Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Establish IM-7600-8, 83185-83189 [2023-26111]
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Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Notices
legacy/companysearch.html. You may
also call the SEC’s Public Reference
Room at (202) 551–8090.
For the Commission, by the Division of
Investment Management, under delegated
authority.
J. Matthew DeLesDernier,
Deputy Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2023–26117 Filed 11–27–23; 8:45 am]
BILLING CODE 8011–01–P
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99007; File No. SR–BOX–
2023–28]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Establish IM–7600–8
November 21, 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 November
17, 2023, BOX Exchange LLC (‘‘BOX’’ or
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 proposes to
establish IM–7600–8. 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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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.
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
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).
The purpose of the proposed rule
change is to establish IM–7600–8.
Proposed IM–7600–8 codifies current
functionality and proposes an
additional enhancement. Specifically,
the Exchange is proposing to codify
current functionality that, upon order
entry, the system reduces a Complex
QOO Order or multi-leg QOO Order to
its simplest form, which also requires a
corresponding quantity increase and a
price decrease (for example the system
will reduce 6A+3B, 1 time to 2A+B, 3
times for 1⁄3 of the price).5 Additionally,
the Exchange is proposing that, if
reducing the order to its simplest form
results in a net price for the order that
exceeds three decimal places, the
system will round the net price of the
Complex QOO Order or multi-leg QOO
Order to the third decimal place with
the advantage to the initiating side. For
purposes of executing and determining
the priority of the component legs of
Complex QOO or multi-leg QOO Orders,
the system will calculate the quantities
and prices of the component legs in one
cent ($0.01) increments necessary to
achieve the net price of the order. The
component legs of a Complex QOO
Order or multi-leg QOO Order will
execute in one cent ($0.01) increments
and the priority of each component leg
will be determined based on its
execution price. A Complex QOO Order
or multi-leg QOO Order that is reduced
to its simplest form will be executed
pursuant to the provisions in Rule 7600
(Qualified Open Outcry Orders—Floor
Crossing), including Rule 7600(c)
(Submission of QOO Orders).
Background
Today, BOX Participants may submit
a Complex QOO Order or multi-leg
QOO Order with leg ratios that have not
been reduced by the highest common
denominator for the component legs of
the order. Upon receipt of such a
Complex QOO Order or multi-leg QOO
Order, the system will reduce the order
to its simplest form by dividing the leg
quantities by their highest common
1 15
2 17
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5 The strategy 6A+3B, 1 time for X price is equal
to the strategy 2A+B, 3 times for X/3 of the price.
See also infra note 5.
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83185
denominator.6 The system makes a
corresponding reduction to the price of
the strategy and a corresponding
increase to the quantity of the strategy
so that the net price of the order before
and after the reduction by the highest
common denominator is economically
equivalent.7 The order is then accepted
into the system and processed according
to Exchange rules. The Exchange
reduces such strategy orders to their
simplest form to avoid populating the
Complex Order Book 8 with multiple
versions of economically equivalent
strategies which may cause confusion
and result in unnecessary demands on
system resources. Currently, when this
process of reducing an order to its
simplest form results in a net price with
more than three decimal places (i.e.,
1.666...) (‘‘non-conforming strategy
price’’), the system rejects the Complex
QOO Order or multi-leg QOO Order
back to the submitting Participant.9
Proposal
The Exchange now proposes a system
enhancement to accept a Complex QOO
Order or multi-leg QOO Order with a
non-conforming strategy price. Under
this proposal, when reducing the leg
ratios of the Complex QOO Order or
multi-leg QOO Order, the system will
now round a non-conforming strategy
price to a net price with three decimals
to the advantage of the initiating side
instead of rejecting such orders. The
order can then be accepted and
processed pursuant to Exchange rules.
The Exchange notes that the current
priority rules for Complex QOO Orders
and multi-leg QOO Orders will continue
to apply. As discussed above, if the
6 For example, a Complex QOO Order is
submitted as 6A+3B. The system will reduce the
strategy to its simplest form by dividing each leg by
their highest common denominator (i.e., 3),
resulting in 2A+B (6A/3 + 3B/3). This operation is
performed so that the system is not replete with
multiple versions of economically equivalent
strategies which would populate the Complex
Order Book and may cause confusion and result in
unnecessary demands on system resources.
7 For example, if the above Complex Order of
6A+3B was submitted with a price of 3.30 for the
strategy, in addition to dividing each leg by 3, the
system will divide the price by the same value,
resulting in a price of 1.10 (3.30/3) for the reduced
strategy of 2A+B. Additionally, the system would
multiply the quantity of the strategy by 3 so that
the net result is a strategy for 2A+B for 1.10, 3
times. In summary, the strategy 6A+3B, 1 time for
3.30 is economically equivalent to 2A+B, 3 times
for 1.10.
8 The term ‘‘Complex Order Book’’ means the
electronic book of Complex Orders maintained by
the BOX Trading Host. See BOX Rule 7240(a)(8).
9 The Exchange notes that currently when
reducing strategy orders to their simplest form
results in a net price with three or fewer decimal
places, the Complex QOO Order or multi-leg QOO
Order is executed pursuant to the provisions in
Rule 7600.
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process of reducing a strategy order to
its simplest form results in the net price
of the order that exceeds three decimal
places the system will round the net
price of the Complex QOO Order or
multi-leg QOO Order to the third
decimal place with advantage to the
initiating side. For purposes of
executing and determining the priority
of the component legs of Complex QOO
or multi-leg QOO Orders, the system
will calculate the quantities and prices
of the component legs in one cent
($0.01) increments necessary to achieve
the net price of the order. The
component legs of a Complex QOO
Order or multi-leg QOO Order will
execute in one cent ($0.01) increments
and the priority of each component leg
will be determined based on its
execution price. A Complex QOO Order
or multi-leg QOO Order that is reduced
to its simplest form will be executed
pursuant to the provisions in Rule 7600
(Qualified Open Outcry Orders—Floor
Crossing), including Rule 7600(c)
(Submission of QOO Orders).
The priority rules for Complex QOO
and multi-leg QOO Orders will apply to
Complex QOO and multi-leg QOO
Orders with prices rounded pursuant to
proposed IM–7600–8. The Exchange
notes that order priority rules for
Complex QOO Orders include that
Complex QOO Orders may not trade
through any equal or better priced
Public Customer orders on the Complex
Order Book and may not trade through
any non-Public Customer Complex bids
or offers on the Complex Order Book
that are ranked ahead of such equal or
better priced Public Customer Complex
bids or offers, and may not trade
through any non-Public Customer bids
or offers on the Complex Order Book
that are priced better than the proposed
execution price. Additionally, the
Complex QOO Order may be executed
at a price without giving priority to
equivalent bids or offers in the
individual series legs on the initiating
side, provided at least one options leg
betters the corresponding bid or offer on
the BOX Book by at least one minimum
trading increment as set forth in Rule
7240(b)(1).10
Order priority rules for multi-leg QOO
Orders include that each component
series of a multi-leg QOO Order may not
trade through any equal or better priced
Public Customer bids or offers on the
BOX Book for that series or any nonPublic Customer bids or offers on the
BOX Book for that series that are ranked
10 See BOX Rule 7600(c). The term ‘‘BOX Book’’
means the electronic book of orders on each single
option series maintained by the BOX Trading Host.
