Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Proposed Rule Change To Adopt BOX Rule 7670 To Establish a Virtual Trading Floor on BOX, 24119-24124 [2021-09443]
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Federal Register / Vol. 86, No. 85 / Wednesday, May 5, 2021 / Notices
19(b)(3)(A) of the Act 14 and Rule 19b–
4(f)(6) thereunder.15
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act normally does not become operative
for 30 days after the date of its filing.
However, Rule 19b–4(f)(6)(iii) 16 permits
the Commission to designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has requested
that the Commission waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange asserted that the
waiver would allow the Exchange to
harmonize its functionality to that of
MIAX Options Exchange and thus
reduce the potential for confusion
among its Members. The Exchange also
stated that it does not believe that
removal of the FOK order type will
impact users as this order type is
infrequently used on the Exchange. For
these reasons, the Commission believes
that waiver of the 30-day operative
delay is consistent with the protection
of investors and the public interest, and
will allow the Exchange to immediately
align its functionality with MIAX
Options Exchange and simplify its
rulebook to remove an infrequently used
order type. Accordingly, the
Commission hereby waives the
operative delay and designates the
proposed rule change operative upon
filing.17
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
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
14 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
16 17 CFR 240.19b–4(f)(6)(iii).
17 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
15 17
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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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–09431 Filed 5–4–21; 8:45 am]
Electronic Comments
BILLING CODE 8011–01–P
• 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–
EMERALD–2021–14 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–EMERALD–2021–14. 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 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–EMERALD–2021–14 and
should be submitted on or before May
26, 2021.
PO 00000
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91714; File No. SR–BOX–
2021–07]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing of
Proposed Rule Change To Adopt BOX
Rule 7670 To Establish a Virtual
Trading Floor on BOX
April 29, 2021.
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 16,
2021, BOX Exchange LLC (‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule 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 establish
BOX Rule 7670 to adopt a Virtual
Trading Floor on BOX. 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.
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 86, No. 85 / Wednesday, May 5, 2021 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to establish
BOX Rule 7670 to adopt a Virtual
Trading Floor on BOX. This is a
competitive filing that is based on a
proposal submitted by Cboe Exchange,
Inc. (‘‘Cboe’’) and approved by the
Commission.3
On March 20, 2020, as a
precautionary measure to prevent the
potential spread of coronavirus
(COVID–19), BOX closed the Trading
Floor located in Chicago, Illinois for an
indefinite period of time. As a result of
the closure of the Trading Floor, BOX
operated in an electronic only trading
mode. The Exchange continued to
operate in an all-electronic capacity
until May 4, 2020, when the Exchange
reopened its Trading Floor with
continued safety guidelines, policies
and procedures in place. However,
given the uncertainty related to the
ongoing pandemic, which includes the
possibility of the Exchange having to
close its Trading Floor again, and given
the possibility that the Exchange’s
Trading Floor may be inoperable or at
capacity for other reasons in the future,
the Exchange believes it is appropriate
to continue to review and enhance its
rules with regard to its business
continuity plans. While BOX continued
to operate in an all-electronic capacity
while the physical Trading Floor was
closed, an all-electronic trading
environment cannot fully replicate open
outcry trading. Therefore, the Exchange
continues to evaluate potential
enhancements that it believes would
permit open outcry trading while the
Trading Floor is inoperable to more
closely replicate its trading environment
that exists during normal operations.
There are certain features of open
outcry trading that are difficult to
replicate in an electronic trading
environment, particularly the human
interaction that permits persons to
negotiate pricing and to facilitate
executions of larger orders and high-risk
complicated strategies. For example,
from January 2, 2020 through March 21,
2020 (the last day on which the Trading
Floor was open), Complex Orders for
options with more than four legs
represented approximately 11.3% of the
total complex order average daily
volume (‘‘ADV’’) during that timeframe.
However, from March 22, 2020 (the first
3 See Securities Exchange Act Release No. 90658
(December 14, 2020) (Order Approving SR–CBOE–
2020–055).
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day on which the Trading Floor was
closed) through May 1, 2020 (the last
day before the Trading Floor reopened),
Participants executed zero complex
orders for options with more than four
legs.4 This data, taken into
consideration with feedback from
Participants, demonstrates the difficulty
market participants have with executing
high-risk and complex strategies in an
all-electronic trading capacity that does
not allow for human interaction.
The Exchange believes the proposed
rule change would further enhance the
Exchange’s trading environment when
the physical Trading Floor is inoperable
by permitting market participants that
generally operate on the Trading Floor
to continue to interact in a substantially
similar manner as they do on the
Trading Floor. Specifically, the
Exchange proposes to adopt Rule
7670(a) which details the Loss of
Trading Floor. If the Exchange Trading
Floor becomes inoperable and the
Exchange does not make a Virtual
Trading Floor available, the Exchange
will continue to operate in an electronic
only environment while the Trading
Floor is inoperable. Open outcry trading
will not be available in the event the
Trading Floor becomes inoperable
except as otherwise set forth in Rule
7670 discussed herein. The Exchange
reiterates that the proposed Virtual
Trading Floor will only be activated if
the physical Trading Floor becomes
inoperable. Further, the Exchange has
the discretion to not activate the Virtual
Trading Floor if the physical Trading
Floor becomes inoperable.
The Exchange proposes to adopt Rule
7670(a)(1) which will allow the
Exchange to make available an audio
and video communication program to
serve as a ‘‘Virtual Trading Floor’’
during regular trading hours. In the
program, the Exchange will create a
‘‘Virtual Trading Pit.’’ In the Virtual
Trading Pit, each Participant authorized
to access the Virtual Trading Floor (as
described below) that enters the Virtual
Trading Pit will be visible to all other
Participants in that Virtual Trading Pit.
Additionally, all Participants in that
Virtual Trading Pit may speak to each
other through the program. This will
4 The Exchange notes that from May 2, 2020
through July 31, 2020, Complex Orders for options
with more than four legs represented approximately
6.9% of the total Complex Order ADV during that
timeframe. The Exchange believes that this trading
activity further demonstrates the need to execute
certain high-risk and complex strategies with the
assistance of human interaction and price
negotiation that a Trading Floor best facilitates. The
Exchange believes that the proposed Virtual
Trading Floor will be an identical venue to that of
the physical Trading Floor with respect to these
types of trades.
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allow the same communication
capabilities Participants generally have
on the physical Trading Floor so that
they may conduct open outcry trading
on the Virtual Trading Floor in the same
manner as they do on the physical
Trading Floor.
All rules related to open outcry
trading will apply to open outcry
trading on the Virtual Trading Floor in
the same manner as they apply to open
outcry trading on the physical Trading
Floor, except as the context otherwise
requires and as set forth in proposed
subparagraph (a)(1)(A). Proposed
subparagraph (a)(1)(A) lists certain
terms in the rules related to open outcry
trading on the physical Trading Floor
that will be deemed to refer to
corresponding terms related to open
outcry trading on the Virtual Trading
Floor. Specifically:
(i) References in the Rules to the
‘‘Floor,’’ ‘‘Trading Floor,’’ and
‘‘Exchange Floor’’ (and any other terms
with the same meaning) will be deemed
to refer to the ‘‘Virtual Trading Floor.’’
(ii) References in the Rules to ‘‘Pit’’
and ‘‘Crowd Area’’ (and any other terms
with the same meaning) will be deemed
to refer to the ‘‘Virtual Trading Pit.’’
