Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Rules Governing the Trading of Complex Customer Cross Orders, 16925-16928 [2019-08101]
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Federal Register / Vol. 84, No. 78 / Tuesday, April 23, 2019 / Notices
In addition, FICC does not believe the
proposed clarifications, corrections, and
technical changes to the GSD QRM
Methodology Document and the
proposed clarification and technical
changes to the MBSD QRM
Methodology Document described
above would have any impact on
competition because these proposed
changes would enhance the clarity and
accuracy of the QRM Methodology
Documents and would not affect the
substantive rights of Netting Members
and Clearing Members.
FICC also does not believe that the
proposed clarifications to the MBSD
Rules would have any impact on
competition because these proposed
changes would enhance the clarity and
accuracy of the MBSD Rules and would
not affect the substantive rights of
Clearing Members.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
FICC has not received or solicited any
written comments relating to this
proposal. FICC will notify the
Commission of any written comments
received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–FICC–2019–001. 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 website (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 website 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 the
filing also will be available for
inspection and copying at the principal
office of FICC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FICC–
2019–001 and should be submitted on
or before May 14, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–08099 Filed 4–22–19; 8:45 am]
BILLING CODE 8011–01–P
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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–
FICC–2019–001 on the subject line.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85681; File No. SR–BOX–
2019–10]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Adopt Rules
Governing the Trading of Complex
Customer Cross Orders
April 17, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 4,
2019, BOX 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.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to adopt rules
governing the trading of Complex
Customer Cross Orders. 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 website at https://
boxoptions.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 rules that
will make existing functionality
available to additional order types on
1 15
31 17
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BOX. Specifically, the Exchange is
proposing rules to codify Complex
Customer Cross Orders on the
Exchange.3 The Exchange notes that the
proposed changes are similar to the
rules of another exchange.4 In addition,
the Exchange is proposing to expand
certain Complex Order protections to
the newly codified Complex Customer
Cross Orders.
Complex Customer Cross Orders
First, the Exchange is proposing to
add text related to Complex Customer
Cross Orders. Proposed Rule
7240(b)(4)(iii) defines a Complex
Customer Cross Order as a type of
Complex Order which is comprised of
one Public Customer Complex Order to
buy and one Public Customer Complex
Order to sell (the same strategy) at the
same price and for the same quantity.5
The Exchange uses the same crossing
mechanism for the processing and
execution of Complex Customer Cross
Orders that is used for Customer Cross
Orders in the regular market.6 Proposed
Rule 7110(c)(7) shall govern the trading
of Complex Customer Cross Orders, as
defined in Rule 7240(b)(4)(iii), on BOX.
Proposed Rule 7110(c)(7) describes the
execution price requirements that are
specific to Complex Customer Cross
Orders.7 Specifically, Complex
Customer Cross Orders are
automatically executed upon entry
provided that the execution (i) is at least
$0.01 better than any Public Customer
Complex Order on the Complex Order
Book; 8 (ii) is at least $0.01 better than
the cBBO 9 (iii) is at or better than any
non-Public Customer Complex Order on
the Complex Order Book; and (iv) is at
or between the cNBBO.10 The purpose
of the requirement that the execution
must be at least $0.01 better than any
Public Customer Complex Order on the
Complex Order Book is to ensure that
the Complex Customer Cross Order does
not trade in front of any resting Public
Customer Complex Orders. The purpose
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3 See
https://boxoptions.com/assets/RC-2017-11CC_QCC_cNBBO-July-10-Implementation-1.pdf.
4 See MIAX Rules 518(b)(5) and 515(h)(3).
5 Proposed Rule 7240(b)(4)(iii) is based on MIAX
Rule 518(b)(5).
6 See BOX Rule 7110(c)(5).
7 Proposed Rule 7110(c)(7) is based on MIAX Rule
515(h)(3).
8 The term ‘‘Complex Order Book’’ means the
electronic book of Complex Orders maintained by
the BOX Trading Host. See Rule 7240(a)(8).
9 The term ‘‘cBBO’’ means the best net bid and
offer price for a Complex Order Strategy based on
the BBO on the BOX Book for the individual
options components of such Strategy. See Rule
7240(a)(1).
