Rule strikes the correct balance in most
situations, in some extreme situations,
Participants may not be aware of errors
that result in very large losses within
the time periods currently required
under the rule. In this type of extreme
situation, the Exchange believes
Participants should be given more time
to seek relief so that there is a greater
opportunity to mitigate very large losses
and reduce the corresponding large
wind-falls. However, to maintain the
appropriate balance, the Exchange
believes Participants should only be
given more time when the execution
price is much further away from the
theoretical price than is required for
9 See
PO 00000
BOX Rule 7170(g)(1).
Frm 00092
Fmt 4703
Sfmt 4703
27455
Obvious Errors so that relief is only
provided in extreme circumstances.’’ 10
The Exchange believes that this
proposal is consistent with those
principles because it strikes the
aforementioned balance. The Exchange
is proposing to amend Rule 7170 to
eliminate the risk associated with Public
Customers receiving an adjustment to a
trade that is outside of the limit price of
their order, when there is a catastrophic
error ruling respecting their trade. The
new provision would continue to entail
specific and objective procedures.
Furthermore, the new provision more
fairly balances the potential windfall to
one market participant against the
potential reconsideration of a trading
decision under the guise of an error.
The obvious and catastrophic error
rules of the options exchanges are
similar, especially with respect to only
adjusting trades that result in a
catastrophic error. Nevertheless, the
Exchange believes, based on the
aforementioned example, the recently
approved Phlx filing, and Participant
requests that this aspect of the
catastrophic error process should
change, as explained above. Relatedly,
members of SIFMA’s Options
Committee also expressed concern
during a recent meeting that this
particular outcome may not be
appropriate. Accordingly, the Exchange
has determined to amend the rule.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 11 in general, and furthers the
objectives of Section 6(b)(5) of the Act 12
in particular, in that it is designed 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, by
helping Participants better manage the
risk associated with potential erroneous
trades. Specifically, the Exchange
believes that the proposal is consistent
with these principles because it
provides a fair process for Public
Customers to address catastrophic errors
involving a limit order. In particular, the
proposal still permits nullification in
certain situations. Further, it gives
Public Customers a choice. For two
reasons, the Exchange does not believe
that the proposal is unfairly
10 See Securities Exchange Act Release No. 59197
(January 5, 2009), 74 FR 969 (January 9, 2009)(SR–
BSE–2008–52)(Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change Relating to
Catastrophic Errors).
11 15 U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(5).
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discriminatory, even though it offers
some Participants (Public Customers) a
choice as to whether a trade is nullified
or adjusted, while other Participants
(Broker-Dealers and Market Makers) will
continue to have all of their catastrophic
errors adjusted. First, the rule currently
differentiates among Participants: the
notification period to begin the obvious
error process is different for Market
Makers and non-Market Maker Options
Participants, and whether a trade is
adjusted or busted also differs.13
Second, options rules often treat Public
Customers in a special way,14
recognizing that Public Customers are
not necessarily immersed in the day-today trading of the markets, less likely to
be watching trading activity in a
particular option throughout the day
and may have limited funds in their
trading accounts. Accordingly,
differentiating among Participant types
by permitting Public Customers to have
a choice as to whether to nullify a trade
involving a catastrophic error is not
unfairly discriminatory, because it is
reasonable and fair to provide Public
Customers with additional options to
protect themselves against the
consequences of obvious errors.
The Exchange acknowledges that the
proposal contains some uncertainty
regarding whether a trade will be
adjusted or nullified, depending on
whether one of the parties is a Public
Customer, because a person would not
know, when entering into the trade,
whether the other party is or is not a
Public Customer. The Exchange believes
that the proposal nevertheless promotes
just and equitable principles of trade
and protects investors and the public
interest, because it eliminates a more
serious uncertainty in the rule’s
operation today, which is price
uncertainty. Today, a Public Customer’s
order can be adjusted to a significantly
different price, as the examples above
illustrate, which is more impactful than
the possibility of nullification.
Furthermore, there is uncertainty in the
current obvious error portion of Rule
7170 (as well as the rules of other
options exchanges), which Participants
have dealt with for a number of years.
Specifically, Rule 7170(g)(2) provides
that if it is determined that an Obvious
Error has occurred: (A) where each party
to the transaction is either a market
maker on the Exchange, the execution
price of the transaction will be adjusted
13 See
Rule 7170(g)(1).
example, many options exchange priority
rules treat Public Customers orders differently and
some options exchanges only accept certain types
of orders from Public Customers. Most options
exchanges charge different fees for Public
Customers.
