Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing of Proposed Rule Change To Permit Complex Orders To Participate in Price Improvement Periods, 58364-58376 [2013-23008]
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Federal Register / Vol. 78, No. 184 / Monday, September 23, 2013 / Notices
be submitted on or before October 15,
2013.
G. Terms of Access to Transaction
Reports
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Kevin M. O’Neill,
Deputy Secretary.
Not applicable.
H. Identification of Marketplace of
Execution
Not applicable.
[FR Doc. 2013–23009 Filed 9–20–13; 8:45 am]
III. Solicitation of Comments
BILLING CODE 8011–01–P
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed
amendments are consistent with the
Act. Comments may be submitted by
any of the following methods:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70427; File No. SR–BOX–
2013–43]
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comment form (http://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CTA–2013–05 on the subject line.
emcdonald on DSK67QTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
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100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
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Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing of Proposed Rule Change To
Permit Complex Orders To Participate
in Price Improvement Periods
September 17, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 5, 2013, BOX Options
Exchange LLC (the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II and III below, which items
have been prepared by the selfregulatory organization. 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 the Substance
of the Proposed Rule Change
The Exchange proposes to add a new
Rule 7245 to permit Complex Orders to
participate in Price Improvement
Periods (the ‘‘COPIP’’) and by making
certain other conforming and clarifying
changes to accommodate the new COPIP
Rule. 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 the
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
6 17
CFR 200.30–3(a)(27).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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 its
rules related to trading of Complex
Orders 3 on BOX Market LLC (‘‘BOX’’),
the options trading facility of the
Exchange, to permit Complex Orders to
be submitted to a price improvement
period auction mechanism similar to the
existing PIP mechanism for single
option series on BOX.4 The Exchange
believes this proposed Complex Order
Price Improvement Period (‘‘COPIP’’) 5
mechanism will result in more efficient
transactions, reduced execution risk to
BOX Options Participants, and greater
opportunities for price improvement
through the COPIP. The Exchange
believes adoption of the proposal will
result in tighter markets, and ensure that
each order receives the best possible
price.
The Exchange believes the proposed
COPIP is an improvement over its
current rules regarding Complex Order
exposure and execution, and will
benefit all market participants
submitting Complex Order to BOX. The
proposed change will require that
Complex Orders on BOX will execute
first against interest on the BOX Book
where possible, as under the current
rule.6
Existing PIP
The Exchange proposes to add new
BOX Rule 7245 to allow Complex
Orders to be submitted to the COPIP in
substantially the same manner as orders
for single options series instruments
currently are submitted to the PIP.
Currently, Options Participants
executing agency orders for single
options series instruments may
designate Customer Orders for price
3 As defined in Rule 7240(a)(5), the term
‘‘Complex Order’’ means any order involving the
simultaneous purchase and/or sale of two or more
different options series in the same underlying
security, for the same account, in a ratio that is
equal to or greater than one-to-three (.333) and less
than or equal to three-to-one (3.00) and for the
purpose of executing a particular investment
strategy.
4 See Rule 7150.
5 As defined in proposed Rule 7245, the term
‘‘COPIP’’ means Complex Order Price Improvement
Period.
6 See Rule 7240(b)(3)(i) and proposed Rule
7245(f)(3)(i).
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improvement and submission to the PIP.
Customer Orders designated for the PIP
(‘‘PIP Orders’’) may be submitted to
BOX with a matching contra order
(‘‘Primary Improvement Order’’) equal
to the full size of the PIP Order. The
Primary Improvement Order is on the
opposite side of the market from the PIP
Order and at a price equal to or better
than that of the National Best Bid Offer
(‘‘NBBO’’) at the time of the
commencement of the PIP (the ‘‘PIP
Start Price’’). BOX begins a PIP by
broadcasting a message to market
participants via the Exchange’s High
Speed Vendor Feed (‘‘HSVF’’). During
the PIP, order flow providers (‘‘OFPs’’)
and Market Makers (other than the
Initiating Participant) may submit
competing orders (‘‘Improvement
Orders’’) for their own account and
OFPs may also provide access to the PIP
for the account of a Public Customer or
for any account except Market Maker.
Options Participants may continually
submit competing Improvement Orders
during the PIP and Improvement Orders
are disseminated to market participants.
At the conclusion of a PIP, the PIP
Order is matched against the best
prevailing quote(s) or order(s) on BOX
(except any pre-PIP Broadcast
proprietary quote or order from the
Initiating Participant), in accordance
with price/time priority as set forth in
Rule 7130, whether Improvement
Order(s) or Unrelated Order(s) received
by BOX, or Legging Orders generated,
during the PIP (excluding Unrelated
Orders that were immediately executed
during the interval of the PIP). Such
orders may include agency orders on
behalf of Public Customers, market
makers at away exchanges and non-BOX
Options Participant broker-dealers, as
well as non-PIP proprietary orders
submitted by Options Participants.
Unrelated Orders 7 and Legging
Orders 8 on the same side as the PIP
Order received during the PIP may
cause the PIP to terminate early under
certain circumstances.9 During a PIP,
when an Unrelated Order is submitted
to BOX or a Legging Order is generated
on the same side as the PIP Order that
would cause an execution to occur prior
to the end of the PIP, the PIP ends early
and the PIP Order is matched as if the
PIP terminated on its regular schedule.
7 As defined in Rule 7150(a), the term ‘‘Unrelated
Order’’ with respect to a PIP means a nonImprovement Order entered into the BOX market
during a PIP.
8 As defined in Rule 7240(c)(1), the term ‘‘Legging
Order’’ means a Limit Order on the BOX Book that
represents one side of a Complex Order that is to
buy or sell an equal quantity of two options series
resting on the Complex Order Book.
9 See Rule 7150(i).
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Following the execution of the PIP
Order, any remaining Improvement
Orders are cancelled and the Unrelated
Order or Legging Order is filtered
normally.10
Unrelated Orders and Legging Orders
on the opposite side of the PIP Order
received during the PIP may be
immediately executed under certain
circumstances.11 During a PIP, when
such an Unrelated Order is submitted to
BOX or a Legging Order is generated on
the opposite side of the PIP Order such
that it would cause an execution to
occur prior to the end of the PIP, the
Unrelated Order or Legging Order is
immediately executed against the PIP
Order. Any remaining portion of the
Unrelated Order or Legging Order is
filtered normally.12 Any remaining
portion of the PIP Order is executed at
the conclusion of the PIP normally.13
Following the execution of the PIP
Order, any remaining Improvement
Orders are cancelled.
Proposed COPIP on Complex Orders
The Exchange proposes new Rule
7245 that would allow the submission
of Complex Orders to a COPIP
mechanism that is substantially similar
to the PIP except as necessary to
account for distinctions between regular
orders on the BOX Book and Complex
Orders or as otherwise noted below.14
References to Legging Orders do not
appear in the proposed COPIP rules
because Legging Orders interact only
with the PIP. However, the proposed
COPIP rules do include other provisions
for interacting with interest on the BOX
Book. The manner in which interest on
the BOX Book interacts with the COPIP
is explained in more detail below.
The Exchange believes this proposal
to permit price improvement auctions
for Complex Orders will increase
opportunities for execution of Complex
Orders and interest on the BOX Book.
The Exchange believes the proposed
COPIP will provide greater flexibility to
Participants trading Complex Orders on
BOX Market LLC, the Exchange’s
trading facility (‘‘BOX’’). The Exchange
further believes the proposed COPIP
will provide additional opportunities
for Participants to achieve better
handling of Complex Orders and result
10 See
Rule 7130(b).
Rule 7150(j).
12 See Rule 7130(b).
13 See Rule 7150(f)(3).
14 The Exchange notes that the provisions in
proposed Rule 7245 are substantially similar to
those in Rule 7150, amended to reflect their
applicability to a COPIP on a Complex Order
Strategy as compared to a PIP on orders for single
options series instruments.
11 See
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58365
in increased opportunities for execution
and better pricing.
General COPIP Provisions
For purposes of the COPIP, the term
‘‘Improvement Order’’ is defined as a
competing Complex Order submitted to
BOX by an OFP or Market Maker during
a COPIP; the term ‘‘Unrelated Order’’ is
defined as a non-Improvement Order
entered on BOX during a COPIP or BOX
Book Interest during a COPIP; and the
term ‘‘BOX Book Interest’’ is defined as
bids and offers on the BOX Book for the
individual legs of a Strategy.15 These
definitions are similar to those used in
the PIP rule but, for the COPIP,
Unrelated Orders are proposed to
include BOX Book Interest capable of
executing against COPIP Orders to
permit COPIPs to interact with the BOX
Book. BOX Book Interests are treated as
Unrelated Orders for purposes of the
COPIP except where specifically
differentiated in proposed Rule 7245
and discussed below.
The Exchange proposes that Options
Participants may use the COPIP to
execute Complex Orders under certain
circumstances subject to the procedures
detailed within proposed Rule 7245. In
compliance with these procedures, price
improvement transactions for Customer
Orders that are Complex Orders may be
consummated with the Options
Participant who submits the Complex
Order, with other Options Participants,
Improvement Orders or Unrelated
Orders.16
The Exchange proposes that, when
executing Customer Complex Orders by
way of the COPIP, Options Participants
must ensure that they comply with all
the procedures set forth in these Rules
for such transactions; that they act with
due skill, care and diligence; and that
the interests of their Customers are not
prejudiced.17 An OFP may not execute,
as principal, an order it represents as
agent unless it complies with the
provisions of Rule 7140 or the OFP
sends the agency order to the COPIP
process pursuant to the provisions of
proposed Rule 7245.18 An Options
Participant must not use the COPIP
process to create a misleading
impression of market activity (i.e., the
facilities may be used only where there
is a genuine intention to execute a bona
fide transaction).19 These provisions are
substantially the same as the
corresponding rules for the PIP.20
15 See
proposed Rule 7245(a).
proposed Rule 7245(b).
17 See proposed Rule 7245(c).
18 See proposed Rule 7245(d).
19 See proposed Rule 7245(e).
20 See Rule 7150(c), (d) and (e).
16 See
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COPIP Mechanism
Consistent with the PIP, the Exchange
proposes that Options Participants, both
OFPs and Market Makers, (‘‘Initiating
Participants’’) executing agency orders
may designate Complex Orders that are
marketable Limit Orders, BOX-Top
Orders or Market Orders for price
improvement and submission to the
COPIP. Complex Orders designated for
the COPIP (‘‘COPIP Orders’’) will be
submitted to BOX with a matching
contra order (‘‘Primary Improvement
Order’’) equal to the full size of the
COPIP Order. The Primary Improvement
Order will be on the opposite side of the
market than that of the COPIP Order and
represents either: (1) A single price
(‘‘Single-Priced Primary Improvement
Order’’) that is equal to or better than
cNBBO,21 cBBO 22 and BBO on the
Complex Order Book for the Strategy at
the time of the commencement of the
COPIP; or (2) an auto-match submission
that will automatically match both the
price and size of all competing orders,
including Improvement Orders and
Unrelated Orders at any price level
achieved during the COPIP or only up
to a limit price (‘‘Max Improvement
Primary Improvement Order’’). Either
the Single-Priced Primary Improvement
Order or the Max Improvement Primary
Improvement Order will designate the
COPIP auction start price (‘‘COPIP Start
Price’’), which will be equal to or better
than cNBBO, cBBO and BBO on the
Complex Order Book for the Strategy at
the time of commencement of the
COPIP. BOX will commence a COPIP by
broadcasting a message via the HSVF
(the ‘‘COPIP Broadcast’’) that states that
a Primary Improvement Order has been
processed; contains information
concerning Strategy identifier, size,
COPIP Start Price, and side of market;
and states when the COPIP will
conclude.23 Unlike the PIP rule, the
proposed Rule 7245 does not refer to
quotes because quotes do not exist on
Complex Orders. All market
participants are able to receive
broadcast notification of COPIPs and
Improvement Orders via the HSVF. As
a result, no Participants will have an
information advantage.
As in the PIP, the standard COPIP
duration is proposed to be one hundred
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21 As
defined in Rule 7240(a)(3), the term
‘‘cNBBO’’ means the best net bid and offer price for
a Complex Order Strategy based on the NBBO for
the individual options components of such
Strategy.
22 As defined in Rule 7240(a)(1), the term ‘‘cBBO’’
means the best net bid and offer price for a Complex
Order Strategy based on the BBO on the BOX Book
for the individual options components of such
Strategy.
23 See proposed Rule 7245(f).
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milliseconds,24 commencing upon the
dissemination of the COPIP Broadcast.
At the conclusion of the COPIP, the
COPIP Order will be executed as
described below. During a COPIP, OFPs
and Market Makers (except for the
Initiating Participant) may submit
Improvement Orders for their own
account. OFPs may submit
Improvement Orders for the account of
a Public Customer under any type of
instruction they wish to accept. An
Improvement Order submitted to the
COPIP for the account of a Public
Customer must be identified as a Public
Customer Order. Options Participants
who submit Improvement Orders for a
COPIP will be deemed ‘‘COPIP
Participants’’ for that specific COPIP
only, and may continually submit
competing Improvement Orders during
that COPIP. During the COPIP,
Improvement Orders will be broadcast
via the HSVF but will not be
disseminated through OPRA.25 The
proposed COPIP rule text makes clear
that the COPIP broadcast is
disseminated via the HSVF. Complex
Order information is not broadcast to
OPRA.
Consistent with the PIP, an Initiating
Participant in a COPIP is not permitted
to cancel or to modify the size of its
Single-Priced Primary Improvement
Order or the COPIP Order at any time
during a COPIP, and may modify only
the price of its Single-Priced Primary
Improvement Order by improving it.
The subsequent price modifications to a
Single-Priced Primary Improvement
Order are treated as new Improvement
Orders for the sake of establishing
priority in the COPIP process. The
Initiating Participant is not permitted to
cancel or modify the Max Improvement
Primary Improvement Order, including
the COPIP Start Price, the designated
limit price or the size. Just as in a PIP,
Options Participants that submit
Improvement Orders in a COPIP may: (i)
Submit competing Improvement
24 The Exchange believes that 100 milliseconds is
an adequate duration for the COPIP. The COPIP
duration would be the same as the current duration
of the PIP and, therefore, the Exchange believes the
COPIP duration would not create any additional
burden for Participants participating in a COPIP.
The Exchange believes customers are capable of
responding within the proposed duration and has
not received any complaints regarding the duration
of the PIP since the timer was reduced from one
second to 100 milliseconds on February 13, 2012.
The Exchange has had discussions with several
BOX Participants, each of which has indicated that
100 milliseconds is more than adequate to process
COPIP Orders. Similarly, CBOE recently reduced
certain of its response times to as little as 20
milliseconds (See, e.g., CBOE Regulatory Circular
RG13–094, dated June 27, 2013 and effective
August 1, 2013).
25 See proposed Rule 7245(f)(1).
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Order(s) for any size up to the size of the
COPIP Order; (ii) submit competing
Improvement Order(s) for any price
equal to or better than the COPIP Start
Price; (iii) improve the price of their
Improvement Order(s) at any point
during the COPIP; and (iv) decrease the
size of their Improvement Order(s) only
by improving the price of that Complex
Order. Improvement Orders may be
submitted in one-cent increments.26
At the conclusion of a COPIP, just as
with a PIP,27 the COPIP Order is
proposed to execute against the best
prevailing order(s) on BOX (except any
pre-COPIP Broadcast proprietary order
from the Initiating Participant), in
accordance with price/time priority,
whether Improvement Order(s) or
Unrelated Order(s) received by BOX
during the COPIP (excluding all
Unrelated Orders that were immediately
executed during the interval of the
COPIP). Such Unrelated Orders may
include agency orders on behalf of
Public Customers, market makers at
away exchanges and non-BOX Options
Participant broker-dealers, as well as
non-COPIP proprietary orders submitted
by Options Participants. Any portion of
an Improvement Order left unfilled will
be cancelled.28
Notwithstanding the foregoing
execution rules for a COPIP, BOX Book
Interest is proposed to execute in
priority over Complex Orders at the
same price 29 so as to preserve the
already established execution priority of
interest on the BOX Book over Complex
Orders.30
Example 1: Execution of COPIP Order
With BOX Book Interest Priority
For example, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.
A BOX Participant then initiates a
COPIP Order to sell 30 A+B. The COPIP
Order is opposite the Participant’s
Primary Improvement Order to buy 30
at $2.01. The orders for Strategy A+B
then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30
at $2.01
26 See
proposed Rule 7245(f)(2).
Rule 7150(f)(3).
28 See proposed Rule 7245(f)(3).
29 See proposed Rule 7245(f)(3)(i).
30 The execution priority of interest on the BOX
Book over Complex Orders is consistent with
existing Rules 7240(b)(3)(i).
27 See
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COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, the BOX Book for each
of A and B changes to generate BOX
Book Interest to buy 20 A+B at $2.01.
