Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Add Rule 7310 (Drill-Through Protection) To Implement a New Price Protection Feature, 7873-7876 [2016-02985]
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Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices
amendment to the Plan, provided that
the Parties are only adding to, deleting
from, or confirming changes to NSX
rules in the Certification in conformance
with the definition of Common Rules
provided in the Plan. However, should
the Parties decide to add a NSX rule to
the Certification that is not substantially
similar to a FINRA rule; delete a NSX
rule from the Certification that is
substantially similar to a FINRA rule; or
leave on the Certification a NSX rule
that is no longer substantially similar to
a FINRA rule, then such a change would
constitute an amendment to the Plan,
which must be filed with the
Commission pursuant to Rule 17d–2
under the Act.17
IV. Conclusion
This Order gives effect to the Plan
filed with the Commission in File No.
4–694. The Parties shall notify all
members affected by the Plan of their
rights and obligations under the Plan.
It is therefore ordered, pursuant to
Section 17(d) of the Act, that the Plan
in File No. 4–694, between FINRA and
NSX, filed pursuant to Rule 17d–2
under the Act, is approved and declared
effective.
It is further ordered that NSX is
relieved of those responsibilities
allocated to FINRA under the Plan in
File No. 4–694.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Brent J. Fields,
Secretary.
[FR Doc. 2016–02982 Filed 2–12–16; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77092; File No. SR–BOX–
2016–03]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Add Rule
7310 (Drill-Through Protection) To
Implement a New Price Protection
Feature
February 9, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
27, 2016, BOX Options Exchange LLC
(the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to add Rule
7310 (Drill-through Protection) to
implement a new price protection
feature. 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.
BILLING CODE 8011–01–P
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is proposing to adopt a
mechanism that will prevent BOX from
experiencing dramatic price swings.
Specifically, the Exchange proposes to
add Rule 7310 (Drill-through Protection)
to implement a new price protection
feature on BOX. The new price
protection feature is designed to prevent
orders and quotes from drilling through
and executing at multiple price points.
This circumstance can exist if, for
example, a Market Order,3 or
aggressively priced Limit Order 4 or
quote is entered that is larger than the
total volume of contracts quoted at the
top-of-book across all U.S. options
exchanges.5 Currently, without any
protections in place, this could result in
options executing at prices that have
little or no relation to the theoretical
price of the option.
For example, in a thinly traded
option:
AWAY EXCHANGES
Exchange
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Away
Away
Away
Away
Exchange
Exchange
Exchange
Exchange
#1
#2
#3
#4
Bid size
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17 The Commission also notes that the addition to
or deletion from the Certification of any federal
securities laws, rules, and regulations for which
FINRA would bear responsibility under the Plan for
examining, and enforcing compliance by, common
members, also would constitute an amendment to
the Plan.
18 17 CFR 200.30–3(a)(34).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Bid price
5
5
5
5
3 Market Orders submitted to BOX are executed
at the best price obtainable for the total quantity
available when the order reaches the BOX market.
Any remaining quantity is executed at the next best
price available for the total quantity available. This
process continues until the Market Order is fully
executed. Prior to execution at each price level,
Market Orders are filtered pursuant to the
procedures set forth in Rule 7130(b) to avoid
trading through the NBBO. See Rule 7110(c)(3).
4 Limit Orders entered into the BOX Book are
executed at the price stated or better. Any residual
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$2.00
2.00
2.00
2.00
Offer price
$2.05
2.10
2.10
2.15
Offer size
5
5
5
5
volume left after part of a Limit Order has traded
is retained in the BOX Book until it is withdrawn
or traded (unless a designation described in
Rule7110(d) is added which prevents the untraded
part of a limit order from being retained). All Limit
Orders (with the exception of those with a Good ’Til
Cancelled (‘‘GTC’’) designation as described in Rule
7110(d)(1)) are automatically withdrawn by the
Trading Host at market close.
