Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To Adopt Rules To Govern FLEX Equity Options and a New Order Type To Trade FLEX Equity Options on the BOX Trading Floor, 44721-44752 [2024-11079]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 99 (Tuesday, May 21, 2024)]
[Notices]
[Pages 44721-44752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11079]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100156; File No. SR-BOX-2023-20]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Amendment No. 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 3, To Adopt Rules To 
Govern FLEX Equity Options and a New Order Type To Trade FLEX Equity 
Options on the BOX Trading Floor

May 15, 2024.
    On September 1, 2023, BOX Exchange LLC (``Exchange'' or ``BOX'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to adopt Rules 5055 and 7605 which, among other applicable 
Exchange rules, will govern the trading of flexible exchange equity 
options (``FLEX Equity Options'') on the BOX Trading Floor, and make 
related changes to Rules 100 (Definitions), 7620 (Accommodation 
Transactions), and 12140 (Imposition of Fines for Minor Rule 
Violations). The proposed rule change was published for comment in the 
Federal Register on September 19, 2023.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 98380 (September 13, 
2023), 88 FR 64482 (``Notice''). Comment on the proposed rule change 
can be found at: https://www.sec.gov/comments/sr-box-2023-20/srbox202320.htm.
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    On September 27, 2023, pursuant to Section 19(b)(2) of the Exchange 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On December 12, 2023, the Exchange submitted 
Amendment No. 2 to the proposed rule change, which replaced and 
superseded the proposed rule change as originally filed.\6\ On December 
15, 2023, the Commission published notice of Amendment No. 2 and 
instituted proceedings pursuant to Section 19(b)(2)(B) of the Exchange 
Act \7\ to determine whether to approve or disapprove the proposed rule 
change, as modified by Amendment No. 2.\8\ On March 12, 2024, the 
Commission designated a longer period for Commission action on the 
proposed rule change.\9\ On May 10, 2024, the Exchange filed Amendment 
No. 3, which replaced and superseded the proposed rule change, as 
modified by Amendment No. 2.\10\ The Commission is publishing this 
notice to solicit comments on Amendment No. 3 from interested persons, 
and is approving the proposed rule change, as modified by Amendment No. 
3, on an accelerated basis.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 98568, 86 FR 68237 
(October 3, 2023). The Commission designated December 18, 2023, as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
    \6\ On December 1, 2023, the Exchange submitted Amendment No. 1 
to the proposed rule change. Amendment No. 1 was withdrawn on 
December 12, 2023. Amendment No. 2 is available on the Commission's 
website at: https://www.sec.gov/comments/sr-box-2023-20/srbox202320-310739-809082.pdf (``Amendment No. 2'').
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 99192, 88 FR 88437 
(December 21, 2023) (Notice of Filing of Amendment No. 2 and Order 
Instituting Proceedings) (``OIP'').
    \9\ See Securities Exchange Act Release No. 99725, 89 FR 19386 
(March 18, 2024) (Extension No. 2).
    \10\ In Amendment No. 3, the Exchange revised the proposal to 
better align the proposed rule change with the FLEX Equity Options 
rules of other exchanges, and to provide more specificity and 
clarification to the proposed rule change. Specifically, Amendment 
No. 3: (i) removed proposed Rule 5055(e)(2)(v)(a) regarding when a 
FLEX Equity Option order may be submitted; (ii) added rule language 
to proposed Rule 5055(b)(3) to clarify that FOO Orders may only be 
traded on the Trading Floor; (iii) modified proposed Rule 7605(c) to 
clarify who is applicable to apply to be a FLEX Market Maker; and 
(iv) made various clarifications to the rule text, including 
proposed Rule 7605(d)(4), and added additional clarifying changes to 
the description of and statutory basis for the proposed rule change. 
Amendment No. 3 is available on the Commission's website at: https://www.sec.gov/comments/sr-box-2023-20/srbox202320-471351-1297514.pdf 
(``Amendment No. 3'').
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change, as Modified by Amendment No. 3 \11\
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    \11\ This Section I and II reproduces Amendment No. 3, as filed 
by the Exchange.
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    The Exchange proposes to (1) adopt Rules 5055 and 7605 which will 
govern the trading of flexible exchange options (``FLEX Equity 
Options'') on BOX; and (2) make related changes to Rules 100 
(Definitions), 7620 (Accommodation Transactions), and 12140 (Imposition 
of Fines for Minor Rule Violations). 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.

