Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend BOX Rule 7170 (Nullification and Adjustment of Options Transactions Including Obvious Errors) To Improve the Operation of the Rule, 6925-6929 [2022-02430]
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Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Notices
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.
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–GEMX–2022–04 and
should be submitted on or before
February 28, 2022.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
J. Matthew DeLesDernier,
Assistant Secretary.
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–
GEMX–2022–04 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
• Send paper comments in triplicate
to Vanessa Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to File
Number SR–GEMX–2022–04. 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
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
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[FR Doc. 2022–02431 Filed 2–4–22; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–94124; File No. SR–BOX–
2022–05]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend BOX Rule 7170
(Nullification and Adjustment of
Options Transactions Including
Obvious Errors) To Improve the
Operation of the Rule
February 1, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’), and Rule 19b–4 thereunder,
notice is hereby given that on January
26. 2022, 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
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
BOX Rule 7170 (Nullification and
Adjustment of Options Transactions
including Obvious Errors) to improve
the operation of the Rule. 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.
15
PO 00000
17 CFR 200.30–3(a)(12).
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
BOX Rule 7170 (Nullification and
Adjustment of Options Transactions
including Obvious Errors) to improve
the operation of the Rule. This is a
competitive filing that is based on a
proposal recently submitted by NYSE
Arca, Inc. (‘‘NYSE Arca’’) and approved
by the Commission.1
Following discussions with other
exchanges and a cross-section of
industry participants and in
coordination with the Listed Options
Market Structure Working Group
(‘‘LOMSWG’’) (collectively, the
‘‘Industry Working Group’’), the
Exchange proposes: (1) To amend
section (b)(3) of the Rule to permit the
Exchange to determine the Theoretical
Price 2 of a Customer 3 option
transaction in a wide market so long as
a narrow market exists at any point
during the 10-second period after an
opening or re-opening; and (2) to amend
section (c)(4)(B) of the Rule to adjust,
rather than nullify, Customer
transactions in Obvious Error situations,
provided the adjustment does not
violate the limit price.
Proposed Change to Section (b)(3)
Exchange Rule 7170 has been part of
various harmonization efforts by the
Industry Working Group.4 These efforts
1 See Securities Exchange Act Release No. 34–
93818 (December 17, 2021), 86 FR 73009 (December
23, 2021) (SR–NYSEArca–2021–91) (Order
Approving a Proposed Rule Change to Amend Rule
6.87–O).
2 See Exchange Rule 7170(b).
3 For purposes of Rule 7170, the term ‘‘Customer’’
does not include any broker-dealer or Professional
Customer. See Exchange Rule 7170(a)(1).
4 See e.g., Securities Exchange Act Release Nos.
74911 (May 8, 2015), 80 FR 27717 (May 14, 2015)
(SR–BOX–2015–18); 80247 (March 15, 2017), 82 FR
14589 (March 21, 2017) (SR–BOX–2017–08).
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have often centered around the
Theoretical Price for which an options
transaction should be compared to
determine whether an Obvious Error has
occurred. For instance, all options
exchanges have adopted language
comparable to IM–7170–5, Exchange
Determining Theoretical Price,5 which
explains how an exchange is to
determine Theoretical Price at the open,
when there are no valid quotes, and
when there is a wide quote. This
includes at times the use of a singular
third-party vendor, known as a TP
Provider (currently CBOE Livevol, LLC).
Similarly, section (b)(3) of Rule 7170
was previously harmonized across all
options exchanges to handle situations
where executions occur in markets that
are wide (as set forth in the rule).6
Under that section, the Exchange
determines the Theoretical Price if the
NBBO 7 for the subject series is wide
immediately before execution and a
narrow market (as set forth in the rule)
existed ‘‘during the 10 seconds prior to
the transaction.’’ The rule goes on to
clarify that, should there be no narrow
quotes ‘‘during the 10 seconds prior to
the transaction,’’ the Theoretical Price
for the affected series is the NBBO that
existed at the time of execution
(regardless of its width). In recent
discussions, the Industry Working
Group has identified proposed changes
to section (b)(3) of Rule 7170 that would
improve the Rule’s functioning.
Currently, section (b)(3) does not permit
the Exchange to determine the
Theoretical Price unless there is a
narrow quote 10 seconds prior to the
transaction. However, in the first
seconds of trading, there is no 10second period ‘‘prior to the
transaction.’’ Further, the Industry
Working Group has observed that prices
in certain series can be disjointed at the
start of trading. Accordingly, the
Exchange proposes to provide
additional protections to trading in
certain circumstances immediately after
the opening before liquidity has had a
chance to enter the market. The
Exchange proposes to amend section
(b)(3) to allow the Exchange to
determine the Theoretical Price in a
wide market so long as a narrow market
exists at any point during the 10-second
period after an opening or reopening.
Specifically, the Exchange proposes
that the existing text of section (b)(3)
5 See Securities Exchange Act Release No. 81351
(August 8, 2017), 82 FR 37920 (August 14, 2017)
(SR–BOX–2017–25).
6 See supra note 6.
7 The term ‘‘NBBO’’ means the national best bid
or offer as calculated by the Exchange based on
market information received by the Exchange from
OPRA. See Exchange Rule 100.
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would become subsection ‘‘(A).’’ The
Exchange proposes to add the following
heading and text as subsection ‘‘(B)’’:
(B) Customer Transactions Occurring
Within 10 Seconds or Less After an Opening
or Re-Opening:
(i) The Exchange will determine the
Theoretical Price if the bid/ask differential of
the NBB and NBO for the affected series just
prior to the Customer’s erroneous transaction
was equal to or greater than the Minimum
Amount set forth in paragraph A above and
there was a bid/ask differential less than the
Minimum Amount during the 10 seconds
prior to the transaction.