10 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. See Rule 7240(a)(3).
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of the requirement that the Complex
Customer Cross Order be executed at or
between the cNBBO is to ensure that net
execution price is within the best net
price available in the market and is in
line with the requirement that simple
Customer Cross Orders must execute at
or within the NBBO.
The system will reject a Complex
Customer Cross Order if, at the time of
receipt of the Complex Customer Cross
Order, the strategy is subject to an
ongoing auction (including COPIP,
Facilitation, and Solicitation auctions)
or there is an exposed order on the
strategy pursuant to Rule 7240(b)(3)(B).
The purpose of this provision is to
maintain an orderly market by avoiding
the execution of Complex Customer
Cross Orders with components that are
involved in other system functions that
could affect the execution price of the
Complex Customer Cross Order, and by
avoiding concurrent processing on the
Exchange involving the same strategy.
Proposed Rule 7110(c)(7)(A) states
that Complex Customer Cross Orders
will be automatically cancelled if they
cannot be executed. Proposed Rule
7110(c)(7)(B) provides that Complex
Customer Cross Orders may only be
entered in the minimum trading
increments applicable to Complex
Orders under Rule 7240(b)(1).
As a regulatory matter, proposed Rule
7110(c)(7)(C) states that IM–7140–1
applies to the entry and execution of
Complex Customer Cross Orders.11
The following example illustrates the
execution of a Complex Customer Cross
Order:
Example 1—Execution of a Complex
Customer Cross Order
BOX Leg A Book: 6.00–6.50
BOX Leg B Book: 3.00–3.30
Strategy: Buy A Call, Sell B Call
The cNBBO is 2.70–3.20
The cBBO 12 is 2.70–3.50
The Complex Order Book contains a Public
Customer order to sell the strategy at 3.20
11 Rule 7140(b) prevents an Options Participant
executing agency orders to increase its economic
gain from trading against the order without first
giving other trading interest on BOX an opportunity
to trade with the agency order pursuant to Rule
7150 (Price Improvement Period), Rule 7245
(Complex Order Price Improvement Period) or Rule
7270 (Block Trades). However, the Exchange
recognizes that it may be possible for an Options
Participant to establish a relationship with a
Customer or other person (including affiliates) to
deny agency orders the opportunity to interact on
BOX and to realize similar economic benefits as it
would achieve by executing agency orders as
principal. It will be a violation of this Rule for an
Options Participant to circumvent this Rule by
providing an opportunity for a Customer or other
person (including affiliates) to execute against
agency orders handled by the Options Participant
immediately upon their entry into the Trading Host.
See IM–7140–1.
12 See supra note 9.
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and has no non-Public Customer Orders for
the strategy.
The Exchange receives a Complex
Customer Cross Order representing Public
Customers on both sides for the simultaneous
purchase and sale of the strategy at a price
of 3.19.
The order price is at least $0.01 better than
the Public Customer Complex Order on the
Complex Order Book and at least $0.01 better
than the implied market price (the cBBO).
Additionally, the order price is at or between
the cNBBO and is at or better than any nonPublic Customer Orders on the Complex
Order Book. Therefore, the Complex
Customer Cross Order is automatically
executed upon entry.
The Exchange notes that the proposed
rules for Complex Customer Cross
Orders are based on the rules of another
exchange with certain minor
differences.13 First, the MIAX Rule
requires the execution price to be better
than the best net price of a complex
order. The proposal requires the
execution price to be better than any
Public Customer Complex Orders on the
Complex Order Book and no worse than
the price of any non-Public Customer
Complex Orders. The Exchange believes
this difference is minor because the
execution price must respect the orders
on the Complex Order Book and not
trade ahead of Public Customer Orders
on the Complex Order Book, which is in
line with regular Customer Cross
Orders. In addition, the Exchange notes
that ISE allows Complex Customer
Cross Orders to trade at the same price
as non-Priority Complex Customer Cross
Orders on the same strategy.14 Pursuant
to Rule 7110(c)(5), a Customer Cross
Order must execute at a price that is at
or between the best bid and offer on
BOX and is not at the same price as a
Public Customer Order on the BOX
Book. Additionally, the Exchange is
proposing to have the execution price be
within the cNBBO, which MIAX does
not provide. The Exchange believes this
difference is minor because the
Exchange is simply ensuring that the
execution price respect the best net
prices available in the market.