(iii) The terms ‘‘in-crowd Floor
Participant’’ mean a Floor Market Maker
or a Floor Brooker representing an order
in the Virtual Trading Pit on the Virtual
Trading Floor.
Access to the Virtual Trading Floor
will be substantially similar to access to
the physical Trading Floor. Currently,
admission to the physical Trading Floor
is limited to Floor Participants,
Exchange employees, Clerks employed
by Floor Participants and registered
with the Exchange, Exchange visitors
that receive authorized admission to the
Trading Floor pursuant to Exchange
policy, and any other persons that the
Exchange authorizes admission to the
Trading Floor. Proposed Rule
7670(a)(1)(B) provides the same persons
with access to the Virtual Trading Floor,
except for visitors. While Clerks may
access the Virtual Trading Floor, they
may only perform the same functions
for their associated organizations in
connection with open outcry trading on
the Virtual Trading Floor as they do for
open outcry trading on the physical
Trading Floor. The Exchange
understands permitting Clerks to access
the Virtual Trading Floor will provide
them with access to the information that
they normally have access to on the
physical Trading Floor, which will
make it more efficient for them to
perform their tasks. Clerks will continue
to be unable to enter into transactions
on the Exchange. Additionally, as there
is no physical equipment that would
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Federal Register / Vol. 86, No. 85 / Wednesday, May 5, 2021 / Notices
need service on the Virtual Trading
Floor, and no purpose for a visitor to
observe the Virtual Trading Floor, the
proposed rule change excludes visitors
from accessing the Virtual Trading
Floor.5
As is the case with the physical
Trading Floor, the Exchange will
provide access to the Virtual Trading
Floor to Participants the Exchange has
approved to perform a Trading Floor
function (including Floor Brokers and
Floor Market Makers). This includes
Participants (and individuals that
represent Participant organizations) that
are currently authorized to perform
Trading Floor functions, as well as any
additional Participants that receive such
authorization in the future. Each
authorized individual will receive one
log-in to the Virtual Trading Floor. The
Exchange currently requires at least one
Market Maker to be present on the
physical Trading Floor (prior to a Floor
Broker announcing an order for
execution) 6 and believes it is necessary
and appropriate to impose such
requirement for the Virtual Trading
Floor.7 Further, the Exchange notes that
it will track which individuals
participate in the Virtual Trading Floor,
including when they log-in and log-out.
Under this proposal, Floor
Participants are not required to display
badges on the Virtual Trading Floor, as
the size of the view on the
communication program may not permit
badges to be visible.8 Currently, on the
physical Trading Floor, a Floor Market
Maker has an appointment to trade open
outcry in all classes trading on the
Exchange (and must be physically
present in the Crowd Area to trade in
open outcry). Similarly, any Floor
Market Maker authorized to act on the
physical Trading Floor will receive
access to the Virtual Trading Pit on the
Virtual Trading Floor.
As set forth in Rule 7660, and subject
to the requirements in that Rule, Floor
Participants may use any
communication device on the physical
Trading Floor (which it must register
5 While the Exchange does not anticipate granting
any other individuals with access to the Virtual
Trading Floor outside of Participants and Exchange
personnel, the Exchange believes the flexibility to
permit Exchange personnel to access the Virtual
Trading Floor is appropriate, such as to permit
access to make updates to the communication
program.
6 See BOX Rule 7580(a).
7 The Exchange notes that another options
exchange with a Virtual Trading Floor has a similar
requirement. See Securities Exchange Release Act
No. 91299 (March 11, 2021), 86 FR 14661 (Notice
of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of SR–Phlx–2021–03).
8 The Virtual Trading Floor program will identify
the Participant organization of each Participant in
the Virtual Trading Pit.
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with the Exchange). Pursuant to
proposed Rule 7670(a)(1)(C),
Participants may use any equipment to
access the Virtual Trading Floor. Prior
to using a communications device for
business purposes on the physical
Trading Floor of the Exchange,
Participants must register the
communications device by identifying
(in a form and manner prescribed by the
Exchange) the hardware. Because
individuals on the Virtual Trading Floor
will not be on the Exchange premises
(and thus will not be using Exchange
provided bandwidth to be shared with
all market participants and do not pose
the same security risks), the proposed
rule change will not require Participants
to register devices they use while on the
Virtual Trading Floor.9 Rule 7660 will
otherwise apply in the same manner to
the Virtual Trading Floor as it does to
the physical Trading Floor (to the extent
the context requires). This includes
requirements related to audit trail and
record retention, prohibition on using
any device for the purpose of recording
activities in the Virtual Trading Pit or
maintaining an open line of continuous
communication whereby a nonassociated person not located in the
trading crowd may continuously
monitor the activities in the trading
crowd.
The Exchange will use a
communication program that has audio
and video capabilities, as well as ‘‘chat’’
functionality. Proposed Rule
7670(a)(1)(D) states that the Exchange
may determine to require any Floor
Market Maker or Floor Broker in the
Virtual Trading Pit that wants to trade
against an order represented for
execution to express its bid or offer in
a chat available in the Virtual Trading
Pit.10 The Exchange would require
Participants to utilize the chat function
9 The Exchange notes that Floor Participants will
be required to inform the Exchange of the IP
address that will be used to access the Virtual
Trading Floor. Market participants will likely use
home networks to connect to the Virtual Trading
Floor platform (which is contained in the BOX
trading environment). By requiring the submission
of IP addresses to BOX, the Exchange is able to
create a secure network available only to approved
IP addresses. This, in turn, denies any outside (and
not previously approved) connections from entering
the Virtual Trading Floor and, thus secures the
Virtual Trading environment to only those
Participants approved by the Exchange. Further, the
Exchange believes that requiring the submission of
IP addresses connected to the Virtual Trading Floor
is appropriate and will be of assistance to BOX
employees if market participants experience any
connection issues when trying to use the Virtual
Trading Floor platform.
10 The Exchange will announce to all Participants
any determination to require bids and offers to be
expressed in a chat within the communication
program by Regulatory Circular. The Exchange will
provide such notice with sufficient advance notice.
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if BOX Trading Floor Officials
determine that increased volume or
activity in the Virtual Trading Crowd
warrant mandatory use of the chat
feature for Participants to maintain a fair
and orderly market.11 Chats will be
visible to all Participants in the Virtual
Trading Pit and will not be permitted
directly between individual Participants
(i.e., the Exchange will disable direct
messaging functionality within the
communication program). Participants
on the physical Trading Floor only
verbalize their interest to trade against
a represented order, so not requiring
bids and offers to be included in a chat
conforms to current practice on the
Trading Floor. However, given potential
limitations of communication software
(such as limitations on how many
people may be heard at the same time
in the Virtual Pit or potential buffering
or echoing), the Exchange believes it
may be appropriate to require market
participants to use a chat tool in the
communication program to indicate
their interest in participating in a trade
so that the representing Floor Broker is
able to know the market from the
trading crowd and fairly allocate the
trade pursuant to the Rules. The
Exchange believes the flexibility to
impose this requirement in the Virtual
Trading Pit is appropriate, as these
limitations may ultimately not interfere
with a Floor Broker’s ability to hear all
interest (particularly in a Virtual
Trading Pit with few Participants) and
thus the additional requirement may
potentially slow down executions.
Flexibility will permit the Exchange to
balance system limitation. The
Exchange notes that, regardless of
whether it requires the chat function to
be used, the Exchange will maintain
records of all chats in the Virtual
Trading Floor in accordance with its
self-regulatory organization recordretention obligations.