(ii) If there was no bid/ask differential less
than the Minimum Amount during the 10
seconds prior to the transaction, then the
Exchange will determine the Theoretical
Price if the bid/ask differential of the NBB
and NBO for the affected series just prior to
the Customer’s erroneous transaction was
equal to or greater than the Minimum
Amount set forth in paragraph A above and
there was a bid/ask differential less than the
Minimum Amount anytime during the 10
seconds after an opening or re-opening.
(iii) If there was no bid/ask differential less
than the Minimum Amount during the 10
seconds following an Opening or ReOpening, then the Theoretical Price of an
option series is the last NBB or NBO just
prior to the Customer transaction in question,
as set forth in paragraph (b) above.
(iv) Customer transactions occurring more
than 10 seconds after an opening or reopening are subject to paragraph A above.
The following examples illustrate the
functioning of the proposed rule change.
Consider that the NBBO of a series
opens as $0.01 at $4.00. A marketable
limit order to buy one contract arrives
one second later and is executed at
$4.00. In the third second of trading, the
NBBO narrows from $0.01 at $4.00 to
$2.00 at $2.10. While the execution
occurred in a market with wide widths,
there was no tight market within the 10
seconds prior to execution. Accordingly,
under the current rule, the trade would
not qualify for Obvious Error review, in
part due to the fact that there was only
a single second of trading before the
execution. Under the proposal, since a
tight market existed at some point in the
first 10 seconds of trading (i.e., in the
third second), the Exchange would be
able to determine the Theoretical Price
as provided in IM–7170–5. As another
example, the NBBO for a series opens as
$0.01 at $4.00. In the seventh second of
trading, a marketable limit order is
received to buy one contract and is
executed at $4.00. Five seconds later
(i.e., in the twelfth second of trading),
the NBBO narrows from $0.01 at $4.00
to $2.00 at $2.10. While the execution
occurred in a market with wide widths,
there was no tight market within 10
seconds prior to execution. Accordingly,
under the current rule, the trade would
PO 00000
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not qualify for Obvious Error review.
Under the proposal, since no tight
market existed at any point during the
first 10 seconds of trading (i.e., the
narrow market occurred in the twelfth
second), the trade would not qualify for
Obvious Error review. The proposed
rule change would also better
harmonize section (b)(3) with section
(b)(1) of the Rule. Under section (b)(1),
the Exchange is permitted to determine
the Theoretical Price for transactions
occurring as part of the opening auction
process (as described in Exchange Rule
7170) if there is no NBB or NBO for the
affected series just prior to the
erroneous transaction. However, under
the current version of section (b)(3), a
core trading transaction could occur in
the same wide market but the Exchange
would not be permitted to determine the
Theoretical Price. Consider an example
where one second after the Exchange
opens a selected series, the NBBO is
$1.00 at $5.00. At 9:30:03, a customer
submits a marketable buy order to the
Exchange and pays $5.00. At 9:30:03, a
different exchange runs an opening
auction that results in a customer
paying $5.00 for the same selected
series. At 9:30:06, the NBBO changes
from $1.00 at $5.00 to $1.35 at $1.45.
Under the current version of section
(b)(3), the Exchange would not be able
to determine the Theoretical Price for
the trade occurring during core trading.
However, the trade on the other
exchange could be submitted for review
under (b)(1) and that exchange would be
able to determine the Theoretical Price.
If the proposed change to section (b)(3)
were approved, both of the trades
occurring at 9:30:03 (on the Exchange
during core trading and on another
exchange via auction) would also be
entitled to the same review regarding
the same Theoretical Price based upon
the same time.
The proposal would not change any
Obvious Error review beyond the first
10 seconds of an opening or re-opening.
Proposed Change to Section (c)(4)(B)
The Exchange proposes to amend
section (c)(4)(B)—the ‘‘Adjust or Bust’’
rule for Customer transactions in
Obvious Error situations—to adjust
rather than nullify such orders,
provided the adjustment does not
violate the Customer’s limit price.
Currently, the Rule provides that in
Obvious Error situations, transactions
involving non-Customers should be
adjusted, while transactions involving
Customers are nullified, unless a certain
condition applies.8 The Industry
8 Specifically, the current Rule provides at
section (c)(4)(C) that if any Participant has 200 or
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Working Group has concluded that the
treatment of these transactions should
be harmonized under the Rule, such
that transactions involving Customers
may benefit from adjustment, just as
non-Customer transactions currently do,
except where such adjustment would
violate the Customer’s limit price; in
that instance, the trade would be
nullified.
Specifically, the Exchange proposes to
amend the text of section (c)(4)(B) to
add that where at least one party to the
Obvious Error is a Customer, ‘‘the
execution price of the transaction will
be adjusted by the Official pursuant to
the table immediately above. Any
Customer Obvious Error exceeding 50
contracts will be subject to the Size
Adjustment Modifier defined in
subparagraph (a)(4) above. However, if
such adjustment(s) would result in an
execution price higher (for buy
transactions) or lower (for sell
transactions) than the Customer’s limit
price,’’ the trade will be nullified. The
‘‘table immediately above’’ referenced in
the proposed text refers to the table at
current Section (c)(4)(A), which
provides for the adjustment of prices a
specified amount away from the
Theoretical Price, rather than adjusting
the Theoretical Price.
