Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend IM-8050-3 To Establish Functionality That Will Reject Market Maker Quotes When Those Quotes Would Otherwise Lock or Cross the National Best Bid or Offer, 78171-78175 [2022-27649]

Download as PDF Federal Register / Vol. 87, No. 244 / Wednesday, December 21, 2022 / Notices 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. 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: lotter on DSK11XQN23PROD with NOTICES1 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– ICEEU–2022–026 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–ICEEU–2022–026. 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 filings will also be available for inspection and copying at the principal office of ICE Clear Europe and on ICE Clear Europe’s website at https:// www.theice.com/clear-europe/ regulation. 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 VerDate Sep<11>2014 19:56 Dec 20, 2022 Jkt 259001 to File Number SR–ICEEU–2022–026 and should be submitted on or before January 11, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2022–27650 Filed 12–20–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96502; File No. SR–BOX– 2022–31] Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend IM–8050–3 To Establish Functionality That Will Reject Market Maker Quotes When Those Quotes Would Otherwise Lock or Cross the National Best Bid or Offer December 15, 2022. 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 December 6, 2022, BOX Exchange LLC (‘‘BOX’’ or ‘‘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 IM– 8050–3 to establish functionality that will reject Market Maker 3 quotes when those quotes would otherwise lock or cross the National Best Bid or Offer (‘‘NBBO’’).4 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:// rules.boxexchange.com/rulefilings. 13 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Market Makers make markets in options contracts traded on the Exchange and are vested with the rights and responsibilities specified in the BOX Rule 8000 Series. See BOX Rule 100(a)(31). 4 NBBO is defined as the national best bid or offer. See BOX Rule 100(a)(34). 1 15 PO 00000 Frm 00130 Fmt 4703 Sfmt 4703 78171 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 purpose of the proposed rule change is to amend Rule IM–8050–3 to establish functionality that will automatically reject a Market Maker quote that would otherwise lock or cross the NBBO. Background Currently, all Market Maker quotes received on BOX after the opening of the market will not execute against a resting order or quote on the BOX Book.5 However, if there is no BOX Book for a particular option or if the BOX Book is inferior to the NBBO, a Market Maker quote could display at a price that locks or crosses the NBBO.6 This proposal is designed to prevent such occurrences. The following examples demonstrate the current functionality and interaction of Market Maker quotes, defined as a bid and offer, with the BOX Book depending on whether the BOX Book is on the NBBO: Example 1: Assume that the BOX Book in an option is $1.00 bid and offered at $1.10, hereinafter expressed as 1.00/1.10, and the NBBO is 1.00/1.10. A Market Maker quote of 1.10/1.20 would remove liquidity from the BOX 5 See BOX Rule IM–8050–3(a). Exchange has policies and procedures in place to ensure Participant compliance with Rule 15020 (Locked and Crossed Markets). Rule 15020 provides that, absent an exception, Participants shall reasonably avoid displaying, and shall not engage in a pattern or practice of displaying, any Quotations that lock or cross a Protected Quotation. BOX Exchange surveils for instances where a BOX Participant, including a Market Maker, displays a quotation which locks or crosses the NBBO without taking corrective action in a timely manner. Additionally, violations of Rule 15020 are subject to disciplinary action as detailed in the Exchange’s minor rule violation plan (‘‘MRVP’’). See Rule 12140(d)(12). 6 BOX E:\FR\FM\21DEN1.SGM 21DEN1 78172 Federal Register / Vol. 87, No. 244 / Wednesday, December 21, 2022 / Notices Book 7 because the Market Maker’s 1.10 bid equals the BOX Book offer at 1.10. Each side of the quote is evaluated separately to determine whether it will be accepted or rejected. As a result, the 1.10 bid will be rejected and a message will be sent to the Market Maker indicating that their bid was rejected. The Market Maker’s offer will be accepted. Example 2: Assume the BOX Book in an option is 1.00/1.20, the NBBO is 1.00/1.10, and a Market Maker sends a quote of 1.10/1.20. In this case, the BOX Book is inferior to NBBO on the offer. The Market Maker’s bid of 1.10 would not execute against the BOX Book, therefore it would be displayed in the BOX Book and would be disseminated to the Options Price Reporting Authority (‘‘OPRA’’). In this example, the Market Maker’s bid and offer will be accepted even though the bid of 1.10 would lock the NBO 8 of 1.10. lotter on DSK11XQN23PROD with NOTICES1 Proposal The Exchange proposes to add functionality that will reject a Market Maker quote that would otherwise lock or cross the NBBO. Referring to Example 2 above, under the current functionality, a Market Maker quote of 1.10/1.20, when displayed in the BOX Book and disseminated to OPRA, would lock the NBO because the Market Maker’s bid of 1.10 equals the NBO of 1.10. Under this proposal, the 1.10 bid will be instead rejected and a message will be sent to the Market Maker indicating that their bid was rejected. Illustrated further, assume that the BOX Book in an option is 1.00/1.20 and the NBBO is 1.10/1.20. A Market Maker quote of 1.00/1.10 would lock the NBB 9 because the Market Maker’s offer of 1.10 equals the NBB of 1.10. Under this proposal, the 1.10 offer will be rejected and a message will be sent to the Market Maker indicating that their offer was rejected. The Exchange notes that BOX Market Makers requested this functionality to: (1) avoid inadvertently locking or crossing the NBBO; 10 and (2) to give themselves the opportunity to re7 However, such a quote may execute in a PIP auction before rejection. See BOX Rule IM–8050– 3(b)(2). Pursuant to current Rule 7150(j), when an incoming quote on the opposite side of the PIP Order is received such that it would cause an execution to occur prior to the end of the PIP, the incoming quote shall be immediately executed. 8 NBO is the national best offer. See BOX Rule 100(a)(34). 9 NBB is the national best bid. See BOX Rule 100(a)(34). 10 BOX Rule 15020(a) Locked and Crossed Markets provides that Options Participants shall reasonably avoid displaying, and shall not engage in a pattern or practice of displaying, any Quotations that lock or cross a Protected Quotation with some exceptions noted in BOX Rule 15020(b). VerDate Sep<11>2014 19:56 Dec 20, 2022 Jkt 259001 evaluate their quoting in the event they are submitting quotes to BOX that are locking or crossing the NBBO. Additionally, the Exchange is seeking to address an inconsistency between quote and order handling when the quote or order would lock or cross the NBBO. Currently, pursuant to Rule 7130(b) Filtering of BOX In-Bound Orders, orders will not, in the case of a sell order, execute at a price below the NBB or, in the case of a buy order, execute at a price above the NBO.11 The proposal discussed herein will produce the same result for quotes on BOX. The Exchange believes that rejecting quotes that would otherwise lock or cross the NBBO is beneficial because it will avoid the display of any quotations that would lock or cross a Protected Quotation.12 The Exchange notes that it is not proposing to change the interaction of an incoming quote with a PIP Order 13 as incoming quotes may interact with the PIP before being rejected.14 Under the proposal, the incoming quote will continue to cause the PIP to end early if the conditions of Rule 7150(i) 15 exist. 