Additionally, similar to the above,
regular Customer Cross Orders may not
trade through the NBBO.
Next, MIAX’s Rule requires the
execution to be at least $0.01 better than
best price order on the strategy book or
the derived market price, whichever is
more aggressive. The Exchange also
notes that MIAX includes non-displayed
trading interest when determining the
best price based on the regular books,
which the Exchange is not proposing
13 See
MIAX Rules 515(h)(3) and 518(b)(5).
Nasdaq ISE, LLC (‘‘Nasdaq ISE’’) Rule 722
Supplementary Material .08(d) [sic].
14 See
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because the Exchange does not have
non-displayed interest.
Further, MIAX rejects a Complex
Customer Cross Order if, at the time of
receipt, any component of the strategy is
subject to a PRIME Auction, a Route
Timer, or liquidity refresh pause. The
Exchange is not proposing the same
conditions.15 With respect to not
rejecting when a component is subject
to an auction, the Exchange notes that
this approach is in line with the
treatment of a COPIP when there is an
ongoing PIP on a component of the
Complex Order. Specifically, the
Exchange will accept Complex Orders
designated for the COPIP where there is
a PIP on an individual component.16
Further, in order to ensure orderly
markets involving multiple Complex
Orders with common components, the
Exchange is proposing additional
circumstances in which a Complex
Customer Cross Order will be rejected,
specifically, when there is an exposed
order on the strategy pursuant to rule
7240(b)(4)(iii), or there is an ongoing
COPIP, Facilitation or Solicitation
auction on the strategy.
Lastly, the Exchange proposes to
delete the reference to COPIP in BOX
Rule 7110(c)(5) to make clear that
single-leg Customer Cross transactions
may be executed when the series is
involved in a COPIP. The Exchange
notes that this is similar to functionality
that exists on another exchange.17
jbell on DSK3GLQ082PROD with NOTICES
Complex Order Protections for Complex
Customer Cross Orders
Lastly, the Exchange proposes to
expand certain Complex Order
protections to Complex Customer Cross
Orders. Specifically, the Exchange
proposes to amend Rule IM–7240–
1(a)(5) and IM–7240(b)(5) to apply these
price protection checks to Complex
Customer Cross Orders. The Exchange
notes that another options exchange has
similar price checks for Complex
Customer Cross Orders.18 The Exchange
believes that these protections should be
extended to Complex Customer Cross
Orders as it will mitigate potential risks
associated with market participants
15 BOX notes that it does not have either the
Route Timer or liquidity refresh pause features on
the Exchange. As such, BOX is not proposing to
include these features under the Proposal.
16 See IM–7245–2.
17 See MIAX Rule 515(h). Under MIAX rule
515(h), single-leg Customer Cross Orders are
rejected when the trading interest is subject to a
PRIME Auction or PRIME Solicitation Auction.
MIAX Rule 515(h) does not indicate that a singleleg Customer Cross Order will be rejected, if the
series is subject to a cPRIME Auction.
18 See Chicago Board Options Exchange,
Incorporated (‘‘Cboe’’) Interpretations and Polices
.08(c) and (g) to Rule 6.53C.
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entering orders at unintended prices
and orders trading at prices that are
extreme and potentially erroneous,
which may likely have resulted from
human or operational error.
The Exchange will provide notice of
the exact implementation date of the
proposed protections, via Circular, at
least two weeks prior to implementing
the proposed change.19
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.