The orders for Strategy A+B at the end
of the COPIP then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30
at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 20 at $2.01
The allocation of Strategies for
execution with the COPIP Order to sell
30 A+B at the end of the COPIP is as
follows:
Allocation for Execution of COPIP
Order to Sell 30 A+B:
BOX Book Interest to buy 20 at $2.01
Primary Improvement Order to buy 10
at $2.01
Note: The BOX Book Interest to buy
20 A+B at $2.01 is fully executed in first
priority. The Primary Improvement
Order is allocated the remaining 10
Strategies.
*
*
*
*
*
Further, no Complex Order for a nonmarket maker broker-dealer account of
an Options Participant will be executed
before all Public Customer Complex
Order(s), whether Improvement Order(s)
or non-Improvement Order(s), and all
non-BOX Options Participant brokerdealer Complex Order(s) at the same
price have been filled; provided
however, that all Complex Orders on the
Complex Order Book prior to the COPIP
Broadcast, excluding any proprietary
order(s) from the Initiating Participant,
will be filled in time priority before any
other Complex Order at the same
price.31 These proposed rule features
adapt the existing PIP mechanism for
COPIP auctions while preserving the
established execution priority rules for
Complex Orders.
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COPIP Trade Allocation Priority
Subject to the execution priority of
BOX Book Interests described above, the
Initiating Participant is proposed to
retain certain priority and trade
allocation privileges upon conclusion of
a COPIP.32 The priority and trade
allocation privileges retained by
Initiating Participants in a proposed
COPIP are substantially similar to those
currently afforded Initiating Participants
in a PIP 33 except as noted below. These
31 See
proposed Rule 7245(f)(3)(ii).
proposed Rule 7245(f)(3)(iii) and 7245(g).
33 See Rule 7150(g)
privileges are described in more detail
below.
In instances in which a Single-Priced
Primary Improvement Order, as
modified (if at all), is matched by or
matches any Complex Order(s) or BOX
Book Interest at any price level, the
Initiating Participant would retain
priority for up to forty percent (40%) of
the original size of the COPIP Order,
notwithstanding the time priority of the
Primary Improvement Order or Complex
Order(s). However, if only one Complex
Order or BOX Book Interest matches or
is better than the Initiating Participant’s
Single-Priced Primary Improvement
Order, then the Initiating Participant
may retain priority for up to fifty
percent (50%) of the original size of the
COPIP Order. The Initiating Participant
will receive additional allocation only
after all other Complex Orders have
been filled at that price level.34 For
purposes of calculating the Initiating
Participant’s priority allocation, BOX
Book Interests are proposed to be
included as competing orders in a
COPIP.
BOX Book Interest to buy 20 at $2.04
cNBBO is $2.00 bid, $2.10 offered
The BOX Book Interest has execution
priority over Complex Orders, including
the Primary Improvement Order, at the
same price.
The allocation of Strategies for
execution with the COPIP Order to sell
30 A+B at the end of the COPIP is as
follows:
Example 2: Primary Improvement
Order Priority
Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30
at $2.04
BOX Book Interest to buy 10 at $2.04
cNBBO is $2.00 bid, $2.10 offered
Because the BOX Book Interest is
considered to be a separate order for the
determination of the 40/50% Initiating
Participant priority for the Primary
Improvement Order, the Primary
Improvement Order retains execution
priority for only 40% of the COPIP
Order.
The allocation of Strategies for
execution with the COPIP Order to sell
30 A+B at the end of the COPIP is as
follows:
Example 2(a)
For example, suppose the orders for
Strategy A+B at the end of a COPIP are
as follows:
Orders for Strategy A+B:
Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30
at $2.04
cNBBO is $2.00 bid, $2.10 offered
In this case, there is only one
competing Improvement Order and,
therefore, the Primary Improvement
Order receives an allocation of 50% of
the original size of the COPIP Order.
The allocation of Strategies for
execution with the COPIP Order to sell
30 A+B at the end of the COPIP is as
follows:
Allocation for Execution of COPIP
Order to Sell 30 A+B:
Primary Improvement Order to buy 15
at $2.04
Improvement Order to buy 15 at $2.04
Example 2(b)
Alternatively, suppose the orders for
Strategy A+B at the end of a COPIP are
as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30
at $2.04
COPIP Order to sell 30
32 See
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34 See
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Allocation for Execution of COPIP
Order to Sell 30 A+B:
BOX Book Interest to buy 20 at $2.04
Primary Improvement Order to buy 10
at $2.04
Note: The BOX Book Interest to buy
20 A+B at $2.04 is fully executed in first
priority. The Primary Improvement
Order is allocated the remaining 10
Strategies.
Example 2(c)
Alternatively, suppose the orders for
Strategy A+B at the end of a COPIP are
as follows:
Orders for Strategy A+B:
Allocation for Execution of COPIP
Order to Sell 30 A+B:
BOX Book Interest to buy 10 at $2.04
Primary Improvement Order to buy 12
at $2.04
Improvement Order to buy 8 at $2.04
Note: The BOX Book Interest to buy
10 A+B at $2.04 is fully executed in first
priority. The Primary Improvement
Order is allocated 12 Strategies (40% of
the COPIP Order) and the remaining 8
Strategies are allocated to the
Improvement Order.
Example 2(d)
Alternatively, suppose the orders for
Strategy A+B at the end of a COPIP are
as follows:
Orders for Strategy A+B:
Improvement Order to buy 20 at $2.04
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COPIP Order to sell 30
Primary Improvement Order to buy 30
at $2.04
BOX Book Interest to buy 20 at $2.04
cNBBO is $2.00 bid, $2.10 offered
Because the BOX Book Interest is
considered to be a separate order for the
determination of the 40/50% Initiating
Participant priority for the Primary
Improvement Order, the Primary
Improvement Order retains execution
priority for only 40% of the COPIP
Order.
The allocation of Strategies for
execution with the COPIP Order to sell
30 A+B at the end of the COPIP is as
follows:
Allocation for Execution of COPIP
Order to Sell 30 A+B:
emcdonald on DSK67QTVN1PROD with NOTICES
BOX Book Interest to buy 20 at $2.04
Primary Improvement Order to buy 10
at $2.04
Note: The BOX Book Interest to buy
20 A+B at $2.04 is fully executed in first
priority. The Primary Improvement
Order would be entitled to be allocated
12 Strategies (40% of the COPIP Order).
However, instead, the Primary
Improvement Order is allocated the
remaining 10 Strategies and the
Improvement Order does not receive
any allocation.
*
*
*
*
*
In instances in which a Max
Improvement Primary Improvement
Order is submitted by the Initiating
Participant, the Initiating Participant
would be allocated its full size at each
price level, except where restricted by
the designated limit price and subject to
the limitations discussed in the next
following paragraph below, until a price
level is reached where the balance of the
COPIP Order can be fully executed.
Only at such price level would the
Initiating Participant retain priority for
up to forty percent (40%) of the
remaining size of the COPIP Order.
However, if only one competing
Complex Order or BOX Book Interest
matches the Initiating Participant at the
final price level, then the Initiating
Participant may retain priority for up to
fifty percent (50%) of the remaining size
of the COPIP Order.35 As with SinglePriced Primary Improvement Orders
discussed above, for purposes of
calculating the Initiating Participant’s
priority allocation, BOX Book Interests
are proposed to be included as
competing orders in a COPIP.
35 See
proposed Rule 7245(g)(2).
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Example 3: Execution of COPIP Order
at Multiple Price Levels With Max
Improvement Primary Improvement
Order
For example, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant then initiates a
COPIP Order to sell 100 A+B. The
COPIP Order is opposite the
Participant’s Primary Improvement
Order to buy 100 at $2.01. The
Participant’s Max Improvement Price is
2.03. The orders for Strategy A+B then
are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 100
at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, two competing
Improvement Orders are received: one
Improvement Order to buy 30 A+B at
$2.04 and one Improvement Order to
buy 50 A+B at $2.03. The Primary
Improvement Order improves to $2.03.
Also, the BOX Book Interest changes to
40 A+B at $2.03. The orders for Strategy
A+B at the end of the COPIP then are
as follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100
at $2.03
BOX Book Interest to buy 40 at $2.03
Improvement Order to buy 50 at $2.03
The allocation of Strategies for
execution with the COPIP Order to sell
100 A+B at the end of the COPIP is as
follows:
Allocation for Execution of COPIP
Order to Sell 100 A+B:
Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 30
at $2.03
Note: While the Primary Improvement
Order had a right to buy 40 Strategies
at $2.03 (40% of original COPIP
quantity of 100), the Initiating
Participant is allocated only 30
Strategies because the BOX Book
Interest has priority for its full amount
at that price level.
*
*
*
*
*
As in a PIP, the Primary Improvement
Order is proposed to follow, in time
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Sfmt 4703
priority, all Complex Orders on the
Complex Order Book prior to the COPIP
Broadcast that are equal to the Single
Priced Primary Improvement Order
price; or the execution price of a Max
Improvement Primary Improvement
Order that results in the balance of the
COPIP Order being fully executed,
except any proprietary order(s) from the
Initiating Participant. Such proprietary
order(s) would not be executed against
the COPIP Order during or at the
conclusion of the COPIP.36 As
mentioned above, quotes are included
in the PIP rules 37 but are not part of the
proposed COPIP rules because quotes
are not provided on Complex Orders.
The Primary Improvement Order is
proposed to yield priority to certain
competing Complex Orders, including
the priority of the Initiating Participant
described above, in substantially the
same circumstances as the PIP 38 as
follows.
When a Single-Priced or Max
Improvement Primary Improvement
Order for the proprietary account of an
OFP is matched by or matches any
competing Public Customer Complex
Order(s), whether Improvement
Order(s), Unrelated Order(s) or any nonBOX Options Participant broker-dealer
Complex Order(s) at any price level, it
will yield priority to them.39
Example 4: Initiating Participant Yields
to Public Customer Order
For example, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant that is a brokerdealer then initiates a COPIP Order to
sell 30 A+B. The COPIP Order is
opposite the Participant broker-dealer’s
Primary Improvement Order, for its own
account, to buy 30 at $2.01. The orders
for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30
at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, a competing
Improvement Order on behalf of a
Public Customer is received to buy 20
36 See
proposed Rule 7245(g)(3).
Rule 7150(g)(3).
38 See Rule 7150(g)(4).
39 See proposed Rule 7245(g)(4)(i).
37 See
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A+B at $2.02. The Primary Improvement
Order matches this price. The orders for
Strategy A+B at the end of the COPIP
then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30
at $2.02
COPIP Order to sell 30
Public Customer Improvement Order to
buy 20 at $2.02
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Ordinarily, the trade allocation at the
end of the COPIP (all at $2.02) would be
15 Strategies (50%) to the Primary
Improvement Order and the remaining
15 Strategies to the Improvement Order.
However, in this example, the Primary
Improvement Order must yield
allocation to the Improvement Order
because the Primary Improvement Order
is for the account of a broker-dealer and
the competing Improvement Order is for
the account of a Public Customer.
The allocation of Strategies for
execution with the COPIP Order to sell
30 A+B at the end of the COPIP is as
follows:
Allocation for Execution of COPIP
Order to Sell 30 A+B:
Public Customer Improvement Order to
buy 20 at $2.02
Primary Improvement Order to buy 10
at $2.02
Note: If the Public Customer
Improvement Order had been for 30
Strategies, the Public Customer
Improvement Order would have
received the entire trade allocation.
*
*
*
*
*
When an unmodified Single-Priced
Primary Improvement Order for the
account of a Market Maker is matched
by any competing Public Customer
Complex Order(s), whether
Improvement Order(s), Unrelated
Order(s) or any non-BOX Options
Participant broker-dealer Complex
Order(s) at the initial COPIP price level,
it will yield priority to them.40
emcdonald on DSK67QTVN1PROD with NOTICES
Example 5: Initiating Market Maker
Yields to Public Customer Order at
Single Price Level
For example, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
40 See
proposed Rule 7245(g)(4)(ii).
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A BOX Participant that is a Market
Maker then initiates a COPIP Order to
sell 30 A+B. The COPIP Order is
opposite the Participant Market Maker’s
Primary Improvement Order, for its own
account, to buy 30 at $2.01. The orders
for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30
at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, a competing
Improvement Order on behalf of a
Public Customer is received to buy 20
A+B at $2.01. The orders for Strategy
A+B at the end of the COPIP then are
as follows:
Orders for Strategy A+B (with buy
orders displayed in time priority):
Primary Improvement Order to buy 30
at $2.01
COPIP Order to sell 30
Public Customer Improvement Order to
buy 20 at $2.01
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Ordinarily, the trade allocation at the
end of the COPIP (all at $2.01) would be
15 Strategies (50%) to the Primary
Improvement Order and the remaining
15 Strategies to the Improvement Order.
However, as the execution price of the
COPIP Order is at the unmodified
original COPIP start price of $2.01, the
Primary Improvement Order must yield
allocation to the Improvement Order
because the Primary Improvement Order
was initiated by a Market Maker and the
competing Improvement Order is for the
account of a Public Customer.
The allocation of Strategies for
execution with the COPIP Order to sell
30 A+B at the end of the COPIP is as
follows:
Allocation for Execution of COPIP
Order to Sell 30 A+B:
Public Customer Improvement Order to
buy 20 at $2.01
Primary Improvement Order to buy 10
at $2.01
Note: If the Public Customer
Improvement Order had been for 30
Strategies, the Public Customer
Improvement Order would have
received the entire trade allocation.
*
*
*
*
*
When a Max Improvement or a
modified Single-Priced Primary
Improvement Order for the account of a
Market Maker matches any competing
Public Customer Complex Order(s),
whether Improvement Order(s),
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58369
Unrelated Order(s) or any non-BOX
Options Participant broker-dealer
Complex Order(s) at subsequent price
levels, it will yield priority to them.41
Example 6: Initiating Market Maker
Yields to Public Customer at Any Price
Level
For example, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant that is a Market
Maker then initiates a COPIP Order to
sell 30 A+B. The COPIP Order is
opposite the Participant Market Maker’s
Primary Improvement Order, for its own
account, to buy 30 at $2.01. The orders
for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30
at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, a competing
Improvement Order on behalf of a
Public Customer is received to buy 20
A+B at $2.02. The Primary Improvement
Order matches this price. The orders for
Strategy A+B at the end of the COPIP
then are as follows:
Orders for Strategy A+B (with buy
orders displayed in time priority):
Public Customer Improvement Order to
buy 20 at $2.02
Primary Improvement Order to buy 30
at $2.02
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
Ordinarily, the trade allocation at the
end of the COPIP (all at $2.02) would be
15 Strategies (50%) to the Primary
Improvement Order and the remaining
15 Strategies to the Improvement Order.
However, as the Improvement Order for
the account of a Public Customer has
time priority over the Primary
Improvement Order submitted by a
Market Maker at this price, the Primary
Improvement Order must yield
allocation to the Improvement Order.
The allocation of Strategies for
execution with the COPIP Order to sell
30 A+B at the end of the COPIP is as
follows:
41 See
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Allocation for Execution of COPIP
Order to Sell 30 A+B:
Example 7: COPIP Surrender Quantity
emcdonald on DSK67QTVN1PROD with NOTICES
Public Customer Improvement Order to
buy 20 at $2.02
Primary Improvement Order to buy 10
at $2.02
Note: If the Public Customer
Improvement Order had been for 30
Strategies, the Public Customer
Improvement Order would have
received the entire trade allocation.
*
*
*
*
*
Consistent with the PIP, when the
Primary Improvement Order receives a
trade allocation as discussed above, it is
proposed to be entitled to a trade
allocation of at least one (1) Strategy.42
This assures meaningful execution
priority for Primary Improvement
Orders.
At its option, the Initiating Participant
may designate a lower (but not higher)
minimum priority and trade allocation
privilege percentage upon the
conclusion of the COPIP auction than it
is otherwise entitled to. When starting a
COPIP, the Initiating Participant may
submit to BOX the Primary
Improvement Order with a designation
of the total amount of the COPIP Order
it is willing to ‘‘surrender’’ to the other
COPIP Participants (‘‘COPIP Surrender
Quantity’’). Under no circumstances
will the Initiating Participant receive an
allocation percentage preference of more
than 50% with one competing order,
including counting BOX Book Interest
as a competing order, or 40% with
multiple competing orders, including
counting BOX Book Interest as a
competing order.43
Upon the conclusion of the COPIP
auction, when the Exchange’s Trading
Host determines the priority and trade
allocation amounts for the Initiating
Participant as described above, the
Trading Host will automatically adjust
the trade allocations to the other COPIP
Participants up to the COPIP Surrender
Quantity. The Primary Improvement
Order will be allocated the remaining
size of the COPIP Order above the
COPIP Surrender Quantity, if any, as
described above. If the aggregate size of
other COPIP Participants’ contra
Complex Orders is not equal to or
greater than the COPIP Surrender
Quantity, then the remaining COPIP
Surrender Quantity will be left unfilled
and the Primary Improvement Order
will be allocated the remaining size of
the COPIP Order described above.44
42 See
proposed Rule 7245(g)(5).