See BOX Rule 100(a)(10).
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ahead of or equal to better priced Public
Customer bids or offers, and may not
trade through any non-Public Customer
bids or offers for that series on the BOX
Book that are priced better than the
proposed execution price. Specifically,
the initiating side component legs of a
multi-leg QOO Order must execute
against the BOX Book as provided by
Rules 7600(d) and (h) before executing
against the contra-side multi-leg QOO
Order.11
The following examples illustrate
these concepts:
Example of the Proposed Rounding and
Execution of a Complex QOO Order
With a Non-Conforming Price
A Complex QOO Order is submitted
to transact the strategy of 6A+3B for
12.50, 51 times, where the initiating
side is buying (quoted in terms of the
price of buying 6A+3B one time). The
system will then reduce the order
6A+3B to its simplest form, dividing by
its highest common denominator of 3,
resulting in an order of 2A+B for a net
price of 4.166... (12.50/3 = 4.166...) and
a corresponding increase of the quantity
to 153 (51 * 3). The strategy 2A+B for
4.166..., 153 times, is the equivalent of
6A+3B for 12.50, 51 times (6A/3+3B/3
= 2A+B). Under this proposal, the
system will round 4.166... in favor of the
initiating side, resulting in an order of
2A+B at a net price of 4.166, 153 times.
Although the net price of the order is
sub-penny, the component legs must
execute in one cent ($0.01) increments.
Accordingly, to execute at a net price of
4.166, the order will be executed at split
prices of 2A+B for 4.16, 62 times and
2A+B for 4.17, 91 times.12 The resulting
average execution price per strategy is
4.1659 ((4.16 * 62/153) + (4.17 * 91/153)
11 See BOX Rule 7600(c). The Exchange notes that
the initiating side of a QOO Order is allocated first
against any better priced bids or offers on the BOX
Book, provided that an adequate book sweep size
was provided by the Floor Broker pursuant to
paragraph (h). Next, at the same price as the contraside of the QOO Order, if any contracts of the
initiating side remain, the initiating side of the
QOO Order will match against Public Customer
Orders on the BOX Book, along with any bids or
offers of non-Public Customers ranked ahead of
such Public Customer Orders on the BOX Book,
provided that an adequate book sweep size was
provided by the Floor Broker pursuant to paragraph
(h). Multiple bids or offers at the same price are
matched based on time priority. See BOX Rules
7600(d)(1) and (2).
12 The Exchange notes that BOX currently utilizes
rounding for the execution of split price
transactions on the BOX Trading Floor when the
quantity at each price level is not a natural number.
Here, the current split pricing algorithm rounds the
quantity of 2A+B for 4.16 to 62 times and 2A+B for
4.17 to 91 times because the calculation used to
split 2A+B for 4.166, 153 times, results in a quantity
of 61.2 for 4.16 and 91.8 for 4.17. Rounding 61.2
to 62 and 91.8 to 91, in this case, is to the advantage
of the initiating side pursuant to BOX IM–7600–7.
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= 4.1659) with the advantage to the
initiating side of the order.13
Example of Complex QOO Order With
Resting Public Customer Complex Order
The above Complex QOO Order
(6A+3B for 12.50, 51 times, reduced and
rounded to 2A+B for 4.166, 153 times)
would execute a quantity of 62 for 4.16
and a quantity of 91 for 4.17.14
However, assuming there is a Public
Customer Complex Order offered at 4.16
on the Complex Order Book, the above
Complex QOO Order for 2A+B will be
rejected 15 because the Public Customer
Complex Order at 4.16 on the Complex
Order Book has priority over the
Complex QOO Order.
Example of Multi-Leg QOO Order With
Ratio Reduction and No Price Rounding
A multi-leg QOO Order to buy
12A+3B for 12.498, 51 times, will first
be reduced to its simplest form of 4A+B
(12A/3+3B/3) for 4.166 (12.498/3) and a
quantity of 153 (51*3) by the system. In
order to accomplish this execution, the
system would create an order to buy
4A+B for 4.16, 62 times, and an order
to buy 4A+B for 4.17, 91 times.16
Further, assume that the BOX Book for
leg A is 0.50 bid and 0.52 offered and
for leg B is 2.00 bid and 2.10 offered.
The execution for 4.16 would be broken
down into leg A for 0.52 and leg B for
2.08 (4*.52+2.08=4.16). If there were a
Public Customer order on the BOX Book
at either 0.52 for leg A or 2.08 for leg
13 Today, when a Floor Broker submits a QOO
Order to the system in sub-minimum increments,
the system will split the QOO Order into two
transactions. The transactions are separated by one
tick that, when combined, will yield a net price
equal to the original price entered by the Floor
Broker. See Securities Exchange Act Release No.
82891 (March 16, 2018), 83 FR 12627 (March 22,
2018) (Notice of Filing of Amendment No. 1 and
Order Granting Accelerated Approval of a Proposed
Rule Change, as Modified by Amendment No. 1, To
Adopt Rule 7600(i) To Allow Split-Price
Transactions on the BOX Trading Floor). See also
Securities Exchange Act Release No. 87613
(November 25, 2019), 84 FR 66049 (December 2,
2019) (Notice of Filing of Amendment No. 1 and
Order Granting Accelerated Approval of a Proposed
Rule Change, as Modified by Amendment No. 1, To
Amend Rule 7600).
14 See supra note 10. [sic]
15 The Exchange notes that a Floor Broker may,
but is not required to, provide a book sweep size.
The book sweep size is the number of contracts, if
any, of the initiating side of the QOO Order that the
Floor Broker is willing to relinquish to orders and
quotes on the Complex Order Book and the BOX
Book that have priority pursuant to Rule 7240(b)(2)
and (3) as well as Rule 7600(c). If the number of
contracts on the Complex Order Book or the BOX
Book that have priority over the contra-side order
is greater than the book sweep size, then the QOO
Order will be rejected. If the number of contracts
on the Complex Order Book or BOX Book that have
priority over the contra-side order is less than or
equal to the book sweep size, then the QOO Order
will execute. See BOX Rule 7600(h).