The proposal to amend Rules 7110
and 7240 to codify rules covering
Complex Customer Cross is consistent
with Section 6(b)(5) of the Act because
this proposal promotes just and
equitable principles of trade and
protects investors and the public
interest by providing increased
opportunities for the execution of
Complex Orders. The Exchange believes
that the proposed Complex Customer
Cross rules will benefit Participants and
the marketplace as a whole by adopting
rules that allow for the trading of these
types of orders on the Exchange. The
Exchange believes the proposed rules
for Complex Customer Cross Orders
remove impediments to and perfects the
mechanism of a free and open market
and a national market system and will
result in more efficient trading and
enhance the likelihood of the Complex
Orders executing at the best prices by
providing additional order types
resulting in potentially greater liquidity
available for trading on the Exchange.
The proposed rule change will
provide rules that make existing
functionality available to additional
order types. Providing rules that make
Customer Cross available for Complex
19 Due to technological delays, Complex Order
price protections detailed in SR–BOX–2018–13
have not yet been implemented. The Exchange will
provide notice of the exact implementation date of
these protections, including the proposed
protections discussed herein, at least two weeks
prior to implementing the proposed change.
20 15 U.S.C. 78f(b).
21 15 U.S.C. 78f(b)(5).
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16927
Orders removes impediments to and
perfects the mechanisms of a free and
open market and a national market
system because Participants will be
given additional ways in which they can
execute Complex Orders.
The proposed rule change will protect
investors and the public interest by
assuring the existing priority and
allocation rules applicable to the
processing and execution of Customer
Cross Orders and Complex Orders
remains consistent with the processing
and execution of these order types,
unless otherwise specifically set forth in
the rules.
The Exchange believes that the
proposal to reject a Complex Customer
Cross Order at the time of receipt of the
order when the strategy is subject to an
ongoing auction (including COPIP,
Facilitation and Solicitation auctions),
or there is an exposed order on the
strategy, removes impediments to and
perfects the mechanism of a free and
open market by ensuring orderly
markets involving multiple complex
orders with common components.
The proposed rule change to
implement a debit/credit check for
Customer Cross Orders is consistent
with the Act. With the use of debit/
credit checks, the Exchange can further
assist with the maintenance of a fair and
orderly market by mitigating the
potential risks associated with Complex
Customer Cross Orders trading at prices
that are inconsistent with their
strategies (which may result in
executions at prices that are extreme
and potentially erroneous), which
ultimately protects investors. This
proposed implementation of the debit/
credit check promotes just and equitable
principles of trade, as it is based on the
same general option and volatility
pricing principles which the Exchange
understands are used by market
participants in their option pricing
models.
Additionally, the Exchange also
believes that calculating a maximum
price for true butterfly spreads, vertical
spreads, and box spreads will assist
with the maintenance of fair and orderly
markets by helping to mitigate the
potential risks associated with Complex
Customer Cross Orders trading at
extreme and potentially erroneous
prices that are inconsistent with
particular Complex Order strategies.
Further, the Exchange notes that the
maximum price is designed to mitigate
the potential risks of executions at
prices that are not within an acceptable
price range, as a means to help mitigate
the potential risks associated with
Complex Orders trading at prices that
are inconsistent with their strategies, in
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addition to the debit/credit check. As
such, the proposed rule change is
designed to protect investors and the
public interest.
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.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change to provide
rules governing the trading of Complex
Customer Cross Orders 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 is being proposed as a
competitive response to the rules of
another exchange.22 Additionally, the
proposed rule change is intended to
promote competition by adding rules for
new order types that enable Participants
to execute Complex Orders on the
Exchange. The Exchange believes that
this enhances inter-market competition
by enabling the Exchange to compete for
this type of order flow with other
exchanges that have similar rules and
functionalities in place.
Further, the Exchange does not
believe that the proposed Complex
Order protections will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act. In this regard and
as indicated above, the Exchange notes
that the rule change is being proposed
as a competitive response to the rules of
another exchange.23 Additionally, the
Exchange believes the proposed rule
change is beneficial to Participants as it
will provide increased protections that
will prevent the execution of certain
Complex Orders that were entered in
error. The Exchange believes the
proposal is pro-competitive and should
serve to attract additional Complex
Orders to the Exchange. Further, the
Exchange does not believe the proposed
change will not impose a burden on
intramarket competition because it is
available to all Participants.