The Exchange proposes no other
changes at this time.
Implementation Date
The proposed rule change will
become operative no sooner than six
months following the approval of the
NYSE Arca proposal 9 to coincide with
implementation on other option
exchanges. The Exchange will announce
the implementation date to its
Participants via Regulatory Circular.
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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’’),10 in general, and Section 6(b)(5)
of the Act,11 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
more Customer transactions under review
concurrently and the orders resulting in such
transactions were submitted during the course of 2
minutes or less, where at least one party to the
Obvious Error is a non-Customer, then the
Exchange will apply the non-Customer adjustment
criteria set forth in (c)(4)(A) for such transactions.
9 See Securities Exchange Act Release No. 93818
(December 17, 2021), 86 FR 73009 (December 23,
2021) (SR–NYSEArca–2021–91) (Order Approving a
Proposed Rule Change to Amend Rule 6.87–O).
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
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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 Exchange believes the proposed
rule change to section (b)(3) of the Rule
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, protect
investors and the public interest
because it provides a method for
addressing Obvious Error Customer
transactions that occur in a wide market
at the opening of trading. Generally, a
wide market is an indication of a lack
of liquidity in the market such that the
market is unreliable. Current section
(b)(3) recognizes that a persistently wide
quote (i.e., more than 10 seconds)
should be considered the reliable
market regardless of its width, but does
not address transactions that occur in a
wide market in the first seconds of
trading, where there is no preceding 10second period to reference. Accordingly,
in the first 10 seconds of trading, there
is no opportunity for a wide quote to
have persisted for a sufficiently lengthy
period such that the market should
consider it a reliable market for the
purposes of determining an Obvious
Error transaction.
The proposed change would rectify
this disparity and permit the Exchange
to consider whether a narrow quote is
present at any time during the 10second period after an opening or
reopening. The presence of such a
narrow quote would indicate that the
market has gained sufficient liquidity
and that the previous wide market was
unreliable, such that it would be
appropriate for the Exchange to
determine the Theoretical Price of an
Obvious Error transaction. In this way,
the proposed rule harmonizes the
treatment of Customer transactions that
execute in an unreliable market at any
point of the trading day, by making
them uniformly subject to Exchange
determination of the Theoretical Price.
The Exchange believes that the
proposed change to section (c)(4)(B) of
the Rule would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system and enhance the protection of
investors by harmonizing the treatment
of non-Customer transactions and
Customer transactions under the Rule.
Under the current Rule, Obvious Error
situations involving non-Customer
transactions are adjusted, while those
involving Customer transactions are
generally nullified, unless they meet the
PO 00000
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6927
additional requirements of section
(c)(4)(C) (i.e., where a Participant has
200 or more Customer transactions
under review concurrently and the
orders resulting in such transactions
were submitted during the course of 2
minutes or less.) The proposal would
harmonize the treatment of nonCustomer and Customer transactions by
providing for the adjustment of all such
transactions, except where such
adjustment would violate the
Customer’s limit price.
When it proposed the current rule in
2015, the Exchange believed there were
sound reasons for treating non-Customer
transactions and Customer transactions
differently. At the time, the Exchange
stated its belief that ‘‘Customers are not
necessarily immersed in the day-today
trading of the markets, are less likely to
be watching trading activity in a
particular option throughout the day,
and may have limited funds in their
trading accounts,’’ and that nullifying
Obvious Error transactions involving
Customers would give Customers
‘‘greater protections’’ than adjusting
such transactions by eliminating the
possibility that a Customer’s order will
be adjusted to a significantly different
price. The Exchange also noted its belief
that ‘‘Customers are . . . less likely to
have engaged in significant hedging or
other trading activity based on earlier
transactions, and thus, are less in need
of maintaining a position at an adjusted
price than non-Customers.’’ 12
Those assumptions about Customer
trading and hedging activity no longer
hold. The Exchange and the Industry
Working Group believe that over the
course of the last five years, Customers
that use options have become more
sophisticated, as retail broker-dealers
have enhanced the trading tools
available. Pursuant to OCC data,
volumes clearing in the Customer range
have expanded from 12,022,163 ADV in
2015 to 35,081,130 ADV in 2021. This
increase in trading activity underscores
the greater understanding of options by
Customers as a trading tool and its use
in the markets. Customers who trade
options today largely are more educated,
have better trading tools, and have
better access to financial news than any
time prior.13 The proposed rule would
extend the hedging protections
currently enjoyed by non-Customers to
Customers, by allowing them to
maintain an option position at an
12 See Securities Exchange Act Release No. 74911
(May 8, 2015), 80 FR 27717 (May 14, 2015) (SR–
BOX–2015–18).
13 Dan Raju, Retail Traders Adopt Options En
Masse, by Dan Raju, (Dec 8, 2020) available at
https://www.nasdaq.com/articles/retail-tradersadopt-options-en-masse-2020-12-08.
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adjusted price, which would in turn
prevent a cascading effect by
maintaining the hedge relationship
between the option transaction and any
other transactions in a related security.
The Exchange believes that extending
such hedging protections to Customer
transactions would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and
enhance the protection of investors by
providing greater certainty of execution
for all participants to options
transactions. Under the current Rule, a
Customer that believes its transaction
was executed pursuant to an Obvious
Error may be disincentivized from
submitting the transaction for review,
since during the review process, the
Customer would be uncertain whether
the trade would be nullified, and if so,
whether market conditions would still
permit the opportunity to execute a
related order at a better price after the
nullification ruling is finalized. In
contrast, under the proposed rule, the
Customer would know that the only
likely outcomes of submitting a trade to
Obvious Error review would be that the
trade would stand or be re-executed at
a better price; the trade would only be
nullified if the adjustment would violate
the order’s limit. Similarly, under the
current Rule, during the review period,
a market maker who traded contra to the
Customer would be uncertain if it
should retain any position executed to
hedge the original trade, or attempt to
unwind it, possibly at a significant loss.