16 See supra note 10. [sic]
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B, the multi-leg QOO Order would be
rejected because the Public Customer
Order at either 0.52 for leg A or 2.08 for
leg B on the BOX Book has priority over
the leg of the multi-leg QOO Order.17
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Example of the Proposed Rounding and
Execution of a Multi-Leg QOO Order
With a Non-Conforming Price
A multi-leg QOO Order is submitted
to transact the strategy of 12A+3B for
12.50, 51 times, where the initiating
side is buying (quoted in terms of the
price of buying 12A+3B one time). The
system will then reduce the order
12A+3B to its simplest form, dividing
by its highest common denominator of
3, resulting in an order of 4A+B for a net
price of 4.166... (12.50/3 = 4.166...) and
a corresponding increase of the quantity
to 153 (51*3). The strategy 4A+B for
4.166..., 153 times, is the equivalent of
12A+3B for 12.50, 51 times (12A/3+3B/
3 = 4A+B). Under this proposal, the
system will round 4.166... in favor of the
initiating side, resulting in an order of
4A+B at a net price of 4.166, 153 times.
Next, because the net price is subpenny, the order will be executed at
split prices of 4A+B for 4.16, 62 times
and 4A+B for 4.17, 91 times.18 The
resulting average execution price per
strategy is 4.1659 ((4.16 * 62/153) +
(4.17 * 91/153) = 4.1659) with the
advantage to the initiating side of the
order.19
The Exchange notes that a similar
concept exists at another exchange
today.20 Specifically, Phlx Options 8,
Section 22(a)(2)(E)(i) states that
‘‘rounding of prices may be used only
where necessary to execute the trade at
the MPV, and only to the benefit of a
Public Customer order or, where
multiple Public Customer orders are
involved, for the Public Customer order
that is earliest in time. If no Public
Customer order is involved, rounding of
prices is available to the non-Public
Customer order that is earliest in time.’’
The Exchange notes that its proposal
differs from Phlx’s rule in that the net
prices for Complex QOO Orders or
multi-leg QOO Orders will be rounded
to the advantage of the initiating side,
17 The Exchange notes that each component series
of a multi-leg QOO Order may not trade through
any equal or better priced Public Customer bids or
offers on the BOX Book for that series or any nonPublic Customer bids or offers on the BOX Book for
that series that are ranked ahead of or equal to
better priced Public Customer bids or offers, and
may not trade through any non-Public Customer
bids or offers for that series on the BOX Book that
are priced better than the proposed execution price.
See BOX Rule 7600(c). See also supra notes 9 and
13.
18 See supra note 10. [sic]
19 See supra note 11. [sic]
20 See Nasdaq PHLX LLC (‘‘Phlx’’) Options 8,
Section 22(a)(2)(E)(i).
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which is in line with how rounding
happens on BOX today. Specifically,
BOX currently utilizes rounding for the
execution of split price transactions on
the BOX Trading Floor when the
quantity at each price level is not a
natural number. In its filing where BOX
established split price transactions, the
Exchange provided the following
example which shows how rounding
occurs in certain situations where the
allocation between two increment prices
results in a fractional amount of
contracts.21 The example is as follows:
A Split-Price QOO Order for 301 contracts
at $1.025 is received by the system where the
initiating side is to sell. In order to achieve
a net price of $1.025, 150.5 contracts would
need to be executed at $1.00 and 150.5 would
need to be executed at $1.05. However,
executions must occur in whole natural
numbers. Therefore, the system will instead
round to the advantage of the initiating side.
Specifically, the system will split the order
into 151 contracts at $1.05 and 150 at $1.00.
The average execution price is $1.0251 which
is a better price for the initiating side (i.e.,
selling 301 contracts for an average price of
$1.0251 instead of $1.025). Two trades would
be reported to the tape; a purchase of 151
contracts at $1.05 and a purchase of 150
contracts at $1.00.
The Exchange notes that, although
Complex QOO Order and multi-leg
QOO Order net prices are allowed to be
submitted in sub-minimum increment
prices, the order, including the legs,
may only be executed in the minimum
increment, which is one cent ($0.01).22
Net order prices are allowed in subminimum increments 23 because net
execution prices can be achieved via
split prices where transactions
separated by one tick are combined to
yield a net price equal to or very nearly
equal to the order price, with any
advantage going to the initiating side.24
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the
21 See Securities Exchange Act Release No. 82315
(December 13, 2017), 83 FR 12627 (March 22, 2018)
(Notice of Filing of Amendment No. 1 and Order
Granting Accelerated Approval of a Proposed Rule
Change, as Modified by Amendment No. 1, To
Adopt Rule 7600(i) To Allow Split-Price
Transactions on the BOX Trading Floor).
22 See BOX Rules 7050(b) and 7240(b)(1).
23 The Exchange notes that the BOX system
allows the net order price to be entered up to three
places after the decimal.
24 For example, a Floor Broker can execute a split
price Complex QOO Order at a price of 2.005 in
strategy A+B, 100 times (100 contracts of A and 100
contracts of B). The order would be split into A+B
for 2.01, 50 times and A+B for 2.00, 50 times for
a net price of 2.005 for the strategy. The following
executions would be reported: 50 Leg A at 1.00, 50
Leg A at 1.00, 50 Leg B at 1.00, and 50 Leg B at
1.01.
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Act,25 in general, and Section 6(b)(5) of
the Act,26 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 to protect investors and the
public interest.
The Exchange believes that codifying
current functionality that, upon order
entry, the system reduces a Complex
QOO Order or multi-leg QOO Order to
its simplest form 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 by
providing clarity and transparency in
the handling of certain strategy orders.
Additionally, if the process of reducing
a strategy order to its simplest form
results in the net price of the order that
exceeds three decimal places the
Exchange proposes to round the net
price of the Complex QOO Order or
multi-leg QOO Order to the third
decimal place with advantage to the
initiating side. For purposes of
executing and determining the priority
of the component legs of Complex QOO
or multi-leg QOO Orders, the system
will calculate the quantities and prices
in one cent ($0.01) increments of the
component legs necessary to achieve the
net price of the order. The component
legs of a Complex QOO Order or multileg QOO Order will execute in one cent
($0.01) increments and the priority of
each component leg will be determined
based on its execution price. A Complex
QOO Order or multi-leg QOO Order that
is reduced to its simplest form will be
executed pursuant to the provisions in
Rule 7600 (Qualified Open Outcry
Orders—Floor Crossing), including Rule
7600(c) (Submission of QOO Orders).