For the reasons stated, the Exchange
does not believe that the proposed rule
changes will impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act, and the Exchange
believes the proposed change will, in
fact, enhance competition.
22 See
23 See
MIAX Rules 515(h)(3) and 518(b)(5).
supra, note 18.
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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, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 24 and Rule 19b–
4(f)(6) thereunder.25
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–2019–10 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–2019–10. This file
24 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.
25 17
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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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BOX–2019–10, and should
be submitted on or before May 14, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–08101 Filed 4–22–19; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #15927 and #15928;
Nebraska Disaster Number NE–00074]
Presidential Declaration Amendment of
a Major Disaster for Public Assistance
Only for the State of Nebraska
U.S. Small Business
Administration.
ACTION: Amendment 2.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for Public Assistance Only for
the State of Nebraska (FEMA—4420—
DR), dated 04/05/2019.
Incident: Severe Winter Storm,
Straight-line Winds, and Flooding.
SUMMARY:
26 17
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[Federal Register Volume 84, Number 78 (Tuesday, April 23, 2019)]
[Notices]
[Pages 16925-16928]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08101]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85681; File No. SR-BOX-2019-10]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Adopt Rules
Governing the Trading of Complex Customer Cross Orders
April 17, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 4, 2019, BOX 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to adopt rules governing the trading of
Complex Customer Cross Orders. 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
website at https://boxoptions.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 rules that will make existing
functionality available to additional order types on
[[Page 16926]]
BOX. Specifically, the Exchange is proposing rules to codify Complex
Customer Cross Orders on the Exchange.\3\ The Exchange notes that the
proposed changes are similar to the rules of another exchange.\4\ In
addition, the Exchange is proposing to expand certain Complex Order
protections to the newly codified Complex Customer Cross Orders.
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\3\ See https://boxoptions.com/assets/RC-2017-11-CC_QCC_cNBBO-July-10-Implementation-1.pdf.
\4\ See MIAX Rules 518(b)(5) and 515(h)(3).
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Complex Customer Cross Orders
First, the Exchange is proposing to add text related to Complex
Customer Cross Orders. Proposed Rule 7240(b)(4)(iii) defines a Complex
Customer Cross Order as a type of Complex Order which is comprised of
one Public Customer Complex Order to buy and one Public Customer
Complex Order to sell (the same strategy) at the same price and for the
same quantity.\5\
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\5\ Proposed Rule 7240(b)(4)(iii) is based on MIAX Rule
518(b)(5).
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The Exchange uses the same crossing mechanism for the processing
and execution of Complex Customer Cross Orders that is used for
Customer Cross Orders in the regular market.\6\ Proposed Rule
7110(c)(7) shall govern the trading of Complex Customer Cross Orders,
as defined in Rule 7240(b)(4)(iii), on BOX. Proposed Rule 7110(c)(7)
describes the execution price requirements that are specific to Complex
Customer Cross Orders.\7\ Specifically, Complex Customer Cross Orders
are automatically executed upon entry provided that the execution (i)
is at least $0.01 better than any Public Customer Complex Order on the
Complex Order Book; \8\ (ii) is at least $0.01 better than the cBBO \9\
(iii) is at or better than any non-Public Customer Complex Order on the
Complex Order Book; and (iv) is at or between the cNBBO.\10\ The
purpose of the requirement that the execution must be at least $0.01
better than any Public Customer Complex Order on the Complex Order Book
is to ensure that the Complex Customer Cross Order does not trade in
front of any resting Public Customer Complex Orders. The purpose of the
requirement that the Complex Customer Cross Order be executed at or
between the cNBBO is to ensure that net execution price is within the
best net price available in the market and is in line with the
requirement that simple Customer Cross Orders must execute at or within
the NBBO.
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\6\ See BOX Rule 7110(c)(5).
\7\ Proposed Rule 7110(c)(7) is based on MIAX Rule 515(h)(3).
\8\ The term ``Complex Order Book'' means the electronic book of
Complex Orders maintained by the BOX Trading Host. See Rule
7240(a)(8).
\9\ The term ``cBBO'' means the best net bid and offer price for
a Complex Order Strategy based on the BBO on the BOX Book for the
individual options components of such Strategy. See Rule 7240(a)(1).
