Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Update and Amend IM-7240-1 Regarding Complex Order and Multi-Leg Price Protections, 56895-56899 [2023-17859]
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Federal Register / Vol. 88, No. 160 / Monday, August 21, 2023 / Notices
SECURITIES AND EXCHANGE
COMMISSION
Sections A, B, and C below, of the most
significant aspects of such statements.
[Release No. 34–98139; File No. SR–BOX–
2023–22]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Update and Amend
IM–7240–1 Regarding Complex Order
and Multi-Leg Price Protections
August 15, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 7,
2023, BOX Exchange LLC (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to update and
amend IM–7240–1 regarding Complex
Order 5 and Multi-Leg price protections.
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.
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
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1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
5 The term ‘‘Complex Order’’ means any order
involving the simultaneous purchase and/or sale of
two or more different options series in the same
underlying security, for the same account, in a ratio
that is equal to or greater than one-to-three (.333)
and less than or equal to three-to-one (3.00) and for
the purpose of executing a particular investment
strategy. See BOX Rule 7240(a)(7).
2 17
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1. Purpose
The purpose of the proposed rule
change is twofold: first, to amend IM–
7240–1(a) to include Multi-Leg Orders; 6
and second, to make certain price
protections voluntary for Complex
Qualified Open Outcry (‘‘QOO’’) Orders
and multi-leg QOO Orders. In May
2018, BOX adopted protections for
Complex Orders.7 Multi-leg QOO
Orders were added to the Trading Floor
in February of 2019.8 At that time, the
Complex Order protections in IM–7240–
1(a) were designed to apply to multi-leg
QOO Orders, however, IM–7240–1(a)
was not updated accordingly. The
Exchange now proposes to update IM–
7240–1 to explicitly include multi-leg
QOO Orders in IM–7240–1(a) to
accurately describe system
functionality. The Exchange notes that
IM–7240–1 includes both the debit/
credit check and maximum price
protections. At present, debit/credit
check in IM–7240–1(a) applies to both
Complex Orders and Multi-Leg Orders
and maximum price in IM–7240–1(b)
applies to Complex Orders but not to
Multi-Leg Orders because maximum
price only applies to true butterfly
spreads, vertical spreads, and box
spreads which have ratios that are equal
to or greater than one-to-three and less
than or equal to three-to-one and by
definition are always Complex Orders.9
6 The term ‘‘Multi-Leg Order’’ means any order
involving the simultaneous purchase and/or sale of
two or more different options series in the same
underlying security, for the same account, and for
the purpose of executing a particular investment
strategy in a ratio that is less than one-to-three
(.333) or greater than three-to-one (3.00). See BOX
Rule 7240(a)(10).
7 See Securities and Exchange Act Release No.
83163 (May 3, 2018), 83 FR 21320 (May 9, 2018)
(SR–BOX–2018–13) (Notice of Immediate
Effectiveness of a Proposed Rule Change to Adopt
Price Protections for Complex Orders).
8 See Securities and Exchange Act Release No.
85052 (February 5, 2019), 84 FR 3265 (February 11,
2019) (SR–BOX–2019–01) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
to Clarify That Multi-leg Qualified Open Outcry
Orders are Permitted on the BOX Trading Floor).
9 A true butterfly spread has a ratio of two-to-one
while vertical spreads and box spreads have a leg
ratio of one-to-one. As noted above, a Complex
Order means any order involving the simultaneous
purchase and/or sale of two or more different
options series in the same underlying security, for
the same account, in a ratio that is equal to or
greater than one-to-three (.333) and less than or
equal to three-to-one (3.00) and for the purpose of
executing a particular investment strategy. See BOX
Rule 7240(a)(7). Further, a Multi-Leg Order means
any order involving the simultaneous purchase
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As background, BOX implemented a
debit/credit check which helps prevent
the execution of Complex Orders at
erroneous prices.10 Specifically, under
the debit/credit check, the system will
reject a Complex Limit Order for a credit
strategy with a net debit price or a
Complex Limit Order for a debit strategy
with a net credit price. The debit/credit
check mechanism is designed to value
strategies using principles that are based
on theoretical models used to value
options. Such models take into account
variables such as current market price,
strike price, and time to expiration. All
else equal, longer-dated options are
more valuable because of their greater
time to expiration. Additionally,
holding everything constant, including
expiration date, a put option with a
higher strike price will be more valuable
than a put option with a lower strike
price because the higher strike price
allows the holder to sell the underlying
security at a higher price. Conversely, a
call option with a lower strike price is
more expensive than a call option with
a higher strike price because the lower
strike price allows the holder to buy the
underlying security at a lower price.
Taking these principles into account,
BOX designed the debit/credit check as
a way to identify strategies as credit or
debit and only accept appropriate prices
based on that determination.
In addition to the debit/credit check,
the system will also calculate a
maximum price for true butterfly
spreads, vertical spreads, and box
spreads. After calculating the maximum
price, the system will reject a Complex
Limit Order that is a true butterfly
spread, vertical spread, or a box spread
if the absolute value of the Complex
Order’s limit price is greater than the
maximum price. For a Complex Market
Order that is a true butterfly spread,
vertical spread, or a box spread, the
system will reject the Complex Market
Order if the absolute value of the
execution price is greater than the
maximum price. The maximum price
value is calculated by adding a price
buffer to the absolute value of a true
butterfly spread, vertical spread, or box
spread.11
The Exchange notes that the
principals [sic] drawn from theoretical
models used to value options do not
take into account bid to ask spreads and
other factors that may influence the
and/or sale of two or more different options series
in the same underlying security, for the same
account, and for the purpose of executing a
particular investment strategy, in a ratio that is less
than one-to-three (.333) or greater than three-to-one
(3.00). See BOX Rule 7240(a)(10).
10 See BOX IM–7240–1(a) (Debit/Credit Check).
11 See BOX IM–7240–1(b) (Maximum Price).
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prices at which Participants 12 trade
options. For example, Participants may
need to close positions to reduce risk or
to reduce margin requirements and, in
such cases, may be less sensitive to
prices of individual options. Further,
Participants may believe that market
conditions warrant trades that would
otherwise be rejected by BOX. The
Exchange believes that Participants
make this determination based on their
own theoretical models, positions, and
evaluation of market conditions. As
described further below, the Exchange’s
proposal is designed to allow
Participants to make this determination
on a per order basis based on their
internal evaluations of relevant factors.
