Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the BOX Rules To Remove the BOX-Top Order, 4783-4785 [2014-01658]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 19 (Wednesday, January 29, 2014)]
[Notices]
[Pages 4783-4785]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01658]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71374; File No. SR-BOX-2014-05]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the BOX Rules To Remove the BOX-Top Order

January 23, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 14, 2014, BOX Options Exchange LLC (``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the BOX Rules to remove the BOX-Top 
Order. The text of the proposed rule change is available from the 
principal office of the Exchange, at the Commission's Public Reference 
Room and also on the Exchange's Internet Web site at https://boxexchange.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend the BOX rules 
to remove the BOX-Top Order. A BOX-Top Order is currently defined as an 
order entered into the BOX Book which is executed at the best price 
available in the market for the total quantity available from any 
contra bid (offer).\3\ Any residual volume left after part of a BOX-Top 
Order has been executed is automatically converted to a limit order at 
the price at which the original BOX-Top Order was executed, except when 
a BOX-Top Order executes against a Legging Order at a penny increment 
in a series traded in a larger increment. In this instance, the 
remaining BOX-TOP Order quantity will be priced, ranked and displayed 
on the BOX Book at the nearest increment tick permitted for the series 
(rounded up (down) in the case of a sell (buy) order).
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    \3\ See BOX Rule 7110(c)(2).
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    BOX-Top Orders were originally introduced at the launch of the 
Exchange in 2004 to fulfill a market need.\4\ Specifically, the 
Exchange created BOX-Top Orders because the Exchange did not offer 
Market Orders when it launched.\5\ However, shortly after the Exchange 
launched, Participants expressed their preference for Market Orders 
instead of BOX-Top Orders. Due to these requests the Exchange decided 
to offer Market Orders as well.\6\ Once the Exchange began offering 
Market Orders the popularity of BOX-Top Orders drastically decreased 
due to the preference by Participants for Market Orders; as a result, 
the BOX-Top Order is rarely used by Participants today. The Exchange 
has spoken with Participants who currently use BOX-Top Orders and has 
verified that removing this order type will have no impact on their 
ability to trade on the Exchange. Consequently, the Exchange believes 
that the continued presence of the BOX-Top Order as an order type 
offered by the Exchange no longer serves a business purpose and could 
lead to investor confusion.
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    \4\ See Securities Exchange Act Release No. 49068 (January 13, 
2004), 69 FR 2775 (January 20, 2004) (Order Approving SR-BSE-2002-
15).
    \5\ Id.
    \6\ See Securities Exchange Act Release No. 51821 (June 10, 
2005), 70 FR 35143 (June 16, 2005) (Order Approving SR-BSE-2004-51).
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    The Exchange notes that while very similar, BOX-Top Orders are not 
identical to Market Orders. After execution, the residual volume of a 
BOX-Top Order is automatically converted to a limit order at the price 
at which the BOX-Top Order was executed.\7\ With a Market Order the 
residual volume is executed at the next best price available for the 
total quantity

[[Page 4784]]