11 See BOX Rule 7130(b)(1). The filter will determine if the order is executable against the NBBO (an order is deemed ‘‘executable against the NBBO’’ when, in the case of an order to sell(buy), its limit price is equal to or lower(higher) than the best bid(offer) across all options exchanges. By definition, a Market Order is executable against the NBBO). If the order is not executable against the NBBO, the order will be placed on the BOX Book. If the order is executable against the NBBO, the filter will determine whether there is a quote on BOX that is equal to the NBBO. If there is a quote on BOX that is equal to the NBBO, then the order will be executed against the relevant quote. Any remaining quantity of the order is exposed on the BOX Book at the NBBO for a time period established by the Exchange, not to exceed one second. At the end of the exposure period, any unexecuted quantity will be handled by the Trading Host in the following manner: (i) If the best BOX price is now equal to the NBBO, the remaining unexecuted quantity will be placed on the BOX Book and immediately executed against that quote. Any remaining quantity will be (i) in the case of Public Customer Eligible Orders, routed to one or more Away Exchanges displaying the NBBO, or (ii) in the case of market maker or proprietary brokerdealer orders, returned to the submitting Options Participant. See BOX Rule 7130(b)(3). 12 A Protected Bid or Protected Offer means a Bid or Offer in an option series, respectively, that is disseminated pursuant to the OPRA Plan; and is the Best Bid or Best Offer, respectively, displayed by an Eligible Exchange. See BOX Rule 15000(o). A Quotation means a Bid or Offer. See BOX Rule 15000(q). 13 PIP Orders are customer orders designated for the PIP. See BOX Rule 7150(f). 14 See BOX Rule IM–8050–3(b). 15 Specifically, Rule 7150(i) provides that in cases where an Unrelated Order is submitted to BOX on the same side as the PIP Order, or a Legging Order is generated during the PIP on the BOX Book on the same side as the PIP Order, such that either would cause an execution to occur prior to the end of the PIP, the PIP shall be deemed concluded and the PIP Order shall be matched pursuant to 7150(g). Specifically, the submission to BOX of a Market Order on the same side as a PIP Order will PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 Specifically, under the current functionality, after the PIP is concluded, if the incoming quote would execute against resting orders or quotes on the BOX Book, the relevant side will continue to be rejected.16 Further, under the proposed functionality, if the incoming quote would lock or cross the BOX Book or the NBBO,17 the relevant side will be rejected. Additionally, when an incoming quote on the opposite side of the PIP Order is received such that it would cause an execution to occur prior to the end of the PIP, the incoming quote shall be immediately executed pursuant to Rule 7150(j). In order for the incoming quote on the opposite side of the PIP Order to execute against the PIP Order, the conditions of Rule 7150(j) must be met.18 Under this proposal, any remaining balance of the incoming quote that did not execute against the PIP Order, and that would execute against a resting order or quote on the BOX Book or that would lock or cross the NBBO, will be rejected. The following examples demonstrate interaction between incoming quotes and a PIP Order both currently and under the proposal: Example 1: Incoming Quote Trades against PIP Order prematurely terminate the PIP when, at the time of the submission of the Market Order, the best Improvement Order is equal to or better than the NBBO on the same side of the market as the best Improvement Order. The submission to BOX of an executable Limit Order or generation of an executable Legging Order on the same side as a PIP Order will prematurely terminate the PIP if at the time of submission: (1) the Buy (Sell) Limit Order or Legging Order price is equal to or higher (lower) than the National Best Offer (Bid) and either: (i) the BOX Best Offer (Bid) is equal to the National Best Offer (Bid); or (ii) the BOX Best Offer (Bid) is higher (lower) than the National Best Offer (Bid) and the price of the best Improvement Order is equal to or lower (higher) than the National Best Offer (Bid); or (2) the Buy (Sell) Limit Order or Legging Order price is lower (higher) than the National Best Offer (Bid) and its limit price equals or crosses the price of the best Improvement Order. Following the execution of the PIP Order, any remaining Improvement Orders are cancelled and the Market Order or Limit Order is filtered pursuant to Rule 7130(b). 16 See BOX Rule IM–8050–3(a). 17 See proposed Rule IM–8050–3(a)(1). 18 Specifically, Rule 7150(j) states that a Market Order on the opposite side of a PIP Order will immediately execute against the PIP Order when, at the time of the submission of the Market Order, the best Improvement Order does not cross the NBBO on the same side of the market as the PIP Order. The submission of an executable Limit Order or generation of an executable Legging Order on the opposite side of a PIP Order will immediately execute against a PIP Order when the Sell (Buy) Limit Order price is equal to or crosses the National Best Bid (Offer), and: (1) the BOX Best Bid (Offer) is equal to the National Best Bid (Offer); or (2) the BOX Best Bid (Offer) is lower (higher) than the National Best Bid (Offer) and neither the best Improvement Order nor BOX Best Offer (Bid) is equal to or crosses the National Best Bid (Offer). E:\FR\FM\21DEN1.SGM 21DEN1 Federal Register / Vol. 87, No. 244 / Wednesday, December 21, 2022 / Notices BOX BBO: 2.03 bid and 2.10 offer NBBO: 2.03 bid and 2.10 offer PIP Order: Buy 5 contracts for 2.05 Incoming Quote: Sell 10 contracts at 2.03 The incoming quote will execute 5 contracts against the PIP Order. In this case, the best BOX price on the opposite side of the market from the quote is 2.03, the NBB is 2.03, and the order will execute one penny better than the NBBO at 2.04 because the best BOX price on the opposite side of the market from the quote is equal to the NBBO.19 The PIP will then be terminated because the PIP Order was filled and the remaining 5 contracts of the incoming quote that would lock the NBB will be rejected. The Exchange notes that this quote would also be rejected because it would remove liquidity from the BOX Book.20 Example 2: Incoming Quote Terminates PIP BOX BBO: 2.00 bid and 2.06 offer NBBO: 2.00 bid and 2.06 offer PIP Order: Buy 5 contracts for 2.05 Incoming Quote: Buy 10 contracts for 2.06 The incoming quote would lock the NBO and will be rejected. The quote submitted to BOX will not interact with the PIP Order because it is on the same side as the PIP Order, such that it would cause an execution to occur prior to the end of the PIP, in which case the PIP will terminate and the PIP Order will be matched.21 The Exchange notes that this quote would also be rejected because it would remove liquidity from the BOX Book.22 Lastly, the Exchange notes that as is the case today, rejected quotes will not be considered when determining a Market Maker’s quoting obligations.23 Other options exchanges provide functionality similar to the proposed changes discussed herein. Specifically, in the situation where an incoming quote would lock or cross the NBBO, other exchanges adjust quote prices to one minimum price variation (‘‘MPV’’) below the NBO for bids and one MPV 19 See BOX Rule 7150(j). BOX Rule IM–8050–3(a). 