The Exchange now proposes to amend
IM–7240–1(a) to explicitly include
Multi-Leg Orders and to make the debit/
credit check voluntary for Complex
QOO Orders and multi-leg QOO Orders
and [sic] maximum price in IM–7240–
1(b) voluntary for Complex QOO Orders
on the BOX Trading Floor.13
Specifically, the Exchange is proposing
to clarify system functionality by
explicitly including Multi-Leg Orders
within the debit/credit check, and to
add an exception whereby both
Complex QOO Orders and multi-leg
QOO Orders may be excluded from the
debit/credit check on a per order basis.
Additionally, the Exchange is proposing
to add an exception to maximum price
to exclude Complex QOO Orders on a
per order basis. The Exchange notes that
even when the debit/credit check and
maximum price are not applied to an
order, Floor Brokers 14 will evaluate the
price of an order based on then-existing
market conditions prior to submitting
the order to the Trading Host for
execution. The debit/credit check will
apply to Complex QOO Orders and
multi-leg QOO Orders and maximum
price will apply to Complex QOO
Orders by default unless Participants
elect otherwise on a per order basis.
Specifically, when submitting an order,
there is an optional tag to disable the
debit/credit check and maximum price,
if the tag is not populated then the
debit/credit check and maximum price
will apply by default. Although
Participants who voluntarily choose not
to apply the debit/credit check and
maximum price do not have the benefit
of such protections, there is still an
opportunity for Floor Brokers to detect
any errors resulting in minimal risk of
execution at an erroneous price.
12 See
BOX Rule 100(a)(42).
Exchange notes that the price protections
discussed herein cannot be waived for electronic
orders.
14 See BOX Rule 7540.
13 The
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Additionally, the Exchange notes that
Complex QOO Orders will still be
executed at a price that is equal to or
better than the BOX BBO for each
component series and executed at a
price that is equal to or better than the
Extended cNBBO 15 for the Complex
Order Strategy and that each component
series of a multi-leg QOO Order must be
executed at a price that is equal to or
better than the NBBO for that series
subject to the exceptions of Rule
15010(b).16 The Exchange notes that the
NBBO aspect of the Complex QOO
Order filter may be disabled on an order
by order basis by a Floor Broker
executing Complex QOO Orders.17
Lastly, the Exchange notes that
Participants have expressed that the
current application of these protections
is too restrictive and prevents
executions that would be allowed to
execute on competing exchanges.18 The
Exchange believes that other exchanges
do not apply similar protections on their
trading floors.19 As such, Participants
have requested this flexibility for their
Complex QOO Orders and multi-leg
QOO Orders because of instances when
a Participant order was rejected on BOX
due to debit/credit check or maximum
price, the Participant still desires to
execute the order, and sends the order
to another exchange where such orders
are allowed to execute.
Lastly, the Exchange proposes to
remove the word ‘‘regular’’ in IM–7240–
1(a)(5) and IM–7240–1(b)(5). The
Exchange believes the use of the word
may cause confusion and is
unnecessary, and, as such, believes that
removing it will provide clarity within
the rule text.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),20 in general, and Section 6(b)(5)
of the Act,21 in particular, in that it is
designed to prevent fraudulent and
15 The term ‘‘Extended cNBBO’’ means the
maximum permissible net bid and offer execution
price for a Complex Order Strategy. See BOX Rule
7240(a)(5).
16 See BOX Rules 7240(b)(3)(iii) and 7600(c).
17 See BOX Rule 7240(b)(3)(iii).
18 See NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule
6.91P–O (providing Complex Strategy Protections
for Electronic Complex Orders but not for open
outcry orders) and Cboe Exchange, Inc. (‘‘CBOE’’)
Rule 5.34(b)(3) and Securities and Exchange Act
Release No. 80439 (April 12, 2017), 82 FR 18320
(April 18, 2017) (SR–CBOE–2017–031) (providing
that debit/credit price reasonability checks do not
apply to orders routed through its PAR workstation
and order management terminal).
19 Id.
20 15 U.S.C. 78f(b).
21 5 U.S.C. 78f(b)(5).
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manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest. In particular, amending
IM–7240–1(a) to include Multi-Leg
Orders aligns the Exchange’s rules with
current system functionality and
accurately describes the application of
the protections in IM–7240–1(a). The
Exchange believes that codifying the
inclusion of Multi-Leg Orders in IM–
7240–1(a) will ensure the rulebook
accurately reflects the operation of the
Exchange’s rules and, therefore, the
proposed rule change reduces potential
investor or market participant
confusion. Additionally, this
amendment is designed to provide
Participants with greater certainty about
how Complex Order and Multi-Leg
Order price protections are applied to
their orders. Further, the Exchange
believes applying the protections in IM–
72401(a) to Multi-Leg Orders helps
prevent Multi-Leg Orders from
executing at erroneous prices.
The Exchange believes further that
allowing the debit/credit check to be
voluntary for Complex QOO Orders and
multi-leg QOO Orders and maximum
price to be voluntary for Complex QOO
Orders will provide flexibility for
investors to enter Complex QOO Orders
and multi-leg QOO Orders which
otherwise may have been rejected due to
the debit/credit check and maximum
price even though such orders may have
been designed to meet investors’
investment objectives. The election to
forgo the debit/credit check and
maximum price will only be allowed on
the BOX Trading Floor because Floor
Brokers will have an opportunity to
evaluate the price of an order based on
then-existing market conditions prior to
submitting the order to the BOX Trading
Host for execution, resulting in minimal
risk of execution at an erroneous price.
For example, Floor Brokers may
communicate with their clients to
determine whether an order was
intended to be priced as a debit or as a
credit or may be aware of the market
conditions influencing a client to price
an order as a debit or as a credit. The
debit/credit check will apply to
Complex QOO Orders and multi-leg
QOO Orders and maximum price will
apply to Complex QOO Orders by
default unless Participants elect
otherwise on a per order basis. The
Exchange notes that Complex QOO
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Orders will still be executed at a price
that is equal to or better than the BOX
BBO for each component series and
executed at a price that is equal to or
better than the Extended cNBBO for the
Complex Order Strategy and that each
component series of a multi-leg QOO
Order must be executed at a price that
is equal to or better than the NBBO for
that series subject to the exceptions of
Rule 15010(b).22 The Exchange notes
further that the NBBO aspect of the
Complex QOO Order filter may be
disabled on an order by order basis by
a Floor Broker executing Complex QOO
Orders.23 Thus, the Exchange believes
that allowing the debit/credit check to
be voluntary only for Complex QOO
Orders and multi-leg QOO Orders and
maximum price to be voluntary for
Complex QOO Orders removes
impediments to and perfects the
mechanism of a free and open market
and a national market system, and, in
general protects investors and the public
interest.