43 See proposed Rule 7245(g)(6)(i).
44 See proposed Rule 7245(g)(6)(ii).
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For example, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.
A BOX Participant then initiates a
COPIP Order to sell 30 A+B. The COPIP
Order is opposite the Participant’s
Primary Improvement Order. The
Participant indicates a surrender
quantity of 30 Strategies. The orders for
Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30
at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, a competing
Improvement Order is received to buy
20 A+B at $2.04. The Primary
Improvement Order matches this price.
Also, the BOX Book Interest changes to
10 A+B at $2.04. The orders for Strategy
A+B at the end of the COPIP then are
as follows:
Orders for Strategy A+B:
Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30
at $2.04
BOX Book Interest to buy 10 at $2.04
The allocation of Strategies for
execution with the COPIP Order to sell
30 A+B at the end of the COPIP is as
follows:
Allocation for Execution of COPIP
Order to Sell 30 A+B:
BOX Book Interest to buy 10 at $2.04
Improvement Order to buy 20 at $2.04
Note: While the Primary Improvement
Order had a right to 12 Strategies at
$2.04 (40% of original COPIP quantity
of 30), the Initiating Participant
indicated a surrender quantity of 30,
which means the Initiating Participant
was willing to yield the entire quantity
to competing Improvement Orders. As a
result, the competing Improvement
Order at $2.04 is filled in its entirety
and the Primary Improvement Order
receives no trade allocation.
However, if the Primary Improvement
Order had indicated a surrender
quantity of 22 Strategies, allocation of
Strategies for execution with the COPIP
Order to sell 30 A+B at the end of the
COPIP would be as follows:
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Allocation for Execution of COPIP
Order to Sell 30 A+B:
BOX Book Interest to buy 10 at $2.04
Primary Improvement Order to buy 8 at
$2.04
Improvement Order to buy 12 at $2.04
*
*
*
*
*
Unlike a PIP, the COPIP is not
proposed to include Customer COPIP
Orders (‘‘CPOs’’). In a PIP, certain orders
on the BOX Book on single option series
trade in minimum increments greater
than one cent while a PIP Order on the
same series can operate in one cent
increments. A CPO allows a Public
Customer to submit an order on a single
option series, through an OFP,
specifying one price for entry on the
BOX Book (in the applicable minimum
increment for that series) and a different
price for interaction with a PIP (in one
cent increments).45 Since all Complex
Orders already trade in one cent
increments, as would the COPIP, no
benefit would be gained by proposing
CPOs for the COPIP. Public Customers
may submit Complex Orders to the
Exchange and Improvement Orders to
interact with a COPIP.
Immediate Execution Prior to the End of
a COPIP
Executions prior to the regular ending
time of a COPIP are handled
substantially the same as in a PIP,46
with necessary changes to account for
differences between Complex Orders
and orders on single series options
instruments. Legging Orders do not
apply in a COPIP and BOX Book
Interests are included as Unrelated
Orders in a COPIP.
In cases where an Unrelated Order is
submitted to BOX on the same side as
the COPIP Order such that it would
cause an execution to occur prior to the
end of the COPIP, the COPIP will be
deemed concluded and the COPIP Order
will be matched as described above.47
BOX Book Interest will be fully
executed at each price level prior to any
other executions. Specifically, the
submission to BOX of a BOX-Top
Complex Order or Market Complex
Order on the same side as a COPIP
Order will prematurely terminate the
COPIP when, at the time of the
submission of such orders, the best
Complex Order or BOX Book Interest is
equal to or better than the cNBBO on the
opposite side of the COPIP Order. The
submission to BOX of executable BOX
Book Interest or an executable Limit
Complex Order on the same side as a
45 See
Rule 7150(h).
Rule 7150(i) and (j).
47 Execution rules are set forth in proposed Rule
7245(f)(3).
46 See
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COPIP Order will prematurely terminate
the COPIP if, (i) at the time of
submission of the Limit Complex Order,
the Limit Complex Order price is equal
to or better than cNBBO, and BBO on
the Complex Order Book or cBBO is
equal to or better than the cNBBO, on
the opposite side of the market or (ii) at
the time of submission of the BOX Book
Interest, the BOX Book Interest is
executable against the Complex Order
Book. Following the conclusion of the
COPIP, any remaining Improvement
Orders are cancelled, any remaining
non-Improvement Orders are filtered
pursuant to Rule 7240(b)(3)(iii) and any
remaining BOX Book Interest is filtered
pursuant to Rule 7130(b).48
Example 8: Early Termination of COPIP
Due to Unrelated Order on Same Side
as COPIP Order
Example 8(a)
For example, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.
A BOX Participant then initiates a
COPIP Order to sell 100 A+B. The
COPIP Order is opposite the
Participant’s Primary Improvement
Order. The orders for Strategy A+B then
are as follows:
emcdonald on DSK67QTVN1PROD with NOTICES
Orders for Strategy A+B:
Primary Improvement Order to buy 100
at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
During the COPIP, two competing
Improvement Orders are received: One
Improvement Order to buy 30 A+B at
$2.05 and one Improvement Order to
buy 50 A+B at $2.03. The Primary
Improvement Order has improved to
$2.03. Also, the BOX Book Interest
changes to 40 A+B at $2.03. The orders
for Strategy A+B then are as follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.05
COPIP Order to sell 100
Primary Improvement Order to buy 100
at $2.03
BOX Book Interest to buy 40 at $2.03
BOX Book Interest to sell 10 at $2.10
Improvement Order to buy 50 at $2.03
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, the
BOX Book Interest changes to sell 5 A+B
48 See
proposed Rule 7245(h).
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at $2.05. Because the BOX Book Interest
could execute against the Improvement
Order to buy 30 A+B at $2.05, the
COPIP instead terminates early and
executes.
The allocation of Strategies for
execution with the COPIP Order to sell
100 A+B upon the early termination of
the COPIP is as follows:
Allocation for Execution of COPIP
Order to Sell 100 A+B:
Improvement Order to buy 30 at $2.05
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 30
at $2.03
The BOX Book Interest to sell 5 A+B
at $2.05 caused the COPIP to terminate
early 49 and cannot execute because it is
on the same side as the COPIP Order
and, after early termination and
execution of the COPIP, no executable
buy-side interest at that price exists. As
a result, the BOX Book Interest is
entered on the Complex Order Book as
an Implied Order. The Complex Order
Book for Strategy A+B then is as
follows:
Complex Order Book for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
Implied Order to sell 5 at $2.05
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.05 offered.
Example 8(b):
Alternatively, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant then initiates a
COPIP Order to sell 100 A+B. The
COPIP Order is opposite the
Participant’s Primary Improvement
Order. The orders for Strategy A+B then
are as follows:
58371
The Primary Improvement Order has
improved to $2.02. The orders for
Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 100
at $2.02
COPIP Order to sell 100
BOX Book Interest to buy 20 at $2.02
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, two
competing Improvement Orders are
received: One Improvement Order to
buy 10 A+B at $2.05 and one
Improvement Order to buy 15 A+B at
$2.03. Also, the BOX Book Interest
changes to buy 40 A+B at $2.03. The
orders for Strategy A+B then are as
follows:
Orders for Strategy A+B:
Improvement Order to buy 10 at $2.05
COPIP Order to sell 100
Improvement Order to buy 15 at $2.03
BOX Book Interest to sell 10 at $2.10
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 100
at $2.02
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, the
BOX Book Interest changes to sell 5 A+B
at $2.05. Because the BOX Book Interest
to sell 5 A+B at $2.05 could execute
against the Improvement Order to buy
10 A+B at $2.05, the COPIP instead
terminates early and executes.
The allocation of Strategies for
execution with the COPIP Order to sell
100 A+B at the early termination of the
COPIP is as follows:
Allocation for Execution of COPIP
Order to Sell 100 A+B:
Orders for Strategy A+B:
Primary Improvement Order to buy 100
at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
BOX
Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
During the COPIP, the BOX Book
Interest changes to buy 20 A+B at $2.02.
Improvement Order to buy 10 at $2.05
BOX Book Interest to buy 40 at $2.03
(at this point, the next best available
BOX Book Interest is to buy 20 at
$2.02)
Improvement Order to buy 15 at $2.03
BOX Book Interest to buy 20 at $2.02
(at this point, the next best available
BOX Book Interest is to buy 10 at
$2.00)
Primary Improvement Order to buy 15
at $2.02
The BOX Book Interest to sell 5 A+B
at $2.05 caused the COPIP to terminate
early 50 and cannot execute because it is
on the same side as the COPIP Order
and, after early termination and
49 The Exchange proposes that an Unrelated
Order on the same side as the COPIP Order would
cause the COPIP auction to terminate early. Because
the COPIP auction already was in progress before
the Unrelated Order arrived on BOX, the Exchange
proposes that the COPIP order be executed first.
The Exchange notes that this proposed process is
the same as the process in the PIP. See Rule 7150(i).
50 The Exchange proposes that an Unrelated
Order on the same side as the COPIP Order would
cause the COPIP auction to terminate early. Because
the COPIP auction already was in progress before
the Unrelated Order arrived on BOX, the Exchange
proposes that the COPIP order be executed first.
The Exchange notes that this proposed process is
the same as the process in the PIP. See Rule 7150(i).
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execution of the COPIP, no executable
buy-side interest at that price exists. As
a result, the BOX Book Interest is
entered on the Complex Order Book as
an Implied Order. The Complex Order
Book for Strategy A+B then is as
follows:
the conclusion of the COPIP, any
remaining Improvement Orders are
cancelled.55
Complex Order Book for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 5 at $2.05
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.05 offered.
*
*
*
*
*
In cases where an Unrelated Order
that is a non-Improvement Order is
submitted to BOX on the opposite side
of the COPIP order, such that it would
cause an execution to occur prior to the
end of the COPIP, the non-Improvement
Order will be immediately executed
against the COPIP Order up to the lesser
of the size of the COPIP Order or the
size of the non-Improvement Order, at a
price equal to either: (i) At least one
penny better than the cBBO, if the cBBO
on the opposite side of the market from
the non-Improvement Order is equal to
or better than the cNBBO at the time of
execution; or (ii) the cNBBO.
Specifically, a BOX-Top Complex Order
or a Market Complex Order on the
opposite side of a COPIP Order will
immediately execute against the COPIP
Order when, at the time of the
submission of such Complex Order, the
best Improvement Order does not cross
the cNBBO on the same side of the
market as the COPIP Order. The
submission to BOX of an executable
Limit Complex Order on the opposite
side of a COPIP Order will immediately
execute against a COPIP Order when the
Limit Complex Order price is equal to
or crosses any of the cNBBO, cBBO or
BBO on the Complex Order Book for the
Strategy.51 In cases where an Unrelated
Order that is a BOX Book Interest exists
on the opposite side of the COPIP order,
such that it would cause an execution
to occur prior to the end of the COPIP,
the BOX Book Interest will immediately
be executed against the COPIP Order up
to the lesser of the size of the COPIP
Order or the size of the BOX Book
Interest, at a price equal to the BOX
Book Interest price.52 The remainder of
the Unrelated Order, if any, will be
filtered according to the existing
Complex Order filter rules.53 The
remainder of the COPIP Order, if any,
will be executed at the conclusion of the
COPIP as described above.54 Following
For example, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Example 9: Immediate Execution of
Unrelated Order Opposite COPIP Order
Example 9(a):
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
Exposed 56 Complex Order to sell 10 at
$2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant then initiates a
COPIP Order to sell 100 A+B. The
COPIP Order is opposite the
Participant’s Primary Improvement
Order. The orders for Strategy A+B then
are as follows:
proposed Rule 7245(i)(1).
proposed Rule 7245(i)(2).
53 See Rule 7240(b)(3)(iii) for existing Complex
Order filter rules.
54 Execution rules are set forth in proposed Rule
7245(f)(3).
52 See
Primary Improvement Order to buy 100
at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at
$2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
During the COPIP, two competing
Improvement Orders are received: One
Improvement Order to buy 30 A+B at
$2.04 and one Improvement Order to
buy 50 A+B at $2.03. The Primary
Improvement Order to buy 100 A+B has
improved to $2.03. Also, the BOX Book
Interest changes to buy 40 A+B at $2.03.
The orders for Strategy A+B then are as
follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100
at $2.03
BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at
$2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, the
BOX Book Interest changes to buy 8
A+B at $2.08. Because this BOX Book
Interest is executable against the
exposed Complex Order to sell 10 at
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proposed Rule 7245(i)(3).
‘‘exposed’’ Complex Order is a Complex
Order that is in the process of being exposed to
Participants pursuant to Rule 7240(b)(3)(iii) prior to
being entered on the Complex Order Book. Pursuant
to Rule 7240(c), Legging Orders are not generated
from Complex Orders during the exposure period.
56 An
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Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 92
Primary Improvement Order to buy 100
at $2.03
BOX Book Interest to buy 32 at $2.03
Exposed Complex Order to sell 10 at
$2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Note: If the BOX Book had changed to
reflect BOX Book Interest to buy a
quantity of 100 A+B at $2.04, the BOX
Book Interest would have immediately
executed against the COPIP Order in full
and the COPIP would have terminated.
Example 9(b):
Orders for Strategy A+B:
55 See
51 See
$2.08, the BOX Book Interest to buy 8
A+B immediately executes against the
COPIP Order to sell 10 and the COPIP
continues.
The orders for Strategy A+B at the end
of the COPIP then are as follows:
For example, suppose the Complex
Order Book for Strategy A+B is initially
as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at
$2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
cNBBO is $2.00 bid, $2.10 offered.
A BOX Participant then initiates a
COPIP Order to sell 100 A+B. The
COPIP Order is opposite the
Participant’s Primary Improvement
Order. The orders for Strategy A+B then
are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 100
at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at
$2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
During the COPIP, two competing
Improvement Orders are received: One
Improvement Order to buy 30 A+B at
$2.04 and one Improvement Order to
buy 50 A+B at $2.03. The Primary
Improvement Order has improved to
$2.03. Also, the BOX Book Interest
changes to buy 40 A+B at $2.03. The
orders for Strategy A+B at the end of the
COPIP then are as follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100
at $2.03
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BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at
$2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, a
Complex Order to buy 8 A+B at $2.08
is received. Because the Complex Order
is executable against the exposed
Complex Order to sell 10 A+B at $2.08,
the Complex Order to buy 8 A+B at
$2.08 immediately executes against the
COPIP Order at $2.07 and the COPIP
then continues.57
The orders for Strategy A+B at the end
of the COPIP then are as follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 92
Primary Improvement Order to buy 100
at $2.03
BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at
$2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Note: If the BOX Book had changed to
reflect BOX Book Interest to buy a
quantity of 100 A+B at $2.04, the BOX
Book Interest would have immediately
executed against the COPIP Order in full
and the COPIP would have terminated.
*
*
*
*
*
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Improvement Orders
Improvement Orders on a COPIP are
treated substantially the same as the
Exchange’s existing PIP 58 with
necessary changes to account for
differences between Complex Orders
and orders on single series options
instruments. Improvement Orders must
be submitted in increments no smaller
than one penny. Improvement Orders
will be broadcast via the HSVF, but will
not be disseminated to OPRA.59
Generally, Improvement Orders may
not be executed unless the price is equal
to or better than the cNBBO at the
commencement of the COPIP. An
exception to this rule occurs where an
Exchange Official determines that
quotes from one or more particular
markets in one or more classes of
options are not reliable, the Exchange
Official may direct the senior person in
charge of the BOX MOC to exclude the
unreliable quotes from the Improvement
Period determination of the cNBBO for
57 This operation is consistent with the existing
PIP auction mechanism (see Rule 7150(j)) and
execution at $2.07 is consistent with Rule
7240(b)(2).
58 See Rule 7150(k).
59 See proposed Rule 7245(j).
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Complex Order Strategies of which such
option class(es) are a component. The
Exchange Official may determine quotes
in one or more particular options classes
in a market are not reliable only in the
following circumstances: (i) Quotes Not
Firm: A market’s quotes in a particular
options class are not firm based upon
direct communication to the Exchange
from the market or the dissemination
through OPRA of a message indicating
that disseminated quotes are not firm;
(ii) Confirmed Quote Problems: A
market has directly communicated to
the Exchange or otherwise confirmed
that the market is experiencing systems
or other problems affecting the
reliability of its disseminated quotes. An
exception to the general rule also occurs
where the away options exchange
posting orders on a single option series
comprising the cNBBO is conducting a
trading rotation in that options class.60
As in the PIP,61 the Exchange’s
Trading Host will not accept
Improvement Orders that lock or cross
the Complex Order Book on the same
side of the market as the COPIP Order.62
COPIP Trading Conduct
As with the PIP,63 the Exchange
proposes to prohibit conduct
inconsistent with just and equitable
principles of trade related to a COPIP.