The program also has a functionality
that will permit Floor Brokers and Floor
Market Makers on the Virtual Trading
Floor to see an electronic blotter
containing a running list of unexecuted
orders that have been represented by
Floor Brokers on the Virtual Trading
Floor. Currently, Floor Brokers record
the times at which they verbally
represent orders on the Trading Floor by
submitting their order to the Trading
Host for execution. This information is
generally only verbally available on the
physical trading floor. However, similar
11 The Exchange notes that another exchange with
a Virtual Trading Floor has a similar requirement.
See Securities Exchange Release Act No. 91299
(March 11, 2021), 86 FR 14661 (Notice of Filing of
Amendment No. 1 and Order Granting Accelerated
Approval of SR–Phlx–2021–03).
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to why the Exchange is making chat
functionality available in the Virtual
Trading Floor, the Exchange believes
the additional information included in
the blotter will benefit Virtual Trading
Floor Participants given potential
limitations of communication software
(such as limitations on how many
people may be heard at the same time
in a virtual pit or potential buffering or
echoing). For example, if a Floor Market
Maker’s personal device momentarily
freezes, causing the Floor Market Maker
to miss the terms of an order
represented by a Floor Broker, the Floor
Market Maker will still be able to see the
terms of the order in the blotter and
determine whether it wants to seek to
trade with the order.
Further, pursuant to proposed Rule
7670(a)(1)(E), Floor Market Maker
quotes will be considered firm in the
event the Floor Market Maker is
disconnected from the Virtual Trading
Crowd and the parties have a Meeting
of the Minds with respect to the terms
of the transaction. A ‘‘Meeting of the
Minds’’ means the contra-side(s)
verbally confirmed participation in the
trade. In the event that a Floor Market
Maker is disconnected from the Virtual
Trading Crowd, a Floor Market Maker
quote would not be considered firm if
the quote were provided and the parties
did not have a Meeting of the Minds
with respect to the terms of the
transaction.
Today, a Floor Market Maker that
experiences issues with internet
connection, makes an error or otherwise
is unaware of recent news in a
particular option, would be held to a
quote verbalized in open outcry. In the
event that the negotiation continues and
the terms change, the Floor Marker
Maker would not be held to the new
terms without additional acceptance of
those terms. In the event that the
transaction is not effectuated in the BOX
Trading Host, the trade would not stand.
To that end, the Exchange believes
requiring quotes to remain firm once the
parties have arrived at a Meeting of the
Minds with respect to the terms of the
transaction creates fair and equitable
expectations for Participants trading in
the Virtual Trading Crowd.
The Exchange notes that, regardless of
whether it requires the chat function to
be used, the Exchange will maintain
records of all chats in the Virtual
Trading Floor 12 in accordance with its
self-regulatory organization record
retention obligations, as these are
‘‘correspondence’’ records subject to
those obligations, as set forth in
proposed subparagraph (a)1)(F).13
Specifically, proposed 7670(a)(1)(F)
states the Exchange will retain records
of the chats, Participant logs, and any
other records related to the virtual
trading floor that are subject to the
Exchange’s record retention obligations
under the Exchange Act. The Exchange
does not currently plan to make video
recordings of the virtual trading floor
because the Exchange believes video is
not subject to its record retention
obligations. However, if the Exchange
determined to make video recordings of
the virtual trading floor, it would retain
those video recordings in accordance
with its record retention obligations.14
Floor Officials will have access to the
Virtual Trading Floor. Floor Officials
will have the same authority to act in
the Virtual Trading Floor as they do on
the physical trading floor. Additionally,
a BOX employee will be available to
provide technical and operational
support (in addition to regular Exchange
support staff for floor operations) if
Participants in the Virtual Trading Floor
need assistance. If there was an issue
with the communication program
making the Virtual Trading Floor
unavailable, the Exchange would
operate in an all-electronic
configuration (as it did earlier in 2020
when the physical Trading Floor was
unavailable) until the communication
program was available again.
While open outcry trading on the
Virtual Trading Floor will occur with
in-crowd market participants interacting
with each other remotely through a
computer communication program, all
trading that occurs on the Virtual
Trading Floor will occur in the same
manner as it does on the physical
Trading Floor. Specifically, open outcry
trading on the Virtual Trading Floor will
be subject to the same priority and
allocation rules as open trading on the
physical Trading Floor, as set forth in
Rule 7600. Any risk controls and price
protection mechanisms that apply to
open outcry trading on the physical
Trading Floor will apply in the same
manner to open outcry trading on the
Virtual Trading Floor. The Exchange
will make the same order types and
instructions available on the Virtual
Trading Floor as it makes available on
the physical Trading Floor. Floor
Brokers will be subject to the
responsibilities set forth in Rules 7570
and 7580 on the Virtual Trading Floor,
13 See
12 The
Exchange notes the information that will
be displayed in the blotter is already retained as
part of the BOX order audit trail.
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15 U.S.C. 78q(a).
The Exchange notes it will disable the
ability of Participants to record the Virtual Trading
Floor through the communication program.
as they are on the physical Trading
Floor.
In addition, marker participants
participating on the Virtual Trading
Floor will be subject to the same
regulatory requirements on the Virtual
Trading Floor as they are on the
physical Trading Floor, including those
set forth in Rule Series 3000 and 4000.
Orders must be systematized 15 and
represented,16 and transactions
reported, in connection with the Virtual
Trading Floor in the same manner as
they are when trading on the physical
Trading Floor. Therefore, the audit trail
for open outcry trading on the Virtual
Trading Floor will capture the same
information that it does for open outcry
trading on the physical Trading Floor.
The Regulatory Division will be able to
utilize preexisting Trading Floor
surveillances to surveil for the activity
occurring on the Virtual Trading Floor.
Specifically, the Regulatory Division
monitors open outcry trading using
various automated surveillances, which
incorporate systematized order and
trade execution information and
applicable time stamps, as well as other
elements of the audit trail from the
Floor Broker’s order entry system(s) and
the BOX matching engine. Because incrowd market participants will use the
same tools to systematize and execute
orders on the Virtual Trading Floor that
they would use on the physical Trading
Floor, and will be subject to the same
trading rules and requirements, the
Regulatory Staff’s automated
surveillances applicable to open outcry
trading will incorporate the same audit
trail information from open outcry
trading on the Virtual Trading Floor that
they do from open outcry trading on the
physical Trading Floor. Additionally,
Regulatory Staff will always be present
on the Virtual Trading Floor and may
access any records pertaining to the
Virtual Trading Floor (i.e., chats) if they
deem it necessary and appropriate to
ensure compliance with BOX Rules.
Lastly, the Exchange notes that it has
conducted meetings with Floor
Participants in which the Exchange
presented the functionality of the
Virtual Trading Floor and has made the
Virtual Trading Floor available for
testing so that the Exchange will be
ready to implement it if necessary. The
Exchange has received positive feedback
from Floor Participants regarding the
Virtual Trading Floor and will continue
to make updates as necessary and
appropriate in response to comments it
receives to make the Virtual Trading
Floor replicate the open outcry trading
14 Id.
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15 See
16 See
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Rule 7580(e)(1).
Rule 7580(e)(2).