14 For
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by the MRC, unless both parties agree to
nullify the transaction within ten
minutes of being notified by the MRC of
the Obvious Error; or (B) where at least
one party to the transaction in which an
Obvious Error occurred is not a market
maker on the Exchange, the MRC will
nullify the transaction, unless both
parties agree to adjust the price of the
transaction within 30 minutes of being
notified by the MRC of the Obvious
Error. Therefore, a market maker who
prefers adjustments over nullification
cannot guarantee that outcome, because,
if he trades with a Public Customer, a
resulting obvious error would only be
adjusted if the Public Customer agreed
to an adjustment. This uncertainty has
been embedded in the rule and accepted
by market participants. The Exchange
believes that this proposal, despite the
uncertainty based on whether a Public
Customer is involved in a trade, is
nevertheless consistent with the Act,
because the ability to nullify a Public
Customer’s trade involving a
catastrophic error should prevent the
price uncertainty that mandatory
adjustment under the current rule
creates, which should promote just and
equitable principles of trade and protect
investors and the public interest.
The proposal sets forth an objective
process based on specific and objective
criteria and subject to specific and
objective procedures. In addition, the
Exchange has again weighed carefully
the need to assure that one market
participant is not permitted to receive a
windfall at the expense of another
market participant that made a
catastrophic error, against the need to
assure that market participants are not
simply being given an opportunity to
reconsider poor trading decisions.
Accordingly, the Exchange has
determined that introducing a
nullification procedure for catastrophic
errors is appropriate and consistent with
the Act.
Consistent with Section 6(b)(8),15 the
Exchange also believes that the proposal
does not impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act, as described further
below.
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 being
15 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00093
Fmt 4703
proposed as a competitive response to
the filing submitted by Phlx.16 The
Exchange believes this proposed rule
change is necessary to permit fair
competition among the options
exchanges and to establish uniform
rules regarding catastrophic errors.
Currently, most options exchanges have
similar, although not identical, rules
regarding catastrophic errors. To the
extent that this proposal would result in
the Exchange’s rule being different,
market participants may choose to route
orders to the Exchange, helping the
Exchange compete against other options
exchanges for order flow based on its
Public Customers service by having a
process more responsive to current
market needs. The proposal does not
impose a burden on intra-market
competition not necessary or
appropriate in furtherance of the
purposes of the Act, because, even
though it treats different market
participants differently, the Obvious
and Catastrophic Errors rule has always
been structured that way and adding the
ability for Public Customers to choose
whether a catastrophic error trade is
nullified does not materially alter the
risks faced by other market participants
in managing the consequences of
obvious errors. Overall, the proposal is
intended to help market participants
better manage the risk associated with
potential erroneous options trades and
does not impose a burden on
competition.
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
This proposed rule change does not
significantly affect the protection of
investors or the public interest, does not
impose any significant burden on
competition, and, by its terms, does not
become operative for 30 days after the
date of the filing, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest. The
Exchange provided 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, prior to the date
of filing the proposed rule change as
16 See
Sfmt 4703
E:\FR\FM\10MYN1.SGM
supra, note 4.
10MYN1
Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Notices
required by Rule 19b–4(f)(6).17 The
proposed rule change is substantially
similar in all material respects to a
proposal submitted by Phlx that was
recently approved by the Commission.18
The Exchange believes that this
proposed rule change, which is essential
for competitive purposes and to
promote a free and open market for the
benefit of investors, does not raise any
new, unique or substantive issues from
those raised in the Phlx filing.
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:
mstockstill on DSK4VPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BOX–2013–22 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–2013–22. 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 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
publicly available. All submissions
should refer to File Number SR–BOX–
2013–22 and should be submitted on or
before May 31, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–11140 Filed 5–9–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69525; File No. SR–BX–
2013–033]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
of Proposed Rule Change To Amend
BX Rule 4756 and Rule 4763 To
Stipulate How Participants in the
NASDAQ OMX BX Equities Market May
Modify Previously Entered Orders and
To Describe How Modified Orders Are
Processed
May 6, 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 April 25,
2013, NASDAQ OMX BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend BX
Rule 4756 (Entry and Display of Quotes
and Orders) and Rule 4763 (Short Sale
Price Test Pursuant to Rule 201 of
Regulation SHO) to stipulate how
Participants in the NASDAQ OMX BX
Equities Market may modify previously
entered orders and to describe how
modified orders are processed.
