Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 7150 (Price Improvement Period (“PIP”)) To Establish the Quality Market Maker Allocation in a PIP Order, 43322-43325 [2016-15711]

Download as PDF 43322 Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices 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 Section, 100 F Street NE., Washington, DC 20549–1090 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the NYSE’s principal office. 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– NYSEMKT–2016–61 and should be submitted on or before July 22,2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–15715 Filed 6–30–16; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–78171; File No. SR–BOX– 2016–25] Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 7150 (Price Improvement Period (‘‘PIP’’)) To Establish the Quality Market Maker Allocation in a PIP Order asabaliauskas on DSK3SPTVN1PROD with NOTICES June 28, 2016. 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 June 15, 2016, BOX Options Exchange LLC (the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule The Exchange proposes to amend BOX Rule 7150 (Price Improvement Period (‘‘PIP’’)) to establish the Quality Market Maker allocation in a PIP 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 The Exchange proposes to amend BOX Rule 7150 (Price Improvement Period (‘‘PIP’’)) to establish the Quality Market Maker allocation in a PIP Order. This is a competitive filing that is based on a proposal recently submitted by NASDAQ OMX BX, Inc. (‘‘BX’’) and approved by the Commission.3 PIP The Exchange currently offers Participants the possibility of price improvement via its electronic auction process known as the PIP. The PIP has saved investors more than $722 million versus the prevailing NBBO since 2004. BOX believes that the proposed rule change will result in tighter and deeper markets, resulting in more liquidity on BOX. CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. Jkt 238001 Current PIP Allocation At the conclusion of a PIP, the PIP Order is currently 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 the priority algorithm described below, whether Improvement Order(s) 4 or Unrelated Order(s) 5 received by BOX, or Legging Orders 6 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. The Exchange’s Rules currently provide the following allocations for when the total quantity of orders, quotes, Improvement Orders, Legging Orders and the Primary Improvement Order is greater than the quantity of the PIP Order at a given price level: Public Customer Allocation All orders, other than Legging Orders and the Primary Improvement Order, for the account of Public Customers, whether Improvement Orders or Unrelated Orders, including quotes and orders on the BOX Book 7 prior to the PIP Broadcast, will be allocated for execution against the PIP Order first.8 Where there are multiple such orders for the account of Public Customers at the same price, the trade allocation will be by time priority. If, at the end of the Public Customer allocation, there remains any unallocated quantity of the PIP Order, the balance will be allocated to the Primary Improvement Order allocation described below. Primary Improvement Order Allocation After the Public Customer allocation, the applicable trade allocation described below will be allocated to the Primary Improvement Order.9 After Public Customer Orders have been satisfied, the Initiating Participant’s Primary Improvement Order retains priority for up to 40% of the remaining size of the PIP Order when the Primary Improvement Order matches any competing Improvement Orders and/or non-Public Customers’ Unrelated Orders at the final price level. If the Primary Improvement Order has designated a 4 See BOX Rule 7150(f)(1). BOX Rule 7150(a)(1). 6 See BOX Rule 7240(c). 7 See BOX Rule 100(a)(10). 8 See BOX Rule 7150(g)(1). 9 See BOX Rule 7150(g)(2). 5 See 3 See Securities Exchange Act Release No. 34– 76301 (October 29, 2015), 80 FR 68347 (November 4, 2016) (Order Approving SR–BX–2015–032). See also BX Rule BX Chapter VI, Sec. 9(ii)(E)(3). 16 17 19:05 Jun 30, 2016 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change 1. Purpose SECURITIES AND EXCHANGE COMMISSION VerDate Sep<11>2014 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 change from interested persons. PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 E:\FR\FM\01JYN1.SGM 01JYN1 Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices PIP Surrender Quantity, the Primary Improvement Order allocation will be reduced, if necessary, in accordance with the PIP Surrender Quantity.10 The balance will be allocated to the Market Maker allocation. Market Maker Allocation After the Primary Improvement Order allocation, any remaining unallocated quantity of the PIP Order will be allocated to orders and quotes, including Improvement Orders and quotes and orders on the BOX Book prior to the PIP Broadcast for the account of