21 The PIP shall be deemed concluded pursuant to BOX Rule 7150(i) and the PIP Order will be matched pursuant to Rule 7150(g). 22 See BOX Rule IM–8050–3(a). 23 On a daily basis, a Market Maker must, during regular market hours, make markets and enter into any resulting transactions consistent with the applicable quoting requirements, such that on a daily basis a Market Maker must post valid quotes at least sixty percent (60%) of the time that the classes are open for trading. These obligations apply to all of the Market Maker’s appointed classes collectively, rather than on a class-by-class basis. See Rule 8050(e). See also Rule 8040. lotter on DSK11XQN23PROD with NOTICES1 20 See VerDate Sep<11>2014 19:56 Dec 20, 2022 Jkt 259001 above the NBB for offers.24 Similar to this proposal, other exchanges offer market makers a choice between having their quote rejected or repriced.25 For simplicity, the Exchange is proposing to reject quotes that would otherwise lock or cross the NBBO, which would allow Market Makers the opportunity to reevaluate, reprice, and resend quotes to BOX. The Exchange believes that rejecting Market Maker quotes is simpler for both BOX and BOX Market Makers because a quote sent to BOX is either added to the BOX Book or rejected. This results in no uncertainty regarding the price. Further, the Exchange chose not to add functionality that would reprice a quote that would otherwise lock or cross the NBBO so the respective Market Makers have the opportunity to resubmit their quote to BOX at a price of their choosing. Thus, the Exchange believes that the proposed change may provide Market Makers with greater control over their quotes and may encourage Market Makers to provide greater liquidity to BOX given this flexibility. BOX plans to provide this functionality during the fourth calendar quarter of 2022. The Exchange will distribute an Informational Circular to Participants prior to implementation of this functionality. 2. Statutory Basis The Exchange believes that the proposal is consistent with the requirements of Section 6(b) of the Act,26 in general, and Section 6(b)(5) of the Act,27 in particular, in that it is designed to promote just and equitable principles of trade, 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. The Exchange believes that rejecting Market Maker quotes that would otherwise lock or cross the NBBO may provide Maker Makers with greater control over their quotes on BOX because a quote sent to BOX is either 24 See Miami International Securities Exchange, LLC Rules 514(f)(1)(i) and 515(d) and MIAX Emerald, LLC Rules 514(f)(1)(i) and 515(d) (repricing quotes continuously until the Market Maker quote reaches its original limit price, is fully executed or cancelled). See also Nasdaq Stock Market LLC Rules Options 3, Section 4(b)(6) and Section 15(c)(3) and Nasdaq BX, Inc. Rules Options 3, Section 4(b)(6) and Section 15(c)(3). 25 See Nasdaq ISE, LLC Rule Options 3, Section 4(b)(6) and Nasdaq GEMX, LLC Rule Options 3, Section 4(b)(6) and Nasdaq MRX, LLC Rule Options 3, Section 4(b)(6) and Cboe EDGX Exchange, Inc. Rule 21.1(l) and Cboe C2 Exchange, Inc. Rules 5.32(b)–(c) and Cboe Exchange, Inc. Rules 5.32(b)– (c). 26 15 U.S.C. 78f(b). 27 15 U.S.C. 78f(b)(5). PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 78173 added to the BOX Book or rejected. As discussed above, this results in no uncertainty regarding the price. Further, the Exchange chose not to add functionality that would reprice a quote that would otherwise lock or cross the NBBO so the respective Market Maker has the opportunity to resubmit their quote to BOX at a price of their choosing. The Exchange believes this change will assist Market Makers in reducing their regulatory risk, maintaining a fair and orderly market, and in quoting with greater confidence which may lead Market Makers to quote with larger sizes or tighter bid to offer spreads on BOX, that could then benefit all BOX Participants, increasing price discovery, and potentially increasing trading activity. The Exchange also believes the proposed functionality will also provide Market Makers with protection from inadvertently submitting quotes that lock or cross the NBBO 28 and from trading on those quotes, thus promoting the policy goals of the Commission that has encouraged execution venues, exchanges, and non-exchanges alike, to enhance risk protection tools and other mechanisms to decrease regulatory risk and increase stability. Additionally, the benefits of enhanced risk protections and other mechanisms to decrease risk may flow downstream to counterparties both within and away from the Exchange, thereby increasing systemic protections as well. The Exchange notes further, a Market Maker that produces erroneous quotes causing displayed markets to lock or cross the NBBO may cause erroneous trading activity and disrupt markets. The Exchange believes that rejecting Market Maker quotes that would otherwise lock or cross the NBBO will reduce the likelihood of BOX displaying quotes that lock or cross the NBBO, which is consistent with the Options Order Protection and Locked/Crossed Market Plan (‘‘the Plan’’).29 The Exchange notes that as a party to the Plan, the Exchange has agreed to comply with, and enforce compliance by BOX Options Participants, which includes avoidance of Trade-Throughs and prohibition against a pattern or practice of displaying any quotations that lock or cross a Protected Quotation.30 This proposal is designed 28 Except for quotations that fall within the provisions of 15020(b), Options Participants shall reasonably avoid displaying, and shall not engage in a pattern or practice of displaying, any Quotations that lock or cross a Protected Quotation. See BOX Rule 15020(a). 29 See BOX Rule 15020. 30 See BOX Rule 15010. E:\FR\FM\21DEN1.SGM 21DEN1 78174 Federal Register / Vol. 87, No. 244 / Wednesday, December 21, 2022 / Notices to aid the Exchange in enforcing such compliance. Lastly, the Exchange again notes that the proposed changes have no impact on the interaction of an incoming quote with a PIP Order and have no impact on a Market Maker’s obligations pursuant to current BOX Rules 8040 and 8050. Market Makers will continue to be subject to the obligations detailed in these rules. As such, the Exchange believes the proposed rule change is in the public interest, and therefore, consistent with the Act. lotter on DSK11XQN23PROD with NOTICES1 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Market Makers are required to provide continuous two-sided quotes on a daily basis and are subject to various obligations associated with providing liquidity on BOX. BOX Participants’ orders are already provided NBBO protection and either routed (if eligible) or rejected immediately.31 The proposed change would afford quotes a similar level of protection to assist Market Makers in managing their unique risks and obligations. Further, the proposed change will not impose any burden on intramarket competition as the proposed change will apply to all Market Makers on BOX. Lastly, the Exchange again notes that Market Makers have requested that BOX implement the proposed protections. The Exchange believes that the proposed change will not impose any burden on intermarket competition as other exchanges offer similar functionality.32 Further, the proposed change may encourage intermarket competition by improving compliance with the Plan, which includes avoidance of Trade-Throughs and prohibition against a pattern or practice of displaying any quotations that lock or cross a Protected Quotation. As such, 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. 