\10\ 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. See Rule 7240(a)(3).
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The system will reject a Complex Customer Cross Order if, at the
time of receipt of the Complex Customer Cross Order, the strategy is
subject to an ongoing auction (including COPIP, Facilitation, and
Solicitation auctions) or there is an exposed order on the strategy
pursuant to Rule 7240(b)(3)(B). The purpose of this provision is to
maintain an orderly market by avoiding the execution of Complex
Customer Cross Orders with components that are involved in other system
functions that could affect the execution price of the Complex Customer
Cross Order, and by avoiding concurrent processing on the Exchange
involving the same strategy.
Proposed Rule 7110(c)(7)(A) states that Complex Customer Cross
Orders will be automatically cancelled if they cannot be executed.
Proposed Rule 7110(c)(7)(B) provides that Complex Customer Cross Orders
may only be entered in the minimum trading increments applicable to
Complex Orders under Rule 7240(b)(1).
As a regulatory matter, proposed Rule 7110(c)(7)(C) states that IM-
7140-1 applies to the entry and execution of Complex Customer Cross
Orders.\11\
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\11\ Rule 7140(b) prevents an Options Participant executing
agency orders to increase its economic gain from trading against the
order without first giving other trading interest on BOX an
opportunity to trade with the agency order pursuant to Rule 7150
(Price Improvement Period), Rule 7245 (Complex Order Price
Improvement Period) or Rule 7270 (Block Trades). However, the
Exchange recognizes that it may be possible for an Options
Participant to establish a relationship with a Customer or other
person (including affiliates) to deny agency orders the opportunity
to interact on BOX and to realize similar economic benefits as it
would achieve by executing agency orders as principal. It will be a
violation of this Rule for an Options Participant to circumvent this
Rule by providing an opportunity for a Customer or other person
(including affiliates) to execute against agency orders handled by
the Options Participant immediately upon their entry into the
Trading Host. See IM-7140-1.
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The following example illustrates the execution of a Complex
Customer Cross Order:
Example 1--Execution of a Complex Customer Cross Order
BOX Leg A Book: 6.00-6.50
BOX Leg B Book: 3.00-3.30
Strategy: Buy A Call, Sell B Call
The cNBBO is 2.70-3.20
The cBBO \12\ is 2.70-3.50
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\12\ See supra note 9.
The Complex Order Book contains a Public Customer order to sell
the strategy at 3.20 and has no non-Public Customer Orders for the
strategy.
The Exchange receives a Complex Customer Cross Order
representing Public Customers on both sides for the simultaneous
purchase and sale of the strategy at a price of 3.19.
The order price is at least $0.01 better than the Public
Customer Complex Order on the Complex Order Book and at least $0.01
better than the implied market price (the cBBO). Additionally, the
order price is at or between the cNBBO and is at or better than any
non-Public Customer Orders on the Complex Order Book. Therefore, the
Complex Customer Cross Order is automatically executed upon entry.
The Exchange notes that the proposed rules for Complex Customer
Cross Orders are based on the rules of another exchange with certain
minor differences.\13\ First, the MIAX Rule requires the execution
price to be better than the best net price of a complex order. The
proposal requires the execution price to be better than any Public
Customer Complex Orders on the Complex Order Book and no worse than the
price of any non-Public Customer Complex Orders. The Exchange believes
this difference is minor because the execution price must respect the
orders on the Complex Order Book and not trade ahead of Public Customer
Orders on the Complex Order Book, which is in line with regular
Customer Cross Orders. In addition, the Exchange notes that ISE allows
Complex Customer Cross Orders to trade at the same price as non-
Priority Complex Customer Cross Orders on the same strategy.\14\
Pursuant to Rule 7110(c)(5), a Customer Cross Order must execute at a
price that is at or between the best bid and offer on BOX and is not at
the same price as a Public Customer Order on the BOX Book.
Additionally, the Exchange is proposing to have the execution price be
within the cNBBO, which MIAX does not provide. The Exchange believes
this difference is minor because the Exchange is simply ensuring that
the execution price respect the best net prices available in the
market. Additionally, similar to the above, regular Customer Cross
Orders may not trade through the NBBO.