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
17 17
CFR 240.19b–4(f)(6).
18 See supra, note 4.
VerDate Mar<15>2010
18:05 May 09, 2013
1 15
Jkt 229001
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
27457
The text of the proposed rule change
is below; proposed new language is
italicized.
*
*
*
*
*
4756. Entry and Display of Quotes and
Orders
(a) Entry of Orders—Participants can
enter orders into the System, subject to
the following requirements and
conditions:
(1)–(2) No change.
(3) Orders can be entered into the
System (or previously entered orders
cancelled or modified) from 7:00 a.m.
until 7:00 p.m. Eastern Time.
Participants may modify a previously
entered order without cancelling it or
affecting the priority of the order on the
book solely for the purpose of modifying
the marking of a sell order as long,
short, or short exempt; provided,
however, that if an order is redesignated
as short, a Short Sale Period is in effect
under Rule 4763, and the order is not
priced at a Permitted Price or higher
under Rule 4763(d), the order will be
cancelled. In addition, a partial
cancellation of an order to reduce its
share size will not affect the priority of
the order on the book. All other
modifications of orders will result in the
replacement of the original order with a
new order with a new time stamp.
(b)–(c) No change.
*
*
*
*
*
4763. Short Sale Price Test Pursuant to
Rule 201 of Regulation SHO
(a)–(c) No change.
(d) Re-pricing of Orders during Short
Sale Period. Except as provided below,
[D]during the Short Sale Period, short
sale orders that are limited to the
national best bid or lower and short sale
market orders will be re-priced by the
System one minimum allowable price
increment above the current national
best bid (‘‘Permitted Price’’). To reflect
declines in the national best bid, the
Exchange will continue to re-price a
short sale order at the lowest Permitted
Price down to the order’s original limit
price, or if a market order, until the
order is filled. Non-displayed orders
between the BX bid and offer will also
be re-priced upward to a Permitted Price
to correspond with a rise in the national
best bid.
(1) No change.
(2) During the Short Sale Period, if an
order was entered as a long sale order
or a short sale exempt order but is
subsequently marked pursuant to Rule
4756(a)(3) as a short sale order, the
System will cancel the order unless it is
priced at a Permitted Price or higher.
(e)–(f) No change.
*
*
*
*
*
E:\FR\FM\10MYN1.SGM
10MYN1
]]>Agencies
[Federal Register Volume 78, Number 91 (Friday, May 10, 2013)]
[Notices]
[Pages 27453-27457]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11140]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69517; File No. SR-BOX-2013-22]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rule 7170 (Obvious and Catastrophic Errors)
May 6, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on April 26, 2013, BOX Options Exchange LLC (the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 7170 (Obvious and Catastrophic
Errors). Specifically, the Exchange proposes to amend Rule 7170(h)(2)
to permit the nullification of trades involving catastrophic errors in
certain situations specified below. 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.
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 proposal is to help market participants better
manage their risk by addressing the situation where, under current
rules, a trade can be adjusted to a price outside of a customer's
limit. Specifically, the Exchange proposes to amend Rule 7170(h) to
enable a Public Customer \4\
[[Page 27454]]
who is the contra-side to a trade that is deemed to be a catastrophic
error to have the trade nullified in instances where the adjusted price
would violate the Public Customer's limit price. Only if the Public
Customer, or his agent, affirms the Public Customer's willingness to
accept the adjusted price through the Public Customer's limit price
within 20 minutes of notification of the catastrophic error ruling
would the trade be adjusted; otherwise it would be nullified. Today,
all catastrophic error trades are adjusted, not nullified, on all of
the options exchanges. This is a competitive filing that is based on a
proposal recently submitted by NASDAQ OMX PHLX LLC (``PHLX'') and
approved by the Commission.\5\
---------------------------------------------------------------------------
\4\ Under BOX Rule 100(a)(51) the term ``Public Customer'' means
a person that is not a broker or dealer in securities. This includes
Professionals under BOX Rule 100(a)(50), but not broker-dealers or
Market Makers.