31 See 32 See BOX Rule 7130(b). supra, notes 24, 25. VerDate Sep<11>2014 19:56 Dec 20, 2022 Jkt 259001 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 33 and Rule 19b– 4(f)(6) thereunder.34 A proposed rule change filed under Rule 19b–4(f)(6) 35 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),36 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Waiver of the operative delay would allow the Exchange to immediately offer the functionality that will reject Market Maker quotes when those quotes would otherwise lock or cross the NBBO, which is consistent with the Options Order Protection and Locked/Crossed Market Plan. Accordingly, the Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.37 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 33 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 35 17 CFR 240.19b–4(f)(6). 36 17 CFR 240.19b–4(f)(6)(iii). 37 For purposes only of waiving the 30-day operative delay, the Commission also has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 34 17 PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 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 arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BOX–2022–31 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–2022–31. 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 E:\FR\FM\21DEN1.SGM 21DEN1 Federal Register / Vol. 87, No. 244 / Wednesday, December 21, 2022 / Notices submissions should refer to File Number SR–BOX–2022–31 and should be submitted on or before January 11, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.38 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2022–27649 Filed 12–20–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96513; File No. SR–NSCC– 2022–802] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Advance Notice Related to Certain Enhancements to the Gap Risk Measure and the VaR Charge December 15, 2022. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96505; File No. SR– PEARL–2022–47] Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Withdrawal of Proposed Rule Change To Amend the MIAX PEARL Options Fee Schedule To Remove a Monthly Credit Associated With Trading Permit Fees December 15, 2022. On November 2, 2022, MIAX PEARL, LLC (‘‘MIAX Pearl’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 1 and Rule 19b–4 thereunder,2 a proposed rule change to remove a monthly credit associated with trading permit fees. The proposed rule change was published for comment in the Federal Register on November 14, 2022.3 On December 14, 2022, MIAX Pearl withdrew the proposed rule change (SR–PEARL–2022–47). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.4 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2022–27652 Filed 12–20–22; 8:45 am] BILLING CODE 8011–01–P Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 1 and Rule 19b–4(n)(1)(i) under the Securities Exchange Act of 1934 (‘‘Act’’),2 notice is hereby given that on December 2, 2022, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the advance notice as described in Items I, II and III below, which Items have been prepared by the clearing agency.3 The Commission is publishing this notice to solicit comments on the advance notice from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Advance Notice This advance notice consists of modifications to NSCC’s Rules & Procedures (‘‘Rules’’) 4 in order to enhance the calculation of the volatility component of the Clearing Fund formula that utilizes a parametric Valueat-Risk (‘‘VaR’’) model (‘‘VaR Charge’’) by (1) making the result of the gap risk measure (‘‘Gap Risk Measure’’) calculation an additive component of the VaR Charge when it is applicable, rather than being applied as the applicable VaR Charge when it is the largest of three separate calculations, (2) modifying the language relating to which ETF (as defined below) positions are excluded from the Gap Risk Measure, (3) adjusting both the trigger for applying the Gap Risk Measure and the calculation of the Gap Risk Measure to be based on the two largest positions in a portfolio, rather than based on the single largest position, (4)(a) removing 1 12 U.S.C. 5465(e)(1). CFR 240.19b–4(n)(1)(i). 3 NSCC filed this advance notice as a proposed rule change (SR–NSCC–2022–015) with the Commission pursuant to Section 19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule 19b–4 thereunder, 17 CFR 240.19b–4. A copy of the proposed rule change is available at https://www.dtcc.com/legal/sec-rulefilings.aspx. 4 Capitalized terms not defined herein are defined in the Rules, available at https://dtcc.com/∼/media/ Files/Downloads/legal/rules/nscc_rules.pdf. lotter on DSK11XQN23PROD with NOTICES1 2 17 38 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 96249 (November 7, 2022), 87 FR 68217. 4 17 CFR 200.30–3(a)(12). 1 15 VerDate Sep<11>2014 19:56 Dec 20, 2022 Jkt 259001 PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 78175 the description of the methodology in the Rules for calculating the gap risk haircut, (b) providing that, like the concentration threshold, gap risk haircuts would be calibrated from time to time based on backtesting and impact analysis and (c) changing the floor of the gap risk haircut from 10 percent to 5 percent for the largest position and adding a floor of the gap risk haircut of 2.5 percent for the second largest position subject to the Gap Risk Measure and (5) making certain clarifications to the description of Gap Risk Measure, as described in greater detail below. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Advance Notice In its filing with the Commission, the clearing agency included statements concerning the purpose of and basis for the advance notice and discussed any comments it received on the advance notice. The text of these statements may be examined at the places specified in Item IV below. The clearing agency has prepared summaries, set forth in sections A and B below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement on Comments on the Advance Notice Received From Members, Participants, or Others NSCC has not received or solicited any written comments relating to this proposal. NSCC will notify the Securities and Exchange Commission (‘‘Commission’’) of any written comments received by NSCC. (B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing Supervision Act Description of Proposed Changes NSCC is proposing to enhance the calculation of the VaR Charge by (1) making the result of the Gap Risk Measure calculation an additive component of the VaR Charge when it is applicable, rather than being applied as the applicable VaR Charge when it is the largest of three separate calculations, (2) modifying the language relating to which ETF positions are excluded from the Gap Risk Measure, (3) adjusting both the trigger for applying the Gap Risk Measure and the calculation of the Gap Risk Measure to be based on the two largest positions in a portfolio, rather than based on the single largest position, (4)(a) removing the description of the methodology in the Rules for calculating the gap risk haircut, (b) providing that, like the concentration threshold, gap risk haircuts would be E:\FR\FM\21DEN1.SGM 21DEN1