Under the proposed rule change, this
uncertainty is largely eliminated, and
the question would be whether the
already-executed and hedged trade
would be adjusted to a better price for
the Customer, or if it would stand as
originally executed. In this way, the
proposed rule enhances the protection
of investors and removes impediments
to and perfects the mechanism of a free
and open market and a national market
system.
The proposed rule also addresses the
concern the Exchange cited in its 2015
filing that adjusting, rather than
nullifying, Customer transactions could
lead to a Customer’s order being
adjusted to a significantly different
price. To address that concern, the
proposed rule would prevent Customer
transactions from being adjusted to a
price that violates the order’s limit; if
the adjustment would violate a
Customer’s limit, the trade would
instead be nullified. The Exchange
believes it is in the best interest of
investors to expand the availability of
adjustments to Customer transactions in
all Obvious Error situations except
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where the adjustment would violate the
Customer’s limit price. Further, the
Exchange believes that, with respect to
such proposed adjustments to Customer
transactions, it is appropriate to use the
same form of adjustment as is currently
in place with respect to non-Customer
transactions as laid out in the table in
section (c)(4)(A). That is, the Exchange
believes that it is appropriate to adjust
to prices a specified amount away from
the Theoretical Price rather than to
adjust the Theoretical Price, even
though the Exchange has determined a
given trade to be erroneous in nature,
because the parties in question should
have had some expectation of execution
at the price or prices submitted. Also, it
is common that by the time it is
determined that an Obvious Error has
occurred, additional hedging and
trading activity has already occurred
based on the executions that previously
happened. The Exchange believes that
providing an adjustment to the
Theoretical Price in all cases would not
appropriately incentivize market
participants to maintain appropriate
controls to avoid potential errors, while
adjusting to prices a specified amount
away from the Theoretical Price would
incentivize such behavior. The
Exchange believes that the proposal is
not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers. The
proposed change to section (b)(3) would
apply to all instances of a wide market
occurring within the first 10 seconds of
trading followed by a narrow market at
any point in the subsequent 10-second
period, regardless of the types of market
participants involved in such
transactions. The proposed change to
section (c)(4)(B) would harmonize the
treatment of Obvious Error transactions
involving Customers and nonCustomers, no matter what type of
market participants those parties may
be. For these reasons, the Exchange
believes that the proposal is consistent
with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
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 NYSE Arca that was
recently approved by the Commission.14
The Exchange anticipates that the other
options exchanges will adopt
14 See
PO 00000
supra, note 3.
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substantively similar proposals, such
that there would be no burden on
intermarket competition from the
Exchange’s proposal. Accordingly, the
proposed change is not meant to affect
competition among the options
exchanges. For these reasons, the
Exchange believes that the proposed
rule change reflects this competitive
environment and does not impose any
undue burden on intermarket
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
Pursuant to Section 19(b)(3)(A) of the
Act 15 and Rule 19b–4(f)(6) 16
thereunder, the Exchange has
designated this proposal as one that
effects a change that: (i) Does not
significantly affect the protection of
investors or the public interest; (ii) does
not impose any significant burden on
competition; and (iii) by its terms, does
not become operative for 30 days after
the date of the filing, or such shorter
time as the Commission may designate
if consistent with the protection of
investors and the public interest.
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:
15 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
E:\FR\FM\07FEN1.SGM
07FEN1
Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Notices
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–2022–05 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Vanessa Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to File
Number SR– BOX–2022–05. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet 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–BOX–2022–05 and should
be submitted on or before February 28,
2022.
jspears on DSK121TN23PROD with NOTICES1
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–02430 Filed 2–4–22; 8:45 am]
BILLING CODE 8011–01–P
17 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:36 Feb 04, 2022
Jkt 256001
SOCIAL SECURITY ADMINISTRATION
[Docket No: SSA–2022–0003]
Agency Information Collection
Activities: Comment Request
The Social Security Administration
(SSA) publishes a list of information
collection packages requiring clearance
by the Office of Management and
Budget (OMB) in compliance with
Public Law 104–13, the Paperwork
Reduction Act of 1995, effective October
1, 1995. This notice includes revisions
and extensions of OMB-approved
information collections.
SSA is soliciting comments on the
accuracy of the agency’s burden
estimate; the need for the information;
its practical utility; ways to enhance its
quality, utility, and clarity; and ways to
minimize burden on respondents,
including the use of automated
collection techniques or other forms of
information technology. Mail, email, or
fax your comments and
recommendations on the information
collection(s) to the OMB Desk Officer
and SSA Reports Clearance Officer at
the following addresses or fax numbers.
(OMB) Office of Management and
Budget, Attn: Desk Officer for SSA
Comments: https://www.reginfo.gov/
public/do/PRAMain. Submit your
comments online referencing Docket ID
Number [SSA–2022–0003].
(SSA) Social Security Administration,
OLCA, Attn: Reports Clearance
Director, 3100 West High Rise, 6401
Security Blvd., Baltimore, MD 21235,
Fax: 410–966–2830, Email address:
OR.Reports.Clearance@ssa.gov
Or you may submit your comments
online through https://www.reginfo.gov/
public/do/PRAMain, referencing Docket
ID Number [SSA–2022–0003].