The Exchange believes that allowing
investors to enter Complex QOO Orders
and multi-leg QOO Orders without first
reducing such orders to their simplest
form allows investors the flexibility to
express and enter orders according to
their preferences. In order to better
accommodate these investor
preferences, the Exchange reduces such
strategy orders to their simplest form so
that the system is not replete with
multiple versions of economically
equivalent strategies which would
populate the Complex Order Book and
may cause confusion and result in
unnecessary demands on system
resources. Thus, the Exchange believes
that accepting and handling such
strategy orders as proposed removes
25 15
26 5
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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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 believes that the
proposed rule is consistent with current
rules on BOX. Specifically, as detailed
above, BOX rounds to the advantage of
the initiating side for split-price
transactions.27 The Exchange believes
that rounding to the advantage of the
initiating side in certain situations
results in the fair and equitable pricing
of orders among BOX Participants, and
provides clarity and transparency in the
Exchange’s rules so that all BOX
Participants will be informed as to the
net price the Participant is entitled to
receive as a result of rounding. The
Exchange believes that rounding to the
advantage of the initiating side is
reasonable and appropriate, as the
initiating side is providing liquidity to
the Exchange and thus adding value to
the market.
The Exchange notes that order
priority rules for Complex QOO Orders
include that Complex QOO Orders may
not trade through any equal or better
priced Public Customer orders on the
Complex Order Book and may not trade
through any non-Public Customer
Complex bids or offers on the Complex
Order Book that are ranked ahead of
such equal or better priced Public
Customer Complex bids or offers, and
may not trade through any non-Public
Customer bids or offers on the Complex
Order Book that are priced better than
the proposed execution price.
Additionally, the Complex QOO Order
may be executed at a price without
giving priority to equivalent bids or
offers in the individual series legs on
the initiating side, provided at least one
options leg betters the corresponding
bid or offer on the BOX Book by at least
one minimum trading increment as set
forth in Rule 7240(b)(1).28 Order priority
rules for multi-leg QOO Orders include
that each component series of a multileg QOO Order may not trade through
any equal or better priced Public
Customer bids or offers on the BOX
Book for that series or any non-Public
Customer bids or offers on the BOX
Book for that series that are ranked
ahead of or equal to better priced Public
Customer bids or offers, and may not
trade through any non-Public Customer
bids or offers for that series on the BOX
Book that are priced better than the
proposed execution price. Specifically,
the initiating side component legs of a
multi-leg QOO Order must execute
27 See
28 See
supra note 11.
BOX Rule 7600(c).
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against the Complex Order Book and the
BOX Book as provided by Rules 7600(d)
and (h) before executing against the
contra-side multi-leg QOO Order.29
These priority rules will continue to be
applicable, which the Exchange believes
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.
Lastly, the Exchange notes that the
proposed change will result in orders
being accepted on BOX that BOX’s
system currently rejects which, in turn,
could result in increased liquidity on
BOX to the benefit of all Participants. As
such, BOX 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 will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. As discussed
above, the proposed change is
consistent with the rules on BOX 30 and
will allow BOX to accept orders that it
currently rejects, which may result in
increased liquidity to the benefit of all
Participants. The Exchange also believes
that the proposed change will not
impose any burden on intramarket
competition as the proposed change
applies equally to all Floor Participants
who wish to execute Complex QOO
Orders or multi-leg QOO Orders on the
BOX Trading Floor. Further, the
Exchange believes that the proposed
change will not impose any burden on
intermarket competition as a similar
concept currently exists on another
exchange and other exchanges could
choose to adopt similar rules.31
As such, the Exchange does not
believe that the proposed rule change
29 See BOX Rule 7600(c). The Exchange notes that
the initiating side of a QOO Order is allocated first
against any better priced bids or offers on the BOX
Book, provided that an adequate book sweep size
was provided by the Floor Broker pursuant to
paragraph (h). Next, at the same price as the contraside of the QOO Order, if any contracts of the
initiating side remain, the initiating side of the
QOO Order will match against Public Customer
Orders on the BOX Book, along with any bids or
offers of non-Public Customers ranked ahead of
such Public Customer Orders on the BOX Book,
provided that an adequate book sweep size was
provided by the Floor Broker pursuant to paragraph
(h). Multiple bids or offers at the same price are
matched based on time priority. See BOX Rules
7600(d)(1) and (2). Further rule 7600(h) provides
that a Floor Broker may, but is not required to,
provide a book sweep size for Complex QOO Orders
and multi-leg QOO orders.
30 See BOX Rule 7600(i) and IM–7600–7. See also
supra note 11.
31 See supra note 18.
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
will impose any burden on competition
not necessary or appropriate in
furtherance of the purposes of the Act.
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 32 and Rule 19b–
4(f)(6) thereunder.33
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),34 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 waiver of the delay will allow the
Exchange to immediately begin
accepting orders that the Exchange’s
system currently rejects, which will
provide investors with the flexibility to
express and enter orders according to
their preferences. Additionally, the
Exchange states that accepting and
executing orders that would otherwise
be rejected may increase liquidity on the
Exchange, which would benefit all
Exchange Participants. The Exchange
notes that although orders may be
submitted in sub-minimum increments,
priority is determined and orders are
executed in minimum increments of
$0.01, and the proposal does not change
order priority and execution as
governed by Exchange Rule 7600,
including Exchange Rule 7600(c).
The Commission finds that waiving
the 30-day operative delay is consistent
32 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.
34 17 CFR 240.19b–4(f)(6)(iii).
33 17
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Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 / Notices
lotter on DSK11XQN23PROD with NOTICES1
with the protection of investors and the
public interest. As described above,
BOX’s system reduces complex QOO
and multi-leg QOO orders submitted to
the Exchange to their simplest form to
avoid populating the Exchange’s
Complex Order Book with multiple
versions of economically equivalent
strategies. When this process results in
a net price for a Complex QOO Order or
multi-leg QOO Order that exceeds three
decimal places, the Exchange’s system
currently rejects the Complex QOO
Order or multi-leg QOO Order back to
the submitting Participant. Under the
proposal, the Exchange will round the
net price of such an order to the third
decimal place with the advantage to the
initiating side. This process will allow
the Exchange to accept Complex QOO
and multi-leg QOO Orders that the
Exchange’s system currently rejects,
which will provide investors with an
additional venue for trading these
orders. The system will calculate the
quantities and prices, in $0.01
increments, of the component legs
necessary to achieve the net price of a
Complex QOO Order or multi-leg QOO
Order, and the component legs of the
orders will execute in $0.01 increments,
with their priority based on their
execution prices.35 A Complex QOO
Order or multi-leg QOO Order that has
been reduced to its simplest form will
be executed pursuant to Exchange Rule
7600, including Exchange Rule
7600(c).36 As described above, the
process for calculating the quantities
and execution prices of the component
legs of a Complex QOO Order or multileg QOO Order is consistent with the
process that the Exchange currently uses
for executing split price transactions on
the Exchange’s trading floor.37 For these
reasons, the Commission designates the
proposal operative upon filing.38
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.
35 See
proposed BOX IM–7600–8.
id.
37 See supra note 21 and accompanying text.
38 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).
36 See
VerDate Sep<11>2014
17:19 Nov 27, 2023
Jkt 262001
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:
• 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–2023–28.
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
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–2023–28 and should be
submitted on or before December 19,
2023.