\5\ See Securities Exchange Act Release No. 69304 (April 4,
2013), 78 FR 21482 (April 10, 2013) (Order Approving SR-Phlx-2013-
005).
---------------------------------------------------------------------------
Background
Currently, Rule 7170 governs obvious and catastrophic errors.
Obvious errors are calculated under the rule by determining a
theoretical price and determining, based on objective standards,
whether the trade should be nullified or adjusted. The rule also
contains a process for requesting an obvious error review. Certain more
substantial errors may fall under the category of a catastrophic error,
for which a longer time period is permitted to request a review and for
which trades can only be adjusted (not nullified). Trades are adjusted
pursuant to an adjustment table that, in effect, assesses an adjustment
penalty. By adjusting trades above or below the theoretical price, the
Rule assesses a ``penalty'' in that the adjustment price is not as
favorable as the amount the party making the error would have received
had it not made the error.
Proposal
At this time, the Exchange proposes to change the catastrophic
error process to permit certain trades to be nullified. The definition
and calculation of a catastrophic error would not change.\6\ First
whether a transaction is a catastrophic error is determined by the
Exchange's MRC,\7\ if both parties to the trade are Public Customers
then the trade would be adjusted under the current rule. However, if
only one of the parties is a Public Customer, then the adjusted price
would be compared to the limit price of the order. If the adjusted
price would violate the limit price (in other words, be higher than the
limit price if it is a buy and lower than the limit price if it is a
sell order), then the Public Customer would be offered an opportunity
to nullify the trade. If the Public Customer (or the Public Customer's
broker-dealer agent) does not respond within 20 minutes, the trade
would be adjusted under the current rule.
---------------------------------------------------------------------------
\6\ Nor is the definition or process for obvious errors
changing.
\7\ The MRC is the BOX Market Regulation Center.
---------------------------------------------------------------------------
These changes should ensure that a Public Customer is not forced
into a situation where the original limit price is violated and thereby
the Public Customer is forced to spend additional dollars for a trade
at a price the customer had no interest in trading and may not be able
to afford.
EXAMPLE 1--Resting Public Customer forced to adjust through his
limit price and would prefer nullification.
Day 1
8:00:00 a.m. (pre-market)
Customer A enters order on BOX to buy 10 GOOG May 750 puts for $25
(cost of $25,000, Customer has $50,000 in his trading account).
10:00:00 a.m.
GOOG trading at $750
May 750 puts $29.00-$31.00 (100x100) on all exchanges
10:04:00 a.m.
GOOG drops to $690
May 750 puts $25-$100 (10x10) BOX May 750 puts $20-$125 (10x10) CBOE
May 750 puts $10-$200 (100x100) on all other exchanges
10:04:01 a.m.
Customer B enters order to sell 10 May 750 puts for $25 (credit of
$25,000)
10:04:01 a.m.
10 May 750 puts execute at $25 ($35 under parity) \8\ with Customer
A buying and Customer B selling.
---------------------------------------------------------------------------
\8\ Parity is the intrinsic value of an option when it is in-
the-money. With respect to puts, it is calculated by subtracting the
price of the underlying from the strike price of the put. With
respect to calls, it is calculated by subtracting the strike price
from the price of the underlying.
10:04:02 a.m. (1 second later)
GOOG trading $690
May 750 puts $75-$78 (100x100) BOX May 750 puts $75-$80 (10x10) CBOEMay
750 puts $70-$80 (100x100) All other exchanges
No obvious error is filed within 20 minute notification time
required by rule. If this had been an obvious error review, the trade
would have been nullified in accordance with Rule 7170 because one of
the parties to the trade was a non-market maker.
4:00:00 p.m. (the close)
GOOG trading $710
May 750 puts $60-$63 (100x100) BOX May 750 puts $55-$70 (10x10) CBOE
May 750 puts $50-$70 (100x100) All other exchanges
Day 2
8:00:00 a.m. (pre-market)
Customer B, submits S10 GOOG May 750 puts at $25 under Catastrophic
Review. Trade meets the criteria of Catastrophic Error and is adjusted
to $68 ($75 (the 10:04:02 a.m. price less $7 adjustment penalty).