SSA submitted the information
collections below to OMB for clearance.
Your comments regarding these
information collections would be most
useful if OMB and SSA receive them
within 30 days from the date of this
publication. To be sure we consider
your comments, we must receive them
no later than March 9, 2022. Individuals
can obtain copies of these OMB
clearance packages by writing to
OR.Reports.Clearance@ssa.gov.
1. Application for a Social Security
Number Card, the Social Security
Number Application Process (SSNAP),
internet SSN Replacement Card
(iSSNRC) Application, and Online
Social Security Number Application
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
6929
Process (oSSNAP)—20 CFR 422.103–
422.110—0960–0066. SSA collects
information on the SS–5 (used in the
United States) and SS–5–FS (used
outside the United States) to issue
original or replacement Social Security
cards. SSA also enters the application
data into the SSNAP application when
issuing a card via telephone or in
person. In addition, hospitals collect the
same information on SSA’s behalf for
newborn children through the
Enumeration-at-Birth process. In this
process, parents of newborns provide
hospital birth registration clerks with
information required to register these
newborns. Hospitals send this
information to State Bureaus of Vital
Statistics (BVS), and they send the
information to SSA’s National Computer
Center. SSA then uploads the data to the
SSA mainframe along with all other
enumeration data, and we assign the
newborn a Social Security number
(SSN) and issue a Social Security card.
Respondents can also use these
modalities to request a change in their
SSN records. In addition, the iSSNRC
internet application collects information
similar to the paper SS–5 for no-change
replacement SSN cards for adult U.S.
citizens. The iSSNRC modality allows
certain applicants for SSN replacement
cards to complete the internet
application and submit the required
evidence online rather than completing
a paper Form SS–5. Finally, oSSNAP
collects information similar to that
which we collect on the paper SS–5 for
no change situations, with the exception
of name change, new or replacement
SSN cards for U.S Citizens (adult and
minor children), and replacement cards
only for non-U.S. citizens. oSSNAP
allows these applicants for new or
replacement SSN cards to start the
application process on-line, receive a
list of evidentiary documents, and then
submit the application data to SSA for
further processing by SSA employees.
Applicants need to visit a local SSA
office to complete the application
process. The respondents for this
information collection are applicants for
original and replacement Social
Security cards, or individuals who wish
to change information in their SSN
records, who use any of the modalities
described above.
Type of Request: Revision of an OMBapproved information collection.
E:\FR\FM\07FEN1.SGM
07FEN1
]]>Agencies
[Federal Register Volume 87, Number 25 (Monday, February 7, 2022)]
[Notices]
[Pages 6925-6929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02430]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94124; File No. SR-BOX-2022-05]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend BOX Rule
7170 (Nullification and Adjustment of Options Transactions Including
Obvious Errors) To Improve the Operation of the Rule
February 1, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), and Rule 19b-4 thereunder, notice is hereby given that on
January 26. 2022, 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 from
interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend BOX Rule 7170 (Nullification and
Adjustment of Options Transactions including Obvious Errors) to improve
the operation of the Rule. 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 proposes to amend BOX Rule 7170 (Nullification and
Adjustment of Options Transactions including Obvious Errors) to improve
the operation of the Rule. This is a competitive filing that is based
on a proposal recently submitted by NYSE Arca, Inc. (``NYSE Arca'') and
approved by the Commission.\1\
---------------------------------------------------------------------------
\1\ See Securities Exchange Act Release No. 34-93818 (December
17, 2021), 86 FR 73009 (December 23, 2021) (SR-NYSEArca-2021-91)
(Order Approving a Proposed Rule Change to Amend Rule 6.87-O).
---------------------------------------------------------------------------
Following discussions with other exchanges and a cross-section of
industry participants and in coordination with the Listed Options
Market Structure Working Group (``LOMSWG'') (collectively, the
``Industry Working Group''), the Exchange proposes: (1) To amend
section (b)(3) of the Rule to permit the Exchange to determine the
Theoretical Price \2\ of a Customer \3\ option transaction in a wide
market so long as a narrow market exists at any point during the 10-
second period after an opening or re-opening; and (2) to amend section
(c)(4)(B) of the Rule to adjust, rather than nullify, Customer
transactions in Obvious Error situations, provided the adjustment does
not violate the limit price.
---------------------------------------------------------------------------
\2\ See Exchange Rule 7170(b).
\3\ For purposes of Rule 7170, the term ``Customer'' does not
include any broker-dealer or Professional Customer. See Exchange
Rule 7170(a)(1).
---------------------------------------------------------------------------
Proposed Change to Section (b)(3)
Exchange Rule 7170 has been part of various harmonization efforts
by the Industry Working Group.\4\ These efforts
[[Page 6926]]
have often centered around the Theoretical Price for which an options
transaction should be compared to determine whether an Obvious Error
has occurred. For instance, all options exchanges have adopted language
comparable to IM-7170-5, Exchange Determining Theoretical Price,\5\
which explains how an exchange is to determine Theoretical Price at the
open, when there are no valid quotes, and when there is a wide quote.
This includes at times the use of a singular third-party vendor, known
as a TP Provider (currently CBOE Livevol, LLC).
---------------------------------------------------------------------------
\4\ See e.g., Securities Exchange Act Release Nos. 74911 (May 8,
2015), 80 FR 27717 (May 14, 2015) (SR-BOX-2015-18); 80247 (March 15,
2017), 82 FR 14589 (March 21, 2017) (SR-BOX-2017-08).