Frm 00117
Fmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023–26111 Filed 11–27–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
PO 00000
83189
Sfmt 4703
[Release No. 34–99008; File No. SR–BX–
2023–031]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend BX Options 7,
Section 2 Regarding Fees and Rebates
November 21, 2023.
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 November
17, 2023, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. 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 amend its
Pricing Schedule at Options 7, Section
2.3
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/bx/rules, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
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
Exchange 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
Exchange has prepared summaries, set
39 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Exchange initially filed the proposed
pricing changes on November 14, 2023 (SR–BX–
2023–029). On November 16, 2023, the Exchange
withdrew that filing and submitted this filing.
1 15
E:\FR\FM\28NON1.SGM
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]]>Agencies
[Federal Register Volume 88, Number 227 (Tuesday, November 28, 2023)]
[Notices]
[Pages 83185-83189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26111]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99007; File No. SR-BOX-2023-28]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Establish IM-
7600-8
November 21, 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 November 17, 2023, BOX Exchange LLC (``BOX'' or 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 proposes to establish IM-7600-8. 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 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 establish IM-7600-8.
Proposed IM-7600-8 codifies current functionality and proposes an
additional enhancement. Specifically, the Exchange is proposing to
codify current functionality that, upon order entry, the system reduces
a Complex QOO Order or multi-leg QOO Order to its simplest form, which
also requires a corresponding quantity increase and a price decrease
(for example the system will reduce 6A+3B, 1 time to 2A+B, 3 times for
\1/3\ of the price).\5\ Additionally, the Exchange is proposing that,
if reducing the order to its simplest form results in a net price for
the order that exceeds three decimal places, the system will round the
net price of the Complex QOO Order or multi-leg QOO Order to the third
decimal place with the advantage to the initiating side. For purposes
of executing and determining the priority of the component legs of
Complex QOO or multi-leg QOO Orders, the system will calculate the
quantities and prices of the component legs in one cent ($0.01)
increments necessary to achieve the net price of the order. The
component legs of a Complex QOO Order or multi-leg QOO Order will
execute in one cent ($0.01) increments and the priority of each
component leg will be determined based on its execution price. A
Complex QOO Order or multi-leg QOO Order that is reduced to its
simplest form will be executed pursuant to the provisions in Rule 7600
(Qualified Open Outcry Orders--Floor Crossing), including Rule 7600(c)
(Submission of QOO Orders).
---------------------------------------------------------------------------
\5\ The strategy 6A+3B, 1 time for X price is equal to the
strategy 2A+B, 3 times for X/3 of the price. See also infra note 5.
---------------------------------------------------------------------------
Background
Today, BOX Participants may submit a Complex QOO Order or multi-leg
QOO Order with leg ratios that have not been reduced by the highest
common denominator for the component legs of the order. Upon receipt of
such a Complex QOO Order or multi-leg QOO Order, the system will reduce
the order to its simplest form by dividing the leg quantities by their
highest common denominator.\6\ The system makes a corresponding
reduction to the price of the strategy and a corresponding increase to
the quantity of the strategy so that the net price of the order before
and after the reduction by the highest common denominator is
economically equivalent.\7\ The order is then accepted into the system
and processed according to Exchange rules. The Exchange reduces such
strategy orders to their simplest form to avoid populating the Complex
Order Book \8\ with multiple versions of economically equivalent
strategies which may cause confusion and result in unnecessary demands
on system resources. Currently, when this process of reducing an order
to its simplest form results in a net price with more than three
decimal places (i.e., 1.666...) (``non-conforming strategy price''),
the system rejects the Complex QOO Order or multi-leg QOO Order back to
the submitting Participant.\9\
---------------------------------------------------------------------------
\6\ For example, a Complex QOO Order is submitted as 6A+3B. The
system will reduce the strategy to its simplest form by dividing
each leg by their highest common denominator (i.e., 3), resulting in
2A+B (6A/3 + 3B/3). This operation is performed so that the system
is not replete with multiple versions of economically equivalent
strategies which would populate the Complex Order Book and may cause
confusion and result in unnecessary demands on system resources.
\7\ For example, if the above Complex Order of 6A+3B was
submitted with a price of 3.30 for the strategy, in addition to
dividing each leg by 3, the system will divide the price by the same
value, resulting in a price of 1.10 (3.30/3) for the reduced
strategy of 2A+B. Additionally, the system would multiply the
quantity of the strategy by 3 so that the net result is a strategy
for 2A+B for 1.10, 3 times. In summary, the strategy 6A+3B, 1 time
for 3.30 is economically equivalent to 2A+B, 3 times for 1.10.
\8\ The term ``Complex Order Book'' means the electronic book of
Complex Orders maintained by the BOX Trading Host. See BOX Rule
7240(a)(8).
\9\ The Exchange notes that currently when reducing strategy
orders to their simplest form results in a net price with three or
fewer decimal places, the Complex QOO Order or multi-leg QOO Order
is executed pursuant to the provisions in Rule 7600.
---------------------------------------------------------------------------
Proposal
The Exchange now proposes a system enhancement to accept a Complex
QOO Order or multi-leg QOO Order with a non-conforming strategy price.
Under this proposal, when reducing the leg ratios of the Complex QOO
Order or multi-leg QOO Order, the system will now round a non-
conforming strategy price to a net price with three decimals to the
advantage of the initiating side instead of rejecting such orders. The
order can then be accepted and processed pursuant to Exchange rules.
The Exchange notes that the current priority rules for Complex QOO
Orders and multi-leg QOO Orders will continue to apply. As discussed
above, if the
[[Page 83186]]
process of reducing a strategy order to its simplest form results in
the net price of the order that exceeds three decimal places the system
will round the net price of the Complex QOO Order or multi-leg QOO
Order to the third decimal place with advantage to the initiating side.
For purposes of executing and determining the priority of the component
legs of Complex QOO or multi-leg QOO Orders, the system will calculate
the quantities and prices of the component legs in one cent ($0.01)
increments necessary to achieve the net price of the order. The
component legs of a Complex QOO Order or multi-leg QOO Order will
execute in one cent ($0.01) increments and the priority of each
component leg will be determined based on its execution price. A
Complex QOO Order or multi-leg QOO Order that is reduced to its
simplest form will be executed pursuant to the provisions in Rule 7600
(Qualified Open Outcry Orders--Floor Crossing), including Rule 7600(c)
(Submission of QOO Orders).