[[Page 44722]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to (1) adopt Rules 5055 and 7605 which will 
govern the trading of flexible exchange options (``FLEX Equity 
Options'') on BOX; and (2) make related changes to Rules 100 
(Definitions), 7620 (Accommodation Transactions), and 12140 (Imposition 
of Fines for Minor Rule Violations). The proposed rule change was 
published in the Federal Register on September 19, 2023 (the ``Original 
Filing'').\12\ Subsequently, Amendment No. 1 was filed on December 1, 
2023, Amendment No.1 was withdrawn on December 12, 2023, and Amendment 
No. 2, which amended and replaced the Original Filing in its entirety, 
was filed on December 12, 2023. On December 21, 2023, a notice of 
filing of Amendment No. 2 and order instituting proceedings to 
determine whether to approve or disapprove a proposed rule change, as 
modified by Amendment No. 2, was published in the Federal Register.\13\ 
The Exchange is now proposing Amendment No. 3 to amend and replace 
Amendment No. 2 and the Original Filing in their entirety. This 
Amendment No. 3 is being filed to better align the proposed rule change 
with the rules of other exchanges and provide more specificity to the 
proposed rule change. In particular, Amendment No. 3 removes proposed 
rule text to better align the proposed rule change with the rules of 
other exchanges, and makes a number of clarifying changes to the 
proposed rule text and the description of and statutory basis for the 
proposed rule change.
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    \12\ See Securities Exchange Act Release No. 98380 (September 
13, 2023), 88 FR 64482 (September 19, 2023) (SR-BOX-2023-20) (Notice 
of Filing of Proposed Rule Change to Adopt Rules to Govern FLEX 
Equity Options and a New Order Type to Trade FLEX Equity Options on 
the BOX Trading Floor).
    \13\ See Securities Exchange Act Release No. 99192 (December 15, 
2023), 88 FR 88437 (December 21, 2023) (SR-BOX-2023-20) (Notice of 
Filing of Amendment No. 2 and Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove a Proposed Rule Change, 
as Modified by Amendment No. 2, To Adopt Rules To Govern FLEX Equity 
Options and a New Order Type To Trade FLEX Equity Options on the BOX 
Trading Floor).
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    In Amendment No. 3, the Exchange is removing proposed Rule 
5055(e)(2)(v)(a) regarding when a FLEX Equity Option order may be 
submitted. The Exchange is proposing this change to better align the 
proposed rule text with the already established rules of other 
exchanges. The Exchange believes this change is consistent with the Act 
and does not raise any novel regulatory issues as it simply conforms 
the proposed rule text with the already effective rules of other 
exchanges.\14\ In addition, the Original Filing and Amendment No. 2 
were already subject to a full notice-and-comment period.
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    \14\ See NYSE American Rule 903G(a) and NYSE Arca Rule 5.32-
O(b). The Exchange notes that, unlike the NYSE American and NYSE 
Arca rules, the Exchange's proposed rule change does not include 
FLEX Index Options.
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    In Amendment No. 3, the Exchange is adding rule language to 
proposed Rule 5055(b)(3) to clarify that FOO Orders may only be traded 
on the Trading Floor. This language mirrors rule text that is in 
proposed Rule 7605(b) and is intended to further clarify that FOO 
Orders may only be traded on the Trading Floor. The Exchange believes 
this change is consistent with the Act and does not raise any novel 
regulatory issues as it simply adds clarifying language that better 
aligns proposed Rule 5055(b)(3) with the text of proposed Rule 7605(b) 
that was already part of the Original Filing and Amendment No. 2, which 
were subject to a full notice-and-comment period.
    The Exchange notes that Amendment No. 3 is solely intended to 
further clarify the proposed rule text and conform the rule text with 
the already established rules of other exchanges, and to provide 
additional detail and specificity with respect to the proposed rule 
change and additional information in support of the purpose and 
statutory basis for the proposed rule change.
Summary
    The Exchange proposes to adopt rules to govern FLEX Equity Options 
and a new order type to trade FLEX Equity Options on the BOX Trading 
Floor.\15\ The Exchange also proposes to amend Rules 100 (Definitions), 
7620 (Accommodation Transactions), and 12140 (Imposition of Fines for 
Minor Rule Violations) to reflect the introduction of FLEX Equity 
Option trading on the Exchange. FLEX Equity Options are options with 
flexible terms such that Participants \16\ can customize expiration 
date, exercise price, and exercise style. FLEX Equity Options are 
designed to meet the needs of investors for greater flexibility in 
selecting the terms of options within the parameters of the Exchange's 
proposed rules. FLEX Equity Options are not preestablished for trading 
and are not listed individually for trading on the Exchange. Rather, 
investors select FLEX Equity Option terms and are limited by the 
parameters detailed below in their selection of those terms. As a 
result, FLEX Equity Options allow investors to satisfy more specific, 
individualized investment objectives than may be available to them in 
the standardized options market. Specifically, FLEX Equity Options will 
be subject to proposed Rule 5055 and will be traded as FLEX Open Outcry 
Orders (``FOO Orders'') on the BOX Trading Floor under proposed Rule 
7605. FLEX Equity Options are a type put or call, and allow investors 
to choose an exercise price of any dollar amount in minimum increments 
of $0.01,\17\ an exercise style of American or European,\18\ and an 
expiration date of any month, business day and year no more than 15 
years from the date on which a FLEX Equity Option is executed.\19\ As 
discussed further below, FLEX Equity Options will not be permitted with 
the same terms as an existing Non-FLEX Equity Option listed on the 
Exchange.\20\ Because of

[[Page 44723]]

their composition, the Exchange believes that FLEX Equity Options may 
allow investors to more closely meet their individual investment and 
hedging objectives by customizing option contracts for the purpose of 
satisfying particular investment objectives that could not be met by 
the standardized markets.