The Exchange notes that other
exchanges do not currently apply
Complex Order price protections similar
to the debit/credit check in open outcry
trading.24 In particular, the NYSE Arca
Rule titled Electronic Complex Order
(‘‘ECO’’) Trading provides for ECO Risk
Checks, including Complex Strategy
Protections.25 The Exchange believes
that NYSE Arca’s Complex Strategy
Protections only apply to electronic
orders and not to open outcry orders
because ECO Risk Checks specifically
apply to a Complex Order that is
submitted electronically to NYSE
Arca.26 BOX, on the other hand,
currently applies the debit/credit check
to Complex QOO Orders and multi-leg
QOO Orders and maximum price to
Complex QOO Orders which are
executed on the BOX Trading Floor. The
proposal herein will make debit/credit
voluntary for Complex QOO Orders and
multi-leg QOO Orders and maximum
22 See
supra note 14.
supra note 15.
24 See supra note 16. [sic]
25 See NYSE Arca Rule 6.91P–O(g)(3).
‘‘’Electronic Complex Order’ or ‘ECO’ means a
Complex Order . . . that is submitted electronically
to the Exchange.’’ See NYSE Arca Rule 6.91P–
O(a)(7). NYSE Arca’s Complex Strategy Protections
protect participants with the expectation that an
order will receive (or pay) a net premium but prices
the ECO such that the ECO sender will instead pay
(or receive) a net premium. These protections apply
to ‘‘all buy’’ or ‘‘all sell’’ strategies, vertical spreads,
and calendar spreads. The Exchange notes that the
debit/credit check in IM–7240–1 includes ‘‘all buy’’
and ‘‘all sell’’ strategies, Vertical spreads and
Calendar spreads. The Exchange also notes that
NYSE Arca Rule 6.91P–O does not include
maximum price protections.
26 NYSE Arca Rule 6.91P–O(a)(7) by its terms is
applicable to electronic orders but not to open
outcry orders.
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23 See
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price voluntary for Complex QOO
Orders such that Participants may
choose to execute certain Complex QOO
Orders and multi-leg QOO Orders on
the BOX Trading Floor. The Exchange
believes that the proposal herein would
allow certain Complex Orders that are
currently allowed in open outcry on
NYSE Arca to also be allowed on the
BOX Trading Floor as Complex QOO
Orders.
The Exchange notes that CBOE also
has debit/credit price reasonability
checks which do not apply to orders
routed through its PAR workstation and
order management terminal (‘‘OMT’’),
which are subject to manual handling.27
As such, CBOE does not apply debit/
credit price reasonability checks to
some of the orders subject to manual
handling.28 Specifically, a PAR or OMT
operator evaluates the price of an order
based on then-existing market
conditions prior to submitting it for
electronic execution, thus minimizing
the risk of an erroneous execution and
reducing the need for application of
additional price checks. Similarly, the
Exchange proposes to make the debit/
credit check voluntary for Complex
QOO Orders and multi-leg QOO Orders.
The Exchange believes that the
proposed changes strike a balance
between providing adequate risk
controls and flexibility so that
Participants may execute their intended
strategies. Specifically, the Exchange
believes that investors will have the
added flexibility of executing Complex
QOO Orders and multi-leg QOO Orders
at prices of their choosing while still
benefiting from Floor Brokers’ handling
of orders. Additionally, the Exchange
notes that the proposed changes will
provide Participants with another venue
to execute certain Complex Orders and
Multi-Leg Orders that would otherwise
27 See Securities and Exchange Act Release No.
80439 (April 12, 2017), 82 FR 18320 (April 18,
2017) (SR–CBOE–2017–031).
28 The Exchange notes that CBOE Rule 5.34(b)(4)
titled ‘‘Buy Strategy Parameters’’ does not apply to
orders auctioned via PAR and OMT whereas Rule
5.34(b)(5) titled ‘‘Maximum Value Acceptable Price
Range’’ does apply to such orders. The Exchange
notes further that the proposed rules determine
whether a Complex Order is debit or credit by using
a slightly different process than that employed by
CBOE. Specifically, other than for call and put
butterfly spreads, CBOE will group the legs of a
Complex Order into pairs and compare multiple
pairs to determine whether the Complex Order is
a credit or debit while the Exchange creates groups
(which may include more than two legs) based on
expiration date. However, the ultimate
determination of whether a Complex Order is a
debit or credit is similar under the different
processes. Therefore, the Exchange believes the
debit/credit check is similar to CBOE’s Debit/Credit
Price Reasonability Checks. See CBOE Rule
5.34(b)(3).
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56897
be rejected by BOX but accepted on
another exchange.
Lastly, the Exchange believes that the
proposed change to remove the word
‘‘regular’’ in IM–7240–1(a)(5) and IM–
7240–1(b)(5) will provide clarity within
the rule text and will reduce potential
investor or market participant
confusion.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that, amending IM–
7240–1(a) to include Multi-Leg Orders
does not impose any burden on
intramarket competition as the change
will apply in the same manner to all
Participants. Further, the inclusion of
Multi-Leg Orders in IM–7240–1(a) does
not impose a burden on intermarket
competition as the change simply
intends to align the Exchange’s rules
with current system functionality and
accurately describe the application of
the protections in IM–7240–1(a). The
Exchange does not believe the proposed
rule change will impose any burden on
intramarket competition, as the
proposed rule change will apply in the
same manner to all Participants. The
Exchange notes that debit/credit check
applies to Complex Orders and MultiLeg Orders and maximum price to
Complex Orders of all Participants,
regardless of account type. Additionally,
all Participants will have the ability to
opt out of the debit/credit check for
Complex QOO Orders and multi-leg
QOO Orders and maximum price for
Complex QOO Orders on a per order
basis. Further, the proposed rule change
will provide all Participants with the
ability to execute certain Complex QOO
Orders and multi-leg QOO Orders on
BOX that previously were not allowed.
The Exchange believes the proposed
rule change does not impose any undue
burden on intermarket competition and
may, on the contrary, promote
competition, as other exchanges
currently apply similar protections
while allowing certain orders to execute
in open outcry on their respective
trading floors.29 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.