The priority rules for Complex QOO and multi-leg QOO Orders will
apply to Complex QOO and multi-leg QOO Orders with prices rounded
pursuant to proposed IM-7600-8. The Exchange notes that order priority
rules for Complex QOO Orders include that Complex QOO Orders may not
trade through any equal or better priced Public Customer orders on the
Complex Order Book and may not trade through any non-Public Customer
Complex bids or offers on the Complex Order Book that are ranked ahead
of such equal or better priced Public Customer Complex bids or offers,
and may not trade through any non-Public Customer bids or offers on the
Complex Order Book that are priced better than the proposed execution
price. Additionally, the Complex QOO Order may be executed at a price
without giving priority to equivalent bids or offers in the individual
series legs on the initiating side, provided at least one options leg
betters the corresponding bid or offer on the BOX Book by at least one
minimum trading increment as set forth in Rule 7240(b)(1).\10\
---------------------------------------------------------------------------
\10\ See BOX Rule 7600(c). The term ``BOX Book'' means the
electronic book of orders on each single option series maintained by
the BOX Trading Host. See BOX Rule 100(a)(10).
---------------------------------------------------------------------------
Order priority rules for multi-leg QOO Orders include that each
component series of a multi-leg QOO Order may not trade through any
equal or better priced Public Customer bids or offers on the BOX Book
for that series or any non-Public Customer bids or offers on the BOX
Book for that series that are ranked ahead of or equal to better priced
Public Customer bids or offers, and may not trade through any non-
Public Customer bids or offers for that series on the BOX Book that are
priced better than the proposed execution price. Specifically, the
initiating side component legs of a multi-leg QOO Order must execute
against the BOX Book as provided by Rules 7600(d) and (h) before
executing against the contra-side multi-leg QOO Order.\11\
---------------------------------------------------------------------------
\11\ See BOX Rule 7600(c). The Exchange notes that the
initiating side of a QOO Order is allocated first against any better
priced bids or offers on the BOX Book, provided that an adequate
book sweep size was provided by the Floor Broker pursuant to
paragraph (h). Next, at the same price as the contra-side of the QOO
Order, if any contracts of the initiating side remain, the
initiating side of the QOO Order will match against Public Customer
Orders on the BOX Book, along with any bids or offers of non-Public
Customers ranked ahead of such Public Customer Orders on the BOX
Book, provided that an adequate book sweep size was provided by the
Floor Broker pursuant to paragraph (h). Multiple bids or offers at
the same price are matched based on time priority. See BOX Rules
7600(d)(1) and (2).
---------------------------------------------------------------------------
The following examples illustrate these concepts:
Example of the Proposed Rounding and Execution of a Complex QOO Order
With a Non-Conforming Price
A Complex QOO Order is submitted to transact the strategy of 6A+3B
for 12.50, 51 times, where the initiating side is buying (quoted in
terms of the price of buying 6A+3B one time). The system will then
reduce the order 6A+3B to its simplest form, dividing by its highest
common denominator of 3, resulting in an order of 2A+B for a net price
of 4.166... (12.50/3 = 4.166...) and a corresponding increase of the
quantity to 153 (51 * 3). The strategy 2A+B for 4.166..., 153 times, is
the equivalent of 6A+3B for 12.50, 51 times (6A/3+3B/3 = 2A+B). Under
this proposal, the system will round 4.166... in favor of the
initiating side, resulting in an order of 2A+B at a net price of 4.166,
153 times. Although the net price of the order is sub-penny, the
component legs must execute in one cent ($0.01) increments.
Accordingly, to execute at a net price of 4.166, the order will be
executed at split prices of 2A+B for 4.16, 62 times and 2A+B for 4.17,
91 times.\12\ The resulting average execution price per strategy is
4.1659 ((4.16 * 62/153) + (4.17 * 91/153) = 4.1659) with the advantage
to the initiating side of the order.\13\
---------------------------------------------------------------------------
\12\ The Exchange notes that BOX currently utilizes rounding for
the execution of split price transactions on the BOX Trading Floor
when the quantity at each price level is not a natural number. Here,
the current split pricing algorithm rounds the quantity of 2A+B for
4.16 to 62 times and 2A+B for 4.17 to 91 times because the
calculation used to split 2A+B for 4.166, 153 times, results in a
quantity of 61.2 for 4.16 and 91.8 for 4.17. Rounding 61.2 to 62 and
91.8 to 91, in this case, is to the advantage of the initiating side
pursuant to BOX IM-7600-7.
\13\ Today, when a Floor Broker submits a QOO Order to the
system in sub-minimum increments, the system will split the QOO
Order into two transactions. The transactions are separated by one
tick that, when combined, will yield a net price equal to the
original price entered by the Floor Broker. See Securities Exchange
Act Release No. 82891 (March 16, 2018), 83 FR 12627 (March 22, 2018)
(Notice of Filing of Amendment No. 1 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 1,
To Adopt Rule 7600(i) To Allow Split-Price Transactions on the BOX
Trading Floor). See also Securities Exchange Act Release No. 87613
(November 25, 2019), 84 FR 66049 (December 2, 2019) (Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 1, To Amend
Rule 7600).
---------------------------------------------------------------------------
Example of Complex QOO Order With Resting Public Customer Complex Order
The above Complex QOO Order (6A+3B for 12.50, 51 times, reduced and
rounded to 2A+B for 4.166, 153 times) would execute a quantity of 62
for 4.16 and a quantity of 91 for 4.17.\14\ However, assuming there is
a Public Customer Complex Order offered at 4.16 on the Complex Order
Book, the above Complex QOO Order for 2A+B will be rejected \15\
because the Public Customer Complex Order at 4.16 on the Complex Order
Book has priority over the Complex QOO Order.
---------------------------------------------------------------------------
\14\ See supra note 10. [sic]
\15\ The Exchange notes that a Floor Broker may, but is not
required to, provide a book sweep size. The book sweep size is the
number of contracts, if any, of the initiating side of the QOO Order
that the Floor Broker is willing to relinquish to orders and quotes
on the Complex Order Book and the BOX Book that have priority
pursuant to Rule 7240(b)(2) and (3) as well as Rule 7600(c). If the
number of contracts on the Complex Order Book or the BOX Book that
have priority over the contra-side order is greater than the book
sweep size, then the QOO Order will be rejected. If the number of
contracts on the Complex Order Book or BOX Book that have priority
over the contra-side order is less than or equal to the book sweep
size, then the QOO Order will execute. See BOX Rule 7600(h).
---------------------------------------------------------------------------
Example of Multi-Leg QOO Order With Ratio Reduction and No Price
Rounding
A multi-leg QOO Order to buy 12A+3B for 12.498, 51 times, will
first be reduced to its simplest form of 4A+B (12A/3+3B/3) for 4.166
(12.498/3) and a quantity of 153 (51*3) by the system. In order to
accomplish this execution, the system would create an order to buy 4A+B
for 4.16, 62 times, and an order to buy 4A+B for 4.17, 91 times.\16\
Further, assume that the BOX Book for leg A is 0.50 bid and 0.52
offered and for leg B is 2.00 bid and 2.10 offered. The execution for
4.16 would be broken down into leg A for 0.52 and leg B for 2.08
(4*.52+2.08=4.16). If there were a Public Customer order on the BOX
Book at either 0.52 for leg A or 2.08 for leg
[[Page 83187]]
B, the multi-leg QOO Order would be rejected because the Public
Customer Order at either 0.52 for leg A or 2.08 for leg B on the BOX
Book has priority over the leg of the multi-leg QOO Order.\17\
---------------------------------------------------------------------------
\16\ See supra note 10. [sic]
\17\ The Exchange notes that each component series of a multi-
leg QOO Order may not trade through any equal or better priced
Public Customer bids or offers on the BOX Book for that series or
any non-Public Customer bids or offers on the BOX Book for that
series that are ranked ahead of or equal to better priced Public
Customer bids or offers, and may not trade through any non-Public
Customer bids or offers for that series on the BOX Book that are
priced better than the proposed execution price. See BOX Rule
7600(c). See also supra notes 9 and 13.