\5\ See Securities Exchange Act Release No. 81351 (August 8,
2017), 82 FR 37920 (August 14, 2017) (SR-BOX-2017-25).
---------------------------------------------------------------------------
Similarly, section (b)(3) of Rule 7170 was previously harmonized
across all options exchanges to handle situations where executions
occur in markets that are wide (as set forth in the rule).\6\ Under
that section, the Exchange determines the Theoretical Price if the NBBO
\7\ for the subject series is wide immediately before execution and a
narrow market (as set forth in the rule) existed ``during the 10
seconds prior to the transaction.'' The rule goes on to clarify that,
should there be no narrow quotes ``during the 10 seconds prior to the
transaction,'' the Theoretical Price for the affected series is the
NBBO that existed at the time of execution (regardless of its width).
In recent discussions, the Industry Working Group has identified
proposed changes to section (b)(3) of Rule 7170 that would improve the
Rule's functioning. Currently, section (b)(3) does not permit the
Exchange to determine the Theoretical Price unless there is a narrow
quote 10 seconds prior to the transaction. However, in the first
seconds of trading, there is no 10-second period ``prior to the
transaction.'' Further, the Industry Working Group has observed that
prices in certain series can be disjointed at the start of trading.
Accordingly, the Exchange proposes to provide additional protections to
trading in certain circumstances immediately after the opening before
liquidity has had a chance to enter the market. The Exchange proposes
to amend section (b)(3) to allow the Exchange to determine the
Theoretical Price in a wide market so long as a narrow market exists at
any point during the 10-second period after an opening or reopening.
---------------------------------------------------------------------------
\6\ See supra note 6.
\7\ The term ``NBBO'' means the national best bid or offer as
calculated by the Exchange based on market information received by
the Exchange from OPRA. See Exchange Rule 100.
---------------------------------------------------------------------------
Specifically, the Exchange proposes that the existing text of
section (b)(3) would become subsection ``(A).'' The Exchange proposes
to add the following heading and text as subsection ``(B)'':
(B) Customer Transactions Occurring Within 10 Seconds or Less
After an Opening or Re-Opening:
(i) The Exchange will determine the Theoretical Price if the
bid/ask differential of the NBB and NBO for the affected series just
prior to the Customer's erroneous transaction was equal to or
greater than the Minimum Amount set forth in paragraph A above and
there was a bid/ask differential less than the Minimum Amount during
the 10 seconds prior to the transaction.
(ii) If there was no bid/ask differential less than the Minimum
Amount during the 10 seconds prior to the transaction, then the
Exchange will determine the Theoretical Price if the bid/ask
differential of the NBB and NBO for the affected series just prior
to the Customer's erroneous transaction was equal to or greater than
the Minimum Amount set forth in paragraph A above and there was a
bid/ask differential less than the Minimum Amount anytime during the
10 seconds after an opening or re-opening.
(iii) If there was no bid/ask differential less than the Minimum
Amount during the 10 seconds following an Opening or Re-Opening,
then the Theoretical Price of an option series is the last NBB or
NBO just prior to the Customer transaction in question, as set forth
in paragraph (b) above.
(iv) Customer transactions occurring more than 10 seconds after
an opening or re-opening are subject to paragraph A above.
The following examples illustrate the functioning of the proposed
rule change. Consider that the NBBO of a series opens as $0.01 at
$4.00. A marketable limit order to buy one contract arrives one second
later and is executed at $4.00. In the third second of trading, the
NBBO narrows from $0.01 at $4.00 to $2.00 at $2.10. While the execution
occurred in a market with wide widths, there was no tight market within
the 10 seconds prior to execution. Accordingly, under the current rule,
the trade would not qualify for Obvious Error review, in part due to
the fact that there was only a single second of trading before the
execution. Under the proposal, since a tight market existed at some
point in the first 10 seconds of trading (i.e., in the third second),
the Exchange would be able to determine the Theoretical Price as
provided in IM-7170-5. As another example, the NBBO for a series opens
as $0.01 at $4.00. In the seventh second of trading, a marketable limit
order is received to buy one contract and is executed at $4.00. Five
seconds later (i.e., in the twelfth second of trading), the NBBO
narrows from $0.01 at $4.00 to $2.00 at $2.10. While the execution
occurred in a market with wide widths, there was no tight market within
10 seconds prior to execution. Accordingly, under the current rule, the
trade would not qualify for Obvious Error review. Under the proposal,
since no tight market existed at any point during the first 10 seconds
of trading (i.e., the narrow market occurred in the twelfth second),
the trade would not qualify for Obvious Error review. The proposed rule
change would also better harmonize section (b)(3) with section (b)(1)
of the Rule. Under section (b)(1), the Exchange is permitted to
determine the Theoretical Price for transactions occurring as part of
the opening auction process (as described in Exchange Rule 7170) if
there is no NBB or NBO for the affected series just prior to the
erroneous transaction. However, under the current version of section
(b)(3), a core trading transaction could occur in the same wide market
but the Exchange would not be permitted to determine the Theoretical
Price. Consider an example where one second after the Exchange opens a
selected series, the NBBO is $1.00 at $5.00. At 9:30:03, a customer
submits a marketable buy order to the Exchange and pays $5.00. At
9:30:03, a different exchange runs an opening auction that results in a
customer paying $5.00 for the same selected series. At 9:30:06, the
NBBO changes from $1.00 at $5.00 to $1.35 at $1.45. Under the current
version of section (b)(3), the Exchange would not be able to determine
the Theoretical Price for the trade occurring during core trading.