29 See
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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.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not (a) significantly affect
the protection of investors or the public
interest; (b) impose any significant
burden on competition; and (c) 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 30 and Rule 19b–
4(f)(6) thereunder.31
A proposed rule change filed under
Rule 19b-4(f)(6) normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),32 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 Exchange states
that amending the debit/credit check in
IM–7240–1(a) to include Limit MultiLeg Orders will help to prevent Limit
Multi-Leg Orders from executing at
erroneous prices and help to ensure the
accuracy of the Exchange’s rules. The
Exchange states that amending IM–
7240–1 to make the debit/credit check
voluntary for Complex QOO Orders and
Multi-Leg QOO Orders and to make the
maximum price protection voluntary for
Complex QOO Orders will provide BOX
Participants with flexibility in executing
their Complex QOO Orders and MultiLeg QOO Orders. As discussed above,
the Exchange states that Participants
that need to close positions to reduce
risk or margin requirements may be less
sensitive to the prices of individual
options. The Exchange further states
that Participants may believe, based on
their own theoretical models and
positions, that market conditions
warrant trades that would otherwise be
rejected by the Exchange. Under the
30 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.
32 17 CFR 240.19b–4(f)(6)(iii).
31 17
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proposal, the debit/credit check and the
maximum price protection will
continue to apply by default unless a
Participant elects to forgo on a per order
basis. Because the waiver will available
only for orders traded in open outcry,
but not for orders traded electronically,
a Floor Broker will evaluate the price of
the Complex QOO or Multi-Leg QOO
Order based on then-existing market
conditions prior to submitting the order
to the Trading Host for execution, which
the Exchange states will result in
minimal risk of the order executing at
an erroneous price. The Exchange
further states that other options
exchanges do not apply similar
protections to orders executed on their
trading floors, and that Participants
have indicated that the current
application of the debit/credit check
and the maximum price protection is
too restrictive and prevents executions
that would be permitted on other
options exchanges.33 The Exchange
states that deleting the word ‘‘regular’’
from IM–7240–1(a)(5) and IM–7240–
1(b)(5) will help to clarify the
Exchange’s rules by removing an
unnecessary and potentially confusing
word from the Exchange’s rules.
The Commission finds that waiving
the 30-day operative delay is consistent
with the protection of investors and the
public interest. The proposal will allow
Participants to elect to waive the debit/
credit check for Complex QOO Orders
and Multi-Leg QOO Orders, and the
maximum price protection for Complex
QOO Orders, on an order-by-order basis.
As discussed above, the Exchange states
that Participants seek the flexibility to
execute Complex QOO Orders and
Multi-Leg QOO Orders at prices that the
Exchange would otherwise reject. The
Commission believes that the proposal
will provide Participants with flexibility
in executing Complex QOO and MultiLeg QOO Orders that meet their
investment objectives. Under the
proposal, the debit/credit check and the
maximum price protection will
continue to apply by default, and
Participants will have the ability to
waive the protections on a per order
basis. Because the waiver will be
available only for Complex QOO and
Multi-Leg QOO Orders traded in open
outcry, but not for orders traded
electronically, a Floor Broker will be
able to evaluate the price of the
Complex QOO or Multi-Leg QOO Order
before submitting the order to the
Trading Host for execution, which the
Exchange believes will minimize the
risk of a Complex QOO or Multi-Leg
33 See
notes 24–28, supra, and accompanying
text.
PO 00000
Frm 00107
Fmt 4703
Sfmt 4703
QOO Order executing at an erroneous
price. The proposal to apply the debit/
credit check to Limit Multi-Leg Orders
should protect investors by helping to
prevent Limit Multi-Leg Orders from
executing at potentially erroneous
prices. The proposal to delete the
unnecessary word ‘‘regular’’ from IM–
7240–1 should eliminate potential
confusion and help to clarify the
Exchange’s rules. For these reasons, the
Commission designates the proposal
operative upon filing.34
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
BOX–2023–22.
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–2023–22. 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
34 For purposes only of accelerating the operative
date of this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
E:\FR\FM\21AUN1.SGM
21AUN1
Federal Register / Vol. 88, No. 160 / Monday, August 21, 2023 / Notices
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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–BOX–2023–22 and should be
submitted on or before September 11,
2023.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The principal purpose of the
proposed rule change is to revise the
ICC Stress Testing Framework (‘‘STF’’).
These revisions do not require any
changes to the ICC Clearing Rules
(‘‘Rules’’).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Sherry R. Haywood,
Assistant Secretary.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
[FR Doc. 2023–17859 Filed 8–18–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98140; File No. SR–ICC–
2023–012)
Self-Regulatory Organizations; ICE
Clear Credit LLC; Notice of Filing of
Proposed Rule Change Relating to the
Stress Testing Framework
ddrumheller on DSK120RN23PROD with NOTICES1
August 15, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 8,
2023, ICE Clear Credit LLC (‘‘ICC’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change, as described in
Items I, II and III below, which Items
have been prepared primarily by ICC.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
18:17 Aug 18, 2023
Jkt 259001
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, ICC
included statements concerning the
purpose of and basis for the proposed
rule change, security-based swap
submission, or advance notice and
discussed any comments it received on
the proposed rule change, securitybased swap submission, or advance
notice. The text of these statements may
be examined at the places specified in
Item IV below. ICC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(a) Purpose
ICC proposes to update the STF. The
STF sets forth the ICC stress testing
practices that are focused on ensuring
the adequacy of systemic risk
protections. The proposed changes are
limited to updating the stress period of
the default-free Euro discount interest
rate curve used in ICC’s interest rate
sensitivity analysis and providing
additional clarifying language to the
STF. ICC believes the proposed changes
will facilitate the prompt and accurate
clearance and settlement of securities
transactions and derivative agreements,
contracts, and transactions for which it
is responsible. ICC proposes to move
forward with implementation of these
changes following Commission approval
of the proposed rule change. The
proposed changes are described in
detail as follows.
ICC proposes to update STF Section
11, ‘‘Interest Rate Sensitivity Analysis’’,
which describes ICC’s interest rate
sensitivity analysis to account for the
risks associated with changes to defaultfree discount interest rates. The STF
currently incorporates two, currency
specific, stress test parallel shifts (i.e.,
up, and down) of the default-free
discount interest rate for both CDS and
CDS Index Options instruments. The
magnitude of the interest rate stress
scenarios reflects the largest shock,
estimated using the collateral haircut
model, during a selected stress period
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
56899
for the applicable sovereign debt, and
such selected stress periods are subject
to periodic review. Following such
review, ICC proposes to update the
stress period used to shock the EURO
default-free discount interest rate.