Market Makers. Where there are orders and quotes for the accounts of more than one Market Maker at the same price, the trade allocation for Market Makers will be pro-rata.11 Proposal The Exchange proposes to establish the Quality Market Maker allocation after the Primary Improvement Order allocation and before the Market Maker allocation. As previously mentioned, the proposed rule change is based on, and substantially similar to, the rules of BX.12 In the allocation following the Primary Improvement Order, Market Makers that were quoting at a price that is equal to the NBBO on the opposite side of the market from the PIP Order at the time of initiation of the PIP Auction (‘‘Quality Market Makers’’),13 would have priority up to their quote size in the NBBO which was present when the PIP Auction was initiated (‘‘QMM Eligibility Quantity’’) at each price level at or better than such NBBO when the PIP Auction was initiated after Public Customers have received allocations. Quality Market Maker quotes will be allocated pro-rata. Quality Market Maker status is only valid for the duration of the particular PIP auction. Further, Non-Quality Market Makers and Quality Market Maker interest which exceeded their size in the QMM Eligibility Quantity would have priority at each price level at or better than the NBBO when the PIP Auction was initiated after Public Customer, Initiating Participants and Quality Market Makers have received allocations. Non-Quality Market Maker and Quality Market Maker interest asabaliauskas on DSK3SPTVN1PROD with NOTICES 10 See BOX Rule 7270(a)(3)(iii)(A). BOX Rule 7150(g)(3). 12 See supra note 3. The Exchange’s proposal is based on BX’s Priority Market Maker allocation round of their price improvement auction when size pro-rata is used for the auction’s allocation method. 13 The Exchange notes, as is the case with BX, the Exchange does not have non-displayed interest; therefore, there is no distinction in the proposed rule regarding the displayed NBBO versus nondisplayed. 11 See VerDate Sep<11>2014 19:05 Jun 30, 2016 Jkt 238001 which exceeded their displayed size of the QMM Eligibility Quantity will be allocated pro-rata. Example #1 A PIP Order to buy 200 contracts of options instrument A is received. Assume the NBBO is 2.00–2.10 and Market Maker 1 is at the NBBO to sell 10 contracts at the start of the PIP. The following responses are received: Public Customer 1 to sell 20 at 2.08 Primary Improvement Order to sell 200 at 2.08 Market Maker 1 to sell 70 at 2.08 Market Maker 2 to sell 60 at 2.08 The PIP Order will be allocated in the following order: Round 1: Public Customer Allocation • 20 contracts at 2.08 to Public Customer 1 Round 2: Primary Improvement Order Allocation • 72 contracts at 2.08 to the Primary Improvement Order (40% of the remaining quantity after Public Customer 1) Round 3: Quality Market Maker Allocation • 10 contracts at 2.08 to Market Maker 1 as a QMM (During the QMM allocation round, the QMM is capped at the size of their quote at the NBBO at the start of the PIP. The QMM’s allocation is at a price better than the NBBO at the start of the PIP.) Round 4: Market Maker Allocation • 49 contracts at 2.08 to Market Maker 1 (Market Maker 1 is allocated during the Market Maker round any remaining quantity after the QMM allocation round) • 49 contracts at 2.08 to Market Maker 2 Example #2 A PIP Order to buy 200 contracts of options instrument A is received. Assume the NBBO is 2.00–2.10 and Market Maker 1 is at the NBBO to sell 120 contracts at the start of the PIP. The following responses are received: Public Customer 1 to sell 10 at 2.08 Primary Improvement Order to sell 200 at 2.08 Market Maker 1 to sell 80 at 2.08 Market Maker 2 to sell 60 at 2.08 Market Maker 3 to sell 60 at 2.08 The PIP Order will be allocated in the following order: Round 1: Public Customer Allocation • 10 contracts at 2.08 to Public Customer 1 Round 2: Primary Improvement Order Allocation • 76 contracts at 2.08 to the Primary Improvement (40% of the PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 43323 remaining quantity after Public Customer 1) Round 3: Quality Market Maker Allocation • 80 contracts to Market Maker 1 at 2.08 as a QMM (Market Maker 1’s quote at the NBBO at the start of the PIP exceeds their PIP response, therefore the allocation is capped at the size of their PIP response instead of the size of their quote at the NBBO at the start of the PIP. The QMM’s allocation is at a price better than the NBBO at the start of the PIP.) Round 4: Market Maker Allocation • 17 contracts to Market Maker 2 at 2.08 and 17 contracts to Market Maker 3 at 2.08 (Market Makers 2 and 3 receive a pro-rata allocation of the remainder of the contracts because there is insufficient size to satisfy the full quantity of their responses) Example #3 A PIP Order to sell 100 contracts of options instrument A is received. Assume the NBBO is 1.00—1.10 and Market Maker 1 is at the NBBO to buy 120 contracts