9:30:00 a.m. (the opening)
GOOG trading $725
May 750 puts open $48.00-$51.00 (100x100) on all exchanges
Under current rule:
Without a choice, Customer A is forced to spend $68 (cost of $68,000,
with only $25,000 in his account)
Puts are now trading $48, so Customer A shows a loss of $20,000 ($68
less $48x10 contracts x 100 multiplier)
Under proposed rule:
Customer A would be able to choose to have the B10 GOOG May 750 puts
nullified avoiding both a loss, and an expenditure of capital exceeding
the amount in his account.
Customer B would be relieved of the obligation to sell the puts at 25
because the trade would be nullified.
EXAMPLE 2--Resting Public Customer trades, sells out his position,
thus would choose to keep the adjusted trade and avoid nullification.
Day 1
8:00:00 a.m. (pre-market)
Customer A enters order on BOX to Buy 10 BAC April 7.00 calls for $.01
(cost of $10 total. (Customer has $3,000 in his account).
10:00:00 a.m.
BAC trading $11
April 7 calls $4.50-$4.70 (100x100) on all exchanges
10:04:00 a.m.
BAC Trading $11
April 7 calls $.01-$4.70 (10x10) BOX April 7 calls
$4.50-$4.70 (10x10) CBOE
April 7 calls $4.50-$4.70 (10x10)) All other exchanges
10:04:01 a.m.
Customer B enters order to sell 10 April 7 calls at $.01 on BOX with an
ISO indicator (which allows trade through)
[[Page 27455]]
10:04:01 a.m.
10 April 7 calls execute at $.01 on BOX Customer A buying and Customer
B selling.
10:04:02 a.m. (1 second later)
BAC is $11
April 7 calls $4.50-$4.70 (10x10) BOX April 7 calls
$4.50-$4.70 (10x10) CBOE
April 7 calls $4.50-$4.70 (10x10)) All other exchanges
No obvious error is filed within 20 minute notification time
required by rule. If this had been an obvious error review, the trade
would have been nullified.
11:00:00 a.m.
BAC trading $9.60
April 7 calls $3.00-$3.25 (10x10) BOX April 7 calls
$3.00-$3.25 (10x10) CBOE
April 7 calls $3.00-$3.25 (10x10)) All other exchanges
Customer A sells 10 April 7 calls at $3.00 (a total credit of $3,000
for a $2,990 profit)
3:00:00 p.m.
BAC trading $12.80
April 7 calls $5.80-$6.00 (10x10) BOX April 7 calls
$5.80-$6.00 (10x10) CBOE
April 7 calls $5.80-$6.00 (10x10)) All other exchanges
Customer A has now no position and would be at risk of a loss if
nullified.
3:20:00 p.m.
Customer B submits S10 BAC April 7 calls at $.01 under Catastrophic
Error Review. Trade meets the criteria of Catastrophic Error and is
adjusted to $2.50 ($4.50 (the 10:04:02 a.m. price) less $2 adjustment
penalty).
Impact:
Under current Rule: Customer A would be adjusted to $2.50 ($4.50 (the
10:04:02 a.m. price) less $2 adjustment penalty).
Under Proposed rule:
Illustrating the need for a choice, Customer A chooses within 20
minutes to accept an adjustment to $2.50 instead of a nullification,
locking in a gain of $500 instead of $2.990 (B 10 at $2.50 vs. S10 at
$3.00).
If not given a choice, Customer A would be naked short 10 calls at
$3.00 that are now offered at $6.00 (a $3,000 loss).
These examples illustrate the need for the Public Customer to have
a choice in order to manage his risk. By applying a notification time
limit of 20 minutes, it lessens the likelihood that the Public Customer
will try to let the direction of the market for that option dictate his
decision for a long period of time, thus exposing the contra side to
more risk. This 20 minute time period is akin to the notification
period currently used in the rule respecting the notification period
for starting the obvious error process for non-Market Maker Options
Participants.\9\
---------------------------------------------------------------------------
\9\ See BOX Rule 7170(g)(1).
---------------------------------------------------------------------------
For a market maker or a broker-dealer, the penalty that is part of
the price adjustment process is usually enough to offset the additional
dollars spent, and they can often trade out of the position with little
risk and a potential profit. For a Public Customer who is not immersed
in the day-to-day trading of the markets, this risk may be
unacceptable. A Public Customer is also less likely to be watching
trading activity in a particular option throughout the day and less
likely to be closely focused on the execution reports the Public
Customer receives after a trade is executed. Accordingly, the Exchange
believes that it is fair and reasonable, and consistent with statutory
standards, to change the procedure for catastrophic errors for Public
Customers and not for other Participants.