It is proposed that it be considered
conduct inconsistent with just and
equitable principles of trade for any
Initiating Participant to engage in a
pattern of conduct where the Initiating
Participant submits Primary
Improvement Orders into the COPIP
process for two Strategies or less for the
purpose of manipulating the COPIP
process in order to gain a higher
allocation percentage than the Initiating
Participant would have otherwise
received in accordance with the
proposed allocation procedures. It is
proposed that it be considered conduct
inconsistent with just and equitable
principles of trade for any Participant to
submit a non-Improvement Order, or an
order that results in the generation of an
Unrelated Order, to BOX for the purpose
of disrupting or manipulating the COPIP
process.64
Overlapping Auctions
The Exchange proposes to prohibit
multiple auctions of the same type,
which is substantially the same as in its
PIP rules.65 A COPIP will not run
60 See
proposed Rule 7245(k).
IM–7150–4.
62 See proposed IM–7245–4.
63 See IM–7150–2.
64 See proposed IM–7245–2.
65 See IM–7150–3.
61 See
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58373
simultaneously with another COPIP in
the same Complex Order Strategy, nor
will COPIPs interact, queue or overlap
in any manner. Any request to initiate
a COPIP while a COPIP is already in
progress in the same Strategy will be
rejected.66
Upon adoption of the proposal, the
Exchange will operate price
improvement auctions in both single
options series and Complex Orders. The
Exchange proposes that BOX will
accept, however, orders designated for
the PIP on a single option series where
a COPIP on a Complex Order Strategy
that includes such series may be in
progress. BOX will also accept Complex
Orders designated for the COPIP where
a PIP on either of the component series
may be in progress.67 Order execution at
the conclusion of such PIPs will occur
as described in the PIP rules 68 and
Complex Order execution at the
conclusion of such COPIPs will occur as
set forth in the proposed Rule 7245.69
COPIP Pilot Program
The Exchange proposes a COPIP Pilot
Program during the initial period of the
COPIP’s operation. During the COPIP
pilot period, the Exchange proposes to
provide certain information,
periodically as required by the
Commission, to provide supporting
evidence that, among other things, there
is meaningful competition for all size
COPIP orders, that there is significant
price improvement for all orders
executed through the COPIP and that an
active and liquid market is functioning
on BOX outside of the COPIP
mechanism. Any data submitted to the
Commission by the Exchange will be
provided on a confidential basis.70 The
Pilot Period is proposed to expire on
July 18, 2014 and will be substantially
similar to the pilot period currently in
place with respect to the existing PIP.71
To aid the Commission in its
evaluation of the COPIP Pilot Program,
the Exchange proposes to provide the
following information each month: (1)
The number of orders of 50 Strategies or
greater entered into the COPIP; (2) the
percentage of all orders of 50 Strategies
or greater submitted to the Exchange
that are entered into the COPIP; (3) the
spread, at the time a Complex Order of
66 See
proposed IM–7245–3.
rules governing events occurring
during permitted, simultaneous auctions are clear.
Processes on the BOX system are sequential, which
prevents any two orders (including PIP Orders and
COPIP Orders) from having the same time stamp.
Each order is processed in accordance with
Exchange rules without race conditions.
68 PIP execution rules are set forth in Rule 7150.
69 See proposed IM–7245–3.
70 See proposed IM–7245–1.
71 See IM–7150–1.
67 Exchange
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50 Strategies or greater is submitted to
the COPIP; (4) the percentage of COPIP
trades executed at cNBBO, plus $.01,
plus $.02, plus $.03, etc.; and (5) the
number of COPIP Orders submitted by
OFPs when the spread was at a
particular increment (e.g., $.05, $.10,
$.15, etc.). Also, with respect to item 5
above, for each spread increment, the
Exchange proposes to provide the
percentage of orders of fewer than 50
Strategies submitted to the COPIP that
were traded: (a) By the OFP that
submitted the order to the COPIP; (b) by
a BOX Participant other than the OFP
that submitted the order to the COPIP;
(c) by a Public Customer; and (d) as an
Unrelated Order. Additionally, for each
spread increment, the Exchange
proposes to provide the percentage of
orders of 50 Strategies or greater
submitted to the COPIP that were
traded: (a) By the OFP that submitted
the order to the COPIP; (b) by a BOX
Participant other than the OFP that
submitted the order to the COPIP; (c) by
a Public Customer; and (d) as an
Unrelated Order.
The Exchange further proposes to
provide, for the first and third
Wednesday of each month: (a) The total
number of COPIP auctions on that date;
(b) the number of COPIP auctions where
the order submitted to the COPIP was
fewer than 50 Strategies; (c) the number
of COPIP auctions where the order
submitted to the COPIP was 50
Strategies or greater; (d) the number of
COPIP auctions where the number of
Participants (excluding the Initiating
Participant) was each of zero, one, two,
three, four, etc.
Finally, during the COPIP pilot
period, the Exchange proposes to
provide information each month with
respect to situations in which the COPIP
is terminated prematurely or in which a
Market Order, Limit Order, BOX-Top
Order or BOX Book Interest
immediately execute with a COPIP
Order before the conclusion of the
COPIP. The following information is
proposed to be provided: (1) The
number of times that a Market Order,
Limit Order, BOX-Top Order or BOX
Book Interest on the same side of the
market as the COPIP Order prematurely
terminated the COPIP, and (a) the
number of times such orders were
entered by the same (or affiliated) firm
that initiated the COPIP that was
terminated, and (b) the number of times
such orders were entered by a firm (or
an affiliate of such firm) that
participated in the execution of the
COPIP Order; (2) For the orders
addressed in each of (1)(a) and (1)(b)
above, the percentage of COPIP
premature terminations due to the
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receipt, during the COPIP, of a Market
Order, Limit Order, BOX-Top Order or
BOX Book Interest on the same side of
the market as the COPIP Order; and the
average amount of price improvement
provided to the COPIP Order where the
COPIP is prematurely terminated; (3)
the number of times that a Market
Order, Limit Order, BOX-Top Order or
BOX Book Interest on the opposite side
of the market as the COPIP Order
immediately executed against the COPIP
Order, and (a) the number of times such
orders were entered by the same (or
affiliated) firm that initiated the COPIP,
and (b) the number of times such orders
were entered by a firm (or an affiliate of
such firm) that participated in the
execution of the COPIP Order; (4) for the
orders addressed in each of (3)(a) and
(3)(b) above, the percentage of COPIP
early executions due to the receipt,
during the COPIP, of a Market Order,
Limit Order, BOX-Top Order or BOX
Book Interest on the opposite side of the
market as the COPIP Order; and the
average amount of price improvement
provided to the COPIP Order where the
COPIP Order is immediately executed;
and (5) the average amount of price
improvement provided to the COPIP
Order when the COPIP runs for one
hundred milliseconds.
Conforming and Clarifying Changes
The Exchange proposes to make
certain miscellaneous conforming and
clarifying changes to its rules consistent
with the adoption of the proposed
COPIP rule. These conforming and
clarifying changes are consistent with
the Exchange’s treatment of the PIP.
Rules 100, 3000, 7070, 7110, 7130, 7140,
7150, and 7240 are proposed to be
amended as described below.
Rule 3000(b) is proposed to be
amended to include COPIPs to be
treated similarly to PIPs for purposes of
identifying conduct inconsistent with
just and equitable principles of trade.
Rule 7070(a) is proposed to be
amended to clarify that COPIP Orders,
like PIP Orders, are not accepted by the
BOX Trading Host during the PreOpening Phase. Rule 7070(a) is also
corrected to reflect that Fill and Kill
orders are not, and have never been,
allowed to participate in the PreOpening Phase. Participation in the PreOpening Phase on BOX is entirely
voluntary and the inclusion of Fill and
Kill orders could be disruptive to the
calculation of the Theoretical Opening
Price, which is described in Rule
7070(b).
Rule 7110(e)(1)(iii)(D) is proposed to
be amended to clarify that, like PIP
Orders, the Session Order duration type
is not available for COPIP Orders.
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Rule 7130(a) is proposed to be
amended to clarify that the HSVF,
which is made available at no cost to all
market participants, includes COPIP
Order information as set forth in
proposed Rule 7245.
IM–7140–1, IM–7140–2, IM–7140–3
and IM–7140–4 to Rule 7140 are
proposed to be amended to clarify that
COPIPs are treated like PIPs for
purposes of Rule 7140 regarding the
ability of Options Participants to act as
contra party to their own Customer
Orders.
The proposed amendments to Rule
7150(f) and (k) regarding the PIP do not
change the operation of the Exchange’s
system but conform to the proposed
COPIP rule and clarify that the PIP
Broadcast, including competing
Improvement Orders, are broadcast via
the HSVF. Further, IM–7150–3 to Rule
7150 is proposed to be amended to
conform to proposed IM–7245–3 to Rule
7245 and to clarify that a PIP on a single
option series and a COPIP on a Complex
Order Strategy that includes such series
may be conducted simultaneously.
In order to conform to the new
proposed COPIP rules, Rule
7240(b)(4)(iii) is proposed to be
amended to remove the existing
prohibition on Complex Orders
participating in Price Improvement
Periods and Rule 100(a)(19) is amended
to clarify that Directed Orders are
limited to contracts on single option
series.
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’’),72 in general, and Section 6(b)(5)
of the Act,73 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.
The Exchange proposes to add new
BOX Rule 7245 to allow Complex
Orders to be submitted to the COPIP in
substantially the same manner as orders
for single options series instruments
currently are submitted to the PIP
except as necessary to account for
72 15
73 15
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distinctions between regular orders on
the BOX Book and Complex Orders.74
The Exchange believes the proposed
COPIP is an improvement over its
current rules regarding Complex Orders,
and will benefit all market participants
submitting Complex Order to BOX. The
Exchange believes that this rule filing is
reasonable, equitable and not unfairly
discriminatory to customers and
Participants because it follows the
fundamental principles of the
Exchange’s existing PIP mechanism 75
and the Exchange’s existing Complex
Order priority rules,76 each of which has
previously been approved by the
Commission. The Exchange further
believes the proposal is not unfairly
discriminatory because the benefits of
the proposed COPIP on BOX, like the
PIP, are equally available to all
Participants.
The Exchange believes this proposal
will increase opportunities for
execution of Complex Orders and orders
on the BOX Book. Further, the Exchange
believes the proposed COPIP will
provide greater flexibility to Participants
trading Complex Orders on BOX. The
Exchange also believes the proposed
COPIP will provide additional
opportunities for Participants to achieve
better handling of Complex Orders and
result in increased opportunities for
execution and better pricing. These
benefits have been realized for orders on
single option series under its existing
PIP mechanism and the same principles
are expected to transfer readily to
Complex Orders. As a result, adopting
this proposal to allow a COPIP
mechanism will promote just and
equitable principles of trade, foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and remove
impediments to and perfect the
mechanism of a free and open market
and a national market system
For purposes of the COPIP, Unrelated
Orders are proposed to include BOX
Book Interest resting on the BOX
Book.77 The concept of the COPIP
interacting with BOX Book Interest does
not apply to PIP and, therefore, is not
directly analogous the existing PIP
rules. Quotes and Legging Orders do not
apply to COPIP and, therefore, are not
included in the proposed COPIP rules.
These proposed differences from the
74 The
Exchange notes that the provisions in
proposed Rule 7245 are substantially similar to
those in Rule 7150, amended to reflect their
applicability to a COPIP on a Complex Order
Strategy as compared to a PIP on orders for single
options series instruments.
75 See Rule 7150.
76 See Rule 7240(b)(3)(i).
77 See proposed Rule 7245(a).
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previously approved PIP provide clarity
in the rules and promote just and
equitable principles of trade.
The proposal requires that Complex
Orders on BOX execute first against leg
orders on the BOX Book, as under the
current rules applicable to Complex
Order execution. In the proposed
COPIP, BOX Book Interest will execute
in priority over Complex Orders at the
same price 78 so as to preserve the
already established and approved
execution priority of interest on the
BOX Book over Complex Orders.79
These execution principles allow
Complex Orders to interact with the
BOX Book in a fair way and thereby
promote just and equitable principles of
trade, foster cooperation and
coordination with persons engaged in
facilitating transactions in securities and
remove impediments to and perfect the
mechanism of a free and open market
and a national market system.
The proposed COPIP rules differ from
the existing PIP rules in that, for
purposes of calculating the Initiating
Participant’s priority allocation, BOX
Book Interests are proposed to be
counted as competing orders in a
COPIP. This treatment is consistent with
the existing regular interaction of
Complex Orders with interest on the
BOX Book.80 This again preserves the
already established and approved
execution priority of interest on the
BOX Book over Complex Orders while
also preserving the incentive function of
the Initiating Participant’s priority
allocation as in the existing PIP rules.
This execution priority is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities and
to remove impediments to and perfect
the mechanism of a free and open
market and a national market system.
Upon adoption of the proposal, the
Exchange will operate price
improvement auctions in both single
options series and Complex Orders. 81
As with the PIP, the Exchange will not
operate multiple, simultaneous COPIPs
on the same Strategy. However, the
Exchange proposes that BOX will accept
orders designated for the PIP on a single
option series where a COPIP on a
78 See
proposed Rule 7245(f)(3)(i).
execution priority of interest on the BOX
Book over Complex Orders is consistent with
existing Rule 7240(b)(3)(i).
80 See proposed Rule 7245(g)(1) and (2).
81 Exchange rules governing events occurring
during permitted, simultaneous auctions are clear.
Processes on the BOX system are sequential, which
prevents any two orders (including PIP Orders and
COPIP Orders) from having the same time stamp.
Each order is processed in accordance with
Exchange rules without race conditions.
79 The
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
58375
Complex Order Strategy that includes
such series may be in progress. BOX
will also accept Complex Orders
designated for the COPIP where a PIP on
either of the component series may be
in progress. Order execution at the
conclusion of such PIPs will occur as
described in the PIP rules 82 and
Complex Order execution at the
conclusion of such COPIPs will occur as
set forth in the proposed Rule 7245.83
The Exchange believes this
simultaneous price improvement
auction functionality will reduce order
cancellation and, thereby remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system.
The Exchange proposes that, as in the
PIP, when executing Customer Complex
Orders by way of the COPIP, Options
Participants must ensure that they
comply with all the procedures set forth
in these Rules for such transactions; that
they act with due skill, care and
diligence; and that the interests of their
Customers are not prejudiced.84 An
Options Participant must not use the
COPIP process to create a misleading
impression of market activity (i.e., the
facilities may be used only where there
is a genuine intention to execute a bona
fide transaction).85 These provisions are
substantially the same as the
corresponding rules for the PIP 86 and
are important customer protection
features that prevent fraudulent and
manipulative acts and practices,
promote just and equitable principles of
trade and protect investors and the
public interest.87
All market participants are able to
receive broadcast notification of COPIPs
and Improvement Orders via the HSVF.
As a result, no Participants will have an
information advantage and the proposal
serves to promote just and equitable
principles of trade and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
The Exchange proposes to make
certain miscellaneous conforming and
clarifying changes to Rules 100, 3000,
7070, 7110, 7130, 7140, 7150, and 7240
to make them consistent with the
adoption of the proposed COPIP rule.
These conforming and clarifying
changes are required to make the COPIP
82 PIP
execution rules are set forth in Rule 7150.
proposed IM–7245–3.
84 See proposed Rule 7245(c).
85 See proposed Rule 7245(e).
86 See Rule 7150(c), (d) and (e).
87 The proposed COPIP rules are similar to the
Exchange’s existing PIP rules. As a result, the
Exchange believes an analysis of Section 11(a) of
the Securities Exchange Act of 1934 is not
warranted here.
83 See
E:\FR\FM\23SEN1.SGM
23SEN1
58376
Federal Register / Vol. 78, No. 184 / Monday, September 23, 2013 / Notices
rules consistent with the Exchange’s PIP
rules and are necessary to promote just
and equitable principles of trade, to
foster cooperation and coordination
with persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
For the foregoing reasons, the
Exchange believes this proposal is a
reasonable modification to its rules,
designed to facilitate increased
interaction of Complex Orders on the
Exchange, and to do so in a manner that
ensures a dynamic, real-time trading
mechanism that maximizes
opportunities for trade executions for
Complex Orders. The Exchange believes
it is appropriate and consistent with the
Act to adopt the proposed rule changes.
B. Self-Regulatory Organization’s
Statement on 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.
emcdonald on DSK67QTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
20:16 Sep 20, 2013
Jkt 229001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.88
Kevin M. O’Neill,
Deputy Secretary.
IV. Solicitation of Comments
[FR Doc. 2013–23008 Filed 9–20–13; 8:45 am]
BILLING CODE 8011–01–P
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 rule-comments@
sec.gov. Please include File Number SR–
BOX–2013–43 on the subject line.