The reasoning behind such proposed
change is to respond to the current
volatile interest rate period which began
in 2022 and continues into 2023 due to
the fast pace of U.S. Dollar and Euro
interest rate increases. The impact to
Euro interest rate volatility has been
significant due to the sudden and rapid
increases in Euro interest rates by the
European Central Bank in an effort to
curb multi-decade high inflation. Such
interest rate volatility observed during
this currently ongoing ‘‘2022/2023
inflation crisis period’’ is greater than
the interest rate volatility observed in
the Euro stress period currently in place
in the STF (i.e., the ‘‘western European
credit crisis period’’ which occurred in
2011–2012). Specifically, the magnitude
of the collateral haircuts observed in the
currently ongoing ‘‘2022/2023 inflation
crisis period’’ exceed the collateral
haircuts observed during the ‘‘western
European credit crisis period.’’
Therefore, ICC proposes to replace the
current ‘‘western European credit crisis
period’’ stress period with the ‘‘2022/
2023 inflation crisis period’’ stress
period in Section 11 of the STF. Such
proposed change is prudent, from a risk
perspective, as it improves ICC’s interest
rate sensitivity analysis by referencing
the higher interest rate volatility stress
period. As the current inflation crisis
remains ongoing, ICC will continue to
monitor interest rate volatility for any
new volatility peak observed in the
current ‘‘2022/2023 inflation crisis
period.’’. In addition, ICC proposes to
make analogous clarifying language
changes to the identification of the
default-free USD discount interest rate
curve in Section 11 of the STF to
remove the specific dates of the
applicable stress period (i.e., the 2008/
2009 credit crisis period).
(b) Statutory Basis
As discussed herein, the proposed
changes update the default-free Euro
discount interest rate curve used in
ICC’s interest rate sensitivity analysis to
reflect the interest rate shocks observed
during the recent 2022–2023 inflation
crisis period. Such proposed change
strengthens the STF by updating the
Euro stress period. Accordingly, ICC
believes that the proposed changes to
the STF are consistent with the prompt
and accurate clearance and settlement of
securities transactions, derivatives
agreements, contracts, and transactions,
the safeguarding of securities and funds
E:\FR\FM\21AUN1.SGM
21AUN1
]]>Agencies
[Federal Register Volume 88, Number 160 (Monday, August 21, 2023)]
[Notices]
[Pages 56895-56899]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17859]
[[Page 56895]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98139; File No. SR-BOX-2023-22]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Update and
Amend IM-7240-1 Regarding Complex Order and Multi-Leg Price Protections
August 15, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 7, 2023, BOX Exchange LLC (the ``Exchange'') filed with
the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Exchange filed the proposed
rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and
Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to update and amend IM-7240-1 regarding
Complex Order \5\ and Multi-Leg price protections. 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.
---------------------------------------------------------------------------
\5\ The term ``Complex Order'' means any order involving the
simultaneous purchase and/or sale of two or more different options
series in the same underlying security, for the same account, in a
ratio that is equal to or greater than one-to-three (.333) and less
than or equal to three-to-one (3.00) and for the purpose of
executing a particular investment strategy. See BOX Rule 7240(a)(7).
---------------------------------------------------------------------------
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 twofold: first, to amend
IM-7240-1(a) to include Multi-Leg Orders; \6\ and second, to make
certain price protections voluntary for Complex Qualified Open Outcry
(``QOO'') Orders and multi-leg QOO Orders. In May 2018, BOX adopted
protections for Complex Orders.\7\ Multi-leg QOO Orders were added to
the Trading Floor in February of 2019.\8\ At that time, the Complex
Order protections in IM-7240-1(a) were designed to apply to multi-leg
QOO Orders, however, IM-7240-1(a) was not updated accordingly. The
Exchange now proposes to update IM-7240-1 to explicitly include multi-
leg QOO Orders in IM-7240-1(a) to accurately describe system
functionality. The Exchange notes that IM-7240-1 includes both the
debit/credit check and maximum price protections. At present, debit/
credit check in IM-7240-1(a) applies to both Complex Orders and Multi-
Leg Orders and maximum price in IM-7240-1(b) applies to Complex Orders
but not to Multi-Leg Orders because maximum price only applies to true
butterfly spreads, vertical spreads, and box spreads which have ratios
that are equal to or greater than one-to-three and less than or equal
to three-to-one and by definition are always Complex Orders.\9\
---------------------------------------------------------------------------
\6\ The term ``Multi-Leg Order'' means any order involving the
simultaneous purchase and/or sale of two or more different options
series in the same underlying security, for the same account, and
for the purpose of executing a particular investment strategy in a
ratio that is less than one-to-three (.333) or greater than three-
to-one (3.00). See BOX Rule 7240(a)(10).
\7\ See Securities and Exchange Act Release No. 83163 (May 3,
2018), 83 FR 21320 (May 9, 2018) (SR-BOX-2018-13) (Notice of
Immediate Effectiveness of a Proposed Rule Change to Adopt Price
Protections for Complex Orders).
\8\ See Securities and Exchange Act Release No. 85052 (February
5, 2019), 84 FR 3265 (February 11, 2019) (SR-BOX-2019-01) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to
Clarify That Multi-leg Qualified Open Outcry Orders are Permitted on
the BOX Trading Floor).
\9\ A true butterfly spread has a ratio of two-to-one while
vertical spreads and box spreads have a leg ratio of one-to-one. As
noted above, a Complex Order means any order involving the
simultaneous purchase and/or sale of two or more different options
series in the same underlying security, for the same account, in a
ratio that is equal to or greater than one-to-three (.333) and less
than or equal to three-to-one (3.00) and for the purpose of
executing a particular investment strategy. See BOX Rule 7240(a)(7).
Further, a Multi-Leg Order means any order involving the
simultaneous purchase and/or sale of two or more different options
series in the same underlying security, for the same account, and
for the purpose of executing a particular investment strategy, in a
ratio that is less than one-to-three (.333) or greater than three-
to-one (3.00). See BOX Rule 7240(a)(10).