Agencies

[Federal Register Volume 87, Number 244 (Wednesday, December 21, 2022)]
[Notices]
[Pages 78171-78175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27649]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96502; File No. SR-BOX-2022-31]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend IM-8050-
3 To Establish Functionality That Will Reject Market Maker Quotes When 
Those Quotes Would Otherwise Lock or Cross the National Best Bid or 
Offer

December 15, 2022.
    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 December 6, 2022, BOX Exchange LLC (``BOX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II, below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend IM-8050-3 to establish functionality 
that will reject Market Maker \3\ quotes when those quotes would 
otherwise lock or cross the National Best Bid or Offer (``NBBO'').\4\ 
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://rules.boxexchange.com/rulefilings.
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    \3\ Market Makers make markets in options contracts traded on 
the Exchange and are vested with the rights and responsibilities 
specified in the BOX Rule 8000 Series. See BOX Rule 100(a)(31).
    \4\ NBBO is defined as the national best bid or offer. See BOX 
Rule 100(a)(34).
---------------------------------------------------------------------------

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 purpose of the proposed rule change is to amend Rule IM-8050-3 
to establish functionality that will automatically reject a Market 
Maker quote that would otherwise lock or cross the NBBO.
Background
    Currently, all Market Maker quotes received on BOX after the 
opening of the market will not execute against a resting order or quote 
on the BOX Book.\5\ However, if there is no BOX Book for a particular 
option or if the BOX Book is inferior to the NBBO, a Market Maker quote 
could display at a price that locks or crosses the NBBO.\6\ This 
proposal is designed to prevent such occurrences. The following 
examples demonstrate the current functionality and interaction of 
Market Maker quotes, defined as a bid and offer, with the BOX Book 
depending on whether the BOX Book is on the NBBO:
---------------------------------------------------------------------------

    \5\ See BOX Rule IM-8050-3(a).
    \6\ BOX Exchange has policies and procedures in place to ensure 
Participant compliance with Rule 15020 (Locked and Crossed Markets). 
Rule 15020 provides that, absent an exception, Participants shall 
reasonably avoid displaying, and shall not engage in a pattern or 
practice of displaying, any Quotations that lock or cross a 
Protected Quotation. BOX Exchange surveils for instances where a BOX 
Participant, including a Market Maker, displays a quotation which 
locks or crosses the NBBO without taking corrective action in a 
timely manner. Additionally, violations of Rule 15020 are subject to 
disciplinary action as detailed in the Exchange's minor rule 
violation plan (``MRVP''). See Rule 12140(d)(12).
---------------------------------------------------------------------------

    Example 1: Assume that the BOX Book in an option is $1.00 bid and 
offered at $1.10, hereinafter expressed as 1.00/1.10, and the NBBO is 
1.00/1.10. A Market Maker quote of 1.10/1.20 would remove liquidity 
from the BOX

[[Page 78172]]

Book \7\ because the Market Maker's 1.10 bid equals the BOX Book offer 
at 1.10. Each side of the quote is evaluated separately to determine 
whether it will be accepted or rejected. As a result, the 1.10 bid will 
be rejected and a message will be sent to the Market Maker indicating 
that their bid was rejected. The Market Maker's offer will be accepted.
---------------------------------------------------------------------------

    \7\ However, such a quote may execute in a PIP auction before 
rejection. See BOX Rule IM-8050-3(b)(2). Pursuant to current Rule 
7150(j), when an incoming quote on the opposite side of the PIP 
Order is received such that it would cause an execution to occur 
prior to the end of the PIP, the incoming quote shall be immediately 
executed.
---------------------------------------------------------------------------

    Example 2: Assume the BOX Book in an option is 1.00/1.20, the NBBO 
is 1.00/1.10, and a Market Maker sends a quote of 1.10/1.20. In this 
case, the BOX Book is inferior to NBBO on the offer. The Market Maker's 
bid of 1.10 would not execute against the BOX Book, therefore it would 
be displayed in the BOX Book and would be disseminated to the Options 
Price Reporting Authority (``OPRA''). In this example, the Market 
Maker's bid and offer will be accepted even though the bid of 1.10 
would lock the NBO \8\ of 1.10.
---------------------------------------------------------------------------