The Exchange believes that the proposal is a fair way to address
the issue of a Public Customer's limit price, yet still balance the
competing interests of certainty that trades stand versus dealing with
true errors. In 2009, the Exchange amended Rule 7170 to adopt the
catastrophic error provision. In doing so, the Exchange stated that it
had ``weighed carefully the need to assure that one market participant
is not permitted to receive a windfall at the expense of another market
participant that made an Obvious Error, against the need to assure that
market participants are not simply being given an opportunity to
reconsider poor trading decisions. The Exchange stated that, while it
believed that the Obvious Error Rule strikes the correct balance in
most situations, in some extreme situations, Participants may not be
aware of errors that result in very large losses within the time
periods currently required under the rule. In this type of extreme
situation, the Exchange believes Participants should be given more time
to seek relief so that there is a greater opportunity to mitigate very
large losses and reduce the corresponding large wind-falls. However, to
maintain the appropriate balance, the Exchange believes Participants
should only be given more time when the execution price is much further
away from the theoretical price than is required for Obvious Errors so
that relief is only provided in extreme circumstances.'' \10\
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 59197 (January 5,
2009), 74 FR 969 (January 9, 2009)(SR-BSE-2008-52)(Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change Relating to
Catastrophic Errors).
---------------------------------------------------------------------------
The Exchange believes that this proposal is consistent with those
principles because it strikes the aforementioned balance. The Exchange
is proposing to amend Rule 7170 to eliminate the risk associated with
Public Customers receiving an adjustment to a trade that is outside of
the limit price of their order, when there is a catastrophic error
ruling respecting their trade. The new provision would continue to
entail specific and objective procedures. Furthermore, the new
provision more fairly balances the potential windfall to one market
participant against the potential reconsideration of a trading decision
under the guise of an error.
The obvious and catastrophic error rules of the options exchanges
are similar, especially with respect to only adjusting trades that
result in a catastrophic error. Nevertheless, the Exchange believes,
based on the aforementioned example, the recently approved Phlx filing,
and Participant requests that this aspect of the catastrophic error
process should change, as explained above. Relatedly, members of
SIFMA's Options Committee also expressed concern during a recent
meeting that this particular outcome may not be appropriate.
Accordingly, the Exchange has determined to amend the rule.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \11\ in general, and furthers the objectives of Section
6(b)(5) of the Act \12\ in particular, in that it is designed 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, by helping Participants better manage the risk associated
with potential erroneous trades. Specifically, the Exchange believes
that the proposal is consistent with these principles because it
provides a fair process for Public Customers to address catastrophic
errors involving a limit order. In particular, the proposal still
permits nullification in certain situations. Further, it gives Public
Customers a choice. For two reasons, the Exchange does not believe that
the proposal is unfairly
[[Page 27456]]
discriminatory, even though it offers some Participants (Public
Customers) a choice as to whether a trade is nullified or adjusted,
while other Participants (Broker-Dealers and Market Makers) will
continue to have all of their catastrophic errors adjusted. First, the
rule currently differentiates among Participants: the notification
period to begin the obvious error process is different for Market
Makers and non-Market Maker Options Participants, and whether a trade
is adjusted or busted also differs.\13\ Second, options rules often
treat Public Customers in a special way,\14\ recognizing that Public
Customers are not necessarily immersed in the day-to-day trading of the
markets, less likely to be watching trading activity in a particular
option throughout the day and may have limited funds in their trading
accounts. Accordingly, differentiating among Participant types by
permitting Public Customers to have a choice as to whether to nullify a
trade involving a catastrophic error is not unfairly discriminatory,
because it is reasonable and fair to provide Public Customers with
additional options to protect themselves against the consequences of
obvious errors.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ See Rule 7170(g)(1).
\14\ For example, many options exchange priority rules treat
Public Customers orders differently and some options exchanges only
accept certain types of orders from Public Customers. Most options
exchanges charge different fees for Public Customers.