Paper Comments
The Exchange does not believe the
proposed rule change represents any
undue burden on competition or will
impose any burden on competition
among exchanges in the listed options
marketplace not necessary or
appropriate in furtherance of the
purposes of the Act. Subject to the
priority rules described above, the
features of the proposed rule change
will apply equally to all Participants
and are available to all Participants.
Submitting a Complex Order to the
COPIP will be entirely voluntary and
Participants will determine whether
they wish to submit COPIP Orders to the
Exchange. The Exchange operates in a
highly competitive marketplace with
other competing exchanges and market
participants can readily direct their
Complex Order flow to other exchanges
if they so choose.
VerDate Mar<15>2010
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
• 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–2013–43. 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 on official business
days between the hours of 10:00 a.m.
and 3:00 p.m., located at 100 F Street
NE., Washington, DC 20549. Copies of
such filing also will be available for
inspection and copying at the principal
offices 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–
2013–43, and should be submitted on or
before October 15, 2013.
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
Home System Group, Order of
Suspension of Trading
September 19, 2013.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Home
System Group because Home System
Group has not filed any periodic reports
for any reporting period subsequent to
December 31, 2011.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
company.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of the above-listed company is
suspended for the period from 9:30 a.m.
EDT, September 19, 2013, through 11:59
p.m. EDT, on October 2, 2013.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2013–23144 Filed 9–19–13; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
American Asset Development, Inc.,
aVinci Media Corp., Ceragenix
Pharmaceuticals, Inc., Marshall
Holdings International, Inc., MedCom
USA, Incorporated, and Millenium
Holding Group, Inc., Order of
Suspension of Trading
September 19, 2013.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of American
Asset Development, Inc. because it has
not filed any periodic reports since the
period ended December 31, 2009.
It appears to the Securities and
Exchange Commission that there is a
88 17
E:\FR\FM\23SEN1.SGM
CFR 200.30–3(a)(12).
23SEN1
]]>Agencies
[Federal Register Volume 78, Number 184 (Monday, September 23, 2013)]
[Notices]
[Pages 58364-58376]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23008]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70427; File No. SR-BOX-2013-43]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing of Proposed Rule Change To Permit Complex Orders To
Participate in Price Improvement Periods
September 17, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 5, 2013, BOX Options Exchange LLC (the ``Exchange'')
filed with the Securities and Exchange Commission (the ``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 change 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 add a new Rule 7245 to permit Complex
Orders to participate in Price Improvement Periods (the ``COPIP'') and
by making certain other conforming and clarifying changes to
accommodate the new COPIP Rule. 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 the
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 its rules related to trading of
Complex Orders \3\ on BOX Market LLC (``BOX''), the options trading
facility of the Exchange, to permit Complex Orders to be submitted to a
price improvement period auction mechanism similar to the existing PIP
mechanism for single option series on BOX.\4\ The Exchange believes
this proposed Complex Order Price Improvement Period (``COPIP'') \5\
mechanism will result in more efficient transactions, reduced execution
risk to BOX Options Participants, and greater opportunities for price
improvement through the COPIP. The Exchange believes adoption of the
proposal will result in tighter markets, and ensure that each order
receives the best possible price.
---------------------------------------------------------------------------
\3\ As defined in Rule 7240(a)(5), the term ``Complex Order''
means any order involving the simultaneous purchase and/or sale of
two or more different options series in the same underlying
security, for the same account, in a ratio that is equal to or
greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) and for the purpose of executing a particular investment
strategy.
\4\ See Rule 7150.
\5\ As defined in proposed Rule 7245, the term ``COPIP'' means
Complex Order Price Improvement Period.
---------------------------------------------------------------------------
The Exchange believes the proposed COPIP is an improvement over its
current rules regarding Complex Order exposure and execution, and will
benefit all market participants submitting Complex Order to BOX. The
proposed change will require that Complex Orders on BOX will execute
first against interest on the BOX Book where possible, as under the
current rule.\6\
---------------------------------------------------------------------------
\6\ See Rule 7240(b)(3)(i) and proposed Rule 7245(f)(3)(i).
---------------------------------------------------------------------------
Existing PIP
The Exchange proposes to add new BOX Rule 7245 to allow Complex
Orders to be submitted to the COPIP in substantially the same manner as
orders for single options series instruments currently are submitted to
the PIP.
Currently, Options Participants executing agency orders for single
options series instruments may designate Customer Orders for price
[[Page 58365]]
improvement and submission to the PIP. Customer Orders designated for
the PIP (``PIP Orders'') may be submitted to BOX with a matching contra
order (``Primary Improvement Order'') equal to the full size of the PIP
Order. The Primary Improvement Order is on the opposite side of the
market from the PIP Order and at a price equal to or better than that
of the National Best Bid Offer (``NBBO'') at the time of the
commencement of the PIP (the ``PIP Start Price''). BOX begins a PIP by
broadcasting a message to market participants via the Exchange's High
Speed Vendor Feed (``HSVF''). During the PIP, order flow providers
(``OFPs'') and Market Makers (other than the Initiating Participant)
may submit competing orders (``Improvement Orders'') for their own
account and OFPs may also provide access to the PIP for the account of
a Public Customer or for any account except Market Maker. Options
Participants may continually submit competing Improvement Orders during
the PIP and Improvement Orders are disseminated to market participants.
At the conclusion of a PIP, the PIP Order is matched against the
best prevailing quote(s) or order(s) on BOX (except any pre-PIP
Broadcast proprietary quote or order from the Initiating Participant),
in accordance with price/time priority as set forth in Rule 7130,
whether Improvement Order(s) or Unrelated Order(s) received by BOX, or
Legging Orders generated, during the PIP (excluding Unrelated Orders
that were immediately executed during the interval of the PIP). Such
orders may include agency orders on behalf of Public Customers, market
makers at away exchanges and non-BOX Options Participant broker-
dealers, as well as non-PIP proprietary orders submitted by Options
Participants.
Unrelated Orders \7\ and Legging Orders \8\ on the same side as the
PIP Order received during the PIP may cause the PIP to terminate early
under certain circumstances.\9\ During a PIP, when an Unrelated Order
is submitted to BOX or a Legging Order is generated on the same side as
the PIP Order that would cause an execution to occur prior to the end
of the PIP, the PIP ends early and the PIP Order is matched as if the
PIP terminated on its regular schedule. Following the execution of the
PIP Order, any remaining Improvement Orders are cancelled and the
Unrelated Order or Legging Order is filtered normally.\10\
---------------------------------------------------------------------------
\7\ As defined in Rule 7150(a), the term ``Unrelated Order''
with respect to a PIP means a non-Improvement Order entered into the
BOX market during a PIP.
\8\ As defined in Rule 7240(c)(1), the term ``Legging Order''
means a Limit Order on the BOX Book that represents one side of a
Complex Order that is to buy or sell an equal quantity of two
options series resting on the Complex Order Book.
\9\ See Rule 7150(i).
\10\ See Rule 7130(b).
---------------------------------------------------------------------------
Unrelated Orders and Legging Orders on the opposite side of the PIP
Order received during the PIP may be immediately executed under certain
circumstances.\11\ During a PIP, when such an Unrelated Order is
submitted to BOX or a Legging Order is generated on the opposite side
of the PIP Order such that it would cause an execution to occur prior
to the end of the PIP, the Unrelated Order or Legging Order is
immediately executed against the PIP Order. Any remaining portion of
the Unrelated Order or Legging Order is filtered normally.\12\ Any
remaining portion of the PIP Order is executed at the conclusion of the
PIP normally.\13\ Following the execution of the PIP Order, any
remaining Improvement Orders are cancelled.
---------------------------------------------------------------------------
\11\ See Rule 7150(j).
\12\ See Rule 7130(b).
\13\ See Rule 7150(f)(3).
---------------------------------------------------------------------------
Proposed COPIP on Complex Orders
The Exchange proposes new Rule 7245 that would allow the submission
of Complex Orders to a COPIP mechanism that is substantially similar to
the PIP except as necessary to account for distinctions between regular
orders on the BOX Book and Complex Orders or as otherwise noted
below.\14\ References to Legging Orders do not appear in the proposed
COPIP rules because Legging Orders interact only with the PIP. However,
the proposed COPIP rules do include other provisions for interacting
with interest on the BOX Book. The manner in which interest on the BOX
Book interacts with the COPIP is explained in more detail below.
---------------------------------------------------------------------------
\14\ The Exchange notes that the provisions in proposed Rule
7245 are substantially similar to those in Rule 7150, amended to
reflect their applicability to a COPIP on a Complex Order Strategy
as compared to a PIP on orders for single options series
instruments.
---------------------------------------------------------------------------
The Exchange believes this proposal to permit price improvement
auctions for Complex Orders will increase opportunities for execution
of Complex Orders and interest on the BOX Book. The Exchange believes
the proposed COPIP will provide greater flexibility to Participants
trading Complex Orders on BOX Market LLC, the Exchange's trading
facility (``BOX''). The Exchange further believes the proposed COPIP
will provide additional opportunities for Participants to achieve
better handling of Complex Orders and result in increased opportunities
for execution and better pricing.
General COPIP Provisions
For purposes of the COPIP, the term ``Improvement Order'' is
defined as a competing Complex Order submitted to BOX by an OFP or
Market Maker during a COPIP; the term ``Unrelated Order'' is defined as
a non-Improvement Order entered on BOX during a COPIP or BOX Book
Interest during a COPIP; and the term ``BOX Book Interest'' is defined
as bids and offers on the BOX Book for the individual legs of a
Strategy.\15\ These definitions are similar to those used in the PIP
rule but, for the COPIP, Unrelated Orders are proposed to include BOX
Book Interest capable of executing against COPIP Orders to permit
COPIPs to interact with the BOX Book. BOX Book Interests are treated as
Unrelated Orders for purposes of the COPIP except where specifically
differentiated in proposed Rule 7245 and discussed below.
---------------------------------------------------------------------------
\15\ See proposed Rule 7245(a).
---------------------------------------------------------------------------
The Exchange proposes that Options Participants may use the COPIP
to execute Complex Orders under certain circumstances subject to the
procedures detailed within proposed Rule 7245. In compliance with these
procedures, price improvement transactions for Customer Orders that are
Complex Orders may be consummated with the Options Participant who
submits the Complex Order, with other Options Participants, Improvement
Orders or Unrelated Orders.\16\
---------------------------------------------------------------------------
\16\ See proposed Rule 7245(b).
---------------------------------------------------------------------------
The Exchange proposes that, when executing Customer Complex Orders
by way of the COPIP, Options Participants must ensure that they comply
with all the procedures set forth in these Rules for such transactions;
that they act with due skill, care and diligence; and that the
interests of their Customers are not prejudiced.\17\ An OFP may not
execute, as principal, an order it represents as agent unless it
complies with the provisions of Rule 7140 or the OFP sends the agency
order to the COPIP process pursuant to the provisions of proposed Rule
7245.\18\ An Options Participant must not use the COPIP process to
create a misleading impression of market activity (i.e., the facilities
may be used only where there is a genuine intention to execute a bona
fide transaction).\19\ These provisions are substantially the same as
the corresponding rules for the PIP.\20\
---------------------------------------------------------------------------
\17\ See proposed Rule 7245(c).
\18\ See proposed Rule 7245(d).
\19\ See proposed Rule 7245(e).
\20\ See Rule 7150(c), (d) and (e).
---------------------------------------------------------------------------
[[Page 58366]]
COPIP Mechanism
Consistent with the PIP, the Exchange proposes that Options
Participants, both OFPs and Market Makers, (``Initiating
Participants'') executing agency orders may designate Complex Orders
that are marketable Limit Orders, BOX-Top Orders or Market Orders for
price improvement and submission to the COPIP. Complex Orders
designated for the COPIP (``COPIP Orders'') will be submitted to BOX
with a matching contra order (``Primary Improvement Order'') equal to
the full size of the COPIP Order. The Primary Improvement Order will be
on the opposite side of the market than that of the COPIP Order and
represents either: (1) A single price (``Single-Priced Primary
Improvement Order'') that is equal to or better than cNBBO,\21\ cBBO
\22\ and BBO on the Complex Order Book for the Strategy at the time of
the commencement of the COPIP; or (2) an auto-match submission that
will automatically match both the price and size of all competing
orders, including Improvement Orders and Unrelated Orders at any price
level achieved during the COPIP or only up to a limit price (``Max
Improvement Primary Improvement Order''). Either the Single-Priced
Primary Improvement Order or the Max Improvement Primary Improvement
Order will designate the COPIP auction start price (``COPIP Start
Price''), which will be equal to or better than cNBBO, cBBO and BBO on
the Complex Order Book for the Strategy at the time of commencement of
the COPIP. BOX will commence a COPIP by broadcasting a message via the
HSVF (the ``COPIP Broadcast'') that states that a Primary Improvement
Order has been processed; contains information concerning Strategy
identifier, size, COPIP Start Price, and side of market; and states
when the COPIP will conclude.\23\ Unlike the PIP rule, the proposed
Rule 7245 does not refer to quotes because quotes do not exist on
Complex Orders. All market participants are able to receive broadcast
notification of COPIPs and Improvement Orders via the HSVF. As a
result, no Participants will have an information advantage.
---------------------------------------------------------------------------
\21\ As defined in Rule 7240(a)(3), the term ``cNBBO'' means the
best net bid and offer price for a Complex Order Strategy based on
the NBBO for the individual options components of such Strategy.
\22\ As defined in Rule 7240(a)(1), the term ``cBBO'' means the
best net bid and offer price for a Complex Order Strategy based on
the BBO on the BOX Book for the individual options components of
such Strategy.
\23\ See proposed Rule 7245(f).
---------------------------------------------------------------------------
As in the PIP, the standard COPIP duration is proposed to be one
hundred milliseconds,\24\ commencing upon the dissemination of the
COPIP Broadcast. At the conclusion of the COPIP, the COPIP Order will
be executed as described below. During a COPIP, OFPs and Market Makers
(except for the Initiating Participant) may submit Improvement Orders
for their own account. OFPs may submit Improvement Orders for the
account of a Public Customer under any type of instruction they wish to
accept. An Improvement Order submitted to the COPIP for the account of
a Public Customer must be identified as a Public Customer Order.
Options Participants who submit Improvement Orders for a COPIP will be
deemed ``COPIP Participants'' for that specific COPIP only, and may
continually submit competing Improvement Orders during that COPIP.
During the COPIP, Improvement Orders will be broadcast via the HSVF but
will not be disseminated through OPRA.\25\ The proposed COPIP rule text
makes clear that the COPIP broadcast is disseminated via the HSVF.
Complex Order information is not broadcast to OPRA.
---------------------------------------------------------------------------
\24\ The Exchange believes that 100 milliseconds is an adequate
duration for the COPIP. The COPIP duration would be the same as the
current duration of the PIP and, therefore, the Exchange believes
the COPIP duration would not create any additional burden for
Participants participating in a COPIP. The Exchange believes
customers are capable of responding within the proposed duration and
has not received any complaints regarding the duration of the PIP
since the timer was reduced from one second to 100 milliseconds on
February 13, 2012. The Exchange has had discussions with several BOX
Participants, each of which has indicated that 100 milliseconds is
more than adequate to process COPIP Orders. Similarly, CBOE recently
reduced certain of its response times to as little as 20
milliseconds (See, e.g., CBOE Regulatory Circular RG13-094, dated
June 27, 2013 and effective August 1, 2013).
\25\ See proposed Rule 7245(f)(1).
---------------------------------------------------------------------------
Consistent with the PIP, an Initiating Participant in a COPIP is
not permitted to cancel or to modify the size of its Single-Priced
Primary Improvement Order or the COPIP Order at any time during a
COPIP, and may modify only the price of its Single-Priced Primary
Improvement Order by improving it. The subsequent price modifications
to a Single-Priced Primary Improvement Order are treated as new
Improvement Orders for the sake of establishing priority in the COPIP
process. The Initiating Participant is not permitted to cancel or
modify the Max Improvement Primary Improvement Order, including the
COPIP Start Price, the designated limit price or the size. Just as in a
PIP, Options Participants that submit Improvement Orders in a COPIP
may: (i) Submit competing Improvement Order(s) for any size up to the
size of the COPIP Order; (ii) submit competing Improvement Order(s) for
any price equal to or better than the COPIP Start Price; (iii) improve
the price of their Improvement Order(s) at any point during the COPIP;
and (iv) decrease the size of their Improvement Order(s) only by
improving the price of that Complex Order. Improvement Orders may be
submitted in one-cent increments.\26\
---------------------------------------------------------------------------
\26\ See proposed Rule 7245(f)(2).