5 There are currently 12 options exchanges.
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BOX PRICE LEVELS
Exchange
BOX
BOX
BOX
BOX
order
order
order
order
Bid size
........................................................................................................
........................................................................................................
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If the Exchange receives a routable
Market Order to buy 50 contracts, the
system will respond as described below:
5 Contracts will be executed at $2.05
against BOX.
5 contracts will be executed at $2.05
against Away Exchange #1.6
5 contracts will be executed at $2.10
against BOX.
5 contracts will be executed at $2.10
against Away Exchange #2.
5 contracts will be executed at $2.10
against Away Exchange #3.
5 contracts will be executed at $2.15
against Away Exchange #4.
After these executions, there are no
other known valid away exchange
quotes. The National Best Bid/Offer
(‘‘NBBO’’) is therefore comprised of the
remaining interest on the BOX Book,7
specifically five (5) contracts at $3.20
and five (5) contracts at $6.00. In the
absence of a price protection
mechanism, the order would execute
against the remaining interest at $3.20
and $6.00, resulting in a potential
unexpected fill price.
To bolster the normal resilience and
market behavior that persistently
produces robust reference prices, BOX
is proposing to create a level of
protection that prevents the market from
moving beyond set thresholds. The
thresholds consist of a High Limit and
Low Limit 8 which give an acceptable
range for the order or quote to execute.
When an order or quote is initially
received by the Trading Host,9 the
Exchange will calculate the High Limit
and Low Limit. These Limits present the
applicable trading range within which
the order or quote may execute
(‘‘Acceptable Trade Range’’); an order or
quote to buy (sell) will be allowed to
execute up (down) to and including the
maximum (minimum) price within the
Acceptable Trade Range. The High
Limit is calculated by adding the Price
6 Prior to routing an order to an Away Exchange,
the order is first exposed on the BOX Book at the
NBBO. See Rule 7130(b)(3).
7 The term ‘‘BOX Book’’ means the electronic
book of orders on each single option series
maintained by the BOX Trading Host. See Rule
100(a)(10).
8 See Proposed Rule 7310(b).
9 The term ‘‘Trading Host’’ means the automated
trading system used by BOX for the trading of
options contracts. See Rule 100(a)(66).
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Bid price
5
........................
........................
........................
$2.00
........................
........................
........................
Collar,10 as defined in further detail
below, to the National Best Offer
(‘‘NBO’’) and the Low Limit is
calculated by subtracting the Price
Collar from the National Best Bid
(‘‘NBB’’).11 If the NBBO on the opposite
side of the order or quote is not
available, the NBBO on the same side
will be used for calculating the Limits.12
For Complex Orders, the cNBBO 13 will
be used when calculating the Limits.
The High Limit and Low Limit are
established upon initial entry of the
order or quote; therefore, the Acceptable
Trade Range remains the same for the
complete processing of the order or
quote.
The Price Collar is calculated by first
determining the acceptable number of
ticks 14 that an order or quote can trade
away from the NBBO at the time the
order or quote was received. The
acceptable number of ticks is then
multiplied by the minimum trading
increment 15 applicable to that option
series. Under the proposed price
protection, Participants will be allowed
to submit values for the acceptable
number of ticks that their orders or
quotes can trade away from the NBBO
at the time the order or quote was
received.16 The Exchange will also
supply default values on an underlying
security basis. Unless determined
otherwise by the Exchange and
announced to Participants via
Information Circular, the Exchange
default value shall be three (3) ticks.
The Exchange determined the default
values based on Participant feedback
and its own analysis. When calculating
the Price Collar, and therefore the High
Limit and Low Limit, the Exchange will
10 See
Proposed Rule 7310(b)(1).
propose Rule 7310(b).
12 See proposed Rule 7310(b)(4).
13 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.
14 The term ‘‘tick’’ refers to one minimum trading
increment for that options series.