at the start of the PIP. The following responses are received: Primary Improvement Order to buy 100 at 1.02 Market Maker 1 to buy 100 at 1.02 Market Maker 2 to buy 80 at 1.02 Market Maker 3 to buy 20 at 1.02 Broker Dealer 1 to buy 50 at 1.02 The PIP Order will be allocated in the following order: Round 1: Primary Improvement Order Allocation • 40 contracts at 1.02 to the Primary Improvement Order (40% of the remaining quantity after Public Customer (none in this example)) Round 2: Quality Market Maker Allocation • 60 contracts to Market Maker 1 at 1.02 as a QMM (Market Maker 1’s quote at the NBBO at the start of the PIP exceeds their PIP response, therefore the eligible allocation is capped at the size of their PIP response instead of the size of their quote at the NBBO at the start of the PIP. The QMM’s allocation is at a price better than the NBBO at the start of the PIP.) Example #4—Multiple Market Makers quoting at the NBBO A PIP Order to sell 250 contracts of options instrument A is received. Assume the NBBO is 1.00—1.10 and, at the start of the PIP, Market Maker 1 is at the NBBO to buy 100 contracts and Market Maker 2 is at the NBBO to buy E:\FR\FM\01JYN1.SGM 01JYN1 43324 Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES 100 contracts. The following responses are received: Public Customer 1 to buy 40 at 1.02 Primary Improvement Order to buy 250 at 1.02 Market Maker 1 to buy 80 at 1.02 Market Maker 2 to buy 80 at 1.02 Market Maker 3 to buy 50 at 1.02 Broker Dealer 1 to buy 10 at 1.02 The PIP Order will be allocated in the following order: Round 1: Public Customer Allocation • 40 contracts at 1.02 to Public Customer 1 Round 2: Primary Improvement Order Allocation • 84 contracts at 1.02 to the Primary Improvement Order (40% of the remaining quantity after Public Customer 1) Round 3: Quality Market Maker Allocation • 63 contracts at 1.02 to Market Maker 1 as a QMM and 63 contracts at 1.02 to Market Maker 2 as a QMM (Market Maker 1 and 2 are allocated pro-rata since both had quotes at the NBBO at that start of the PIP and both responded to the PIP. Their eligible allocation is capped at the size of their response to the PIP because their quote at the NBBO at the start of the PIP exceeded their responses. The QMM’s allocation is at a price better than the NBBO at the start of the PIP.) Note—when there are multiple QMMs, allocation in the QMM round will be determined based on pro-rata using the size of the QMMs quote at the NBBO at the start of the auction. 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’’),14 in general, and Section 6(b)(5) of the Act,15 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 Exchange believes that the proposed Quality Market Maker allocation may encourage Market Makers to quote at the NBBO with additional size and thereby result in tighter and deeper markets, 14 15 15 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 19:05 Jun 30, 2016 resulting in more liquidity on BOX. Specifically, by offering BOX Market Makers the ability to receive priority in the proposed allocation during the PIP auction, a BOX Market Maker may be encouraged to quote outside of the PIP auction at the their best and most aggressive prices with additional size. BOX believes that this incentive may result in a narrowing of quotes and thus further enhance BOX’s overall market quality. Within the PIP auction, BOX believes that the proposed allocation may encourage BOX Market Makers to compete vigorously to provide the opportunity for price improvement in a competitive auction process. Additionally, the Exchange believes that providing the Quality Market Maker allocation at price levels better than the NBBO at the start of the PIP will incentivize quoting on BOX. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In this regard, and as indicated above, the Exchange notes that the rule change is being proposed as a competitive response to a filing submitted by BX that was recently approved by the Commission.16 The Exchange does not believe that providing BOX Market Makers with an opportunity to receive priority allocation will create an undue burden on intra-market competition. BOX Market Makers have obligations to the market unlike other market participants.17 The allocation seeks to reward BOX Market Makers with an opportunity to receive additional allocations. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time 16 See 17 See Jkt 238001 PO 00000 supra, note 3. BOX Rule 8040. Frm 00143 Fmt 4703 Sfmt 4703 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 18 and Rule 19b–4(f)(6) thereunder.19 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 rulecomments@sec.gov. Please include File Number SR–BOX–2016–25 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BOX–2016–25. 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 18 15 U.S.C. 78s(b)(3)(A). 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. 