05MYN1
Federal Register / Vol. 86, No. 85 / Wednesday, May 5, 2021 / Notices
experience on the physical Trading
Floor as much as possible. The
Exchange believes this will provide the
opportunity for as seamless a rollout as
possible if circumstances cause the
Exchange to make the Virtual Trading
Floor available.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 17 in general, and furthers the
objectives of Section 6(b)(5) of the Act 18
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. Additionally, the
Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 19 requirement that the rules of
an exchange not be designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes the proposed
rule change will 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, as it
will permit open outcry trading to
continue in the event the Exchange’s
Trading Floor is inoperable. The
Exchange again notes that the proposed
Virtual Trading Floor will only be
activated if the physical Trading Floor
becomes inoperable. Further, the
Exchange has the discretion to not
activate the Virtual Trading Floor if the
physical Trading Floor becomes
inoperable. The Exchange believes that
these factors, taken together, limit the
scope of this proposal to extenuating
circumstances that the Exchanges hopes
to avoid. While the Exchange continues
to believe that the physical Trading
Floor is an essential function to BOX
Market and hopes the physical Trading
Floor does not become inoperable or
require any closures in the future, the
Exchange also believes it is appropriate
to continue to review and enhance its
rules with regard to its business
continuity plans if the physical Trading
Floor were to become inoperable. As
such, the Exchange believes the
adoption of a Virtual Trading Floor,
which emulates the physical Trading
17 15
18 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
19 Id.
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23:06 May 04, 2021
Jkt 253001
Floor, is reasonable and appropriate
given the circumstances the world faces
today.
As discussed above, there are certain
features of open outcry trading that are
difficult to replicate in an all-electronic
trading environment. The Exchange has
observed, and understands from various
market participants, that they have had
difficulty executing certain orders, such
as larger orders and high-risk and
complicated strategies, in an allelectronic trading environment without
the element of human interaction to
negotiate pricing for these orders. The
proposed rule change would provide an
environment in which this interaction
would be available despite the
inoperability of the physical Trading
Floor. The Exchange believes the
proposed rule change may facilitate
continued trading of these orders if and
when the Trading Floor is inoperable.
As a result, the Exchange believes
providing continuous access to open
outcry trading when the physical
Trading Floor is inoperable will remove
impediments to a free and open market
and will ultimately benefit investors,
particularly those desiring to execute
high-risk and complex trading
strategies.
The Exchange also believes the
proposed rule change will promote just
and equitable principles of trade, as
open outcry trading on a Virtual Trading
Floor will occur in accordance with the
same trading rules and be subject to the
same regulatory requirements that apply
to open outcry trading on the physical
Trading Floor, all of which have
previously been filed with the
Commission. The proposed rule change
will merely permit this open outcry
trading to occur in a virtual setting
rather than a physical setting (which
may be necessary and appropriate for
health and safety purposes)—in other
words, open outcry trading on a Virtual
Trading Floor will occur while market
participants operate remotely as they do
when they trade electronically.
Specifically, open outcry trading on the
Virtual Trading Floor will be subject to
the same priority and allocation rules as
open trading on the physical Trading
Floor, as set forth in Rule 7600 series.
As is the case for open outcry trading on
the physical Trading Floor, open outcry
trading on the Virtual Trading Floor is
consistent with Section 11(a) of the Act,
as IM–7600–5 (which will apply to open
outcry trading on the Virtual Trading
Floor) requires Participants relying on
Section 11(a)(1)(G) of the Act and Rule
11a1–1(T) thereunder (the so called ‘‘G
exemption rule’’) as an exemption must
yield priority to any bid (offer) at the
same price of Public Customer orders
PO 00000
Frm 00210
Fmt 4703
Sfmt 4703
24123
and broker-dealer orders resting in the
Book, as well as any other bid (offer)
that has priority over those Broker
Dealer orders under this Rule. The
Exchange may make the same order
types and instructions available on the
Virtual Trading Floor as it makes
available on the physical Trading Floor.
Floor Brokers will be subject to the
responsibilities set forth in Rules 7570
and 7580 on the Virtual Trading Floor,
as they are on the physical Trading
Floor.
Additionally, Participants
participating on the Virtual Trading
Floor will be subject to the same
regulatory requirements on the Virtual
Trading Floor as they are on the
physical Trading Floor, including those
set forth in Rule Series 3000 and 4000.
As previously noted, orders must be
systematized and represented, and
transactions reported, in connection
with the Virtual Trading Floor in the
same manner as they are when trading
on the physical Trading Floor.20
Therefore, the audit trail for open outcry
trading on the Virtual Trading Floor will
capture the same information that it
does for open outcry trading on the
physical Trading Floor. The Regulatory
Division will be able to utilize
preexisting floor surveillances to surveil
for the activity occurring on the Virtual
Trading Floor. Specifically, the
Regulatory Division monitors open
outcry trading using various automated
surveillances, which incorporate
systematized order and trade execution
information and applicable time stamps,
as well as other elements of the audit
trail from the floor broker’s order entry
system(s) and the BOX matching engine.
Because in-crowd market participants
will use the same tools to systematize
and execute orders on the Virtual
Trading Floor that they would use on
the physical Trading Floor, and will be
subject to the same trading rules and
requirements, the Regulatory Division’s
automated surveillances applicable to
open outcry trading will incorporate the
same audit trail information from open
outcry trading on the Virtual Trading
Floor that they do from open outcry
trading on the physical Trading Floor.
Additionally, Regulatory Division Staff
20 Pursuant to proposed Rule 7670(a)(1)(E), Floor
Market Maker quotes will be considered firm in the
event the Floor Market Maker is disconnected from
the Virtual Trading Crowd and the parties have a
Meeting of the Minds with respect to the terms of
the transaction. A ‘‘Meeting of the Minds’’ means
the contra-side(s) verbally confirmed participation
in the trade. In the event that a Floor Market Maker
is disconnected from the Virtual Trading Crowd, a
Floor Market Maker quote would not be considered
firm if the quote were provided and the parties did
not have a Meeting of the Minds with respect to the
terms of the transaction.
E:\FR\FM\05MYN1.SGM
05MYN1
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Federal Register / Vol. 86, No. 85 / Wednesday, May 5, 2021 / Notices
will always be present on the Virtual
Trading Floor and may access any
records pertaining to the Virtual Trading
Floor (i.e., chats) if they deem it
necessary and appropriate to ensure
compliance with BOX Rules. The
Exchange believes it will promote just
and equitable principles of trading for
all open outcry trading to occur in
substantially the same manner, whether
it occurs while market participants are
in the same physical setting or in remote
settings being connected through a
technological solution.
In addition, the Exchange believes the
proposed rule change will not be
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers, as all
individuals authorized to act on the
physical Trading Floor (both Participant
organizations authorized at the time the
physical Trading Floor becomes
inoperable and any Participant
organization that becomes authorized
after the physical Trading Floor
becomes inoperable) will be provided
with access to the Virtual Trading Floor.
Lastly, the Exchange notes that the
proposed rule is a competitive response
that is based on a proposal recently
submitted by Cboe and approved by the
Commission.21
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 Cboe that was
recently approved by the Commission.
Further, the Exchange does not believe
that the proposed rule change will
impose any burden on intramarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act, as all Participants
authorized by the Exchange, or that
become authorized by the Exchange, to
transact on the Trading Floor will
receive access to the Virtual Trading
Floor. The Exchange does not believe
that the proposed rule change will
impose any burden on intermarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act, as it relates solely
to the location of open outcry trading on
the Exchange. The proposed rule change
will merely permit open outcry trading
that generally occurs while market
participants are located in the same
21 See
supra note 3.