---------------------------------------------------------------------------
As background, BOX implemented a debit/credit check which helps
prevent the execution of Complex Orders at erroneous prices.\10\
Specifically, under the debit/credit check, the system will reject a
Complex Limit Order for a credit strategy with a net debit price or a
Complex Limit Order for a debit strategy with a net credit price. The
debit/credit check mechanism is designed to value strategies using
principles that are based on theoretical models used to value options.
Such models take into account variables such as current market price,
strike price, and time to expiration. All else equal, longer-dated
options are more valuable because of their greater time to expiration.
Additionally, holding everything constant, including expiration date, a
put option with a higher strike price will be more valuable than a put
option with a lower strike price because the higher strike price allows
the holder to sell the underlying security at a higher price.
Conversely, a call option with a lower strike price is more expensive
than a call option with a higher strike price because the lower strike
price allows the holder to buy the underlying security at a lower
price. Taking these principles into account, BOX designed the debit/
credit check as a way to identify strategies as credit or debit and
only accept appropriate prices based on that determination.
---------------------------------------------------------------------------
\10\ See BOX IM-7240-1(a) (Debit/Credit Check).
---------------------------------------------------------------------------
In addition to the debit/credit check, the system will also
calculate a maximum price for true butterfly spreads, vertical spreads,
and box spreads. After calculating the maximum price, the system will
reject a Complex Limit Order that is a true butterfly spread, vertical
spread, or a box spread if the absolute value of the Complex Order's
limit price is greater than the maximum price. For a Complex Market
Order that is a true butterfly spread, vertical spread, or a box
spread, the system will reject the Complex Market Order if the absolute
value of the execution price is greater than the maximum price. The
maximum price value is calculated by adding a price buffer to the
absolute value of a true butterfly spread, vertical spread, or box
spread.\11\
---------------------------------------------------------------------------
\11\ See BOX IM-7240-1(b) (Maximum Price).
---------------------------------------------------------------------------
The Exchange notes that the principals [sic] drawn from theoretical
models used to value options do not take into account bid to ask
spreads and other factors that may influence the
[[Page 56896]]
prices at which Participants \12\ trade options. For example,
Participants may need to close positions to reduce risk or to reduce
margin requirements and, in such cases, may be less sensitive to prices
of individual options. Further, Participants may believe that market
conditions warrant trades that would otherwise be rejected by BOX. The
Exchange believes that Participants make this determination based on
their own theoretical models, positions, and evaluation of market
conditions. As described further below, the Exchange's proposal is
designed to allow Participants to make this determination on a per
order basis based on their internal evaluations of relevant factors.
---------------------------------------------------------------------------
\12\ See BOX Rule 100(a)(42).
---------------------------------------------------------------------------
The Exchange now proposes to amend IM-7240-1(a) to explicitly
include Multi-Leg Orders and to make the debit/credit check voluntary
for Complex QOO Orders and multi-leg QOO Orders and [sic] maximum price
in IM-7240-1(b) voluntary for Complex QOO Orders on the BOX Trading
Floor.\13\ Specifically, the Exchange is proposing to clarify system
functionality by explicitly including Multi-Leg Orders within the
debit/credit check, and to add an exception whereby both Complex QOO
Orders and multi-leg QOO Orders may be excluded from the debit/credit
check on a per order basis. Additionally, the Exchange is proposing to
add an exception to maximum price to exclude Complex QOO Orders on a
per order basis. The Exchange notes that even when the debit/credit
check and maximum price are not applied to an order, Floor Brokers \14\
will evaluate the price of an order based on then-existing market
conditions prior to submitting the order to the Trading Host for
execution. The debit/credit check will apply to Complex QOO Orders and
multi-leg QOO Orders and maximum price will apply to Complex QOO Orders
by default unless Participants elect otherwise on a per order basis.
Specifically, when submitting an order, there is an optional tag to
disable the debit/credit check and maximum price, if the tag is not
populated then the debit/credit check and maximum price will apply by
default. Although Participants who voluntarily choose not to apply the
debit/credit check and maximum price do not have the benefit of such
protections, there is still an opportunity for Floor Brokers to detect
any errors resulting in minimal risk of execution at an erroneous
price. Additionally, the Exchange notes that Complex QOO Orders will
still be executed at a price that is equal to or better than the BOX
BBO for each component series and executed at a price that is equal to
or better than the Extended cNBBO \15\ for the Complex Order Strategy
and that each component series of a multi-leg QOO Order must be
executed at a price that is equal to or better than the NBBO for that
series subject to the exceptions of Rule 15010(b).\16\ The Exchange
notes that the NBBO aspect of the Complex QOO Order filter may be
disabled on an order by order basis by a Floor Broker executing Complex
QOO Orders.\17\ Lastly, the Exchange notes that Participants have
expressed that the current application of these protections is too
restrictive and prevents executions that would be allowed to execute on
competing exchanges.\18\ The Exchange believes that other exchanges do
not apply similar protections on their trading floors.\19\ As such,
Participants have requested this flexibility for their Complex QOO
Orders and multi-leg QOO Orders because of instances when a Participant
order was rejected on BOX due to debit/credit check or maximum price,
the Participant still desires to execute the order, and sends the order
to another exchange where such orders are allowed to execute.
---------------------------------------------------------------------------
\13\ The Exchange notes that the price protections discussed
herein cannot be waived for electronic orders.
\14\ See BOX Rule 7540.
\15\ The term ``Extended cNBBO'' means the maximum permissible
net bid and offer execution price for a Complex Order Strategy. See
BOX Rule 7240(a)(5).
\16\ See BOX Rules 7240(b)(3)(iii) and 7600(c).
\17\ See BOX Rule 7240(b)(3)(iii).
\18\ See NYSE Arca, Inc. (``NYSE Arca'') Rule 6.91P-O (providing
Complex Strategy Protections for Electronic Complex Orders but not
for open outcry orders) and Cboe Exchange, Inc. (``CBOE'') Rule
5.34(b)(3) and Securities and Exchange Act Release No. 80439 (April
12, 2017), 82 FR 18320 (April 18, 2017) (SR-CBOE-2017-031)
(providing that debit/credit price reasonability checks do not apply
to orders routed through its PAR workstation and order management
terminal).
\19\ Id.