15 See Rule 7050.
16 For non-complex orders, Participants will be
permitted to provide values for this price protection
mechanism based on the underlying security. For
example, a Participant can provide different values
for all series of Google and Apple options. For
Complex Orders, Participants will be able to
provide a value that will be applicable to all
Complex Orders submitted by that Participant.
11 See
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Offer price
$2.05
2.10
3.20
6.00
Offer size
5
5
5
5
use the most restrictive value for the
acceptable number of ticks between the
Participant-provided and the Exchange
default.17 This is designed to give
Participants flexibility in the level of
protection that they want while
allowing the Exchange to provide a
minimum level of protection for orders
and quotes on BOX. Participants will be
able to set the value for the acceptable
number of ticks on an underlying
security basis and may update the
values on a daily basis with such
changes taking effect on the following
trading day. Any changes to the
Exchange default values would take
effect no earlier than the following
trading day.
The proposed price protection
mechanism will prevent eligible orders
and quotes that are marketable from
trading outside of the Acceptable Trade
Range.18 Specifically, the Exchange will
not automatically execute, expose, or
route eligible orders or quotes that are
marketable if the price that the
execution, exposure or route would
occur at is outside of the Acceptable
Trade Range. If, after an initial
execution within the Acceptable Trade
Range, an order or quote reaches outside
the Acceptable Trade Range, then the
remaining quantity of the incoming
order or quote will be cancelled.
For the following examples, assume
that a Participant provides that the
acceptable number of ticks an order or
quote can trade is two (2) and the
Exchange default is three (3) ticks. The
price protection will use the acceptable
number of ticks provided by the
Participant because it is more restrictive
than the Exchange default. Assume also
that the series is quoted in $0.01
increments so the Price Collar would be
$0.02 (2*$0.01). If the series has a NBO
of $1.25 and NBB of $1.20, then the
High Limit would be $1.27 and the Low
Limit would be $1.18 giving an
Acceptable Trade Range of $1.27–$1.18.
17 The Participant must enter a value greater than
zero (0).
18 If an inbound order or quote trades against a
Legging or an Implied Order, the proposed price
protection mechanism will only apply to the
incoming order or quote and not to any other order
or quote of the other leg components or of the
Complex Order Book involved in completing the
trade. See proposed IM–7300–2 to Rule 7300.
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Example #1
Assume the following interest is
available in the applicable series:
Exchange
Offer price
BOX order ................................................................................................................................................................
BOX order ................................................................................................................................................................
Away Exchange .......................................................................................................................................................
• The remaining 60 contracts will be
canceled because there is no available
interest within the Acceptable Trade
Range. The order on the Away Exchange
to sell 60 contracts at $1.35 is above the
High Limit of $1.27 and therefore the
order cannot trade at that level and the
If the Exchange receives a Market
Order to buy 100 contracts, the
Exchange will respond as described
below:
• 10 Contracts will be executed at
$1.25 against the order on BOX.
• 30 contracts will be executed at
$1.26 against the order on BOX.
Assume the following interest is
available in the applicable series:
Offer price
mstockstill on DSK4VPTVN1PROD with NOTICES
For this example, assume the same
book interest exists as in example #2
above. However, assume that when the
order is routed to the Away Exchange
only 25 out of the 50 contracts are
available to execute. The remaining 25
contracts would be returned to BOX.
These 25 contracts would still have the
same Acceptable Trade Range as when
the order was first received by BOX
($1.27–$1.18); the Acceptable Trade
Range does not get recalculated when an
order returns from being routed.
Therefore, the Exchange would cancel
the remaining 25 orders because the
only remaining interest is the order on
BOX to sell at $1.32, which is outside
the Acceptable Trade Range.