---------------------------------------------------------------------------
The Exchange acknowledges that the proposal contains some
uncertainty regarding whether a trade will be adjusted or nullified,
depending on whether one of the parties is a Public Customer, because a
person would not know, when entering into the trade, whether the other
party is or is not a Public Customer. The Exchange believes that the
proposal nevertheless promotes just and equitable principles of trade
and protects investors and the public interest, because it eliminates a
more serious uncertainty in the rule's operation today, which is price
uncertainty. Today, a Public Customer's order can be adjusted to a
significantly different price, as the examples above illustrate, which
is more impactful than the possibility of nullification. Furthermore,
there is uncertainty in the current obvious error portion of Rule 7170
(as well as the rules of other options exchanges), which Participants
have dealt with for a number of years. Specifically, Rule 7170(g)(2)
provides that if it is determined that an Obvious Error has occurred:
(A) where each party to the transaction is either a market maker on the
Exchange, the execution price of the transaction will be adjusted by
the MRC, unless both parties agree to nullify the transaction within
ten minutes of being notified by the MRC of the Obvious Error; or (B)
where at least one party to the transaction in which an Obvious Error
occurred is not a market maker on the Exchange, the MRC will nullify
the transaction, unless both parties agree to adjust the price of the
transaction within 30 minutes of being notified by the MRC of the
Obvious Error. Therefore, a market maker who prefers adjustments over
nullification cannot guarantee that outcome, because, if he trades with
a Public Customer, a resulting obvious error would only be adjusted if
the Public Customer agreed to an adjustment. This uncertainty has been
embedded in the rule and accepted by market participants. The Exchange
believes that this proposal, despite the uncertainty based on whether a
Public Customer is involved in a trade, is nevertheless consistent with
the Act, because the ability to nullify a Public Customer's trade
involving a catastrophic error should prevent the price uncertainty
that mandatory adjustment under the current rule creates, which should
promote just and equitable principles of trade and protect investors
and the public interest.
The proposal sets forth an objective process based on specific and
objective criteria and subject to specific and objective procedures. In
addition, the Exchange has again weighed carefully the need to assure
that one market participant is not permitted to receive a windfall at
the expense of another market participant that made a catastrophic
error, against the need to assure that market participants are not
simply being given an opportunity to reconsider poor trading decisions.
Accordingly, the Exchange has determined that introducing a
nullification procedure for catastrophic errors is appropriate and
consistent with the Act.
Consistent with Section 6(b)(8),\15\ the Exchange also believes
that the proposal does not impose a burden on competition not necessary
or appropriate in furtherance of the purposes of the Act, as described
further below.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 being proposed as a
competitive response to the filing submitted by Phlx.\16\ The Exchange
believes this proposed rule change is necessary to permit fair
competition among the options exchanges and to establish uniform rules
regarding catastrophic errors. Currently, most options exchanges have
similar, although not identical, rules regarding catastrophic errors.
To the extent that this proposal would result in the Exchange's rule
being different, market participants may choose to route orders to the
Exchange, helping the Exchange compete against other options exchanges
for order flow based on its Public Customers service by having a
process more responsive to current market needs. The proposal does not
impose a burden on intra-market competition not necessary or
appropriate in furtherance of the purposes of the Act, because, even
though it treats different market participants differently, the Obvious
and Catastrophic Errors rule has always been structured that way and
adding the ability for Public Customers to choose whether a
catastrophic error trade is nullified does not materially alter the
risks faced by other market participants in managing the consequences
of obvious errors. Overall, the proposal is intended to help market
participants better manage the risk associated with potential erroneous
options trades and does not impose a burden on competition.
---------------------------------------------------------------------------
\16\ See supra, note 4.
---------------------------------------------------------------------------
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
This proposed rule change does not significantly affect the
protection of investors or the public interest, does not impose any
significant burden on competition, and, by its terms, does not become
operative for 30 days after the date of the filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest. The Exchange provided 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, prior to the date of filing the proposed rule change as
[[Page 27457]]
required by Rule 19b-4(f)(6).\17\ The proposed rule change is
substantially similar in all material respects to a proposal submitted
by Phlx that was recently approved by the Commission.\18\ The Exchange
believes that this proposed rule change, which is essential for
competitive purposes and to promote a free and open market for the
benefit of investors, does not raise any new, unique or substantive
issues from those raised in the Phlx filing.
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ See supra, note 4.
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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-2013-22 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-2013-22. 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 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 publicly available. All
submissions should refer to File Number SR-BOX-2013-22 and should be
submitted on or before May 31, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
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\19\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-11140 Filed 5-9-13; 8:45 am]
BILLING CODE 8011-01-P