---------------------------------------------------------------------------
At the conclusion of a COPIP, just as with a PIP,\27\ the COPIP
Order is proposed to execute against the best prevailing order(s) on
BOX (except any pre-COPIP Broadcast proprietary order from the
Initiating Participant), in accordance with price/time priority,
whether Improvement Order(s) or Unrelated Order(s) received by BOX
during the COPIP (excluding all Unrelated Orders that were immediately
executed during the interval of the COPIP). Such Unrelated Orders may
include agency orders on behalf of Public Customers, market makers at
away exchanges and non-BOX Options Participant broker-dealers, as well
as non-COPIP proprietary orders submitted by Options Participants. Any
portion of an Improvement Order left unfilled will be cancelled.\28\
---------------------------------------------------------------------------
\27\ See Rule 7150(f)(3).
\28\ See proposed Rule 7245(f)(3).
---------------------------------------------------------------------------
Notwithstanding the foregoing execution rules for a COPIP, BOX Book
Interest is proposed to execute in priority over Complex Orders at the
same price \29\ so as to preserve the already established execution
priority of interest on the BOX Book over Complex Orders.\30\
---------------------------------------------------------------------------
\29\ See proposed Rule 7245(f)(3)(i).
\30\ The execution priority of interest on the BOX Book over
Complex Orders is consistent with existing Rules 7240(b)(3)(i).
---------------------------------------------------------------------------
Example 1: Execution of COPIP Order With BOX Book Interest Priority
For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.
A BOX Participant then initiates a COPIP Order to sell 30 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order to
buy 30 at $2.01. The orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30 at $2.01
[[Page 58367]]
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, the BOX Book for each of A and B changes to generate
BOX Book Interest to buy 20 A+B at $2.01. The orders for Strategy A+B
at the end of the COPIP then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 20 at $2.01
The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 30 A+B:
BOX Book Interest to buy 20 at $2.01
Primary Improvement Order to buy 10 at $2.01
Note: The BOX Book Interest to buy 20 A+B at $2.01 is fully
executed in first priority. The Primary Improvement Order is allocated
the remaining 10 Strategies.
* * * * *
Further, no Complex Order for a non-market maker broker-dealer
account of an Options Participant will be executed before all Public
Customer Complex Order(s), whether Improvement Order(s) or non-
Improvement Order(s), and all non-BOX Options Participant broker-dealer
Complex Order(s) at the same price have been filled; provided however,
that all Complex Orders on the Complex Order Book prior to the COPIP
Broadcast, excluding any proprietary order(s) from the Initiating
Participant, will be filled in time priority before any other Complex
Order at the same price.\31\ These proposed rule features adapt the
existing PIP mechanism for COPIP auctions while preserving the
established execution priority rules for Complex Orders.
---------------------------------------------------------------------------
\31\ See proposed Rule 7245(f)(3)(ii).
---------------------------------------------------------------------------
COPIP Trade Allocation Priority
Subject to the execution priority of BOX Book Interests described
above, the Initiating Participant is proposed to retain certain
priority and trade allocation privileges upon conclusion of a
COPIP.\32\ The priority and trade allocation privileges retained by
Initiating Participants in a proposed COPIP are substantially similar
to those currently afforded Initiating Participants in a PIP \33\
except as noted below. These privileges are described in more detail
below.
---------------------------------------------------------------------------
\32\ See proposed Rule 7245(f)(3)(iii) and 7245(g).
\33\ See Rule 7150(g)
---------------------------------------------------------------------------
In instances in which a Single-Priced Primary Improvement Order, as
modified (if at all), is matched by or matches any Complex Order(s) or
BOX Book Interest at any price level, the Initiating Participant would
retain priority for up to forty percent (40%) of the original size of
the COPIP Order, notwithstanding the time priority of the Primary
Improvement Order or Complex Order(s). However, if only one Complex
Order or BOX Book Interest matches or is better than the Initiating
Participant's Single-Priced Primary Improvement Order, then the
Initiating Participant may retain priority for up to fifty percent
(50%) of the original size of the COPIP Order. The Initiating
Participant will receive additional allocation only after all other
Complex Orders have been filled at that price level.\34\ For purposes
of calculating the Initiating Participant's priority allocation, BOX
Book Interests are proposed to be included as competing orders in a
COPIP.
---------------------------------------------------------------------------
\34\ See proposed Rule 7245(g)(1).
---------------------------------------------------------------------------
Example 2: Primary Improvement Order Priority
Example 2(a)
For example, suppose the orders for Strategy A+B at the end of a
COPIP are as follows:
Orders for Strategy A+B:
Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
cNBBO is $2.00 bid, $2.10 offered
In this case, there is only one competing Improvement Order and,
therefore, the Primary Improvement Order receives an allocation of 50%
of the original size of the COPIP Order.
The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 30 A+B:
Primary Improvement Order to buy 15 at $2.04
Improvement Order to buy 15 at $2.04
Example 2(b)
Alternatively, suppose the orders for Strategy A+B at the end of a
COPIP are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30 at $2.04
COPIP Order to sell 30
BOX Book Interest to buy 20 at $2.04
cNBBO is $2.00 bid, $2.10 offered
The BOX Book Interest has execution priority over Complex Orders,
including the Primary Improvement Order, at the same price.
The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 30 A+B:
BOX Book Interest to buy 20 at $2.04
Primary Improvement Order to buy 10 at $2.04
Note: The BOX Book Interest to buy 20 A+B at $2.04 is fully
executed in first priority. The Primary Improvement Order is allocated
the remaining 10 Strategies.
Example 2(c)
Alternatively, suppose the orders for Strategy A+B at the end of a
COPIP are as follows:
Orders for Strategy A+B:
Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 10 at $2.04
cNBBO is $2.00 bid, $2.10 offered
Because the BOX Book Interest is considered to be a separate order
for the determination of the 40/50% Initiating Participant priority for
the Primary Improvement Order, the Primary Improvement Order retains
execution priority for only 40% of the COPIP Order.
The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 30 A+B:
BOX Book Interest to buy 10 at $2.04
Primary Improvement Order to buy 12 at $2.04
Improvement Order to buy 8 at $2.04
Note: The BOX Book Interest to buy 10 A+B at $2.04 is fully
executed in first priority. The Primary Improvement Order is allocated
12 Strategies (40% of the COPIP Order) and the remaining 8 Strategies
are allocated to the Improvement Order.
Example 2(d)
Alternatively, suppose the orders for Strategy A+B at the end of a
COPIP are as follows:
Orders for Strategy A+B:
Improvement Order to buy 20 at $2.04
[[Page 58368]]
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 20 at $2.04
cNBBO is $2.00 bid, $2.10 offered
Because the BOX Book Interest is considered to be a separate order
for the determination of the 40/50% Initiating Participant priority for
the Primary Improvement Order, the Primary Improvement Order retains
execution priority for only 40% of the COPIP Order.
The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 30 A+B:
BOX Book Interest to buy 20 at $2.04
Primary Improvement Order to buy 10 at $2.04
Note: The BOX Book Interest to buy 20 A+B at $2.04 is fully
executed in first priority. The Primary Improvement Order would be
entitled to be allocated 12 Strategies (40% of the COPIP Order).
However, instead, the Primary Improvement Order is allocated the
remaining 10 Strategies and the Improvement Order does not receive any
allocation.
* * * * *
In instances in which a Max Improvement Primary Improvement Order
is submitted by the Initiating Participant, the Initiating Participant
would be allocated its full size at each price level, except where
restricted by the designated limit price and subject to the limitations
discussed in the next following paragraph below, until a price level is
reached where the balance of the COPIP Order can be fully executed.
Only at such price level would the Initiating Participant retain
priority for up to forty percent (40%) of the remaining size of the
COPIP Order. However, if only one competing Complex Order or BOX Book
Interest matches the Initiating Participant at the final price level,
then the Initiating Participant may retain priority for up to fifty
percent (50%) of the remaining size of the COPIP Order.\35\ As with
Single-Priced Primary Improvement Orders discussed above, for purposes
of calculating the Initiating Participant's priority allocation, BOX
Book Interests are proposed to be included as competing orders in a
COPIP.
---------------------------------------------------------------------------
\35\ See proposed Rule 7245(g)(2).
---------------------------------------------------------------------------
Example 3: Execution of COPIP Order at Multiple Price Levels With Max
Improvement Primary Improvement Order
For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order to
buy 100 at $2.01. The Participant's Max Improvement Price is 2.03. The
orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, two competing Improvement Orders are received: one
Improvement Order to buy 30 A+B at $2.04 and one Improvement Order to
buy 50 A+B at $2.03. The Primary Improvement Order improves to $2.03.
Also, the BOX Book Interest changes to 40 A+B at $2.03. The orders for
Strategy A+B at the end of the COPIP then are as follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
Improvement Order to buy 50 at $2.03
The allocation of Strategies for execution with the COPIP Order to
sell 100 A+B at the end of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 100 A+B:
Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 30 at $2.03
Note: While the Primary Improvement Order had a right to buy 40
Strategies at $2.03 (40% of original COPIP quantity of 100), the
Initiating Participant is allocated only 30 Strategies because the BOX
Book Interest has priority for its full amount at that price level.
* * * * *
As in a PIP, the Primary Improvement Order is proposed to follow,
in time priority, all Complex Orders on the Complex Order Book prior to
the COPIP Broadcast that are equal to the Single Priced Primary
Improvement Order price; or the execution price of a Max Improvement
Primary Improvement Order that results in the balance of the COPIP
Order being fully executed, except any proprietary order(s) from the
Initiating Participant. Such proprietary order(s) would not be executed
against the COPIP Order during or at the conclusion of the COPIP.\36\
As mentioned above, quotes are included in the PIP rules \37\ but are
not part of the proposed COPIP rules because quotes are not provided on
Complex Orders.
---------------------------------------------------------------------------
\36\ See proposed Rule 7245(g)(3).
\37\ See Rule 7150(g)(3).
---------------------------------------------------------------------------
The Primary Improvement Order is proposed to yield priority to
certain competing Complex Orders, including the priority of the
Initiating Participant described above, in substantially the same
circumstances as the PIP \38\ as follows.
---------------------------------------------------------------------------
\38\ See Rule 7150(g)(4).
---------------------------------------------------------------------------
When a Single-Priced or Max Improvement Primary Improvement Order
for the proprietary account of an OFP is matched by or matches any
competing Public Customer Complex Order(s), whether Improvement
Order(s), Unrelated Order(s) or any non-BOX Options Participant broker-
dealer Complex Order(s) at any price level, it will yield priority to
them.\39\
---------------------------------------------------------------------------
\39\ See proposed Rule 7245(g)(4)(i).
---------------------------------------------------------------------------
Example 4: Initiating Participant Yields to Public Customer Order
For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant that is a broker-dealer then initiates a COPIP
Order to sell 30 A+B. The COPIP Order is opposite the Participant
broker-dealer's Primary Improvement Order, for its own account, to buy
30 at $2.01. The orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, a competing Improvement Order on behalf of a Public
Customer is received to buy 20
[[Page 58369]]
A+B at $2.02. The Primary Improvement Order matches this price. The
orders for Strategy A+B at the end of the COPIP then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30 at $2.02
COPIP Order to sell 30
Public Customer Improvement Order to buy 20 at $2.02
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Ordinarily, the trade allocation at the end of the COPIP (all at
$2.02) would be 15 Strategies (50%) to the Primary Improvement Order
and the remaining 15 Strategies to the Improvement Order. However, in
this example, the Primary Improvement Order must yield allocation to
the Improvement Order because the Primary Improvement Order is for the
account of a broker-dealer and the competing Improvement Order is for
the account of a Public Customer.
The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 30 A+B:
Public Customer Improvement Order to buy 20 at $2.02
Primary Improvement Order to buy 10 at $2.02
Note: If the Public Customer Improvement Order had been for 30
Strategies, the Public Customer Improvement Order would have received
the entire trade allocation.
* * * * *
When an unmodified Single-Priced Primary Improvement Order for the
account of a Market Maker is matched by any competing Public Customer
Complex Order(s), whether Improvement Order(s), Unrelated Order(s) or
any non-BOX Options Participant broker-dealer Complex Order(s) at the
initial COPIP price level, it will yield priority to them.\40\
---------------------------------------------------------------------------
\40\ See proposed Rule 7245(g)(4)(ii).
---------------------------------------------------------------------------
Example 5: Initiating Market Maker Yields to Public Customer Order at
Single Price Level
For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant that is a Market Maker then initiates a COPIP
Order to sell 30 A+B. The COPIP Order is opposite the Participant
Market Maker's Primary Improvement Order, for its own account, to buy
30 at $2.01. The orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, a competing Improvement Order on behalf of a Public
Customer is received to buy 20 A+B at $2.01. The orders for Strategy
A+B at the end of the COPIP then are as follows:
Orders for Strategy A+B (with buy orders displayed in time priority):
Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
Public Customer Improvement Order to buy 20 at $2.01
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Ordinarily, the trade allocation at the end of the COPIP (all at
$2.01) would be 15 Strategies (50%) to the Primary Improvement Order
and the remaining 15 Strategies to the Improvement Order. However, as
the execution price of the COPIP Order is at the unmodified original
COPIP start price of $2.01, the Primary Improvement Order must yield
allocation to the Improvement Order because the Primary Improvement
Order was initiated by a Market Maker and the competing Improvement
Order is for the account of a Public Customer.
The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 30 A+B:
Public Customer Improvement Order to buy 20 at $2.01
Primary Improvement Order to buy 10 at $2.01
Note: If the Public Customer Improvement Order had been for 30
Strategies, the Public Customer Improvement Order would have received
the entire trade allocation.
* * * * *
When a Max Improvement or a modified Single-Priced Primary
Improvement Order for the account of a Market Maker matches any
competing Public Customer Complex Order(s), whether Improvement
Order(s), Unrelated Order(s) or any non-BOX Options Participant broker-
dealer Complex Order(s) at subsequent price levels, it will yield
priority to them.\41\
---------------------------------------------------------------------------
\41\ See proposed Rule 7245(g)(4)(iii).
---------------------------------------------------------------------------
Example 6: Initiating Market Maker Yields to Public Customer at Any
Price Level
For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant that is a Market Maker then initiates a COPIP
Order to sell 30 A+B. The COPIP Order is opposite the Participant
Market Maker's Primary Improvement Order, for its own account, to buy
30 at $2.01. The orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, a competing Improvement Order on behalf of a Public
Customer is received to buy 20 A+B at $2.02. The Primary Improvement
Order matches this price. The orders for Strategy A+B at the end of the
COPIP then are as follows:
Orders for Strategy A+B (with buy orders displayed in time priority):
Public Customer Improvement Order to buy 20 at $2.02
Primary Improvement Order to buy 30 at $2.02
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
Ordinarily, the trade allocation at the end of the COPIP (all at
$2.02) would be 15 Strategies (50%) to the Primary Improvement Order
and the remaining 15 Strategies to the Improvement Order. However, as
the Improvement Order for the account of a Public Customer has time
priority over the Primary Improvement Order submitted by a Market Maker
at this price, the Primary Improvement Order must yield allocation to
the Improvement Order.
The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:
[[Page 58370]]
Allocation for Execution of COPIP Order to Sell 30 A+B:
Public Customer Improvement Order to buy 20 at $2.02
Primary Improvement Order to buy 10 at $2.02
Note: If the Public Customer Improvement Order had been for 30
Strategies, the Public Customer Improvement Order would have received
the entire trade allocation.
* * * * *
Consistent with the PIP, when the Primary Improvement Order
receives a trade allocation as discussed above, it is proposed to be
entitled to a trade allocation of at least one (1) Strategy.\42\ This
assures meaningful execution priority for Primary Improvement Orders.
---------------------------------------------------------------------------
\42\ See proposed Rule 7245(g)(5).
---------------------------------------------------------------------------
At its option, the Initiating Participant may designate a lower
(but not higher) minimum priority and trade allocation privilege
percentage upon the conclusion of the COPIP auction than it is
otherwise entitled to. When starting a COPIP, the Initiating
Participant may submit to BOX the Primary Improvement Order with a
designation of the total amount of the COPIP Order it is willing to
``surrender'' to the other COPIP Participants (``COPIP Surrender
Quantity''). Under no circumstances will the Initiating Participant
receive an allocation percentage preference of more than 50% with one
competing order, including counting BOX Book Interest as a competing
order, or 40% with multiple competing orders, including counting BOX
Book Interest as a competing order.\43\
---------------------------------------------------------------------------
\43\ See proposed Rule 7245(g)(6)(i).
---------------------------------------------------------------------------
Upon the conclusion of the COPIP auction, when the Exchange's
Trading Host determines the priority and trade allocation amounts for
the Initiating Participant as described above, the Trading Host will
automatically adjust the trade allocations to the other COPIP
Participants up to the COPIP Surrender Quantity. The Primary
Improvement Order will be allocated the remaining size of the COPIP
Order above the COPIP Surrender Quantity, if any, as described above.