The proposed price protection feature
will be available to all Participants and
will be mandatory. If a Participant does
not provide values for this feature, the
Exchange’s default values will be
applied. Additionally, this proposed
price protection feature will be available
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each trading day after the opening until
the close of trading.19
The Exchange notes that the proposed
price protections are intended to protect
market participants from executions at
prices that are significantly through the
market. BOX believes that Participants
who submit orders and quotes on the
Exchange generally intend to receive
executions at or near where the market
was when the order or quote was
received. Accordingly, the Exchange
believes that the propose price
protections will help prevent orders and
quotes from trading at an excessive
number of price points. BOX also
believes that orders and quotes which
trade at an excessive number of price
points have the potential to create
market volatility. As such, the Exchange
believes these enhancements to the
price protections available on BOX may
also help limit unnecessary volatility.
The Exchange will provide
Participants with notice, via Information
Circular, about the implementation date
of these proposed enhancements to the
price protections.
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’’),20 in general, and Section 6(b)(5)
of the Act,21 in particular, in that it is
19 The proposed price protection feature will not
cover the opening of the market. The opening of the
market is covered by Rule 7070.
20 15 U.S.C. 78f(b).
21 15 U.S.C. 78f(b)(5).
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10
30
60
Example #2
BOX order ................................................................................................................................................................
BOX order ................................................................................................................................................................
Away Exchange .......................................................................................................................................................
BOX order ................................................................................................................................................................
Example #3
$1.25
1.26
1.35
Exchange will not route the order to the
Away Exchange.
Exchange
If the Exchange receives a Market
Order to buy 200 contracts, the
Exchange will respond as described
below:
• 50 contracts will execute at $1.25
against the order on BOX.
• 100 contracts will execute at $1.26
against the order on BOX.
• 50 contracts will be routed to the
Away Exchange to execute at $1.27.
Size
$1.25
1.26
1.27
1.32
Size
50
100
50
50
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. In particular, the
propose [sic] rule change is consistent
with these requirements in that it will
reduce the negative impacts of sudden,
unanticipated volatility in individual
options, and serve to preserve an
orderly market in a transparent and
uniform manner, increase overall
market confidence, and promote fair
and orderly markets and the protection
of investors. Specifically, BOX believes
that the NBBO is a fair representation of
then-available prices and accordingly
the proposal helps to avoid executions
at prices that are significantly worse
than the NBBO.
BOX believes the proposed price
protection functionality will remove
impediments to and perfect the
mechanism of a free and open market by
providing Participants with greater
flexibility and control over how orders
and quotes interact. Instead of imposing
a rigid one-size-fits-all price protection
mechanism, the proposed functionality
allows for customization and choice on
the part of the Participant entering
orders and quotes. As proposed, the
Participant can select how many price
points beyond the NBBO at the time the
Exchange receives the order or quote
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that the Participant would like the order
to trade.
BOX believes that providing default
values and using the most restrictive
value between the Participant-provided
and default values is consistent with the
stated goals of this feature and is
necessary to achieve the proposed
expansion of price protection on the
Exchange. Providing default values will
benefit the options market as a whole as
this will ensure that all eligible orders
and quotes have a minimal level of price
protection.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes the proposal will
provide market participants with
additional price protection. The
Exchange does not believe the proposed
rule change imposes any burden on
intramarket competition as the feature is
available to all orders and quotes of all
Participants. Nor will the proposal
impose a burden on competition among
the options exchanges because of the
vigorous competition for order flow
among the options exchanges. BOX
competes with many other options
exchanges. In this highly competitive
market, market participants can easily
and readily direct order flow to
competing venues. Additionally, the
proposed price protections are similar to
those available on competing
exchanges.22
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.
mstockstill on DSK4VPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 23 and Rule
19b–4(f)(6) thereunder.24 Because the
proposed rule change does not: (i)
Significantly affect the protection of
22 See
PHLX Rule 1080(p).
U.S.C. 78s(b)(3)(A)(iii).
24 17 CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the 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.