available under [sic] the Market Order is fully executed. The Exchange 
believes the lack of demand for the BOX-Top Order demonstrates that 
this capability is not important to Participants. Further, the 
filtering process at each price level ensures that the Market Order 
will not trade through the NBBO.
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    \7\ Except when the BOX-Top Order executes a Legging Order at a 
penny increment in a series trader [sic] in a larger increment.
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    Accordingly, the Exchange proposes to remove all references to BOX-
Top Orders in the Exchange rules. First, the Exchange proposes to amend 
Rule 7130(b) (Filtering of BOX In-Bound Orders) to remove references to 
[sic] BOX-Top Order. All inbound orders to BOX (with the exception of 
Improvement Orders and Primary Improvement Orders submitted during a 
PIP, Directed Orders, and Intermarket Sweep Orders) are filtered by the 
Trading Host prior to entry on the BOX Book to ensure that these orders 
will not, in the case of a sell (buy) order, execute at a price below 
(above) the NBBO price.\8\
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    \8\ See Rule 7130(b).
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    Once BOX-Top Orders are removed the Exchange will continue to 
filter all inbound orders (with the exception of Improvement Orders and 
Primary Improvement Orders submitted during a PIP, Directed Orders, and 
Intermarket Sweep Orders) to ensure that these orders will not, in the 
case of a sell (buy) order, execute at a price below (above) the NBBO 
price.\9\ Further, since these inbound orders to BOX will continue to 
be filtered, Participants will remain protected when entering orders. 
Therefore, the Exchange believes that the removal of the BOX-Top Order 
as an order type will not have any impact on Participants or the 
Exchange's systems.
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    \9\ Id.
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    Second, the Exchange proposes to amend Rule 7150 (Price Improvement 
Period) to remove references to the BOX-Top Order. Currently, Options 
Participants, both OFPs and Market Makers, executing agency orders may 
designate BOX-Top Orders for price improvement and submission to the 
PIP.\10\ Under the current PIP rules the submission of a BOX-Top Order 
or Market Order on the same side as a PIP Order will prematurely 
terminate the PIP when, at the time of the submission of the BOX-Top 
Order or Market Order, the best Improvement Order is equal to or better 
than the NBBO on the same side of the market as the Best Improvement 
Order.\11\
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    \10\ See Rule 7150(f).
    \11\ See Rule 7150(i).
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    Once references to BOX-Top Orders are removed from the Exchange's 
rules Participants will be able to access the PIP by submitting Market 
Orders and marketable limit Customer Orders.\12\ Further, the 
submission of a Market Order on the same side as a PIP Order will 
continue to prematurely terminate the PIP when, at the time of the 
submission of the Market Order, the best Improvement Order is equal to 
or better than the NBBO on the same side of the market as the Best 
Improvement Order. Therefore, the Exchange believes that the removal of 
the BOX-Top Order from the PIP will not have any impact on Participants 
or the Exchange's systems.
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    \12\ See Rule 7150(f).
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    Third, the Exchange proposes to amend Rule 7240 (Complex Orders) to 
remove references to the BOX-Top Order. Currently, Options Participants 
may enter Complex Orders as BOX-Top Orders.\13\ BOX-Top Complex Orders 
are executed at the best price available on the market for the total 
quantity available from any contra bid (offer). Any residual volume 
left after part of a BOX-Top Complex Order has been executed is 
automatically converted to a limit order on the Complex Order Book at 
the net Strategy price at which the original BOX-Top Complex Order was 
executed.\14\ All inbound Complex Orders to BOX, including BOX-Top 
Complex Orders, are filtered to ensure that each leg of the Complex 
Order will be executed at a price that is equal to or better than the 
NBBO and the BOX BBO for each of the component series.\15\ If an 
inbound BOX-Top Complex Order or Market Complex Order is not executable 
on BOX but is executable against cNBBO, the BOX-Top Complex Orders or 
Market Complex Orders will be exposed on the Complex Order Book at cNBB 
(in the case of a sell order) or cNBO (in the case of a buy order) for 
a period of up to one second.\16\ Any executable, opposite side orders 
received during the exposure period, including interest on the BOX 
Book, will immediately execute against the exposed Complex Order.\17\ 
Any unexecuted quantity remaining at the end of the exposure period 
will be cancelled.\18\
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    \13\ See Rule 7240(b)(4).
    \14\ Id.
    \15\ See Rule 7240(b)(3)(iii).
    \16\ See Rule 7240(b)(3)(iii)(B). The exposure period is 
currently set at 100 milliseconds.
    \17\ Id.
    \18\ See Rule 7240(b)(3)(iii)(C).
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    Once BOX-Top Orders are removed from the Exchange's rules, inbound 
Market Complex Orders that are not executable on BOX but are executable 
against cNBBO will continue to be exposed on the Complex Order Book at 
cNBB (in the case of a sell order) or cNBO (in the case of a buy 
order).\19\ Further, since all inbound Complex Orders are filtered to 
ensure that each leg of a Complex Order is executed at a price that is 
equal to or better than the NBBO and the BOX BBO for each of the 
component series, Participants will remain protected when entering 
Complex Orders. Therefore, the Exchange believes that the removal of 
BOX-Top Orders as a type of Complex Orders will not have any impact on 
Participants or the Exchange's systems.
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    \19\ See Rule 7240(b)(3)(iii)(B).
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    Fourth, the Exchange proposes to amend Rule 7245 (Complex Order 
Price Improvement Period (``COPIP'')) to remove references to BOX-Top 
Orders. Consistent with the PIP, Options Participants, both OFPs and 
Market Makers, executing agency orders may designate Complex Orders 
that are BOX-Top Orders for price improvement and submission to the 
COPIP.\20\ 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.\21\ Once BOX-Top 
Orders are removed from the Exchange's rules, Participants will 
continue to be able to access the COPIP by submitting Market Orders and 
marketable limit orders.\22\ Further, the submission of a Market Order 
on the same side as a COPIP Order will continue to prematurely 
terminate the COPIP when, at the time of the submission of the Market 
Order, the best Complex Order or BOX Book Interest is equal to or 
better than the cNBBO on the same side of the COPIP Order. 
Additionally, the Exchange is proposing to make a number of non-
controversial changes and technical corrections to its rules. Such 
corrections include: removing references to BOX Top Orders in Rule 7070 
(Opening the Market) and Interpretive Material to Rule 7080 (IM-7080-1 
Trading Conditions During Limit State or Straddle State); removing 
references to BOX Top Orders in and renumbering Rule 7110 (Order 
Entry); and updating rule references in and renumbering Rule 7130 
(Execution and Price/Time Priority); and updating a rule reference in 
Rule 8040 (Obligations of Market Makers).
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    \20\ See Rule 7245(f).
    \21\ See Rule 7245(h).
    \22\ See Rule 7245(f).
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    The Exchange believes that the removal of BOX-Top Orders from the 
COPIP will not have any impact on Participants or the Exchange's 
systems. The Exchange is removing this order