If the aggregate size of other COPIP Participants' contra Complex
Orders is not equal to or greater than the COPIP Surrender Quantity,
then the remaining COPIP Surrender Quantity will be left unfilled and
the Primary Improvement Order will be allocated the remaining size of
the COPIP Order described above.\44\
---------------------------------------------------------------------------
\44\ See proposed Rule 7245(g)(6)(ii).
---------------------------------------------------------------------------
Example 7: COPIP Surrender Quantity
For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.
A BOX Participant then initiates a COPIP Order to sell 30 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The Participant indicates a surrender quantity of 30 Strategies. The
orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, a competing Improvement Order is received to buy 20
A+B at $2.04. The Primary Improvement Order matches this price. Also,
the BOX Book Interest changes to 10 A+B at $2.04. The orders for
Strategy A+B at the end of the COPIP then are as follows:
Orders for Strategy A+B:
Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 10 at $2.04
The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 30 A+B:
BOX Book Interest to buy 10 at $2.04
Improvement Order to buy 20 at $2.04
Note: While the Primary Improvement Order had a right to 12
Strategies at $2.04 (40% of original COPIP quantity of 30), the
Initiating Participant indicated a surrender quantity of 30, which
means the Initiating Participant was willing to yield the entire
quantity to competing Improvement Orders. As a result, the competing
Improvement Order at $2.04 is filled in its entirety and the Primary
Improvement Order receives no trade allocation.
However, if the Primary Improvement Order had indicated a surrender
quantity of 22 Strategies, allocation of Strategies for execution with
the COPIP Order to sell 30 A+B at the end of the COPIP would be as
follows:
Allocation for Execution of COPIP Order to Sell 30 A+B:
BOX Book Interest to buy 10 at $2.04
Primary Improvement Order to buy 8 at $2.04
Improvement Order to buy 12 at $2.04
* * * * *
Unlike a PIP, the COPIP is not proposed to include Customer COPIP
Orders (``CPOs''). In a PIP, certain orders on the BOX Book on single
option series trade in minimum increments greater than one cent while a
PIP Order on the same series can operate in one cent increments. A CPO
allows a Public Customer to submit an order on a single option series,
through an OFP, specifying one price for entry on the BOX Book (in the
applicable minimum increment for that series) and a different price for
interaction with a PIP (in one cent increments).\45\ Since all Complex
Orders already trade in one cent increments, as would the COPIP, no
benefit would be gained by proposing CPOs for the COPIP. Public
Customers may submit Complex Orders to the Exchange and Improvement
Orders to interact with a COPIP.
---------------------------------------------------------------------------
\45\ See Rule 7150(h).
---------------------------------------------------------------------------
Immediate Execution Prior to the End of a COPIP
Executions prior to the regular ending time of a COPIP are handled
substantially the same as in a PIP,\46\ with necessary changes to
account for differences between Complex Orders and orders on single
series options instruments. Legging Orders do not apply in a COPIP and
BOX Book Interests are included as Unrelated Orders in a COPIP.
---------------------------------------------------------------------------
\46\ See Rule 7150(i) and (j).
---------------------------------------------------------------------------
In cases where an Unrelated Order is submitted to BOX on the same
side as the COPIP Order such that it would cause an execution to occur
prior to the end of the COPIP, the COPIP will be deemed concluded and
the COPIP Order will be matched as described above.\47\ BOX Book
Interest will be fully executed at each price level prior to any other
executions. Specifically, the submission to BOX of a BOX-Top Complex
Order or Market Complex Order on the same side as a COPIP Order will
prematurely terminate the COPIP when, at the time of the submission of
such orders, the best Complex Order or BOX Book Interest is equal to or
better than the cNBBO on the opposite side of the COPIP Order. The
submission to BOX of executable BOX Book Interest or an executable
Limit Complex Order on the same side as a
[[Page 58371]]
COPIP Order will prematurely terminate the COPIP if, (i) at the time of
submission of the Limit Complex Order, the Limit Complex Order price is
equal to or better than cNBBO, and BBO on the Complex Order Book or
cBBO is equal to or better than the cNBBO, on the opposite side of the
market or (ii) at the time of submission of the BOX Book Interest, the
BOX Book Interest is executable against the Complex Order Book.
Following the conclusion of the COPIP, any remaining Improvement Orders
are cancelled, any remaining non-Improvement Orders are filtered
pursuant to Rule 7240(b)(3)(iii) and any remaining BOX Book Interest is
filtered pursuant to Rule 7130(b).\48\
---------------------------------------------------------------------------
\47\ Execution rules are set forth in proposed Rule 7245(f)(3).
\48\ See proposed Rule 7245(h).
---------------------------------------------------------------------------
Example 8: Early Termination of COPIP Due to Unrelated Order on Same
Side as COPIP Order
Example 8(a)
For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.
A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
During the COPIP, two competing Improvement Orders are received:
One Improvement Order to buy 30 A+B at $2.05 and one Improvement Order
to buy 50 A+B at $2.03. The Primary Improvement Order has improved to
$2.03. Also, the BOX Book Interest changes to 40 A+B at $2.03. The
orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.05
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
BOX Book Interest to sell 10 at $2.10
Improvement Order to buy 50 at $2.03
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, the BOX Book Interest changes to
sell 5 A+B at $2.05. Because the BOX Book Interest could execute
against the Improvement Order to buy 30 A+B at $2.05, the COPIP instead
terminates early and executes.
The allocation of Strategies for execution with the COPIP Order to
sell 100 A+B upon the early termination of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 100 A+B:
Improvement Order to buy 30 at $2.05
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 30 at $2.03
The BOX Book Interest to sell 5 A+B at $2.05 caused the COPIP to
terminate early \49\ and cannot execute because it is on the same side
as the COPIP Order and, after early termination and execution of the
COPIP, no executable buy-side interest at that price exists. As a
result, the BOX Book Interest is entered on the Complex Order Book as
an Implied Order. The Complex Order Book for Strategy A+B then is as
follows:
---------------------------------------------------------------------------
\49\ The Exchange proposes that an Unrelated Order on the same
side as the COPIP Order would cause the COPIP auction to terminate
early. Because the COPIP auction already was in progress before the
Unrelated Order arrived on BOX, the Exchange proposes that the COPIP
order be executed first. The Exchange notes that this proposed
process is the same as the process in the PIP. See Rule 7150(i).
---------------------------------------------------------------------------
Complex Order Book for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
Implied Order to sell 5 at $2.05
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.05 offered.
Example 8(b):
Alternatively, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00 BOX
Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
During the COPIP, the BOX Book Interest changes to buy 20 A+B at
$2.02. The Primary Improvement Order has improved to $2.02. The orders
for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 100 at $2.02
COPIP Order to sell 100
BOX Book Interest to buy 20 at $2.02
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, two competing Improvement Orders
are received: One Improvement Order to buy 10 A+B at $2.05 and one
Improvement Order to buy 15 A+B at $2.03. Also, the BOX Book Interest
changes to buy 40 A+B at $2.03. The orders for Strategy A+B then are as
follows:
Orders for Strategy A+B:
Improvement Order to buy 10 at $2.05
COPIP Order to sell 100
Improvement Order to buy 15 at $2.03
BOX Book Interest to sell 10 at $2.10
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 100 at $2.02
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, the BOX Book Interest changes to
sell 5 A+B at $2.05. Because the BOX Book Interest to sell 5 A+B at
$2.05 could execute against the Improvement Order to buy 10 A+B at
$2.05, the COPIP instead terminates early and executes.
The allocation of Strategies for execution with the COPIP Order to
sell 100 A+B at the early termination of the COPIP is as follows:
Allocation for Execution of COPIP Order to Sell 100 A+B:
Improvement Order to buy 10 at $2.05
BOX Book Interest to buy 40 at $2.03
(at this point, the next best available BOX Book Interest is to buy 20
at $2.02)
Improvement Order to buy 15 at $2.03
BOX Book Interest to buy 20 at $2.02
(at this point, the next best available BOX Book Interest is to buy 10
at $2.00)
Primary Improvement Order to buy 15 at $2.02
The BOX Book Interest to sell 5 A+B at $2.05 caused the COPIP to
terminate early \50\ and cannot execute because it is on the same side
as the COPIP Order and, after early termination and
[[Page 58372]]
execution of the COPIP, no executable buy-side interest at that price
exists. As a result, the BOX Book Interest is entered on the Complex
Order Book as an Implied Order. The Complex Order Book for Strategy A+B
then is as follows:
---------------------------------------------------------------------------
\50\ The Exchange proposes that an Unrelated Order on the same
side as the COPIP Order would cause the COPIP auction to terminate
early. Because the COPIP auction already was in progress before the
Unrelated Order arrived on BOX, the Exchange proposes that the COPIP
order be executed first. The Exchange notes that this proposed
process is the same as the process in the PIP. See Rule 7150(i).
---------------------------------------------------------------------------
Complex Order Book for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 5 at $2.05
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.05 offered.
* * * * *
In cases where an Unrelated Order that is a non-Improvement Order
is submitted to BOX on the opposite side of the COPIP order, such that
it would cause an execution to occur prior to the end of the COPIP, the
non-Improvement Order will be immediately executed against the COPIP
Order up to the lesser of the size of the COPIP Order or the size of
the non-Improvement Order, at a price equal to either: (i) At least one
penny better than the cBBO, if the cBBO on the opposite side of the
market from the non-Improvement Order is equal to or better than the
cNBBO at the time of execution; or (ii) the cNBBO. Specifically, a BOX-
Top Complex Order or a Market Complex Order on the opposite side of a
COPIP Order will immediately execute against the COPIP Order when, at
the time of the submission of such Complex Order, the best Improvement
Order does not cross the cNBBO on the same side of the market as the
COPIP Order. The submission to BOX of an executable Limit Complex Order
on the opposite side of a COPIP Order will immediately execute against
a COPIP Order when the Limit Complex Order price is equal to or crosses
any of the cNBBO, cBBO or BBO on the Complex Order Book for the
Strategy.\51\ In cases where an Unrelated Order that is a BOX Book
Interest exists on the opposite side of the COPIP order, such that it
would cause an execution to occur prior to the end of the COPIP, the
BOX Book Interest will immediately be executed against the COPIP Order
up to the lesser of the size of the COPIP Order or the size of the BOX
Book Interest, at a price equal to the BOX Book Interest price.\52\ The
remainder of the Unrelated Order, if any, will be filtered according to
the existing Complex Order filter rules.\53\ The remainder of the COPIP
Order, if any, will be executed at the conclusion of the COPIP as
described above.\54\ Following the conclusion of the COPIP, any
remaining Improvement Orders are cancelled.\55\
---------------------------------------------------------------------------
\51\ See proposed Rule 7245(i)(1).
\52\ See proposed Rule 7245(i)(2).
\53\ See Rule 7240(b)(3)(iii) for existing Complex Order filter
rules.
\54\ Execution rules are set forth in proposed Rule 7245(f)(3).
\55\ See proposed Rule 7245(i)(3).
---------------------------------------------------------------------------
Example 9: Immediate Execution of Unrelated Order Opposite COPIP Order
Example 9(a):
For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
Exposed \56\ Complex Order to sell 10 at $2.08
---------------------------------------------------------------------------
\56\ An ``exposed'' Complex Order is a Complex Order that is in
the process of being exposed to Participants pursuant to Rule
7240(b)(3)(iii) prior to being entered on the Complex Order Book.
Pursuant to Rule 7240(c), Legging Orders are not generated from
Complex Orders during the exposure period.
---------------------------------------------------------------------------
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
cNBBO is $2.00 bid, $2.10 offered
A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at $2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
During the COPIP, two competing Improvement Orders are received:
One Improvement Order to buy 30 A+B at $2.04 and one Improvement Order
to buy 50 A+B at $2.03. The Primary Improvement Order to buy 100 A+B
has improved to $2.03. Also, the BOX Book Interest changes to buy 40
A+B at $2.03. The orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, the BOX Book Interest changes to
buy 8 A+B at $2.08. Because this BOX Book Interest is executable
against the exposed Complex Order to sell 10 at $2.08, the BOX Book
Interest to buy 8 A+B immediately executes against the COPIP Order to
sell 10 and the COPIP continues.
The orders for Strategy A+B at the end of the COPIP then are as
follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 92
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 32 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Note: If the BOX Book had changed to reflect BOX Book Interest to
buy a quantity of 100 A+B at $2.04, the BOX Book Interest would have
immediately executed against the COPIP Order in full and the COPIP
would have terminated.
Example 9(b):
For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:
Orders for Strategy A+B:
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at $2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
cNBBO is $2.00 bid, $2.10 offered.
A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The orders for Strategy A+B then are as follows:
Orders for Strategy A+B:
Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at $2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
During the COPIP, two competing Improvement Orders are received:
One Improvement Order to buy 30 A+B at $2.04 and one Improvement Order
to buy 50 A+B at $2.03. The Primary Improvement Order has improved to
$2.03. Also, the BOX Book Interest changes to buy 40 A+B at $2.03. The
orders for Strategy A+B at the end of the COPIP then are as follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
[[Page 58373]]
BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Subsequently, during the COPIP, a Complex Order to buy 8 A+B at
$2.08 is received. Because the Complex Order is executable against the
exposed Complex Order to sell 10 A+B at $2.08, the Complex Order to buy
8 A+B at $2.08 immediately executes against the COPIP Order at $2.07
and the COPIP then continues.\57\
---------------------------------------------------------------------------
\57\ This operation is consistent with the existing PIP auction
mechanism (see Rule 7150(j)) and execution at $2.07 is consistent
with Rule 7240(b)(2).
---------------------------------------------------------------------------
The orders for Strategy A+B at the end of the COPIP then are as
follows:
Orders for Strategy A+B:
Improvement Order to buy 30 at $2.04
COPIP Order to sell 92
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
Note: If the BOX Book had changed to reflect BOX Book Interest to
buy a quantity of 100 A+B at $2.04, the BOX Book Interest would have
immediately executed against the COPIP Order in full and the COPIP
would have terminated.
* * * * *
Improvement Orders
Improvement Orders on a COPIP are treated substantially the same as
the Exchange's existing PIP \58\ with necessary changes to account for
differences between Complex Orders and orders on single series options
instruments. Improvement Orders must be submitted in increments no
smaller than one penny. Improvement Orders will be broadcast via the
HSVF, but will not be disseminated to OPRA.\59\
---------------------------------------------------------------------------
\58\ See Rule 7150(k).
\59\ See proposed Rule 7245(j).
---------------------------------------------------------------------------
Generally, Improvement Orders may not be executed unless the price
is equal to or better than the cNBBO at the commencement of the COPIP.
An exception to this rule occurs where an Exchange Official determines
that quotes from one or more particular markets in one or more classes
of options are not reliable, the Exchange Official may direct the
senior person in charge of the BOX MOC to exclude the unreliable quotes
from the Improvement Period determination of the cNBBO for Complex
Order Strategies of which such option class(es) are a component. The
Exchange Official may determine quotes in one or more particular
options classes in a market are not reliable only in the following
circumstances: (i) Quotes Not Firm: A market's quotes in a particular
options class are not firm based upon direct communication to the
Exchange from the market or the dissemination through OPRA of a message
indicating that disseminated quotes are not firm; (ii) Confirmed Quote
Problems: A market has directly communicated to the Exchange or
otherwise confirmed that the market is experiencing systems or other
problems affecting the reliability of its disseminated quotes. An
exception to the general rule also occurs where the away options
exchange posting orders on a single option series comprising the cNBBO
is conducting a trading rotation in that options class.\60\
---------------------------------------------------------------------------
\60\ See proposed Rule 7245(k).
---------------------------------------------------------------------------
As in the PIP,\61\ the Exchange's Trading Host will not accept
Improvement Orders that lock or cross the Complex Order Book on the
same side of the market as the COPIP Order.\62\
---------------------------------------------------------------------------
\61\ See IM-7150-4.
\62\ See proposed IM-7245-4.
---------------------------------------------------------------------------
COPIP Trading Conduct
As with the PIP,\63\ the Exchange proposes to prohibit conduct
inconsistent with just and equitable principles of trade related to a
COPIP. It is proposed that it be considered conduct inconsistent with
just and equitable principles of trade for any Initiating Participant
to engage in a pattern of conduct where the Initiating Participant
submits Primary Improvement Orders into the COPIP process for two
Strategies or less for the purpose of manipulating the COPIP process in
order to gain a higher allocation percentage than the Initiating
Participant would have otherwise received in accordance with the
proposed allocation procedures. It is proposed that it be considered
conduct inconsistent with just and equitable principles of trade for
any Participant to submit a non-Improvement Order, or an order that
results in the generation of an Unrelated Order, to BOX for the purpose
of disrupting or manipulating the COPIP process.\64\
---------------------------------------------------------------------------
\63\ See IM-7150-2.
\64\ See proposed IM-7245-2.