19 17 E:\FR\FM\01JYN1.SGM 01JYN1 Federal Register / Vol. 81, No. 127 / Friday, July 1, 2016 / Notices 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– 2016–25, and should be submitted on or before July 22, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Robert W. Errett, Deputy Secretary. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 7260 by Extending the Penny Pilot Program Through December 31, 2016 asabaliauskas on DSK3SPTVN1PROD with NOTICES June 28, 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 June 13, 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. CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Sep<11>2014 19:05 Jun 30, 2016 Jkt 238001 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. 1. Purpose [Release No. 34–78172; File No. SR–BOX– 2016–24] 1 15 The Exchange proposes to amend Rule 7260 by extending the Penny Pilot Program through December 31, 2016. 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2016–15711 Filed 6–30–16; 8:45 am] 20 17 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to extend the effective time period of the Penny Pilot Program that is currently scheduled to expire on June 30, 2016, until December 31, 2016.3 The Penny Pilot Program permits certain classes to be quoted in penny increments. The minimum price variation for all classes included in the Penny Pilot Program, except for PowerShares QQQ Trust (‘‘QQQQ’’)®, SPDR S&P 500 Exchange Traded Funds (‘‘SPY’’), and iShares Russell 2000 Index Funds (‘‘IWM’’), will continue to be 3 The Penny Pilot Program has been in effect on the Exchange since its inception in May 2012. See Securities Exchange Act Release Nos. 66871 (April 27, 2012), 77 FR 26323 (May 3, 2012) (File No. 10– 206, In the Matter of the Application of BOX Options Exchange LLC for Registration as a National Securities Exchange Findings, Opinion, and Order of the Commission), 67328 (June 29, 2012), 77 FR 40123 (July 6, 2012) (SR–BOX–2012– 007), 68425 (December 13, 2012), 77 FR 75234 (December 19, 2013) (SR–BOX–2012–021), 69789 (June 18, 2013), 78 FR 37854 (June 24, 2013) (SR– BOX–2013–31), 71056 (December 12, 2013), 78 FR 76691 (December 18, 2013) (SR–BOX–2013–56), 72348 (June 9, 2014), 79 FR 33976 (June 13, 2014) (SR–BOX–2014–17), 73822 (December 11, 2014), 79 FR 75606 (December 18, 2014) (SR–BOX–2014–29), and 75295 (June 25, 2015), 80 FR 37690 (July 1, 2015) (SR–BOX–2015–23). The extension of the effective date and the revision of the date to replace issues that have been delisted are the only changes to the Penny Pilot Program being proposed at this time. PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 43325 $0.01 for all quotations in options series that are quoted at less than $3 per contract and $0.05 for all quotations in options series that are quoted at $3 per contract or greater. QQQQ, SPY, and IWM will continue to be quoted in $0.01 increments for all options series. The Exchange may replace, on a semiannual basis, any Pilot Program classes that have been delisted on the second trading day following July 1, 2016. The Exchange notes that the replacement classes will be selected based on trading activity for the six month period beginning December 1, 2015 and ending May 31, 2016 for the July 2016 replacements. The Exchange will employ the same parameters to prospective replacement classes as approved and applicable under the Pilot Program, including excluding highpriced underlying securities. The Exchange will distribute a Regulatory Circular notifying Participants which replacement classes shall be included in the Penny Pilot Program. BOX is specifically authorized to act jointly with the other options exchanges participating in the Pilot Program in identifying any replacement class. 2. Statutory Basis The Exchange believes that the proposal is consistent with the requirements of section 6(b) of the Act,4 in general, and section 6(b)(5) of the Act,5 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, and to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general protect investors and the public interest. In particular, the proposed rule change, which extends the Penny Pilot until December 31, 2016 and changes the dates for replacing Penny Pilot issues that were delisted to the second trading day following July 1, 2016, will enable public customers and other market participants to express their true prices to buy and sell options for the benefit of all market participants. This is consistent with the Act. 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 4 15 5 15 E:\FR\FM\01JYN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 01JYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 127 (Friday, July 1, 2016)]
[Notices]
[Pages 43322-43325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-15711]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78171; File No. SR-BOX-2016-25]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Rule 7150 (Price Improvement Period (``PIP'')) To Establish the
Quality Market Maker Allocation in a PIP Order