23 15
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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 and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 25 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),26 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the Exchange may implement the
proposed price protections as soon as
possible, which will benefit all market
participants. In support of its request,
the Exchange states the proposed rule
change will help to prevent dramatic
price swings. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest.
Therefore, the Commission hereby
waives the operative delay and
designates the proposed rule change
operative upon filing.27
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
27 For purposes only of waiving the operative date
of this proposal, the Commission has considered
the proposed rule’s impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BOX–2016–03 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BOX–2016–03. 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–
2016–03 and should be submitted on or
before March 8, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Brent J. Fields,
Secretary.
[FR Doc. 2016–02985 Filed 2–12–16; 8:45 am]
BILLING CODE 8011–01–P
25 17
26 17
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CFR 200.30–3(a)(12).
16FEN1
]]>Agencies
[Federal Register Volume 81, Number 30 (Tuesday, February 16, 2016)]
[Notices]
[Pages 7873-7876]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02985]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77092; File No. SR-BOX-2016-03]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To Add
Rule 7310 (Drill-Through Protection) To Implement a New Price
Protection Feature
February 9, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 27, 2016, BOX Options Exchange LLC (the ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the self-regulatory organization. The Commission
is publishing this notice to solicit comments on the proposed rule from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to add Rule 7310 (Drill-through Protection)
to implement a new price protection feature. 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 Exchange is proposing to adopt a mechanism that will prevent
BOX from experiencing dramatic price swings. Specifically, the Exchange
proposes to add Rule 7310 (Drill-through Protection) to implement a new
price protection feature on BOX. The new price protection feature is
designed to prevent orders and quotes from drilling through and
executing at multiple price points. This circumstance can exist if, for
example, a Market Order,\3\ or aggressively priced Limit Order \4\ or
quote is entered that is larger than the total volume of contracts
quoted at the top-of-book across all U.S. options exchanges.\5\
Currently, without any protections in place, this could result in
options executing at prices that have little or no relation to the
theoretical price of the option.
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\3\ Market Orders submitted to BOX are executed at the best
price obtainable for the total quantity available when the order
reaches the BOX market. Any remaining quantity is executed at the
next best price available for the total quantity available. This
process continues until the Market Order is fully executed. Prior to
execution at each price level, Market Orders are filtered pursuant
to the procedures set forth in Rule 7130(b) to avoid trading through
the NBBO. See Rule 7110(c)(3).
\4\ Limit Orders entered into the BOX Book are executed at the
price stated or better. Any residual volume left after part of a
Limit Order has traded is retained in the BOX Book until it is
withdrawn or traded (unless a designation described in Rule7110(d)
is added which prevents the untraded part of a limit order from
being retained). All Limit Orders (with the exception of those with
a Good 'Til Cancelled (``GTC'') designation as described in Rule
7110(d)(1)) are automatically withdrawn by the Trading Host at
market close.
\5\ There are currently 12 options exchanges.
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For example, in a thinly traded option:
Away Exchanges
----------------------------------------------------------------------------------------------------------------
Exchange Bid size Bid price Offer price Offer size
----------------------------------------------------------------------------------------------------------------
Away Exchange #1................................ 5 $2.00 $2.05 5
Away Exchange #2................................ 5 2.00 2.10 5
Away Exchange #3................................ 5 2.00 2.10 5
Away Exchange #4................................ 5 2.00 2.15 5
----------------------------------------------------------------------------------------------------------------
[[Page 7874]]
BOX Price Levels
----------------------------------------------------------------------------------------------------------------
Exchange Bid size Bid price Offer price Offer size
----------------------------------------------------------------------------------------------------------------
BOX order....................................... 5 $2.00 $2.05 5
BOX order....................................... .............. .............. 2.10 5
BOX order....................................... .............. .............. 3.20 5
BOX order....................................... .............. .............. 6.00 5
----------------------------------------------------------------------------------------------------------------
If the Exchange receives a routable Market Order to buy 50
contracts, the system will respond as described below:
5 Contracts will be executed at $2.05 against BOX.
5 contracts will be executed at $2.05 against Away Exchange #1.\6\
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\6\ Prior to routing an order to an Away Exchange, the order is
first exposed on the BOX Book at the NBBO. See Rule 7130(b)(3).