However, the trade on the other exchange could be submitted for review
under (b)(1) and that exchange would be able to determine the
Theoretical Price. If the proposed change to section (b)(3) were
approved, both of the trades occurring at 9:30:03 (on the Exchange
during core trading and on another exchange via auction) would also be
entitled to the same review regarding the same Theoretical Price based
upon the same time.
The proposal would not change any Obvious Error review beyond the
first 10 seconds of an opening or re-opening.
Proposed Change to Section (c)(4)(B)
The Exchange proposes to amend section (c)(4)(B)--the ``Adjust or
Bust'' rule for Customer transactions in Obvious Error situations--to
adjust rather than nullify such orders, provided the adjustment does
not violate the Customer's limit price.
Currently, the Rule provides that in Obvious Error situations,
transactions involving non-Customers should be adjusted, while
transactions involving Customers are nullified, unless a certain
condition applies.\8\ The Industry
[[Page 6927]]
Working Group has concluded that the treatment of these transactions
should be harmonized under the Rule, such that transactions involving
Customers may benefit from adjustment, just as non-Customer
transactions currently do, except where such adjustment would violate
the Customer's limit price; in that instance, the trade would be
nullified.
---------------------------------------------------------------------------
\8\ Specifically, the current Rule provides at section (c)(4)(C)
that if any Participant has 200 or more Customer transactions under
review concurrently and the orders resulting in such transactions
were submitted during the course of 2 minutes or less, where at
least one party to the Obvious Error is a non-Customer, then the
Exchange will apply the non-Customer adjustment criteria set forth
in (c)(4)(A) for such transactions.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to amend the text of section
(c)(4)(B) to add that where at least one party to the Obvious Error is
a Customer, ``the execution price of the transaction will be adjusted
by the Official pursuant to the table immediately above. Any Customer
Obvious Error exceeding 50 contracts will be subject to the Size
Adjustment Modifier defined in subparagraph (a)(4) above. However, if
such adjustment(s) would result in an execution price higher (for buy
transactions) or lower (for sell transactions) than the Customer's
limit price,'' the trade will be nullified. The ``table immediately
above'' referenced in the proposed text refers to the table at current
Section (c)(4)(A), which provides for the adjustment of prices a
specified amount away from the Theoretical Price, rather than adjusting
the Theoretical Price.
The Exchange proposes no other changes at this time.
Implementation Date
The proposed rule change will become operative no sooner than six
months following the approval of the NYSE Arca proposal \9\ to coincide
with implementation on other option exchanges. The Exchange will
announce the implementation date to its Participants via Regulatory
Circular.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 93818 (December 17,
2021), 86 FR 73009 (December 23, 2021) (SR-NYSEArca-2021-91) (Order
Approving a Proposed Rule Change to Amend Rule 6.87-O).
---------------------------------------------------------------------------
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''),\10\ in general, and Section 6(b)(5) of the Act,\11\ 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.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes the proposed rule change to section (b)(3) of
the Rule would remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest because it provides a method
for addressing Obvious Error Customer transactions that occur in a wide
market at the opening of trading. Generally, a wide market is an
indication of a lack of liquidity in the market such that the market is
unreliable. Current section (b)(3) recognizes that a persistently wide
quote (i.e., more than 10 seconds) should be considered the reliable
market regardless of its width, but does not address transactions that
occur in a wide market in the first seconds of trading, where there is
no preceding 10-second period to reference. Accordingly, in the first
10 seconds of trading, there is no opportunity for a wide quote to have
persisted for a sufficiently lengthy period such that the market should
consider it a reliable market for the purposes of determining an
Obvious Error transaction.
The proposed change would rectify this disparity and permit the
Exchange to consider whether a narrow quote is present at any time
during the 10-second period after an opening or reopening. The presence
of such a narrow quote would indicate that the market has gained
sufficient liquidity and that the previous wide market was unreliable,
such that it would be appropriate for the Exchange to determine the
Theoretical Price of an Obvious Error transaction. In this way, the
proposed rule harmonizes the treatment of Customer transactions that
execute in an unreliable market at any point of the trading day, by
making them uniformly subject to Exchange determination of the
Theoretical Price.
The Exchange believes that the proposed change to section (c)(4)(B)
of the Rule would remove impediments to and perfect the mechanism of a
free and open market and a national market system and enhance the
protection of investors by harmonizing the treatment of non-Customer
transactions and Customer transactions under the Rule. Under the
current Rule, Obvious Error situations involving non-Customer
transactions are adjusted, while those involving Customer transactions
are generally nullified, unless they meet the additional requirements
of section (c)(4)(C) (i.e., where a Participant has 200 or more
Customer transactions under review concurrently and the orders
resulting in such transactions were submitted during the course of 2
minutes or less.) The proposal would harmonize the treatment of non-
Customer and Customer transactions by providing for the adjustment of
all such transactions, except where such adjustment would violate the
Customer's limit price.
When it proposed the current rule in 2015, the Exchange believed
there were sound reasons for treating non-Customer transactions and
Customer transactions differently. At the time, the Exchange stated its
belief that ``Customers are not necessarily immersed in the day-today
trading of the markets, are less likely to be watching trading activity
in a particular option throughout the day, and may have limited funds
in their trading accounts,'' and that nullifying Obvious Error
transactions involving Customers would give Customers ``greater
protections'' than adjusting such transactions by eliminating the
possibility that a Customer's order will be adjusted to a significantly
different price. The Exchange also noted its belief that ``Customers
are . . . less likely to have engaged in significant hedging or other
trading activity based on earlier transactions, and thus, are less in
need of maintaining a position at an adjusted price than non-
Customers.'' \12\
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 74911 (May 8,
2015), 80 FR 27717 (May 14, 2015) (SR-BOX-2015-18).