June 28, 2016.
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 June 15, 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
change from interested persons.
---------------------------------------------------------------------------

\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 BOX Rule 7150 (Price Improvement
Period (``PIP'')) to establish the Quality Market Maker allocation in a
PIP 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 Exchange proposes to amend BOX Rule 7150 (Price Improvement
Period (``PIP'')) to establish the Quality Market Maker allocation in a
PIP Order. This is a competitive filing that is based on a proposal
recently submitted by NASDAQ OMX BX, Inc. (``BX'') and approved by the
Commission.\3\
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\3\ See Securities Exchange Act Release No. 34-76301 (October
29, 2015), 80 FR 68347 (November 4, 2016) (Order Approving SR-BX-
2015-032). See also BX Rule BX Chapter VI, Sec. 9(ii)(E)(3).
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PIP
The Exchange currently offers Participants the possibility of price
improvement via its electronic auction process known as the PIP. The
PIP has saved investors more than $722 million versus the prevailing
NBBO since 2004. BOX believes that the proposed rule change will result
in tighter and deeper markets, resulting in more liquidity on BOX.
Current PIP Allocation
At the conclusion of a PIP, the PIP Order is currently 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 the priority algorithm described
below, whether Improvement Order(s) \4\ or Unrelated Order(s) \5\
received by BOX, or Legging Orders \6\ 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.
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\4\ See BOX Rule 7150(f)(1).
\5\ See BOX Rule 7150(a)(1).
\6\ See BOX Rule 7240(c).
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The Exchange's Rules currently provide the following allocations
for when the total quantity of orders, quotes, Improvement Orders,
Legging Orders and the Primary Improvement Order is greater than the
quantity of the PIP Order at a given price level:
Public Customer Allocation
All orders, other than Legging Orders and the Primary Improvement
Order, for the account of Public Customers, whether Improvement Orders
or Unrelated Orders, including quotes and orders on the BOX Book \7\
prior to the PIP Broadcast, will be allocated for execution against the
PIP Order first.\8\ Where there are multiple such orders for the
account of Public Customers at the same price, the trade allocation
will be by time priority. If, at the end of the Public Customer
allocation, there remains any unallocated quantity of the PIP Order,
the balance will be allocated to the Primary Improvement Order
allocation described below.
---------------------------------------------------------------------------