[[Page 4785]]

type because it has become obsolete and is rarely used by Options 
Participants. The Exchange is proposing to remove any references to the 
BOX-Top Order from the BOX Rules and decommission this order type. 
After the notice of effectiveness of the proposed rule change, and at 
least one week prior to the operative date, the Exchange will issue an 
informational circular to inform BOX Participants of the operative date 
for the removal of the BOX-Top Order. BOX believes this will give 
Participants the opportunity to make any necessary changes to order 
entry methodology to coincide with the implementation date.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\23\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\24\ in particular, by eliminating an outdated and 
obsolete order type from the Exchange's rules. Specifically, the 
Exchange believes that deleting all references to the BOX-Top Order 
will promote just and equitable principles of trade and protect 
investors and the public interest, because it will help insure that 
investors are not confused by the functionality of different order 
types available for trading on the Exchange. As stated above, the BOX-
Top Order is an order type only available on the Exchange, and is 
rarely used by Participants. Instead of using the BOX-Top Order to 
trade on BOX, Participants prefer to use the Market Order, an order 
type that is also traded on other options exchanges and is very similar 
to the BOX-Top Order. The Exchange believes that the continued presence 
of BOX-Top Orders is confusing to some Participants, particularly new 
Participants, who question the functionality of this order type. 
Further, the Exchange believes that the proposal removes impediments to 
and perfects the mechanism of a free and open market by simplifying the 
Exchanges rules, ensuring that Participants, regulators and the public 
can more easily navigate the Exchange's rulebook and better understand 
the order types available for trading on the Exchange.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
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    As such, BOX believes the proposed rule change is in the public 
interest, and therefore, consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change would allow the Exchange to remove an 
obsolete order type that has been replaced by a more efficient and 
functional order type. As such, the Exchange does not believe that the 
proposed rule change will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \25\ and Rule 19b-4(f)(6) thereunder.\26\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \27\ and Rule 19b-
4(f)(6) thereunder.\28\
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml ); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BOX-2014-05 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-2014-05. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml 
). Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BOX-2014-05 and should be 
submitted on or before February 19, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2014-01658 Filed 1-28-14; 8:45 am]
BILLING CODE 8011-01-P