---------------------------------------------------------------------------
Those assumptions about Customer trading and hedging activity no
longer hold. The Exchange and the Industry Working Group believe that
over the course of the last five years, Customers that use options have
become more sophisticated, as retail broker-dealers have enhanced the
trading tools available. Pursuant to OCC data, volumes clearing in the
Customer range have expanded from 12,022,163 ADV in 2015 to 35,081,130
ADV in 2021. This increase in trading activity underscores the greater
understanding of options by Customers as a trading tool and its use in
the markets. Customers who trade options today largely are more
educated, have better trading tools, and have better access to
financial news than any time prior.\13\ The proposed rule would extend
the hedging protections currently enjoyed by non-Customers to
Customers, by allowing them to maintain an option position at an
[[Page 6928]]
adjusted price, which would in turn prevent a cascading effect by
maintaining the hedge relationship between the option transaction and
any other transactions in a related security.
---------------------------------------------------------------------------
\13\ Dan Raju, Retail Traders Adopt Options En Masse, by Dan
Raju, (Dec 8, 2020) available at https://www.nasdaq.com/articles/retail-traders-adopt-options-en-masse-2020-12-08.
---------------------------------------------------------------------------
The Exchange believes that extending such hedging protections to
Customer transactions would remove impediments to and perfect the
mechanism of a free and open market and a national market system and
enhance the protection of investors by providing greater certainty of
execution for all participants to options transactions. Under the
current Rule, a Customer that believes its transaction was executed
pursuant to an Obvious Error may be disincentivized from submitting the
transaction for review, since during the review process, the Customer
would be uncertain whether the trade would be nullified, and if so,
whether market conditions would still permit the opportunity to execute
a related order at a better price after the nullification ruling is
finalized. In contrast, under the proposed rule, the Customer would
know that the only likely outcomes of submitting a trade to Obvious
Error review would be that the trade would stand or be re-executed at a
better price; the trade would only be nullified if the adjustment would
violate the order's limit. Similarly, under the current Rule, during
the review period, a market maker who traded contra to the Customer
would be uncertain if it should retain any position executed to hedge
the original trade, or attempt to unwind it, possibly at a significant
loss. Under the proposed rule change, this uncertainty is largely
eliminated, and the question would be whether the already-executed and
hedged trade would be adjusted to a better price for the Customer, or
if it would stand as originally executed. In this way, the proposed
rule enhances the protection of investors and removes impediments to
and perfects the mechanism of a free and open market and a national
market system.
The proposed rule also addresses the concern the Exchange cited in
its 2015 filing that adjusting, rather than nullifying, Customer
transactions could lead to a Customer's order being adjusted to a
significantly different price. To address that concern, the proposed
rule would prevent Customer transactions from being adjusted to a price
that violates the order's limit; if the adjustment would violate a
Customer's limit, the trade would instead be nullified. The Exchange
believes it is in the best interest of investors to expand the
availability of adjustments to Customer transactions in all Obvious
Error situations except where the adjustment would violate the
Customer's limit price. Further, the Exchange believes that, with
respect to such proposed adjustments to Customer transactions, it is
appropriate to use the same form of adjustment as is currently in place
with respect to non-Customer transactions as laid out in the table in
section (c)(4)(A). That is, the Exchange believes that it is
appropriate to adjust to prices a specified amount away from the
Theoretical Price rather than to adjust the Theoretical Price, even
though the Exchange has determined a given trade to be erroneous in
nature, because the parties in question should have had some
expectation of execution at the price or prices submitted. Also, it is
common that by the time it is determined that an Obvious Error has
occurred, additional hedging and trading activity has already occurred
based on the executions that previously happened. The Exchange believes
that providing an adjustment to the Theoretical Price in all cases
would not appropriately incentivize market participants to maintain
appropriate controls to avoid potential errors, while adjusting to
prices a specified amount away from the Theoretical Price would
incentivize such behavior. The Exchange believes that the proposal is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers. The proposed change to section (b)(3)
would apply to all instances of a wide market occurring within the
first 10 seconds of trading followed by a narrow market at any point in
the subsequent 10-second period, regardless of the types of market
participants involved in such transactions. The proposed change to
section (c)(4)(B) would harmonize the treatment of Obvious Error
transactions involving Customers and non-Customers, no matter what type
of market participants those parties may be. For these reasons, the
Exchange believes that the proposal is consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance 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 NYSE Arca that was
recently approved by the Commission.\14\ The Exchange anticipates that
the other options exchanges will adopt substantively similar proposals,
such that there would be no burden on intermarket competition from the
Exchange's proposal. Accordingly, the proposed change is not meant to
affect competition among the options exchanges. For these reasons, the
Exchange believes that the proposed rule change reflects this
competitive environment and does not impose any undue burden on
intermarket competition.
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\14\ See supra, note 3.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) \16\ thereunder, the Exchange has designated this proposal as
one that effects a change that: (i) Does not significantly affect the
protection of investors or the public interest; (ii) does not impose
any significant burden on competition; and (iii) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 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.
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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:
[[Page 6929]]
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-2022-05 on the subject line.
Paper Comments
Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR- BOX-2022-05. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet 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-BOX-2022-05 and should be submitted on
or before February 28, 2022.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02430 Filed 2-4-22; 8:45 am]
BILLING CODE 8011-01-P