---------------------------------------------------------------------------
Lastly, the Exchange proposes to remove the word ``regular'' in IM-
7240-1(a)(5) and IM-7240-1(b)(5). The Exchange believes the use of the
word may cause confusion and is unnecessary, and, as such, believes
that removing it will provide clarity within the rule text.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Securities Exchange Act of 1934
(the ``Act''),\20\ in general, and Section 6(b)(5) of the Act,\21\ in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest. In particular, amending IM-7240-1(a) to include Multi-
Leg Orders aligns the Exchange's rules with current system
functionality and accurately describes the application of the
protections in IM-7240-1(a). The Exchange believes that codifying the
inclusion of Multi-Leg Orders in IM-7240-1(a) will ensure the rulebook
accurately reflects the operation of the Exchange's rules and,
therefore, the proposed rule change reduces potential investor or
market participant confusion. Additionally, this amendment is designed
to provide Participants with greater certainty about how Complex Order
and Multi-Leg Order price protections are applied to their orders.
Further, the Exchange believes applying the protections in IM-72401(a)
to Multi-Leg Orders helps prevent Multi-Leg Orders from executing at
erroneous prices.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b).
\21\ 5 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes further that allowing the debit/credit check
to be voluntary for Complex QOO Orders and multi-leg QOO Orders and
maximum price to be voluntary for Complex QOO Orders will provide
flexibility for investors to enter Complex QOO Orders and multi-leg QOO
Orders which otherwise may have been rejected due to the debit/credit
check and maximum price even though such orders may have been designed
to meet investors' investment objectives. The election to forgo the
debit/credit check and maximum price will only be allowed on the BOX
Trading Floor because Floor Brokers will have an opportunity to
evaluate the price of an order based on then-existing market conditions
prior to submitting the order to the BOX Trading Host for execution,
resulting in minimal risk of execution at an erroneous price. For
example, Floor Brokers may communicate with their clients to determine
whether an order was intended to be priced as a debit or as a credit or
may be aware of the market conditions influencing a client to price an
order as a debit or as a credit. The debit/credit check will apply to
Complex QOO Orders and multi-leg QOO Orders and maximum price will
apply to Complex QOO Orders by default unless Participants elect
otherwise on a per order basis. The Exchange notes that Complex QOO
[[Page 56897]]
Orders will still be executed at a price that is equal to or better
than the BOX BBO for each component series and executed at a price that
is equal to or better than the Extended cNBBO for the Complex Order
Strategy and that each component series of a multi-leg QOO Order must
be executed at a price that is equal to or better than the NBBO for
that series subject to the exceptions of Rule 15010(b).\22\ The
Exchange notes further that the NBBO aspect of the Complex QOO Order
filter may be disabled on an order by order basis by a Floor Broker
executing Complex QOO Orders.\23\ Thus, the Exchange believes that
allowing the debit/credit check to be voluntary only for Complex QOO
Orders and multi-leg QOO Orders and maximum price to be voluntary for
Complex QOO Orders removes impediments to and perfects the mechanism of
a free and open market and a national market system, and, in general
protects investors and the public interest.
---------------------------------------------------------------------------
\22\ See supra note 14.
\23\ See supra note 15.
---------------------------------------------------------------------------
The Exchange notes that other exchanges do not currently apply
Complex Order price protections similar to the debit/credit check in
open outcry trading.\24\ In particular, the NYSE Arca Rule titled
Electronic Complex Order (``ECO'') Trading provides for ECO Risk
Checks, including Complex Strategy Protections.\25\ The Exchange
believes that NYSE Arca's Complex Strategy Protections only apply to
electronic orders and not to open outcry orders because ECO Risk Checks
specifically apply to a Complex Order that is submitted electronically
to NYSE Arca.\26\ BOX, on the other hand, currently applies the debit/
credit check to Complex QOO Orders and multi-leg QOO Orders and maximum
price to Complex QOO Orders which are executed on the BOX Trading
Floor. The proposal herein will make debit/credit voluntary for Complex
QOO Orders and multi-leg QOO Orders and maximum price voluntary for
Complex QOO Orders such that Participants may choose to execute certain
Complex QOO Orders and multi-leg QOO Orders on the BOX Trading Floor.
The Exchange believes that the proposal herein would allow certain
Complex Orders that are currently allowed in open outcry on NYSE Arca
to also be allowed on the BOX Trading Floor as Complex QOO Orders.
---------------------------------------------------------------------------
\24\ See supra note 16. [sic]
\25\ See NYSE Arca Rule 6.91P-O(g)(3). ``'Electronic Complex
Order' or `ECO' means a Complex Order . . . that is submitted
electronically to the Exchange.'' See NYSE Arca Rule 6.91P-O(a)(7).
NYSE Arca's Complex Strategy Protections protect participants with
the expectation that an order will receive (or pay) a net premium
but prices the ECO such that the ECO sender will instead pay (or
receive) a net premium. These protections apply to ``all buy'' or
``all sell'' strategies, vertical spreads, and calendar spreads. The
Exchange notes that the debit/credit check in IM-7240-1 includes
``all buy'' and ``all sell'' strategies, Vertical spreads and
Calendar spreads. The Exchange also notes that NYSE Arca Rule 6.91P-
O does not include maximum price protections.
\26\ NYSE Arca Rule 6.91P-O(a)(7) by its terms is applicable to
electronic orders but not to open outcry orders.
---------------------------------------------------------------------------
The Exchange notes that CBOE also has debit/credit price
reasonability checks which do not apply to orders routed through its
PAR workstation and order management terminal (``OMT''), which are
subject to manual handling.\27\ As such, CBOE does not apply debit/
credit price reasonability checks to some of the orders subject to
manual handling.\28\ Specifically, a PAR or OMT operator evaluates the
price of an order based on then-existing market conditions prior to
submitting it for electronic execution, thus minimizing the risk of an
erroneous execution and reducing the need for application of additional
price checks. Similarly, the Exchange proposes to make the debit/credit
check voluntary for Complex QOO Orders and multi-leg QOO Orders.
---------------------------------------------------------------------------
\27\ See Securities and Exchange Act Release No. 80439 (April
12, 2017), 82 FR 18320 (April 18, 2017) (SR-CBOE-2017-031).