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23:06 May 04, 2021
Jkt 253001
physical setting to occur while market
participants are in a remote setting,
connected by a technological solution
(as electronic trading does).
The Exchange believes that the
proposed rule change will relieve any
burden on, or otherwise promote,
competition. The Exchange believes the
proposed rule change will provide
market participants with continuous
access to open outcry trading when the
physical Trading Floor is inoperable.
The Exchange believes this may
facilitate continued, competitive price
negotiations and trading of orders that
the Exchange understands are more
difficult to execute in an all-electronic
trading environment without human
interaction. Additionally, the proposed
rule change will provide customer
orders represented for open outcry
execution with access to the same pool
of liquidity when the Trading Floor is
inoperable to which those orders would
have access when the Trading Floor is
operating in its normal state.
Maintenance of this level of liquidity at
all times, even when the physical
Trading Floor is inoperable, may
promote competition by providing these
customer orders with increased
liquidity than may otherwise be
available, and thus increased execution
opportunities and price discovery.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
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
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
PO 00000
Frm 00211
Fmt 4703
Sfmt 9990
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–2021–07 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–2021–07. 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–2021–07, and should
be submitted on or before May 26, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–09443 Filed 5–4–21; 8:45 am]
BILLING CODE 8011–01–P
22 17
E:\FR\FM\05MYN1.SGM
CFR 200.30–3(a)(12).
05MYN1
]]>Agencies
[Federal Register Volume 86, Number 85 (Wednesday, May 5, 2021)]
[Notices]
[Pages 24119-24124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09443]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91714; File No. SR-BOX-2021-07]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Proposed Rule Change To Adopt BOX Rule 7670 To Establish a Virtual
Trading Floor on BOX
April 29, 2021.
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 16, 2021, BOX Exchange LLC (``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to establish BOX Rule 7670 to adopt a Virtual
Trading Floor on BOX. 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.
[[Page 24120]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to establish BOX Rule 7670 to adopt a Virtual
Trading Floor on BOX. This is a competitive filing that is based on a
proposal submitted by Cboe Exchange, Inc. (``Cboe'') and approved by
the Commission.\3\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 90658 (December 14,
2020) (Order Approving SR-CBOE-2020-055).
---------------------------------------------------------------------------
On March 20, 2020, as a precautionary measure to prevent the
potential spread of coronavirus (COVID-19), BOX closed the Trading
Floor located in Chicago, Illinois for an indefinite period of time. As
a result of the closure of the Trading Floor, BOX operated in an
electronic only trading mode. The Exchange continued to operate in an
all-electronic capacity until May 4, 2020, when the Exchange reopened
its Trading Floor with continued safety guidelines, policies and
procedures in place. However, given the uncertainty related to the
ongoing pandemic, which includes the possibility of the Exchange having
to close its Trading Floor again, and given the possibility that the
Exchange's Trading Floor may be inoperable or at capacity for other
reasons in the future, the Exchange believes it is appropriate to
continue to review and enhance its rules with regard to its business
continuity plans. While BOX continued to operate in an all-electronic
capacity while the physical Trading Floor was closed, an all-electronic
trading environment cannot fully replicate open outcry trading.
Therefore, the Exchange continues to evaluate potential enhancements
that it believes would permit open outcry trading while the Trading
Floor is inoperable to more closely replicate its trading environment
that exists during normal operations.
There are certain features of open outcry trading that are
difficult to replicate in an electronic trading environment,
particularly the human interaction that permits persons to negotiate
pricing and to facilitate executions of larger orders and high-risk
complicated strategies. For example, from January 2, 2020 through March
21, 2020 (the last day on which the Trading Floor was open), Complex
Orders for options with more than four legs represented approximately
11.3% of the total complex order average daily volume (``ADV'') during
that timeframe. However, from March 22, 2020 (the first day on which
the Trading Floor was closed) through May 1, 2020 (the last day before
the Trading Floor reopened), Participants executed zero complex orders
for options with more than four legs.\4\ This data, taken into
consideration with feedback from Participants, demonstrates the
difficulty market participants have with executing high-risk and
complex strategies in an all-electronic trading capacity that does not
allow for human interaction.
---------------------------------------------------------------------------
\4\ The Exchange notes that from May 2, 2020 through July 31,
2020, Complex Orders for options with more than four legs
represented approximately 6.9% of the total Complex Order ADV during
that timeframe. The Exchange believes that this trading activity
further demonstrates the need to execute certain high-risk and
complex strategies with the assistance of human interaction and
price negotiation that a Trading Floor best facilitates. The
Exchange believes that the proposed Virtual Trading Floor will be an
identical venue to that of the physical Trading Floor with respect
to these types of trades.
---------------------------------------------------------------------------
The Exchange believes the proposed rule change would further
enhance the Exchange's trading environment when the physical Trading
Floor is inoperable by permitting market participants that generally
operate on the Trading Floor to continue to interact in a substantially
similar manner as they do on the Trading Floor. Specifically, the
Exchange proposes to adopt Rule 7670(a) which details the Loss of
Trading Floor. If the Exchange Trading Floor becomes inoperable and the
Exchange does not make a Virtual Trading Floor available, the Exchange
will continue to operate in an electronic only environment while the
Trading Floor is inoperable. Open outcry trading will not be available
in the event the Trading Floor becomes inoperable except as otherwise
set forth in Rule 7670 discussed herein. The Exchange reiterates that
the proposed Virtual Trading Floor will only be activated if the
physical Trading Floor becomes inoperable. Further, the Exchange has
the discretion to not activate the Virtual Trading Floor if the
physical Trading Floor becomes inoperable.
The Exchange proposes to adopt Rule 7670(a)(1) which will allow the
Exchange to make available an audio and video communication program to
serve as a ``Virtual Trading Floor'' during regular trading hours. In
the program, the Exchange will create a ``Virtual Trading Pit.'' In the
Virtual Trading Pit, each Participant authorized to access the Virtual
Trading Floor (as described below) that enters the Virtual Trading Pit
will be visible to all other Participants in that Virtual Trading Pit.
Additionally, all Participants in that Virtual Trading Pit may speak to
each other through the program. This will allow the same communication
capabilities Participants generally have on the physical Trading Floor
so that they may conduct open outcry trading on the Virtual Trading
Floor in the same manner as they do on the physical Trading Floor.
All rules related to open outcry trading will apply to open outcry
trading on the Virtual Trading Floor in the same manner as they apply
to open outcry trading on the physical Trading Floor, except as the
context otherwise requires and as set forth in proposed subparagraph
(a)(1)(A). Proposed subparagraph (a)(1)(A) lists certain terms in the
rules related to open outcry trading on the physical Trading Floor that
will be deemed to refer to corresponding terms related to open outcry
trading on the Virtual Trading Floor. Specifically:
(i) References in the Rules to the ``Floor,'' ``Trading Floor,''
and ``Exchange Floor'' (and any other terms with the same meaning) will
be deemed to refer to the ``Virtual Trading Floor.''
(ii) References in the Rules to ``Pit'' and ``Crowd Area'' (and any
other terms with the same meaning) will be deemed to refer to the
``Virtual Trading Pit.''
(iii) The terms ``in-crowd Floor Participant'' mean a Floor Market
Maker or a Floor Brooker representing an order in the Virtual Trading
Pit on the Virtual Trading Floor.