\7\ See BOX Rule 100(a)(10).
\8\ See BOX Rule 7150(g)(1).
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Primary Improvement Order Allocation
After the Public Customer allocation, the applicable trade
allocation described below will be allocated to the Primary Improvement
Order.\9\ After Public Customer Orders have been satisfied, the
Initiating Participant's Primary Improvement Order retains priority for
up to 40% of the remaining size of the PIP Order when the Primary
Improvement Order matches any competing Improvement Orders and/or non-
Public Customers' Unrelated Orders at the final price level. If the
Primary Improvement Order has designated a

[[Page 43323]]

PIP Surrender Quantity, the Primary Improvement Order allocation will
be reduced, if necessary, in accordance with the PIP Surrender
Quantity.\10\ The balance will be allocated to the Market Maker
allocation.
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\9\ See BOX Rule 7150(g)(2).
\10\ See BOX Rule 7270(a)(3)(iii)(A).
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Market Maker Allocation
After the Primary Improvement Order allocation, any remaining
unallocated quantity of the PIP Order will be allocated to orders and
quotes, including Improvement Orders and quotes and orders on the BOX
Book prior to the PIP Broadcast for the account of Market Makers. Where
there are orders and quotes for the accounts of more than one Market
Maker at the same price, the trade allocation for Market Makers will be
pro-rata.\11\
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\11\ See BOX Rule 7150(g)(3).
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Proposal
The Exchange proposes to establish the Quality Market Maker
allocation after the Primary Improvement Order allocation and before
the Market Maker allocation. As previously mentioned, the proposed rule
change is based on, and substantially similar to, the rules of BX.\12\
In the allocation following the Primary Improvement Order, Market
Makers that were quoting at a price that is equal to the NBBO on the
opposite side of the market from the PIP Order at the time of
initiation of the PIP Auction (``Quality Market Makers''),\13\ would
have priority up to their quote size in the NBBO which was present when
the PIP Auction was initiated (``QMM Eligibility Quantity'') at each
price level at or better than such NBBO when the PIP Auction was
initiated after Public Customers have received allocations. Quality
Market Maker quotes will be allocated pro-rata. Quality Market Maker
status is only valid for the duration of the particular PIP auction.
Further, Non-Quality Market Makers and Quality Market Maker interest
which exceeded their size in the QMM Eligibility Quantity would have
priority at each price level at or better than the NBBO when the PIP
Auction was initiated after Public Customer, Initiating Participants
and Quality Market Makers have received allocations. Non-Quality Market
Maker and Quality Market Maker interest which exceeded their displayed
size of the QMM Eligibility Quantity will be allocated pro-rata.
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\12\ See supra note 3. The Exchange's proposal is based on BX's
Priority Market Maker allocation round of their price improvement
auction when size pro-rata is used for the auction's allocation
method.
\13\ The Exchange notes, as is the case with BX, the Exchange
does not have non-displayed interest; therefore, there is no
distinction in the proposed rule regarding the displayed NBBO versus
non-displayed.
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Example #1
A PIP Order to buy 200 contracts of options instrument A is
received. Assume the NBBO is 2.00-2.10 and Market Maker 1 is at the
NBBO to sell 10 contracts at the start of the PIP. The following
responses are received:

Public Customer 1 to sell 20 at 2.08
Primary Improvement Order to sell 200 at 2.08
Market Maker 1 to sell 70 at 2.08
Market Maker 2 to sell 60 at 2.08

The PIP Order will be allocated in the following order:

Round 1: Public Customer Allocation
20 contracts at 2.08 to Public Customer 1
Round 2: Primary Improvement Order Allocation
72 contracts at 2.08 to the Primary Improvement Order (40%
of the remaining quantity after Public Customer 1)
Round 3: Quality Market Maker Allocation
10 contracts at 2.08 to Market Maker 1 as a QMM (During
the QMM allocation round, the QMM is capped at the size of their quote
at the NBBO at the start of the PIP. The QMM's allocation is at a price
better than the NBBO at the start of the PIP.)
Round 4: Market Maker Allocation
49 contracts at 2.08 to Market Maker 1 (Market Maker 1 is
allocated during the Market Maker round any remaining quantity after
the QMM allocation round)
49 contracts at 2.08 to Market Maker 2
Example #2
A PIP Order to buy 200 contracts of options instrument A is
received. Assume the NBBO is 2.00-2.10 and Market Maker 1 is at the
NBBO to sell 120 contracts at the start of the PIP. The following
responses are received:

Public Customer 1 to sell 10 at 2.08
Primary Improvement Order to sell 200 at 2.08
Market Maker 1 to sell 80 at 2.08
Market Maker 2 to sell 60 at 2.08
Market Maker 3 to sell 60 at 2.08

The PIP Order will be allocated in the following order:

Round 1: Public Customer Allocation
10 contracts at 2.08 to Public Customer 1
Round 2: Primary Improvement Order Allocation
76 contracts at 2.08 to the Primary Improvement (40% of
the remaining quantity after Public Customer 1)
Round 3: Quality Market Maker Allocation
80 contracts to Market Maker 1 at 2.08 as a QMM (Market
Maker 1's quote at the NBBO at the start of the PIP exceeds their PIP
response, therefore the allocation is capped at the size of their PIP
response instead of the size of their quote at the NBBO at the start of
the PIP. The QMM's allocation is at a price better than the NBBO at the
start of the PIP.)
Round 4: Market Maker Allocation
17 contracts to Market Maker 2 at 2.08 and 17 contracts to
Market Maker 3 at 2.08 (Market Makers 2 and 3 receive a pro-rata
allocation of the remainder of the contracts because there is
insufficient size to satisfy the full quantity of their responses)
Example #3
A PIP Order to sell 100 contracts of options instrument A is
received. Assume the NBBO is 1.00--1.10 and Market Maker 1 is at the
NBBO to buy 120 contracts at the start of the PIP. The following
responses are received:

Primary Improvement Order to buy 100 at 1.02
Market Maker 1 to buy 100 at 1.02
Market Maker 2 to buy 80 at 1.02
Market Maker 3 to buy 20 at 1.02
Broker Dealer 1 to buy 50 at 1.02

The PIP Order will be allocated in the following order:

Round 1: Primary Improvement Order Allocation
40 contracts at 1.02 to the Primary Improvement Order (40%
of the remaining quantity after Public Customer (none in this example))
Round 2: Quality Market Maker Allocation
60 contracts to Market Maker 1 at 1.02 as a QMM (Market
Maker 1's quote at the NBBO at the start of the PIP exceeds their PIP
response, therefore the eligible allocation is capped at the size of
their PIP response instead of the size of their quote at the NBBO at
the start of the PIP. The QMM's allocation is at a price better than
the NBBO at the start of the PIP.)
Example #4--Multiple Market Makers quoting at the NBBO
A PIP Order to sell 250 contracts of options instrument A is
received. Assume the NBBO is 1.00--1.10 and, at the start of the PIP,
Market Maker 1 is at the NBBO to buy 100 contracts and Market Maker 2
is at the NBBO to buy

[[Page 43324]]

100 contracts. The following responses are received:
Public Customer 1 to buy 40 at 1.02
Primary Improvement Order to buy 250 at 1.02
Market Maker 1 to buy 80 at 1.02
Market Maker 2 to buy 80 at 1.02
Market Maker 3 to buy 50 at 1.02
Broker Dealer 1 to buy 10 at 1.02

The PIP Order will be allocated in the following order:
Round 1: Public Customer Allocation
40 contracts at 1.02 to Public Customer 1
Round 2: Primary Improvement Order Allocation
84 contracts at 1.02 to the Primary Improvement Order (40%
of the remaining quantity after Public Customer 1)
Round 3: Quality Market Maker Allocation
63 contracts at 1.02 to Market Maker 1 as a QMM and 63
contracts at 1.02 to Market Maker 2 as a QMM (Market Maker 1 and 2 are
allocated pro-rata since both had quotes at the NBBO at that start of
the PIP and both responded to the PIP. Their eligible allocation is
capped at the size of their response to the PIP because their quote at
the NBBO at the start of the PIP exceeded their responses. The QMM's
allocation is at a price better than the NBBO at the start of the PIP.)

Note--when there are multiple QMMs, allocation in the QMM round
will be determined based on pro-rata using the size of the QMMs quote
at the NBBO at the start of the auction.
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''),\14\ in general, and Section 6(b)(5) of the Act,\15\ 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 Exchange believes that the proposed
Quality Market Maker allocation may encourage Market Makers to quote at
the NBBO with additional size and thereby result in tighter and deeper
markets, resulting in more liquidity on BOX. Specifically, by offering
BOX Market Makers the ability to receive priority in the proposed
allocation during the PIP auction, a BOX Market Maker may be encouraged
to quote outside of the PIP auction at the their best and most
aggressive prices with additional size. BOX believes that this
incentive may result in a narrowing of quotes and thus further enhance
BOX's overall market quality. Within the PIP auction, BOX believes that
the proposed allocation may encourage BOX Market Makers to compete
vigorously to provide the opportunity for price improvement in a
competitive auction process. Additionally, the Exchange believes that
providing the Quality Market Maker allocation at price levels better
than the NBBO at the start of the PIP will incentivize quoting on BOX.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In this regard, and as
indicated above, the Exchange notes that the rule change is being
proposed as a competitive response to a filing submitted by BX that was
recently approved by the Commission.\16\
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\16\ See supra, note 3.
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The Exchange does not believe that providing BOX Market Makers with
an opportunity to receive priority allocation will create an undue
burden on intra-market competition. BOX Market Makers have obligations
to the market unlike other market participants.\17\ The allocation
seeks to reward BOX Market Makers with an opportunity to receive
additional allocations.
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\17\ See BOX Rule 8040.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

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

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

Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate 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 \18\ and Rule 19b-4(f)(6)
thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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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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-2016-25 on the subject line.

Paper Comments

Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2016-25. 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

[[Page 43325]]

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-2016-25, and should be
submitted on or before July 22, 2016.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-15711 Filed 6-30-16; 8:45 am]
BILLING CODE 8011-01-P

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