\28\ The Exchange notes that CBOE Rule 5.34(b)(4) titled ``Buy
Strategy Parameters'' does not apply to orders auctioned via PAR and
OMT whereas Rule 5.34(b)(5) titled ``Maximum Value Acceptable Price
Range'' does apply to such orders. The Exchange notes further that
the proposed rules determine whether a Complex Order is debit or
credit by using a slightly different process than that employed by
CBOE. Specifically, other than for call and put butterfly spreads,
CBOE will group the legs of a Complex Order into pairs and compare
multiple pairs to determine whether the Complex Order is a credit or
debit while the Exchange creates groups (which may include more than
two legs) based on expiration date. However, the ultimate
determination of whether a Complex Order is a debit or credit is
similar under the different processes. Therefore, the Exchange
believes the debit/credit check is similar to CBOE's Debit/Credit
Price Reasonability Checks. See CBOE Rule 5.34(b)(3).
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The Exchange believes that the proposed changes strike a balance
between providing adequate risk controls and flexibility so that
Participants may execute their intended strategies. Specifically, the
Exchange believes that investors will have the added flexibility of
executing Complex QOO Orders and multi-leg QOO Orders at prices of
their choosing while still benefiting from Floor Brokers' handling of
orders. Additionally, the Exchange notes that the proposed changes will
provide Participants with another venue to execute certain Complex
Orders and Multi-Leg Orders that would otherwise be rejected by BOX but
accepted on another exchange.
Lastly, the Exchange believes that the proposed change to remove
the word ``regular'' in IM-7240-1(a)(5) and IM-7240-1(b)(5) will
provide clarity within the rule text and will reduce potential investor
or market participant confusion.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that,
amending IM-7240-1(a) to include Multi-Leg Orders does not impose any
burden on intramarket competition as the change will apply in the same
manner to all Participants. Further, the inclusion of Multi-Leg Orders
in IM-7240-1(a) does not impose a burden on intermarket competition as
the change simply intends to align the Exchange's rules with current
system functionality and accurately describe the application of the
protections in IM-7240-1(a). The Exchange does not believe the proposed
rule change will impose any burden on intramarket competition, as the
proposed rule change will apply in the same manner to all Participants.
The Exchange notes that debit/credit check applies to Complex Orders
and Multi-Leg Orders and maximum price to Complex Orders of all
Participants, regardless of account type. Additionally, all
Participants will have the ability to opt out of the debit/credit check
for Complex QOO Orders and multi-leg QOO Orders and maximum price for
Complex QOO Orders on a per order basis. Further, the proposed rule
change will provide all Participants with the ability to execute
certain Complex QOO Orders and multi-leg QOO Orders on BOX that
previously were not allowed. The Exchange believes the proposed rule
change does not impose any undue burden on intermarket competition and
may, on the contrary, promote competition, as other exchanges currently
apply similar protections while allowing certain orders to execute in
open outcry on their respective trading floors.\29\ 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.
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\29\ See supra note 16. [sic]
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[[Page 56898]]
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 (a)
significantly affect the protection of investors or the public
interest; (b) impose any significant burden on competition; and (c)
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 \30\ and Rule 19b-
4(f)(6) thereunder.\31\
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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 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) normally does
not become operative prior to 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\32\ 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 Exchange states
that amending the debit/credit check in IM-7240-1(a) to include Limit
Multi-Leg Orders will help to prevent Limit Multi-Leg Orders from
executing at erroneous prices and help to ensure the accuracy of the
Exchange's rules. The Exchange states that amending IM-7240-1 to make
the debit/credit check voluntary for Complex QOO Orders and Multi-Leg
QOO Orders and to make the maximum price protection voluntary for
Complex QOO Orders will provide BOX Participants with flexibility in
executing their Complex QOO Orders and Multi-Leg QOO Orders. As
discussed above, the Exchange states that Participants that need to
close positions to reduce risk or margin requirements may be less
sensitive to the prices of individual options. The Exchange further
states that Participants may believe, based on their own theoretical
models and positions, that market conditions warrant trades that would
otherwise be rejected by the Exchange. Under the proposal, the debit/
credit check and the maximum price protection will continue to apply by
default unless a Participant elects to forgo on a per order basis.
Because the waiver will available only for orders traded in open
outcry, but not for orders traded electronically, a Floor Broker will
evaluate the price of the Complex QOO or Multi-Leg QOO Order based on
then-existing market conditions prior to submitting the order to the
Trading Host for execution, which the Exchange states will result in
minimal risk of the order executing at an erroneous price. The Exchange
further states that other options exchanges do not apply similar
protections to orders executed on their trading floors, and that
Participants have indicated that the current application of the debit/
credit check and the maximum price protection is too restrictive and
prevents executions that would be permitted on other options
exchanges.\33\ The Exchange states that deleting the word ``regular''
from IM-7240-1(a)(5) and IM-7240-1(b)(5) will help to clarify the
Exchange's rules by removing an unnecessary and potentially confusing
word from the Exchange's rules.
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\32\ 17 CFR 240.19b-4(f)(6)(iii).
\33\ See notes 24-28, supra, and accompanying text.
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The Commission finds that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The proposal will allow Participants to elect to waive the debit/credit
check for Complex QOO Orders and Multi-Leg QOO Orders, and the maximum
price protection for Complex QOO Orders, on an order-by-order basis. As
discussed above, the Exchange states that Participants seek the
flexibility to execute Complex QOO Orders and Multi-Leg QOO Orders at
prices that the Exchange would otherwise reject. The Commission
believes that the proposal will provide Participants with flexibility
in executing Complex QOO and Multi-Leg QOO Orders that meet their
investment objectives. Under the proposal, the debit/credit check and
the maximum price protection will continue to apply by default, and
Participants will have the ability to waive the protections on a per
order basis. Because the waiver will be available only for Complex QOO
and Multi-Leg QOO Orders traded in open outcry, but not for orders
traded electronically, a Floor Broker will be able to evaluate the
price of the Complex QOO or Multi-Leg QOO Order before submitting the
order to the Trading Host for execution, which the Exchange believes
will minimize the risk of a Complex QOO or Multi-Leg QOO Order
executing at an erroneous price. The proposal to apply the debit/credit
check to Limit Multi-Leg Orders should protect investors by helping to
prevent Limit Multi-Leg Orders from executing at potentially erroneous
prices. The proposal to delete the unnecessary word ``regular'' from
IM-7240-1 should eliminate potential confusion and help to clarify the
Exchange's rules. For these reasons, the Commission designates the
proposal operative upon filing.\34\
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\34\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 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 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-2023-22.
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-2023-22. 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
[[Page 56899]]
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 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to file number
SR-BOX-2023-22 and should be submitted on or before September 11, 2023.
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\35\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17859 Filed 8-18-23; 8:45 am]
BILLING CODE 8011-01-P