---------------------------------------------------------------------------
Example of the Proposed Rounding and Execution of a Multi-Leg QOO Order
With a Non-Conforming Price
A multi-leg QOO Order is submitted to transact the strategy of
12A+3B for 12.50, 51 times, where the initiating side is buying (quoted
in terms of the price of buying 12A+3B one time). The system will then
reduce the order 12A+3B to its simplest form, dividing by its highest
common denominator of 3, resulting in an order of 4A+B for a net price
of 4.166... (12.50/3 = 4.166...) and a corresponding increase of the
quantity to 153 (51*3). The strategy 4A+B for 4.166..., 153 times, is
the equivalent of 12A+3B for 12.50, 51 times (12A/3+3B/3 = 4A+B). Under
this proposal, the system will round 4.166... in favor of the
initiating side, resulting in an order of 4A+B at a net price of 4.166,
153 times. Next, because the net price is sub-penny, the order will be
executed at split prices of 4A+B for 4.16, 62 times and 4A+B for 4.17,
91 times.\18\ The resulting average execution price per strategy is
4.1659 ((4.16 * 62/153) + (4.17 * 91/153) = 4.1659) with the advantage
to the initiating side of the order.\19\
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\18\ See supra note 10. [sic]
\19\ See supra note 11. [sic]
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The Exchange notes that a similar concept exists at another
exchange today.\20\ Specifically, Phlx Options 8, Section
22(a)(2)(E)(i) states that ``rounding of prices may be used only where
necessary to execute the trade at the MPV, and only to the benefit of a
Public Customer order or, where multiple Public Customer orders are
involved, for the Public Customer order that is earliest in time. If no
Public Customer order is involved, rounding of prices is available to
the non-Public Customer order that is earliest in time.'' The Exchange
notes that its proposal differs from Phlx's rule in that the net prices
for Complex QOO Orders or multi-leg QOO Orders will be rounded to the
advantage of the initiating side, which is in line with how rounding
happens on BOX today. Specifically, BOX currently utilizes rounding for
the execution of split price transactions on the BOX Trading Floor when
the quantity at each price level is not a natural number. In its filing
where BOX established split price transactions, the Exchange provided
the following example which shows how rounding occurs in certain
situations where the allocation between two increment prices results in
a fractional amount of contracts.\21\ The example is as follows:
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\20\ See Nasdaq PHLX LLC (``Phlx'') Options 8, Section
22(a)(2)(E)(i).
\21\ See Securities Exchange Act Release No. 82315 (December 13,
2017), 83 FR 12627 (March 22, 2018) (Notice of Filing of Amendment
No. 1 and Order Granting Accelerated Approval of a Proposed Rule
Change, as Modified by Amendment No. 1, To Adopt Rule 7600(i) To
Allow Split-Price Transactions on the BOX Trading Floor).
A Split-Price QOO Order for 301 contracts at $1.025 is received
by the system where the initiating side is to sell. In order to
achieve a net price of $1.025, 150.5 contracts would need to be
executed at $1.00 and 150.5 would need to be executed at $1.05.
However, executions must occur in whole natural numbers. Therefore,
the system will instead round to the advantage of the initiating
side. Specifically, the system will split the order into 151
contracts at $1.05 and 150 at $1.00. The average execution price is
$1.0251 which is a better price for the initiating side (i.e.,
selling 301 contracts for an average price of $1.0251 instead of
$1.025). Two trades would be reported to the tape; a purchase of 151
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contracts at $1.05 and a purchase of 150 contracts at $1.00.
The Exchange notes that, although Complex QOO Order and multi-leg
QOO Order net prices are allowed to be submitted in sub-minimum
increment prices, the order, including the legs, may only be executed
in the minimum increment, which is one cent ($0.01).\22\ Net order
prices are allowed in sub-minimum increments \23\ because net execution
prices can be achieved via split prices where transactions separated by
one tick are combined to yield a net price equal to or very nearly
equal to the order price, with any advantage going to the initiating
side.\24\
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\22\ See BOX Rules 7050(b) and 7240(b)(1).
\23\ The Exchange notes that the BOX system allows the net order
price to be entered up to three places after the decimal.
\24\ For example, a Floor Broker can execute a split price
Complex QOO Order at a price of 2.005 in strategy A+B, 100 times
(100 contracts of A and 100 contracts of B). The order would be
split into A+B for 2.01, 50 times and A+B for 2.00, 50 times for a
net price of 2.005 for the strategy. The following executions would
be reported: 50 Leg A at 1.00, 50 Leg A at 1.00, 50 Leg B at 1.00,
and 50 Leg B at 1.01.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\25\ in general, and Section
6(b)(5) of the Act,\26\ 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 to protect investors and the public
interest.
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\25\ 15 U.S.C. 78f(b).
\26\ 5 U.S.C. 78f(b)(5).
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The Exchange believes that codifying current functionality that,
upon order entry, the system reduces a Complex QOO Order or multi-leg
QOO Order to its simplest form 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 by providing
clarity and transparency in the handling of certain strategy orders.
Additionally, if the process of reducing a strategy order to its
simplest form results in the net price of the order that exceeds three
decimal places the Exchange proposes to round the net price of the
Complex QOO Order or multi-leg QOO Order to the third decimal place
with advantage to the initiating side. For purposes of executing and
determining the priority of the component legs of Complex QOO or multi-
leg QOO Orders, the system will calculate the quantities and prices in
one cent ($0.01) increments of the component legs necessary to achieve
the net price of the order. The component legs of a Complex QOO Order
or multi-leg QOO Order will execute in one cent ($0.01) increments and
the priority of each component leg will be determined based on its
execution price. A Complex QOO Order or multi-leg QOO Order that is
reduced to its simplest form will be executed pursuant to the
provisions in Rule 7600 (Qualified Open Outcry Orders--Floor Crossing),
including Rule 7600(c) (Submission of QOO Orders).