Access to the Virtual Trading Floor will be substantially similar
to access to the physical Trading Floor. Currently, admission to the
physical Trading Floor is limited to Floor Participants, Exchange
employees, Clerks employed by Floor Participants and registered with
the Exchange, Exchange visitors that receive authorized admission to
the Trading Floor pursuant to Exchange policy, and any other persons
that the Exchange authorizes admission to the Trading Floor. Proposed
Rule 7670(a)(1)(B) provides the same persons with access to the Virtual
Trading Floor, except for visitors. While Clerks may access the Virtual
Trading Floor, they may only perform the same functions for their
associated organizations in connection with open outcry trading on the
Virtual Trading Floor as they do for open outcry trading on the
physical Trading Floor. The Exchange understands permitting Clerks to
access the Virtual Trading Floor will provide them with access to the
information that they normally have access to on the physical Trading
Floor, which will make it more efficient for them to perform their
tasks. Clerks will continue to be unable to enter into transactions on
the Exchange. Additionally, as there is no physical equipment that
would
[[Page 24121]]
need service on the Virtual Trading Floor, and no purpose for a visitor
to observe the Virtual Trading Floor, the proposed rule change excludes
visitors from accessing the Virtual Trading Floor.\5\
---------------------------------------------------------------------------
\5\ While the Exchange does not anticipate granting any other
individuals with access to the Virtual Trading Floor outside of
Participants and Exchange personnel, the Exchange believes the
flexibility to permit Exchange personnel to access the Virtual
Trading Floor is appropriate, such as to permit access to make
updates to the communication program.
---------------------------------------------------------------------------
As is the case with the physical Trading Floor, the Exchange will
provide access to the Virtual Trading Floor to Participants the
Exchange has approved to perform a Trading Floor function (including
Floor Brokers and Floor Market Makers). This includes Participants (and
individuals that represent Participant organizations) that are
currently authorized to perform Trading Floor functions, as well as any
additional Participants that receive such authorization in the future.
Each authorized individual will receive one log-in to the Virtual
Trading Floor. The Exchange currently requires at least one Market
Maker to be present on the physical Trading Floor (prior to a Floor
Broker announcing an order for execution) \6\ and believes it is
necessary and appropriate to impose such requirement for the Virtual
Trading Floor.\7\ Further, the Exchange notes that it will track which
individuals participate in the Virtual Trading Floor, including when
they log-in and log-out.
---------------------------------------------------------------------------
\6\ See BOX Rule 7580(a).
\7\ The Exchange notes that another options exchange with a
Virtual Trading Floor has a similar requirement. See Securities
Exchange Release Act No. 91299 (March 11, 2021), 86 FR 14661 (Notice
of Filing of Amendment No. 1 and Order Granting Accelerated Approval
of SR-Phlx-2021-03).
---------------------------------------------------------------------------
Under this proposal, Floor Participants are not required to display
badges on the Virtual Trading Floor, as the size of the view on the
communication program may not permit badges to be visible.\8\
Currently, on the physical Trading Floor, a Floor Market Maker has an
appointment to trade open outcry in all classes trading on the Exchange
(and must be physically present in the Crowd Area to trade in open
outcry). Similarly, any Floor Market Maker authorized to act on the
physical Trading Floor will receive access to the Virtual Trading Pit
on the Virtual Trading Floor.
---------------------------------------------------------------------------
\8\ The Virtual Trading Floor program will identify the
Participant organization of each Participant in the Virtual Trading
Pit.
---------------------------------------------------------------------------
As set forth in Rule 7660, and subject to the requirements in that
Rule, Floor Participants may use any communication device on the
physical Trading Floor (which it must register with the Exchange).
Pursuant to proposed Rule 7670(a)(1)(C), Participants may use any
equipment to access the Virtual Trading Floor. Prior to using a
communications device for business purposes on the physical Trading
Floor of the Exchange, Participants must register the communications
device by identifying (in a form and manner prescribed by the Exchange)
the hardware. Because individuals on the Virtual Trading Floor will not
be on the Exchange premises (and thus will not be using Exchange
provided bandwidth to be shared with all market participants and do not
pose the same security risks), the proposed rule change will not
require Participants to register devices they use while on the Virtual
Trading Floor.\9\ Rule 7660 will otherwise apply in the same manner to
the Virtual Trading Floor as it does to the physical Trading Floor (to
the extent the context requires). This includes requirements related to
audit trail and record retention, prohibition on using any device for
the purpose of recording activities in the Virtual Trading Pit or
maintaining an open line of continuous communication whereby a non-
associated person not located in the trading crowd may continuously
monitor the activities in the trading crowd.
---------------------------------------------------------------------------
\9\ The Exchange notes that Floor Participants will be required
to inform the Exchange of the IP address that will be used to access
the Virtual Trading Floor. Market participants will likely use home
networks to connect to the Virtual Trading Floor platform (which is
contained in the BOX trading environment). By requiring the
submission of IP addresses to BOX, the Exchange is able to create a
secure network available only to approved IP addresses. This, in
turn, denies any outside (and not previously approved) connections
from entering the Virtual Trading Floor and, thus secures the
Virtual Trading environment to only those Participants approved by
the Exchange. Further, the Exchange believes that requiring the
submission of IP addresses connected to the Virtual Trading Floor is
appropriate and will be of assistance to BOX employees if market
participants experience any connection issues when trying to use the
Virtual Trading Floor platform.
---------------------------------------------------------------------------
The Exchange will use a communication program that has audio and
video capabilities, as well as ``chat'' functionality. Proposed Rule
7670(a)(1)(D) states that the Exchange may determine to require any
Floor Market Maker or Floor Broker in the Virtual Trading Pit that
wants to trade against an order represented for execution to express
its bid or offer in a chat available in the Virtual Trading Pit.\10\
The Exchange would require Participants to utilize the chat function if
BOX Trading Floor Officials determine that increased volume or activity
in the Virtual Trading Crowd warrant mandatory use of the chat feature
for Participants to maintain a fair and orderly market.\11\ Chats will
be visible to all Participants in the Virtual Trading Pit and will not
be permitted directly between individual Participants (i.e., the
Exchange will disable direct messaging functionality within the
communication program). Participants on the physical Trading Floor only
verbalize their interest to trade against a represented order, so not
requiring bids and offers to be included in a chat conforms to current
practice on the Trading Floor. However, given potential limitations of
communication software (such as limitations on how many people may be
heard at the same time in the Virtual Pit or potential buffering or
echoing), the Exchange believes it may be appropriate to require market
participants to use a chat tool in the communication program to
indicate their interest in participating in a trade so that the
representing Floor Broker is able to know the market from the trading
crowd and fairly allocate the trade pursuant to the Rules. The Exchange
believes the flexibility to impose this requirement in the Virtual
Trading Pit is appropriate, as these limitations may ultimately not
interfere with a Floor Broker's ability to hear all interest
(particularly in a Virtual Trading Pit with few Participants) and thus
the additional requirement may potentially slow down executions.
Flexibility will permit the Exchange to balance system limitation. The
Exchange notes that, regardless of whether it requires the chat
function to be used, the Exchange will maintain records of all chats in
the Virtual Trading Floor in accordance with its self-regulatory
organization record-retention obligations.
---------------------------------------------------------------------------
\10\ The Exchange will announce to all Participants any
determination to require bids and offers to be expressed in a chat
within the communication program by Regulatory Circular. The
Exchange will provide such notice with sufficient advance notice.
\11\ The Exchange notes that another exchange with a Virtual
Trading Floor has a similar requirement. See Securities Exchange
Release Act No. 91299 (March 11, 2021), 86 FR 14661 (Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of
SR-Phlx-2021-03).