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\13\ See MIAX Rules 515(h)(3) and 518(b)(5).
\14\ See Nasdaq ISE, LLC (``Nasdaq ISE'') Rule 722 Supplementary
Material .08(d) [sic].
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Next, MIAX's Rule requires the execution to be at least $0.01
better than best price order on the strategy book or the derived market
price, whichever is more aggressive. The Exchange also notes that MIAX
includes non-displayed trading interest when determining the best price
based on the regular books, which the Exchange is not proposing
[[Page 16927]]
because the Exchange does not have non-displayed interest.
Further, MIAX rejects a Complex Customer Cross Order if, at the
time of receipt, any component of the strategy is subject to a PRIME
Auction, a Route Timer, or liquidity refresh pause. The Exchange is not
proposing the same conditions.\15\ With respect to not rejecting when a
component is subject to an auction, the Exchange notes that this
approach is in line with the treatment of a COPIP when there is an
ongoing PIP on a component of the Complex Order. Specifically, the
Exchange will accept Complex Orders designated for the COPIP where
there is a PIP on an individual component.\16\ Further, in order to
ensure orderly markets involving multiple Complex Orders with common
components, the Exchange is proposing additional circumstances in which
a Complex Customer Cross Order will be rejected, specifically, when
there is an exposed order on the strategy pursuant to rule
7240(b)(4)(iii), or there is an ongoing COPIP, Facilitation or
Solicitation auction on the strategy.
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\15\ BOX notes that it does not have either the Route Timer or
liquidity refresh pause features on the Exchange. As such, BOX is
not proposing to include these features under the Proposal.
\16\ See IM-7245-2.
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Lastly, the Exchange proposes to delete the reference to COPIP in
BOX Rule 7110(c)(5) to make clear that single-leg Customer Cross
transactions may be executed when the series is involved in a COPIP.
The Exchange notes that this is similar to functionality that exists on
another exchange.\17\
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\17\ See MIAX Rule 515(h). Under MIAX rule 515(h), single-leg
Customer Cross Orders are rejected when the trading interest is
subject to a PRIME Auction or PRIME Solicitation Auction. MIAX Rule
515(h) does not indicate that a single-leg Customer Cross Order will
be rejected, if the series is subject to a cPRIME Auction.
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Complex Order Protections for Complex Customer Cross Orders
Lastly, the Exchange proposes to expand certain Complex Order
protections to Complex Customer Cross Orders. Specifically, the
Exchange proposes to amend Rule IM-7240-1(a)(5) and IM-7240(b)(5) to
apply these price protection checks to Complex Customer Cross Orders.
The Exchange notes that another options exchange has similar price
checks for Complex Customer Cross Orders.\18\ The Exchange believes
that these protections should be extended to Complex Customer Cross
Orders as it will mitigate potential risks associated with market
participants entering orders at unintended prices and orders trading at
prices that are extreme and potentially erroneous, which may likely
have resulted from human or operational error.
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\18\ See Chicago Board Options Exchange, Incorporated (``Cboe'')
Interpretations and Polices .08(c) and (g) to Rule 6.53C.
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The Exchange will provide notice of the exact implementation date
of the proposed protections, via Circular, at least two weeks prior to
implementing the proposed change.\19\
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\19\ Due to technological delays, Complex Order price
protections detailed in SR-BOX-2018-13 have not yet been
implemented. The Exchange will provide notice of the exact
implementation date of these protections, including the proposed
protections discussed herein, at least two weeks prior to
implementing the proposed change.
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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.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
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The proposal to amend Rules 7110 and 7240 to codify rules covering
Complex Customer Cross is consistent with Section 6(b)(5) of the Act
because this proposal promotes just and equitable principles of trade
and protects investors and the public interest by providing increased
opportunities for the execution of Complex Orders. The Exchange
believes that the proposed Complex Customer Cross rules will benefit
Participants and the marketplace as a whole by adopting rules that
allow for the trading of these types of orders on the Exchange. The
Exchange believes the proposed rules for Complex Customer Cross Orders
remove impediments to and perfects the mechanism of a free and open
market and a national market system and will result in more efficient
trading and enhance the likelihood of the Complex Orders executing at
the best prices by providing additional order types resulting in
potentially greater liquidity available for trading on the Exchange.