The Exchange believes that allowing investors to enter Complex QOO
Orders and multi-leg QOO Orders without first reducing such orders to
their simplest form allows investors the flexibility to express and
enter orders according to their preferences. In order to better
accommodate these investor preferences, the Exchange reduces such
strategy orders to their simplest form so that the system is not
replete with multiple versions of economically equivalent strategies
which would populate the Complex Order Book and may cause confusion and
result in unnecessary demands on system resources. Thus, the Exchange
believes that accepting and handling such strategy orders as proposed
removes
[[Page 83188]]
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 believes that the proposed rule is consistent with
current rules on BOX. Specifically, as detailed above, BOX rounds to
the advantage of the initiating side for split-price transactions.\27\
The Exchange believes that rounding to the advantage of the initiating
side in certain situations results in the fair and equitable pricing of
orders among BOX Participants, and provides clarity and transparency in
the Exchange's rules so that all BOX Participants will be informed as
to the net price the Participant is entitled to receive as a result of
rounding. The Exchange believes that rounding to the advantage of the
initiating side is reasonable and appropriate, as the initiating side
is providing liquidity to the Exchange and thus adding value to the
market.
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\27\ See supra note 11.
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The Exchange notes that order priority rules for Complex QOO Orders
include that Complex QOO Orders may not trade through any equal or
better priced Public Customer orders on the Complex Order Book and may
not trade through any non-Public Customer Complex bids or offers on the
Complex Order Book that are ranked ahead of such equal or better priced
Public Customer Complex bids or offers, and may not trade through any
non-Public Customer bids or offers on the Complex Order Book that are
priced better than the proposed execution price. Additionally, the
Complex QOO Order may be executed at a price without giving priority to
equivalent bids or offers in the individual series legs on the
initiating side, provided at least one options leg betters the
corresponding bid or offer on the BOX Book by at least one minimum
trading increment as set forth in Rule 7240(b)(1).\28\ Order priority
rules for multi-leg QOO Orders include that each component series of a
multi-leg QOO Order may not trade through any equal or better priced
Public Customer bids or offers on the BOX Book for that series or any
non-Public Customer bids or offers on the BOX Book for that series that
are ranked ahead of or equal to better priced Public Customer bids or
offers, and may not trade through any non-Public Customer bids or
offers for that series on the BOX Book that are priced better than the
proposed execution price. Specifically, the initiating side component
legs of a multi-leg QOO Order must execute against the Complex Order
Book and the BOX Book as provided by Rules 7600(d) and (h) before
executing against the contra-side multi-leg QOO Order.\29\ These
priority rules will continue to be applicable, which the Exchange
believes 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.
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\28\ See BOX Rule 7600(c).
\29\ See BOX Rule 7600(c). The Exchange notes that the
initiating side of a QOO Order is allocated first against any better
priced bids or offers on the BOX Book, provided that an adequate
book sweep size was provided by the Floor Broker pursuant to
paragraph (h). Next, at the same price as the contra-side of the QOO
Order, if any contracts of the initiating side remain, the
initiating side of the QOO Order will match against Public Customer
Orders on the BOX Book, along with any bids or offers of non-Public
Customers ranked ahead of such Public Customer Orders on the BOX
Book, provided that an adequate book sweep size was provided by the
Floor Broker pursuant to paragraph (h). Multiple bids or offers at
the same price are matched based on time priority. See BOX Rules
7600(d)(1) and (2). Further rule 7600(h) provides that a Floor
Broker may, but is not required to, provide a book sweep size for
Complex QOO Orders and multi-leg QOO orders.
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Lastly, the Exchange notes that the proposed change will result in
orders being accepted on BOX that BOX's system currently rejects which,
in turn, could result in increased liquidity on BOX to the benefit of
all Participants. As such, BOX 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 will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. As discussed above, the
proposed change is consistent with the rules on BOX \30\ and will allow
BOX to accept orders that it currently rejects, which may result in
increased liquidity to the benefit of all Participants. The Exchange
also believes that the proposed change will not impose any burden on
intramarket competition as the proposed change applies equally to all
Floor Participants who wish to execute Complex QOO Orders or multi-leg
QOO Orders on the BOX Trading Floor. Further, the Exchange believes
that the proposed change will not impose any burden on intermarket
competition as a similar concept currently exists on another exchange
and other exchanges could choose to adopt similar rules.\31\
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\30\ See BOX Rule 7600(i) and IM-7600-7. See also supra note 11.
\31\ See supra note 18.
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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.
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 \32\ and Rule 19b-
4(f)(6) thereunder.\33\
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 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),\34\ 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 waiver of the delay will allow the Exchange to immediately begin
accepting orders that the Exchange's system currently rejects, which
will provide investors with the flexibility to express and enter orders
according to their preferences. Additionally, the Exchange states that
accepting and executing orders that would otherwise be rejected may
increase liquidity on the Exchange, which would benefit all Exchange
Participants. The Exchange notes that although orders may be submitted
in sub-minimum increments, priority is determined and orders are
executed in minimum increments of $0.01, and the proposal does not
change order priority and execution as governed by Exchange Rule 7600,
including Exchange Rule 7600(c).
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\34\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission finds that waiving the 30-day operative delay is
consistent
[[Page 83189]]
with the protection of investors and the public interest. As described
above, BOX's system reduces complex QOO and multi-leg QOO orders
submitted to the Exchange to their simplest form to avoid populating
the Exchange's Complex Order Book with multiple versions of
economically equivalent strategies. When this process results in a net
price for a Complex QOO Order or multi-leg QOO Order that exceeds three
decimal places, the Exchange's system currently rejects the Complex QOO
Order or multi-leg QOO Order back to the submitting Participant. Under
the proposal, the Exchange will round the net price of such an order to
the third decimal place with the advantage to the initiating side. This
process will allow the Exchange to accept Complex QOO and multi-leg QOO
Orders that the Exchange's system currently rejects, which will provide
investors with an additional venue for trading these orders. The system
will calculate the quantities and prices, in $0.01 increments, of the
component legs necessary to achieve the net price of a Complex QOO
Order or multi-leg QOO Order, and the component legs of the orders will
execute in $0.01 increments, with their priority based on their
execution prices.\35\ A Complex QOO Order or multi-leg QOO Order that
has been reduced to its simplest form will be executed pursuant to
Exchange Rule 7600, including Exchange Rule 7600(c).\36\ As described
above, the process for calculating the quantities and execution prices
of the component legs of a Complex QOO Order or multi-leg QOO Order is
consistent with the process that the Exchange currently uses for
executing split price transactions on the Exchange's trading floor.\37\
For these reasons, the Commission designates the proposal operative
upon filing.\38\
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\35\ See proposed BOX IM-7600-8.
\36\ See id.
\37\ See supra note 21 and accompanying text.
\38\ 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-2023-28.
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 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-2023-28 and should be submitted on
or before December 19, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-26111 Filed 11-27-23; 8:45 am]
BILLING CODE 8011-01-P