---------------------------------------------------------------------------
The program also has a functionality that will permit Floor Brokers
and Floor Market Makers on the Virtual Trading Floor to see an
electronic blotter containing a running list of unexecuted orders that
have been represented by Floor Brokers on the Virtual Trading Floor.
Currently, Floor Brokers record the times at which they verbally
represent orders on the Trading Floor by submitting their order to the
Trading Host for execution. This information is generally only verbally
available on the physical trading floor. However, similar
[[Page 24122]]
to why the Exchange is making chat functionality available in the
Virtual Trading Floor, the Exchange believes the additional information
included in the blotter will benefit Virtual Trading Floor Participants
given potential limitations of communication software (such as
limitations on how many people may be heard at the same time in a
virtual pit or potential buffering or echoing). For example, if a Floor
Market Maker's personal device momentarily freezes, causing the Floor
Market Maker to miss the terms of an order represented by a Floor
Broker, the Floor Market Maker will still be able to see the terms of
the order in the blotter and determine whether it wants to seek to
trade with the order.
Further, pursuant to proposed Rule 7670(a)(1)(E), Floor Market
Maker quotes will be considered firm in the event the Floor Market
Maker is disconnected from the Virtual Trading Crowd and the parties
have a Meeting of the Minds with respect to the terms of the
transaction. A ``Meeting of the Minds'' means the contra-side(s)
verbally confirmed participation in the trade. In the event that a
Floor Market Maker is disconnected from the Virtual Trading Crowd, a
Floor Market Maker quote would not be considered firm if the quote were
provided and the parties did not have a Meeting of the Minds with
respect to the terms of the transaction.
Today, a Floor Market Maker that experiences issues with internet
connection, makes an error or otherwise is unaware of recent news in a
particular option, would be held to a quote verbalized in open outcry.
In the event that the negotiation continues and the terms change, the
Floor Marker Maker would not be held to the new terms without
additional acceptance of those terms. In the event that the transaction
is not effectuated in the BOX Trading Host, the trade would not stand.
To that end, the Exchange believes requiring quotes to remain firm once
the parties have arrived at a Meeting of the Minds with respect to the
terms of the transaction creates fair and equitable expectations for
Participants trading in the Virtual Trading Crowd.
The Exchange notes that, regardless of whether it requires the chat
function to be used, the Exchange will maintain records of all chats in
the Virtual Trading Floor \12\ in accordance with its self-regulatory
organization record retention obligations, as these are
``correspondence'' records subject to those obligations, as set forth
in proposed subparagraph (a)1)(F).\13\ Specifically, proposed
7670(a)(1)(F) states the Exchange will retain records of the chats,
Participant logs, and any other records related to the virtual trading
floor that are subject to the Exchange's record retention obligations
under the Exchange Act. The Exchange does not currently plan to make
video recordings of the virtual trading floor because the Exchange
believes video is not subject to its record retention obligations.
However, if the Exchange determined to make video recordings of the
virtual trading floor, it would retain those video recordings in
accordance with its record retention obligations.\14\
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\12\ The Exchange notes the information that will be displayed
in the blotter is already retained as part of the BOX order audit
trail.
\13\ See 15 U.S.C. 78q(a).
\14\ Id. The Exchange notes it will disable the ability of
Participants to record the Virtual Trading Floor through the
communication program.
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Floor Officials will have access to the Virtual Trading Floor.
Floor Officials will have the same authority to act in the Virtual
Trading Floor as they do on the physical trading floor. Additionally, a
BOX employee will be available to provide technical and operational
support (in addition to regular Exchange support staff for floor
operations) if Participants in the Virtual Trading Floor need
assistance. If there was an issue with the communication program making
the Virtual Trading Floor unavailable, the Exchange would operate in an
all-electronic configuration (as it did earlier in 2020 when the
physical Trading Floor was unavailable) until the communication program
was available again.
While open outcry trading on the Virtual Trading Floor will occur
with in-crowd market participants interacting with each other remotely
through a computer communication program, all trading that occurs on
the Virtual Trading Floor will occur in the same manner as it does on
the physical Trading Floor. Specifically, open outcry trading on the
Virtual Trading Floor will be subject to the same priority and
allocation rules as open trading on the physical Trading Floor, as set
forth in Rule 7600. Any risk controls and price protection mechanisms
that apply to open outcry trading on the physical Trading Floor will
apply in the same manner to open outcry trading on the Virtual Trading
Floor. The Exchange will make the same order types and instructions
available on the Virtual Trading Floor as it makes available on the
physical Trading Floor. Floor Brokers will be subject to the
responsibilities set forth in Rules 7570 and 7580 on the Virtual
Trading Floor, as they are on the physical Trading Floor.
In addition, marker participants participating on the Virtual
Trading Floor will be subject to the same regulatory requirements on
the Virtual Trading Floor as they are on the physical Trading Floor,
including those set forth in Rule Series 3000 and 4000. Orders must be
systematized \15\ and represented,\16\ and transactions reported, in
connection with the Virtual Trading Floor in the same manner as they
are when trading on the physical Trading Floor. Therefore, the audit
trail for open outcry trading on the Virtual Trading Floor will capture
the same information that it does for open outcry trading on the
physical Trading Floor. The Regulatory Division will be able to utilize
preexisting Trading Floor surveillances to surveil for the activity
occurring on the Virtual Trading Floor. Specifically, the Regulatory
Division monitors open outcry trading using various automated
surveillances, which incorporate systematized order and trade execution
information and applicable time stamps, as well as other elements of
the audit trail from the Floor Broker's order entry system(s) and the
BOX matching engine. Because in-crowd market participants will use the
same tools to systematize and execute orders on the Virtual Trading
Floor that they would use on the physical Trading Floor, and will be
subject to the same trading rules and requirements, the Regulatory
Staff's automated surveillances applicable to open outcry trading will
incorporate the same audit trail information from open outcry trading
on the Virtual Trading Floor that they do from open outcry trading on
the physical Trading Floor. Additionally, Regulatory Staff will always
be present on the Virtual Trading Floor and may access any records
pertaining to the Virtual Trading Floor (i.e., chats) if they deem it
necessary and appropriate to ensure compliance with BOX Rules.
---------------------------------------------------------------------------
\15\ See Rule 7580(e)(1).
\16\ See Rule 7580(e)(2).
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Lastly, the Exchange notes that it has conducted meetings with
Floor Participants in which the Exchange presented the functionality of
the Virtual Trading Floor and has made the Virtual Trading Floor
available for testing so that the Exchange will be ready to implement
it if necessary. The Exchange has received positive feedback from Floor
Participants regarding the Virtual Trading Floor and will continue to
make updates as necessary and appropriate in response to comments it
receives to make the Virtual Trading Floor replicate the open outcry
trading
[[Page 24123]]
experience on the physical Trading Floor as much as possible. The
Exchange believes this will provide the opportunity for as seamless a
rollout as possible if circumstances cause the Exchange to make the
Virtual Trading Floor available.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \17\ in general, and furthers the objectives of Section
6(b)(5) of the Act \18\ 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. Additionally, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) \19\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
\19\ Id.