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5 contracts will be executed at $2.10 against BOX.
5 contracts will be executed at $2.10 against Away Exchange #2.
5 contracts will be executed at $2.10 against Away Exchange #3.
5 contracts will be executed at $2.15 against Away Exchange #4.
After these executions, there are no other known valid away
exchange quotes. The National Best Bid/Offer (``NBBO'') is therefore
comprised of the remaining interest on the BOX Book,\7\ specifically
five (5) contracts at $3.20 and five (5) contracts at $6.00. In the
absence of a price protection mechanism, the order would execute
against the remaining interest at $3.20 and $6.00, resulting in a
potential unexpected fill price.
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\7\ The term ``BOX Book'' means the electronic book of orders on
each single option series maintained by the BOX Trading Host. See
Rule 100(a)(10).
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To bolster the normal resilience and market behavior that
persistently produces robust reference prices, BOX is proposing to
create a level of protection that prevents the market from moving
beyond set thresholds. The thresholds consist of a High Limit and Low
Limit \8\ which give an acceptable range for the order or quote to
execute. When an order or quote is initially received by the Trading
Host,\9\ the Exchange will calculate the High Limit and Low Limit.
These Limits present the applicable trading range within which the
order or quote may execute (``Acceptable Trade Range''); an order or
quote to buy (sell) will be allowed to execute up (down) to and
including the maximum (minimum) price within the Acceptable Trade
Range. The High Limit is calculated by adding the Price Collar,\10\ as
defined in further detail below, to the National Best Offer (``NBO'')
and the Low Limit is calculated by subtracting the Price Collar from
the National Best Bid (``NBB'').\11\ If the NBBO on the opposite side
of the order or quote is not available, the NBBO on the same side will
be used for calculating the Limits.\12\ For Complex Orders, the cNBBO
\13\ will be used when calculating the Limits. The High Limit and Low
Limit are established upon initial entry of the order or quote;
therefore, the Acceptable Trade Range remains the same for the complete
processing of the order or quote.
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\8\ See Proposed Rule 7310(b).
\9\ The term ``Trading Host'' means the automated trading system
used by BOX for the trading of options contracts. See Rule
100(a)(66).
\10\ See Proposed Rule 7310(b)(1).
\11\ See propose Rule 7310(b).
\12\ See proposed Rule 7310(b)(4).
\13\ 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.
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The Price Collar is calculated by first determining the acceptable
number of ticks \14\ that an order or quote can trade away from the
NBBO at the time the order or quote was received. The acceptable number
of ticks is then multiplied by the minimum trading increment \15\
applicable to that option series. Under the proposed price protection,
Participants will be allowed to submit values for the acceptable number
of ticks that their orders or quotes can trade away from the NBBO at
the time the order or quote was received.\16\ The Exchange will also
supply default values on an underlying security basis. Unless
determined otherwise by the Exchange and announced to Participants via
Information Circular, the Exchange default value shall be three (3)
ticks. The Exchange determined the default values based on Participant
feedback and its own analysis. When calculating the Price Collar, and
therefore the High Limit and Low Limit, the Exchange will use the most
restrictive value for the acceptable number of ticks between the
Participant-provided and the Exchange default.\17\ This is designed to
give Participants flexibility in the level of protection that they want
while allowing the Exchange to provide a minimum level of protection
for orders and quotes on BOX. Participants will be able to set the
value for the acceptable number of ticks on an underlying security
basis and may update the values on a daily basis with such changes
taking effect on the following trading day. Any changes to the Exchange
default values would take effect no earlier than the following trading
day.