The proposed rule change will provide rules that make existing
functionality available to additional order types. Providing rules that
make Customer Cross available for Complex Orders removes impediments to
and perfects the mechanisms of a free and open market and a national
market system because Participants will be given additional ways in
which they can execute Complex Orders.
The proposed rule change will protect investors and the public
interest by assuring the existing priority and allocation rules
applicable to the processing and execution of Customer Cross Orders and
Complex Orders remains consistent with the processing and execution of
these order types, unless otherwise specifically set forth in the
rules.
The Exchange believes that the proposal to reject a Complex
Customer Cross Order at the time of receipt of the order when the
strategy is subject to an ongoing auction (including COPIP,
Facilitation and Solicitation auctions), or there is an exposed order
on the strategy, removes impediments to and perfects the mechanism of a
free and open market by ensuring orderly markets involving multiple
complex orders with common components.
The proposed rule change to implement a debit/credit check for
Customer Cross Orders is consistent with the Act. With the use of
debit/credit checks, the Exchange can further assist with the
maintenance of a fair and orderly market by mitigating the potential
risks associated with Complex Customer Cross Orders trading at prices
that are inconsistent with their strategies (which may result in
executions at prices that are extreme and potentially erroneous), which
ultimately protects investors. This proposed implementation of the
debit/credit check promotes just and equitable principles of trade, as
it is based on the same general option and volatility pricing
principles which the Exchange understands are used by market
participants in their option pricing models.
Additionally, the Exchange also believes that calculating a maximum
price for true butterfly spreads, vertical spreads, and box spreads
will assist with the maintenance of fair and orderly markets by helping
to mitigate the potential risks associated with Complex Customer Cross
Orders trading at extreme and potentially erroneous prices that are
inconsistent with particular Complex Order strategies. Further, the
Exchange notes that the maximum price is designed to mitigate the
potential risks of executions at prices that are not within an
acceptable price range, as a means to help mitigate the potential risks
associated with Complex Orders trading at prices that are inconsistent
with their strategies, in
[[Page 16928]]
addition to the debit/credit check. As such, the proposed rule change
is designed to protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change to
provide rules governing the trading of Complex Customer Cross Orders
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 is being proposed as a
competitive response to the rules of another exchange.\22\
Additionally, the proposed rule change is intended to promote
competition by adding rules for new order types that enable
Participants to execute Complex Orders on the Exchange. The Exchange
believes that this enhances inter-market competition by enabling the
Exchange to compete for this type of order flow with other exchanges
that have similar rules and functionalities in place.
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\22\ See MIAX Rules 515(h)(3) and 518(b)(5).
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Further, the Exchange does not believe that the proposed Complex
Order protections will impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act. In this
regard and as indicated above, the Exchange notes that the rule change
is being proposed as a competitive response to the rules of another
exchange.\23\ Additionally, the Exchange believes the proposed rule
change is beneficial to Participants as it will provide increased
protections that will prevent the execution of certain Complex Orders
that were entered in error. The Exchange believes the proposal is pro-
competitive and should serve to attract additional Complex Orders to
the Exchange. Further, the Exchange does not believe the proposed
change will not impose a burden on intramarket competition because it
is available to all Participants.
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\23\ See supra, note 18.
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For the reasons stated, the Exchange does not believe that the
proposed rule changes will impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act, and
the Exchange believes the proposed change will, in fact, enhance
competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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, it has become effective pursuant to Section
19(b)(3)(A) of the Act \24\ and Rule 19b-4(f)(6) thereunder.\25\
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 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 [email protected]. Please include
File Number SR-BOX-2019-10 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-2019-10. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-BOX-2019-10, and should be submitted on
or before May 14, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-08101 Filed 4-22-19; 8:45 am]
BILLING CODE 8011-01-P