---------------------------------------------------------------------------
The Exchange believes the proposed rule change will 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, as it will permit open outcry trading to continue in
the event the Exchange's Trading Floor is inoperable. The Exchange
again notes that the proposed Virtual Trading Floor will only be
activated if the physical Trading Floor becomes inoperable. Further,
the Exchange has the discretion to not activate the Virtual Trading
Floor if the physical Trading Floor becomes inoperable. The Exchange
believes that these factors, taken together, limit the scope of this
proposal to extenuating circumstances that the Exchanges hopes to
avoid. While the Exchange continues to believe that the physical
Trading Floor is an essential function to BOX Market and hopes the
physical Trading Floor does not become inoperable or require any
closures in the future, the Exchange also believes it is appropriate to
continue to review and enhance its rules with regard to its business
continuity plans if the physical Trading Floor were to become
inoperable. As such, the Exchange believes the adoption of a Virtual
Trading Floor, which emulates the physical Trading Floor, is reasonable
and appropriate given the circumstances the world faces today.
As discussed above, there are certain features of open outcry
trading that are difficult to replicate in an all-electronic trading
environment. The Exchange has observed, and understands from various
market participants, that they have had difficulty executing certain
orders, such as larger orders and high-risk and complicated strategies,
in an all-electronic trading environment without the element of human
interaction to negotiate pricing for these orders. The proposed rule
change would provide an environment in which this interaction would be
available despite the inoperability of the physical Trading Floor. The
Exchange believes the proposed rule change may facilitate continued
trading of these orders if and when the Trading Floor is inoperable. As
a result, the Exchange believes providing continuous access to open
outcry trading when the physical Trading Floor is inoperable will
remove impediments to a free and open market and will ultimately
benefit investors, particularly those desiring to execute high-risk and
complex trading strategies.
The Exchange also believes the proposed rule change will promote
just and equitable principles of trade, as open outcry trading on a
Virtual Trading Floor will occur in accordance with the same trading
rules and be subject to the same regulatory requirements that apply to
open outcry trading on the physical Trading Floor, all of which have
previously been filed with the Commission. The proposed rule change
will merely permit this open outcry trading to occur in a virtual
setting rather than a physical setting (which may be necessary and
appropriate for health and safety purposes)--in other words, open
outcry trading on a Virtual Trading Floor will occur while market
participants operate remotely as they do when they trade
electronically. Specifically, open outcry trading on the Virtual
Trading Floor will be subject to the same priority and allocation rules
as open trading on the physical Trading Floor, as set forth in Rule
7600 series. As is the case for open outcry trading on the physical
Trading Floor, open outcry trading on the Virtual Trading Floor is
consistent with Section 11(a) of the Act, as IM-7600-5 (which will
apply to open outcry trading on the Virtual Trading Floor) requires
Participants relying on Section 11(a)(1)(G) of the Act and Rule 11a1-
1(T) thereunder (the so called ``G exemption rule'') as an exemption
must yield priority to any bid (offer) at the same price of Public
Customer orders and broker-dealer orders resting in the Book, as well
as any other bid (offer) that has priority over those Broker Dealer
orders under this Rule. The Exchange may make the same order types and
instructions available on the Virtual Trading Floor as it makes
available on the physical Trading Floor. Floor Brokers will be subject
to the responsibilities set forth in Rules 7570 and 7580 on the Virtual
Trading Floor, as they are on the physical Trading Floor.
Additionally, Participants participating on the Virtual Trading
Floor will be subject to the same regulatory requirements on the
Virtual Trading Floor as they are on the physical Trading Floor,
including those set forth in Rule Series 3000 and 4000. As previously
noted, orders must be systematized and represented, and transactions
reported, in connection with the Virtual Trading Floor in the same
manner as they are when trading on the physical Trading Floor.\20\
Therefore, the audit trail for open outcry trading on the Virtual
Trading Floor will capture the same information that it does for open
outcry trading on the physical Trading Floor. The Regulatory Division
will be able to utilize preexisting floor surveillances to surveil for
the activity occurring on the Virtual Trading Floor. Specifically, the
Regulatory Division monitors open outcry trading using various
automated surveillances, which incorporate systematized order and trade
execution information and applicable time stamps, as well as other
elements of the audit trail from the floor broker's order entry
system(s) and the BOX matching engine. Because in-crowd market
participants will use the same tools to systematize and execute orders
on the Virtual Trading Floor that they would use on the physical
Trading Floor, and will be subject to the same trading rules and
requirements, the Regulatory Division's automated surveillances
applicable to open outcry trading will incorporate the same audit trail
information from open outcry trading on the Virtual Trading Floor that
they do from open outcry trading on the physical Trading Floor.
Additionally, Regulatory Division Staff
[[Page 24124]]
will always be present on the Virtual Trading Floor and may access any
records pertaining to the Virtual Trading Floor (i.e., chats) if they
deem it necessary and appropriate to ensure compliance with BOX Rules.
The Exchange believes it will promote just and equitable principles of
trading for all open outcry trading to occur in substantially the same
manner, whether it occurs while market participants are in the same
physical setting or in remote settings being connected through a
technological solution.
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\20\ Pursuant to proposed Rule 7670(a)(1)(E), Floor Market Maker
quotes will be considered firm in the event the Floor Market Maker
is disconnected from the Virtual Trading Crowd and the parties have
a Meeting of the Minds with respect to the terms of the transaction.
A ``Meeting of the Minds'' means the contra-side(s) verbally
confirmed participation in the trade. In the event that a Floor
Market Maker is disconnected from the Virtual Trading Crowd, a Floor
Market Maker quote would not be considered firm if the quote were
provided and the parties did not have a Meeting of the Minds with
respect to the terms of the transaction.
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In addition, the Exchange believes the proposed rule change will
not be designed to permit unfair discrimination between customers,
issuers, brokers, or dealers, as all individuals authorized to act on
the physical Trading Floor (both Participant organizations authorized
at the time the physical Trading Floor becomes inoperable and any
Participant organization that becomes authorized after the physical
Trading Floor becomes inoperable) will be provided with access to the
Virtual Trading Floor.
Lastly, the Exchange notes that the proposed rule is a competitive
response that is based on a proposal recently submitted by Cboe and
approved by the Commission.\21\
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\21\ See supra note 3.
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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 Cboe that was recently
approved by the Commission. Further, the Exchange does not believe that
the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, as all Participants authorized by the Exchange, or
that become authorized by the Exchange, to transact on the Trading
Floor will receive access to the Virtual Trading Floor. The Exchange
does not believe that the proposed rule change will impose any burden
on intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as it relates solely to the
location of open outcry trading on the Exchange. The proposed rule
change will merely permit open outcry trading that generally occurs
while market participants are located in the same physical setting to
occur while market participants are in a remote setting, connected by a
technological solution (as electronic trading does).
The Exchange believes that the proposed rule change will relieve
any burden on, or otherwise promote, competition. The Exchange believes
the proposed rule change will provide market participants with
continuous access to open outcry trading when the physical Trading
Floor is inoperable. The Exchange believes this may facilitate
continued, competitive price negotiations and trading of orders that
the Exchange understands are more difficult to execute in an all-
electronic trading environment without human interaction. Additionally,
the proposed rule change will provide customer orders represented for
open outcry execution with access to the same pool of liquidity when
the Trading Floor is inoperable to which those orders would have access
when the Trading Floor is operating in its normal state. Maintenance of
this level of liquidity at all times, even when the physical Trading
Floor is inoperable, may promote competition by providing these
customer orders with increased liquidity than may otherwise be
available, and thus increased execution opportunities and price
discovery.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period 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 the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BOX-2021-07 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-2021-07. 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-2021-07, and should be submitted on
or before May 26, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09443 Filed 5-4-21; 8:45 am]
BILLING CODE 8011-01-P