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\14\ The term ``tick'' refers to one minimum trading increment
for that options series.
\15\ See Rule 7050.
\16\ For non-complex orders, Participants will be permitted to
provide values for this price protection mechanism based on the
underlying security. For example, a Participant can provide
different values for all series of Google and Apple options. For
Complex Orders, Participants will be able to provide a value that
will be applicable to all Complex Orders submitted by that
Participant.
\17\ The Participant must enter a value greater than zero (0).
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The proposed price protection mechanism will prevent eligible
orders and quotes that are marketable from trading outside of the
Acceptable Trade Range.\18\ Specifically, the Exchange will not
automatically execute, expose, or route eligible orders or quotes that
are marketable if the price that the execution, exposure or route would
occur at is outside of the Acceptable Trade Range. If, after an initial
execution within the Acceptable Trade Range, an order or quote reaches
outside the Acceptable Trade Range, then the remaining quantity of the
incoming order or quote will be cancelled.
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\18\ If an inbound order or quote trades against a Legging or an
Implied Order, the proposed price protection mechanism will only
apply to the incoming order or quote and not to any other order or
quote of the other leg components or of the Complex Order Book
involved in completing the trade. See proposed IM-7300-2 to Rule
7300.
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For the following examples, assume that a Participant provides that
the acceptable number of ticks an order or quote can trade is two (2)
and the Exchange default is three (3) ticks. The price protection will
use the acceptable number of ticks provided by the Participant because
it is more restrictive than the Exchange default. Assume also that the
series is quoted in $0.01 increments so the Price Collar would be $0.02
(2*$0.01). If the series has a NBO of $1.25 and NBB of $1.20, then the
High Limit would be $1.27 and the Low Limit would be $1.18 giving an
Acceptable Trade Range of $1.27-$1.18.
[[Page 7875]]
Example #1
Assume the following interest is available in the applicable
series:
------------------------------------------------------------------------
Exchange Offer price Size
------------------------------------------------------------------------
BOX order............................... $1.25 10
BOX order............................... 1.26 30
Away Exchange........................... 1.35 60
------------------------------------------------------------------------
If the Exchange receives a Market Order to buy 100 contracts, the
Exchange will respond as described below:
10 Contracts will be executed at $1.25 against the order
on BOX.
30 contracts will be executed at $1.26 against the order
on BOX.
The remaining 60 contracts will be canceled because there
is no available interest within the Acceptable Trade Range. The order
on the Away Exchange to sell 60 contracts at $1.35 is above the High
Limit of $1.27 and therefore the order cannot trade at that level and
the Exchange will not route the order to the Away Exchange.
Example #2
Assume the following interest is available in the applicable
series:
------------------------------------------------------------------------
Exchange Offer price Size
------------------------------------------------------------------------
BOX order............................... $1.25 50
BOX order............................... 1.26 100
Away Exchange........................... 1.27 50
BOX order............................... 1.32 50
------------------------------------------------------------------------
If the Exchange receives a Market Order to buy 200 contracts, the
Exchange will respond as described below:
50 contracts will execute at $1.25 against the order on
BOX.
100 contracts will execute at $1.26 against the order on
BOX.
50 contracts will be routed to the Away Exchange to
execute at $1.27.
Example #3
For this example, assume the same book interest exists as in
example #2 above. However, assume that when the order is routed to the
Away Exchange only 25 out of the 50 contracts are available to execute.
The remaining 25 contracts would be returned to BOX. These 25 contracts
would still have the same Acceptable Trade Range as when the order was
first received by BOX ($1.27-$1.18); the Acceptable Trade Range does
not get recalculated when an order returns from being routed.
Therefore, the Exchange would cancel the remaining 25 orders because
the only remaining interest is the order on BOX to sell at $1.32, which
is outside the Acceptable Trade Range.