    \8\ NBO is the national best offer. See BOX Rule 100(a)(34).
---------------------------------------------------------------------------

Proposal
    The Exchange proposes to add functionality that will reject a 
Market Maker quote that would otherwise lock or cross the NBBO. 
Referring to Example 2 above, under the current functionality, a Market 
Maker quote of 1.10/1.20, when displayed in the BOX Book and 
disseminated to OPRA, would lock the NBO because the Market Maker's bid 
of 1.10 equals the NBO of 1.10. Under this proposal, the 1.10 bid will 
be instead rejected and a message will be sent to the Market Maker 
indicating that their bid was rejected. Illustrated further, assume 
that the BOX Book in an option is 1.00/1.20 and the NBBO is 1.10/1.20. 
A Market Maker quote of 1.00/1.10 would lock the NBB \9\ because the 
Market Maker's offer of 1.10 equals the NBB of 1.10. Under this 
proposal, the 1.10 offer will be rejected and a message will be sent to 
the Market Maker indicating that their offer was rejected.
---------------------------------------------------------------------------

    \9\ NBB is the national best bid. See BOX Rule 100(a)(34).
---------------------------------------------------------------------------

    The Exchange notes that BOX Market Makers requested this 
functionality to: (1) avoid inadvertently locking or crossing the NBBO; 
\10\ and (2) to give themselves the opportunity to re-evaluate their 
quoting in the event they are submitting quotes to BOX that are locking 
or crossing the NBBO. Additionally, the Exchange is seeking to address 
an inconsistency between quote and order handling when the quote or 
order would lock or cross the NBBO. Currently, pursuant to Rule 7130(b) 
Filtering of BOX In-Bound Orders, orders will not, in the case of a 
sell order, execute at a price below the NBB or, in the case of a buy 
order, execute at a price above the NBO.\11\ The proposal discussed 
herein will produce the same result for quotes on BOX. The Exchange 
believes that rejecting quotes that would otherwise lock or cross the 
NBBO is beneficial because it will avoid the display of any quotations 
that would lock or cross a Protected Quotation.\12\
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    \10\ BOX Rule 15020(a) Locked and Crossed Markets provides that 
Options Participants shall reasonably avoid displaying, and shall 
not engage in a pattern or practice of displaying, any Quotations 
that lock or cross a Protected Quotation with some exceptions noted 
in BOX Rule 15020(b).
    \11\ See BOX Rule 7130(b)(1). The filter will determine if the 
order is executable against the NBBO (an order is deemed 
``executable against the NBBO'' when, in the case of an order to 
sell(buy), its limit price is equal to or lower(higher) than the 
best bid(offer) across all options exchanges. By definition, a 
Market Order is executable against the NBBO). If the order is not 
executable against the NBBO, the order will be placed on the BOX 
Book. If the order is executable against the NBBO, the filter will 
determine whether there is a quote on BOX that is equal to the NBBO. 
If there is a quote on BOX that is equal to the NBBO, then the order 
will be executed against the relevant quote. Any remaining quantity 
of the order is exposed on the BOX Book at the NBBO for a time 
period established by the Exchange, not to exceed one second. At the 
end of the exposure period, any unexecuted quantity will be handled 
by the Trading Host in the following manner: (i) If the best BOX 
price is now equal to the NBBO, the remaining unexecuted quantity 
will be placed on the BOX Book and immediately executed against that 
quote. Any remaining quantity will be (i) in the case of Public 
Customer Eligible Orders, routed to one or more Away Exchanges 
displaying the NBBO, or (ii) in the case of market maker or 
proprietary broker-dealer orders, returned to the submitting Options 
Participant. See BOX Rule 7130(b)(3).
    \12\ A Protected Bid or Protected Offer means a Bid or Offer in 
an option series, respectively, that is disseminated pursuant to the 
OPRA Plan; and is the Best Bid or Best Offer, respectively, 
displayed by an Eligible Exchange. See BOX Rule 15000(o). A 
Quotation means a Bid or Offer. See BOX Rule 15000(q).
---------------------------------------------------------------------------

    The Exchange notes that it is not proposing to change the 
interaction of an incoming quote with a PIP Order \13\ as incoming 
quotes may interact with the PIP before being rejected.\14\ Under the 
proposal, the incoming quote will continue to cause the PIP to end 
early if the conditions of Rule 7150(i) \15\ exist. Specifically, under 
the current functionality, after the PIP is concluded, if the incoming 
quote would execute against resting orders or quotes on the BOX Book, 
the relevant side will continue to be rejected.\16\ Further, under the 
proposed functionality, if the incoming quote would lock or cross the 
BOX Book or the NBBO,\17\ the relevant side will be rejected. 
Additionally, when an incoming quote on the opposite side of the PIP 
Order is received such that it would cause an execution to occur prior 
to the end of the PIP, the incoming quote shall be immediately executed 
pursuant to Rule 7150(j). In order for the incoming quote on the 
opposite side of the PIP Order to execute against the PIP Order, the 
conditions of Rule 7150(j) must be met.\18\ Under this proposal, any 
remaining balance of the incoming quote that did not execute against 
the PIP Order, and that would execute against a resting order or quote 
on the BOX Book or that would lock or cross the NBBO, will be rejected. 
The following examples demonstrate interaction between incoming quotes 
and a PIP Order both currently and under the proposal:
---------------------------------------------------------------------------