---------------------------------------------------------------------------
Overlapping Auctions
The Exchange proposes to prohibit multiple auctions of the same
type, which is substantially the same as in its PIP rules.\65\ A COPIP
will not run simultaneously with another COPIP in the same Complex
Order Strategy, nor will COPIPs interact, queue or overlap in any
manner. Any request to initiate a COPIP while a COPIP is already in
progress in the same Strategy will be rejected.\66\
---------------------------------------------------------------------------
\65\ See IM-7150-3.
\66\ See proposed IM-7245-3.
---------------------------------------------------------------------------
Upon adoption of the proposal, the Exchange will operate price
improvement auctions in both single options series and Complex Orders.
The Exchange proposes that BOX will accept, however, orders designated
for the PIP on a single option series where a COPIP on a Complex Order
Strategy that includes such series may be in progress. BOX will also
accept Complex Orders designated for the COPIP where a PIP on either of
the component series may be in progress.\67\ Order execution at the
conclusion of such PIPs will occur as described in the PIP rules \68\
and Complex Order execution at the conclusion of such COPIPs will occur
as set forth in the proposed Rule 7245.\69\
---------------------------------------------------------------------------
\67\ Exchange rules governing events occurring during permitted,
simultaneous auctions are clear. Processes on the BOX system are
sequential, which prevents any two orders (including PIP Orders and
COPIP Orders) from having the same time stamp. Each order is
processed in accordance with Exchange rules without race conditions.
\68\ PIP execution rules are set forth in Rule 7150.
\69\ See proposed IM-7245-3.
---------------------------------------------------------------------------
COPIP Pilot Program
The Exchange proposes a COPIP Pilot Program during the initial
period of the COPIP's operation. During the COPIP pilot period, the
Exchange proposes to provide certain information, periodically as
required by the Commission, to provide supporting evidence that, among
other things, there is meaningful competition for all size COPIP
orders, that there is significant price improvement for all orders
executed through the COPIP and that an active and liquid market is
functioning on BOX outside of the COPIP mechanism. Any data submitted
to the Commission by the Exchange will be provided on a confidential
basis.\70\ The Pilot Period is proposed to expire on July 18, 2014 and
will be substantially similar to the pilot period currently in place
with respect to the existing PIP.\71\
---------------------------------------------------------------------------
\70\ See proposed IM-7245-1.
\71\ See IM-7150-1.
---------------------------------------------------------------------------
To aid the Commission in its evaluation of the COPIP Pilot Program,
the Exchange proposes to provide the following information each month:
(1) The number of orders of 50 Strategies or greater entered into the
COPIP; (2) the percentage of all orders of 50 Strategies or greater
submitted to the Exchange that are entered into the COPIP; (3) the
spread, at the time a Complex Order of
[[Page 58374]]
50 Strategies or greater is submitted to the COPIP; (4) the percentage
of COPIP trades executed at cNBBO, plus $.01, plus $.02, plus $.03,
etc.; and (5) the number of COPIP Orders submitted by OFPs when the
spread was at a particular increment (e.g., $.05, $.10, $.15, etc.).
Also, with respect to item 5 above, for each spread increment, the
Exchange proposes to provide the percentage of orders of fewer than 50
Strategies submitted to the COPIP that were traded: (a) By the OFP that
submitted the order to the COPIP; (b) by a BOX Participant other than
the OFP that submitted the order to the COPIP; (c) by a Public
Customer; and (d) as an Unrelated Order. Additionally, for each spread
increment, the Exchange proposes to provide the percentage of orders of
50 Strategies or greater submitted to the COPIP that were traded: (a)
By the OFP that submitted the order to the COPIP; (b) by a BOX
Participant other than the OFP that submitted the order to the COPIP;
(c) by a Public Customer; and (d) as an Unrelated Order.
The Exchange further proposes to provide, for the first and third
Wednesday of each month: (a) The total number of COPIP auctions on that
date; (b) the number of COPIP auctions where the order submitted to the
COPIP was fewer than 50 Strategies; (c) the number of COPIP auctions
where the order submitted to the COPIP was 50 Strategies or greater;
(d) the number of COPIP auctions where the number of Participants
(excluding the Initiating Participant) was each of zero, one, two,
three, four, etc.
Finally, during the COPIP pilot period, the Exchange proposes to
provide information each month with respect to situations in which the
COPIP is terminated prematurely or in which a Market Order, Limit
Order, BOX-Top Order or BOX Book Interest immediately execute with a
COPIP Order before the conclusion of the COPIP. The following
information is proposed to be provided: (1) The number of times that a
Market Order, Limit Order, BOX-Top Order or BOX Book Interest on the
same side of the market as the COPIP Order prematurely terminated the
COPIP, and (a) the number of times such orders were entered by the same
(or affiliated) firm that initiated the COPIP that was terminated, and
(b) the number of times such orders were entered by a firm (or an
affiliate of such firm) that participated in the execution of the COPIP
Order; (2) For the orders addressed in each of (1)(a) and (1)(b) above,
the percentage of COPIP premature terminations due to the receipt,
during the COPIP, of a Market Order, Limit Order, BOX-Top Order or BOX
Book Interest on the same side of the market as the COPIP Order; and
the average amount of price improvement provided to the COPIP Order
where the COPIP is prematurely terminated; (3) the number of times that
a Market Order, Limit Order, BOX-Top Order or BOX Book Interest on the
opposite side of the market as the COPIP Order immediately executed
against the COPIP Order, and (a) the number of times such orders were
entered by the same (or affiliated) firm that initiated the COPIP, and
(b) the number of times such orders were entered by a firm (or an
affiliate of such firm) that participated in the execution of the COPIP
Order; (4) for the orders addressed in each of (3)(a) and (3)(b) above,
the percentage of COPIP early executions due to the receipt, during the
COPIP, of a Market Order, Limit Order, BOX-Top Order or BOX Book
Interest on the opposite side of the market as the COPIP Order; and the
average amount of price improvement provided to the COPIP Order where
the COPIP Order is immediately executed; and (5) the average amount of
price improvement provided to the COPIP Order when the COPIP runs for
one hundred milliseconds.
Conforming and Clarifying Changes
The Exchange proposes to make certain miscellaneous conforming and
clarifying changes to its rules consistent with the adoption of the
proposed COPIP rule. These conforming and clarifying changes are
consistent with the Exchange's treatment of the PIP. Rules 100, 3000,
7070, 7110, 7130, 7140, 7150, and 7240 are proposed to be amended as
described below.
Rule 3000(b) is proposed to be amended to include COPIPs to be
treated similarly to PIPs for purposes of identifying conduct
inconsistent with just and equitable principles of trade.
Rule 7070(a) is proposed to be amended to clarify that COPIP
Orders, like PIP Orders, are not accepted by the BOX Trading Host
during the Pre-Opening Phase. Rule 7070(a) is also corrected to reflect
that Fill and Kill orders are not, and have never been, allowed to
participate in the Pre-Opening Phase. Participation in the Pre-Opening
Phase on BOX is entirely voluntary and the inclusion of Fill and Kill
orders could be disruptive to the calculation of the Theoretical
Opening Price, which is described in Rule 7070(b).
Rule 7110(e)(1)(iii)(D) is proposed to be amended to clarify that,
like PIP Orders, the Session Order duration type is not available for
COPIP Orders.
Rule 7130(a) is proposed to be amended to clarify that the HSVF,
which is made available at no cost to all market participants, includes
COPIP Order information as set forth in proposed Rule 7245.
IM-7140-1, IM-7140-2, IM-7140-3 and IM-7140-4 to Rule 7140 are
proposed to be amended to clarify that COPIPs are treated like PIPs for
purposes of Rule 7140 regarding the ability of Options Participants to
act as contra party to their own Customer Orders.
The proposed amendments to Rule 7150(f) and (k) regarding the PIP
do not change the operation of the Exchange's system but conform to the
proposed COPIP rule and clarify that the PIP Broadcast, including
competing Improvement Orders, are broadcast via the HSVF. Further, IM-
7150-3 to Rule 7150 is proposed to be amended to conform to proposed
IM-7245-3 to Rule 7245 and to clarify that a PIP on a single option
series and a COPIP on a Complex Order Strategy that includes such
series may be conducted simultaneously.
In order to conform to the new proposed COPIP rules, Rule
7240(b)(4)(iii) is proposed to be amended to remove the existing
prohibition on Complex Orders participating in Price Improvement
Periods and Rule 100(a)(19) is amended to clarify that Directed Orders
are limited to contracts on single option series.
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''),\72\ in general, and Section 6(b)(5) of the Act,\73\ 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.
---------------------------------------------------------------------------
\72\ 15 U.S.C. 78f(b).
\73\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange proposes to add new BOX Rule 7245 to allow Complex
Orders to be submitted to the COPIP in substantially the same manner as
orders for single options series instruments currently are submitted to
the PIP except as necessary to account for
[[Page 58375]]
distinctions between regular orders on the BOX Book and Complex
Orders.\74\
---------------------------------------------------------------------------
\74\ The Exchange notes that the provisions in proposed Rule
7245 are substantially similar to those in Rule 7150, amended to
reflect their applicability to a COPIP on a Complex Order Strategy
as compared to a PIP on orders for single options series
instruments.
---------------------------------------------------------------------------
The Exchange believes the proposed COPIP is an improvement over its
current rules regarding Complex Orders, and will benefit all market
participants submitting Complex Order to BOX. The Exchange believes
that this rule filing is reasonable, equitable and not unfairly
discriminatory to customers and Participants because it follows the
fundamental principles of the Exchange's existing PIP mechanism \75\
and the Exchange's existing Complex Order priority rules,\76\ each of
which has previously been approved by the Commission. The Exchange
further believes the proposal is not unfairly discriminatory because
the benefits of the proposed COPIP on BOX, like the PIP, are equally
available to all Participants.
---------------------------------------------------------------------------
\75\ See Rule 7150.
\76\ See Rule 7240(b)(3)(i).
---------------------------------------------------------------------------
The Exchange believes this proposal will increase opportunities for
execution of Complex Orders and orders on the BOX Book. Further, the
Exchange believes the proposed COPIP will provide greater flexibility
to Participants trading Complex Orders on BOX. The Exchange also
believes the proposed COPIP will provide additional opportunities for
Participants to achieve better handling of Complex Orders and result in
increased opportunities for execution and better pricing. These
benefits have been realized for orders on single option series under
its existing PIP mechanism and the same principles are expected to
transfer readily to Complex Orders. As a result, adopting this proposal
to allow a COPIP mechanism will promote just and equitable principles
of trade, foster cooperation and coordination with persons engaged in
facilitating transactions in securities, and remove impediments to and
perfect the mechanism of a free and open market and a national market
system
For purposes of the COPIP, Unrelated Orders are proposed to include
BOX Book Interest resting on the BOX Book.\77\ The concept of the COPIP
interacting with BOX Book Interest does not apply to PIP and,
therefore, is not directly analogous the existing PIP rules. Quotes and
Legging Orders do not apply to COPIP and, therefore, are not included
in the proposed COPIP rules. These proposed differences from the
previously approved PIP provide clarity in the rules and promote just
and equitable principles of trade.
---------------------------------------------------------------------------
\77\ See proposed Rule 7245(a).
---------------------------------------------------------------------------
The proposal requires that Complex Orders on BOX execute first
against leg orders on the BOX Book, as under the current rules
applicable to Complex Order execution. In the proposed COPIP, BOX Book
Interest will execute in priority over Complex Orders at the same price
\78\ so as to preserve the already established and approved execution
priority of interest on the BOX Book over Complex Orders.\79\ These
execution principles allow Complex Orders to interact with the BOX Book
in a fair way and thereby promote just and equitable principles of
trade, foster cooperation and coordination with persons engaged in
facilitating transactions in securities and remove impediments to and
perfect the mechanism of a free and open market and a national market
system.
---------------------------------------------------------------------------
\78\ See proposed Rule 7245(f)(3)(i).
\79\ The execution priority of interest on the BOX Book over
Complex Orders is consistent with existing Rule 7240(b)(3)(i).
---------------------------------------------------------------------------
The proposed COPIP rules differ from the existing PIP rules in
that, for purposes of calculating the Initiating Participant's priority
allocation, BOX Book Interests are proposed to be counted as competing
orders in a COPIP. This treatment is consistent with the existing
regular interaction of Complex Orders with interest on the BOX
Book.\80\ This again preserves the already established and approved
execution priority of interest on the BOX Book over Complex Orders
while also preserving the incentive function of the Initiating
Participant's priority allocation as in the existing PIP rules. This
execution priority is designed to promote just and equitable principles
of trade, to foster cooperation and coordination with persons engaged
in facilitating transactions in securities and to remove impediments to
and perfect the mechanism of a free and open market and a national
market system.
---------------------------------------------------------------------------
\80\ See proposed Rule 7245(g)(1) and (2).
---------------------------------------------------------------------------
Upon adoption of the proposal, the Exchange will operate price
improvement auctions in both single options series and Complex Orders.
\81\ As with the PIP, the Exchange will not operate multiple,
simultaneous COPIPs on the same Strategy. However, the Exchange
proposes that BOX will accept orders designated for the PIP on a single
option series where a COPIP on a Complex Order Strategy that includes
such series may be in progress. BOX will also accept Complex Orders
designated for the COPIP where a PIP on either of the component series
may be in progress. Order execution at the conclusion of such PIPs will
occur as described in the PIP rules \82\ and Complex Order execution at
the conclusion of such COPIPs will occur as set forth in the proposed
Rule 7245.\83\ The Exchange believes this simultaneous price
improvement auction functionality will reduce order cancellation and,
thereby remove impediments to, and perfect the mechanism of, a free and
open market and a national market system.
---------------------------------------------------------------------------
\81\ Exchange rules governing events occurring during permitted,
simultaneous auctions are clear. Processes on the BOX system are
sequential, which prevents any two orders (including PIP Orders and
COPIP Orders) from having the same time stamp. Each order is
processed in accordance with Exchange rules without race conditions.
\82\ PIP execution rules are set forth in Rule 7150.
\83\ See proposed IM-7245-3.
---------------------------------------------------------------------------
The Exchange proposes that, as in the PIP, when executing Customer
Complex Orders by way of the COPIP, Options Participants must ensure
that they comply with all the procedures set forth in these Rules for
such transactions; that they act with due skill, care and diligence;
and that the interests of their Customers are not prejudiced.\84\ An
Options Participant must not use the COPIP process to create a
misleading impression of market activity (i.e., the facilities may be
used only where there is a genuine intention to execute a bona fide
transaction).\85\ These provisions are substantially the same as the
corresponding rules for the PIP \86\ and are important customer
protection features that prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade and protect
investors and the public interest.\87\
---------------------------------------------------------------------------
\84\ See proposed Rule 7245(c).
\85\ See proposed Rule 7245(e).
\86\ See Rule 7150(c), (d) and (e).
\87\ The proposed COPIP rules are similar to the Exchange's
existing PIP rules. As a result, the Exchange believes an analysis
of Section 11(a) of the Securities Exchange Act of 1934 is not
warranted here.
---------------------------------------------------------------------------
All market participants are able to receive broadcast notification
of COPIPs and Improvement Orders via the HSVF. As a result, no
Participants will have an information advantage and the proposal serves
to promote just and equitable principles of trade and to remove
impediments to and perfect the mechanism of a free and open market and
a national market system.
The Exchange proposes to make certain miscellaneous conforming and
clarifying changes to Rules 100, 3000, 7070, 7110, 7130, 7140, 7150,
and 7240 to make them consistent with the adoption of the proposed
COPIP rule. These conforming and clarifying changes are required to
make the COPIP
[[Page 58376]]
rules consistent with the Exchange's PIP rules and are necessary to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system.
For the foregoing reasons, the Exchange believes this proposal is a
reasonable modification to its rules, designed to facilitate increased
interaction of Complex Orders on the Exchange, and to do so in a manner
that ensures a dynamic, real-time trading mechanism that maximizes
opportunities for trade executions for Complex Orders. The Exchange
believes it is appropriate and consistent with the Act to adopt the
proposed rule changes.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe the proposed rule change represents
any undue burden on competition or will impose any burden on
competition among exchanges in the listed options marketplace not
necessary or appropriate in furtherance of the purposes of the Act.
Subject to the priority rules described above, the features of the
proposed rule change will apply equally to all Participants and are
available to all Participants.
Submitting a Complex Order to the COPIP will be entirely voluntary
and Participants will determine whether they wish to submit COPIP
Orders to the Exchange. The Exchange operates in a highly competitive
marketplace with other competing exchanges and market participants can
readily direct their Complex Order flow to other exchanges if they so
choose.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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 rule-comments@sec.gov. Please include
File Number SR-BOX-2013-43 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-2013-43. 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 on official business days between
the hours of 10:00 a.m. and 3:00 p.m., located at 100 F Street NE.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal offices 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-2013-43, and should be
submitted on or before October 15, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\88\
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\88\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23008 Filed 9-20-13; 8:45 am]
BILLING CODE 8011-01-P