The proposed price protection feature will be available to all
Participants and will be mandatory. If a Participant does not provide
values for this feature, the Exchange's default values will be applied.
Additionally, this proposed price protection feature will be available
each trading day after the opening until the close of trading.\19\
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\19\ The proposed price protection feature will not cover the
opening of the market. The opening of the market is covered by Rule
7070.
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The Exchange notes that the proposed price protections are intended
to protect market participants from executions at prices that are
significantly through the market. BOX believes that Participants who
submit orders and quotes on the Exchange generally intend to receive
executions at or near where the market was when the order or quote was
received. Accordingly, the Exchange believes that the propose price
protections will help prevent orders and quotes from trading at an
excessive number of price points. BOX also believes that orders and
quotes which trade at an excessive number of price points have the
potential to create market volatility. As such, the Exchange believes
these enhancements to the price protections available on BOX may also
help limit unnecessary volatility.
The Exchange will provide Participants with notice, via Information
Circular, about the implementation date of these proposed enhancements
to the price protections.
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''),\20\ in general, and Section 6(b)(5) of the Act,\21\ 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. In particular, the propose [sic] rule change is
consistent with these requirements in that it will reduce the negative
impacts of sudden, unanticipated volatility in individual options, and
serve to preserve an orderly market in a transparent and uniform
manner, increase overall market confidence, and promote fair and
orderly markets and the protection of investors. Specifically, BOX
believes that the NBBO is a fair representation of then-available
prices and accordingly the proposal helps to avoid executions at prices
that are significantly worse than the NBBO.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
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BOX believes the proposed price protection functionality will
remove impediments to and perfect the mechanism of a free and open
market by providing Participants with greater flexibility and control
over how orders and quotes interact. Instead of imposing a rigid one-
size-fits-all price protection mechanism, the proposed functionality
allows for customization and choice on the part of the Participant
entering orders and quotes. As proposed, the Participant can select how
many price points beyond the NBBO at the time the Exchange receives the
order or quote
[[Page 7876]]
that the Participant would like the order to trade.
BOX believes that providing default values and using the most
restrictive value between the Participant-provided and default values
is consistent with the stated goals of this feature and is necessary to
achieve the proposed expansion of price protection on the Exchange.
Providing default values will benefit the options market as a whole as
this will ensure that all eligible orders and quotes have a minimal
level of price protection.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes the
proposal will provide market participants with additional price
protection. The Exchange does not believe the proposed rule change
imposes any burden on intramarket competition as the feature is
available to all orders and quotes of all Participants. Nor will the
proposal impose a burden on competition among the options exchanges
because of the vigorous competition for order flow among the options
exchanges. BOX competes with many other options exchanges. In this
highly competitive market, market participants can easily and readily
direct order flow to competing venues. Additionally, the proposed price
protections are similar to those available on competing exchanges.\22\
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\22\ See PHLX Rule 1080(p).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \23\ and Rule 19b-4(f)(6) thereunder.\24\
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 and Rule 19b-
4(f)(6)(iii) thereunder.
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\23\ 15 U.S.C. 78s(b)(3)(A)(iii).
\24\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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A proposed rule change filed under Rule 19b-4(f)(6) \25\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\26\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the Exchange
may implement the proposed price protections as soon as possible, which
will benefit all market participants. In support of its request, the
Exchange states the proposed rule change will help to prevent dramatic
price swings. The Commission believes that waiving the 30-day operative
delay is consistent with the protection of investors and the public
interest. Therefore, the Commission hereby waives the operative delay
and designates the proposed rule change operative upon filing.\27\
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\25\ 17 CFR 240.19b-4(f)(6).
\26\ 17 CFR 240.19b-4(f)(6)(iii).
\27\ For purposes only of waiving the operative date of this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BOX-2016-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2016-03. 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-2016-03 and should be
submitted on or before March 8, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-02985 Filed 2-12-16; 8:45 am]
BILLING CODE 8011-01-P