    \13\ PIP Orders are customer orders designated for the PIP. See 
BOX Rule 7150(f).
    \14\ See BOX Rule IM-8050-3(b).
    \15\ Specifically, Rule 7150(i) provides that in cases where an 
Unrelated Order is submitted to BOX on the same side as the PIP 
Order, or a Legging Order is generated during the PIP on the BOX 
Book on the same side as the PIP Order, such that either would cause 
an execution to occur prior to the end of the PIP, the PIP shall be 
deemed concluded and the PIP Order shall be matched pursuant to 
7150(g). Specifically, the submission to BOX of a Market Order on 
the same side as a PIP Order will prematurely terminate the PIP 
when, at the time of the submission of the Market Order, the best 
Improvement Order is equal to or better than the NBBO on the same 
side of the market as the best Improvement Order. The submission to 
BOX of an executable Limit Order or generation of an executable 
Legging Order on the same side as a PIP Order will prematurely 
terminate the PIP if at the time of submission: (1) the Buy (Sell) 
Limit Order or Legging Order price is equal to or higher (lower) 
than the National Best Offer (Bid) and either: (i) the BOX Best 
Offer (Bid) is equal to the National Best Offer (Bid); or (ii) the 
BOX Best Offer (Bid) is higher (lower) than the National Best Offer 
(Bid) and the price of the best Improvement Order is equal to or 
lower (higher) than the National Best Offer (Bid); or (2) the Buy 
(Sell) Limit Order or Legging Order price is lower (higher) than the 
National Best Offer (Bid) and its limit price equals or crosses the 
price of the best Improvement Order. Following the execution of the 
PIP Order, any remaining Improvement Orders are cancelled and the 
Market Order or Limit Order is filtered pursuant to Rule 7130(b).
    \16\ See BOX Rule IM-8050-3(a).
    \17\ See proposed Rule IM-8050-3(a)(1).
    \18\ Specifically, Rule 7150(j) states that a Market Order on 
the opposite side of a PIP Order will immediately execute against 
the PIP Order when, at the time of the submission of the Market 
Order, the best Improvement Order does not cross the NBBO on the 
same side of the market as the PIP Order. The submission of an 
executable Limit Order or generation of an executable Legging Order 
on the opposite side of a PIP Order will immediately execute against 
a PIP Order when the Sell (Buy) Limit Order price is equal to or 
crosses the National Best Bid (Offer), and: (1) the BOX Best Bid 
(Offer) is equal to the National Best Bid (Offer); or (2) the BOX 
Best Bid (Offer) is lower (higher) than the National Best Bid 
(Offer) and neither the best Improvement Order nor BOX Best Offer 
(Bid) is equal to or crosses the National Best Bid (Offer).

Example 1: Incoming Quote Trades against PIP Order

[[Page 78173]]

BOX BBO: 2.03 bid and 2.10 offer
NBBO: 2.03 bid and 2.10 offer
PIP Order: Buy 5 contracts for 2.05
Incoming Quote: Sell 10 contracts at 2.03

    The incoming quote will execute 5 contracts against the PIP Order. 
In this case, the best BOX price on the opposite side of the market 
from the quote is 2.03, the NBB is 2.03, and the order will execute one 
penny better than the NBBO at 2.04 because the best BOX price on the 
opposite side of the market from the quote is equal to the NBBO.\19\ 
The PIP will then be terminated because the PIP Order was filled and 
the remaining 5 contracts of the incoming quote that would lock the NBB 
will be rejected. The Exchange notes that this quote would also be 
rejected because it would remove liquidity from the BOX Book.\20\
---------------------------------------------------------------------------

    \19\ See BOX Rule 7150(j).
    \20\ See BOX Rule IM-8050-3(a).

Example 2: Incoming Quote Terminates PIP
BOX BBO: 2.00 bid and 2.06 offer
NBBO: 2.00 bid and 2.06 offer
PIP Order: Buy 5 contracts for 2.05
Incoming Quote: Buy 10 contracts for 2.06

    The incoming quote would lock the NBO and will be rejected. The 
quote submitted to BOX will not interact with the PIP Order because it 
is on the same side as the PIP Order, such that it would cause an 
execution to occur prior to the end of the PIP, in which case the PIP 
will terminate and the PIP Order will be matched.\21\ The Exchange 
notes that this quote would also be rejected because it would remove 
liquidity from the BOX Book.\22\
---------------------------------------------------------------------------

    \21\ The PIP shall be deemed concluded pursuant to BOX Rule 
7150(i) and the PIP Order will be matched pursuant to Rule 7150(g).
    \22\ See BOX Rule IM-8050-3(a).
---------------------------------------------------------------------------

    Lastly, the Exchange notes that as is the case today, rejected 
quotes will not be considered when determining a Market Maker's quoting 
obligations.\23\
---------------------------------------------------------------------------

    \23\ On a daily basis, a Market Maker must, during regular 
market hours, make markets and enter into any resulting transactions 
consistent with the applicable quoting requirements, such that on a 
daily basis a Market Maker must post valid quotes at least sixty 
percent (60%) of the time that the classes are open for trading. 
These obligations apply to all of the Market Maker's appointed 
classes collectively, rather than on a class-by-class basis. See 
Rule 8050(e). See also Rule 8040.
---------------------------------------------------------------------------

    Other options exchanges provide functionality similar to the 
proposed changes discussed herein. Specifically, in the situation where 
an incoming quote would lock or cross the NBBO, other exchanges adjust 
quote prices to one minimum price variation (``MPV'') below the NBO for 
bids and one MPV above the NBB for offers.\24\ Similar to this 
proposal, other exchanges offer market makers a choice between having 
their quote rejected or repriced.\25\ For simplicity, the Exchange is 
proposing to reject quotes that would otherwise lock or cross the NBBO, 
which would allow Market Makers the opportunity to reevaluate, reprice, 
and resend quotes to BOX. The Exchange believes that rejecting Market 
Maker quotes is simpler for both BOX and BOX Market Makers because a 
quote sent to BOX is either added to the BOX Book or rejected. This 
results in no uncertainty regarding the price. Further, the Exchange 
chose not to add functionality that would reprice a quote that would 
otherwise lock or cross the NBBO so the respective Market Makers have 
the opportunity to resubmit their quote to BOX at a price of their 
choosing. Thus, the Exchange believes that the proposed change may 
provide Market Makers with greater control over their quotes and may 
encourage Market Makers to provide greater liquidity to BOX given this 
flexibility.
---------------------------------------------------------------------------

    \24\ See Miami International Securities Exchange, LLC Rules 
514(f)(1)(i) and 515(d) and MIAX Emerald, LLC Rules 514(f)(1)(i) and 
515(d) (repricing quotes continuously until the Market Maker quote 
reaches its original limit price, is fully executed or cancelled). 
See also Nasdaq Stock Market LLC Rules Options 3, Section 4(b)(6) 
and Section 15(c)(3) and Nasdaq BX, Inc. Rules Options 3, Section 
4(b)(6) and Section 15(c)(3).
    \25\ See Nasdaq ISE, LLC Rule Options 3, Section 4(b)(6) and 
Nasdaq GEMX, LLC Rule Options 3, Section 4(b)(6) and Nasdaq MRX, LLC 
Rule Options 3, Section 4(b)(6) and Cboe EDGX Exchange, Inc. Rule 
21.1(l) and Cboe C2 Exchange, Inc. Rules 5.32(b)-(c) and Cboe 
Exchange, Inc. Rules 5.32(b)-(c).
---------------------------------------------------------------------------

    BOX plans to provide this functionality during the fourth calendar 
quarter of 2022. The Exchange will distribute an Informational Circular 
to Participants prior to implementation of this functionality.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\26\ in general, and Section 
6(b)(5) of the Act,\27\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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. The Exchange believes that rejecting Market Maker quotes that 
would otherwise lock or cross the NBBO may provide Maker Makers with 
greater control over their quotes on BOX because a quote sent to BOX is 
either added to the BOX Book or rejected. As discussed above, this 
results in no uncertainty regarding the price. Further, the Exchange 
chose not to add functionality that would reprice a quote that would 
otherwise lock or cross the NBBO so the respective Market Maker has the 
opportunity to resubmit their quote to BOX at a price of their 
choosing. The Exchange believes this change will assist Market Makers 
in reducing their regulatory risk, maintaining a fair and orderly 
market, and in quoting with greater confidence which may lead Market 
Makers to quote with larger sizes or tighter bid to offer spreads on 
BOX, that could then benefit all BOX Participants, increasing price 
discovery, and potentially increasing trading activity.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange also believes the proposed functionality will also 
provide Market Makers with protection from inadvertently submitting 
quotes that lock or cross the NBBO \28\ and from trading on those 
quotes, thus promoting the policy goals of the Commission that has 
encouraged execution venues, exchanges, and non-exchanges alike, to 
enhance risk protection tools and other mechanisms to decrease 
regulatory risk and increase stability. Additionally, the benefits of 
enhanced risk protections and other mechanisms to decrease risk may 
flow downstream to counterparties both within and away from the 
Exchange, thereby increasing systemic protections as well.
---------------------------------------------------------------------------

    \28\ Except for quotations that fall within the provisions of 
15020(b), Options Participants shall reasonably avoid displaying, 
and shall not engage in a pattern or practice of displaying, any 
Quotations that lock or cross a Protected Quotation. See BOX Rule 
15020(a).
---------------------------------------------------------------------------

    The Exchange notes further, a Market Maker that produces erroneous 
quotes causing displayed markets to lock or cross the NBBO may cause 
erroneous trading activity and disrupt markets. The Exchange believes 
that rejecting Market Maker quotes that would otherwise lock or cross 
the NBBO will reduce the likelihood of BOX displaying quotes that lock 
or cross the NBBO, which is consistent with the Options Order 
Protection and Locked/Crossed Market Plan (``the Plan'').\29\ The 
Exchange notes that as a party to the Plan, the Exchange has agreed to 
comply with, and enforce compliance by BOX Options Participants, which 
includes avoidance of Trade-Throughs and prohibition against a pattern 
or practice of displaying any quotations that lock or cross a Protected 
Quotation.\30\ This proposal is designed

[[Page 78174]]

to aid the Exchange in enforcing such compliance.
---------------------------------------------------------------------------

    \29\ See BOX Rule 15020.
    \30\ See BOX Rule 15010.
---------------------------------------------------------------------------

    Lastly, the Exchange again notes that the proposed changes have no 
impact on the interaction of an incoming quote with a PIP Order and 
have no impact on a Market Maker's obligations pursuant to current BOX 
Rules 8040 and 8050. Market Makers will continue to be subject to the 
obligations detailed in these rules.
    As such, the Exchange believes the proposed rule change is in the 
public interest, and therefore, consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    Market Makers are required to provide continuous two-sided quotes 
on a daily basis and are subject to various obligations associated with 
providing liquidity on BOX. BOX Participants' orders are already 
provided NBBO protection and either routed (if eligible) or rejected 
immediately.\31\ The proposed change would afford quotes a similar 
level of protection to assist Market Makers in managing their unique 
risks and obligations. Further, the proposed change will not impose any 
burden on intramarket competition as the proposed change will apply to 
all Market Makers on BOX. Lastly, the Exchange again notes that Market 
Makers have requested that BOX implement the proposed protections.
---------------------------------------------------------------------------

    \31\ See BOX Rule 7130(b).
---------------------------------------------------------------------------

    The Exchange believes that the proposed change will not impose any 
burden on intermarket competition as other exchanges offer similar 
functionality.\32\ Further, the proposed change may encourage 
intermarket competition by improving compliance with the Plan, which 
includes avoidance of Trade-Throughs and prohibition against a pattern 
or practice of displaying any quotations that lock or cross a Protected 
Quotation. As such, 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.
---------------------------------------------------------------------------

    \32\ See supra, notes 24, 25.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

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

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \33\ and Rule 19b-
4(f)(6) thereunder.\34\
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \35\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\36\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay. The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Waiver of the 
operative delay would allow the Exchange to immediately offer the 
functionality that will reject Market Maker quotes when those quotes 
would otherwise lock or cross the NBBO, which is consistent with the 
Options Order Protection and Locked/Crossed Market Plan. Accordingly, 
the Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\37\
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    \35\ 17 CFR 240.19b-4(f)(6).
    \36\ 17 CFR 240.19b-4(f)(6)(iii).
    \37\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2022-31 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-2022-31. 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

[[Page 78175]]

submissions should refer to File Number SR-BOX-2022-31 and should be 
submitted on or before January 11, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27649 Filed 12-20-22; 8:45 am]
BILLING CODE 8011-01-P
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