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    \15\ The term ``Trading Floor'' or ``Options Floor'' means the 
physical trading floor of the Exchange located in Chicago. The 
Trading Floor shall consist of one ``Crowd Area'' or ``Pit'' where 
all option classes will be located. The Crowd Area or Pit shall be 
marked with specific visible boundaries on the Trading Floor, as 
determined by the Exchange. A Floor Broker must open outcry an order 
in the Crowd Area. See BOX Rule 100(a)(68).
    \16\ The term ``Participant'' means a firm, or organization that 
is registered with the Exchange pursuant to the Rule 2000 Series for 
purposes of participating in trading on a facility of the Exchange 
and includes an ``Options Participant'' and ``BSTX Participant.'' 
See BOX Rule 100(a)(42).
    \17\ See proposed Rule 5055(e)(2)(iii).
    \18\ See proposed Rule 5055(e)(2)(iv).
    \19\ See proposed Rule 5055(e)(2)(v).
    \20\ Provided the options on an underlying security are 
otherwise eligible for FLEX trading, FLEX Equity Options shall be 
permitted in puts and calls that do not have the same exercise 
style, same expiration date, and same exercise price as Non-FLEX 
Equity Options that are already available for trading on the same 
underlying security. See proposed Rule 5055(e)(1). FLEX Equity 
Options shall also be permitted before the options are listed for 
trading as Non-FLEX Equity Options. Once and if the identical option 
series are listed for trading as Non-FLEX Equity Options, (i) all 
existing open positions established under the FLEX trading 
procedures shall be fully fungible with transactions in the 
respective Non-FLEX Equity Option series, and (ii) any further 
trading in the series would be as Non-FLEX Equity Options subject to 
the non-FLEX trading procedures and rules. See proposed Rule 
5055(f)(1).
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Background
    The Securities and Exchange Commission (``Commission'') approved 
the trading of FLEX options in 1993.\21\ At the time, the Chicago Board 
Options Exchange, Inc., now Cboe Exchange, Inc. (``CBOE'') proposed 
FLEX options based on the Standard and Poor's Corporation 500 and 100 
Stock Indexes (referred to as the ``CBOE Order'' herein).\22\ These 
FLEX options were offered as an alternative to an over-the-counter 
(``OTC'') market in customized equity options.\23\ Several years after 
the initial approval, the Commission approved the trading of additional 
FLEX options on specified equity securities.\24\ In its order, the 
Commission provided: ``The benefits of the Exchanges' options markets 
include, but are not limited to, a centralized market center, an 
auction market with posted transparent market quotations and 
transaction reporting, parameters and procedures for clearance and 
settlement, and the guarantee of the OCC [Options Clearing Corporation] 
for all contracts traded on the Exchange.'' \25\
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    \21\ See Securities Exchange Act Release No. 31920 (February 24, 
1993), 58 FR 12280 (March 3, 1993) (SR-CBOE-92-17) (Order Approving 
and Notice of Filing and Order Granting Accelerated Approval to 
Amendment Nos. 1, 2, 3, and 4 to Proposed Rule Changes by the 
Chicago Board Options Exchange, Inc., Relating to Flexible Exchange 
Options (``FLEX Options'')).
    \22\ Id.
    \23\ Id.
    \24\ See Securities Exchange Act Release No. 36841 (February 14, 
1996), 61 FR 6666 (February 21, 1996) (SR-CBOE-95-43) (SR-PSE-95-24) 
(Order Approving Proposed Rule Changes and Notice of Filing and 
Order Granting Accelerated Approval of Amendments by the Chicago 
Board Options Exchange, Inc. and the Pacific Stock Exchange, Inc., 
Relating to the Listing of Flexible Exchange Options on Specified 
Equity Securities).
    \25\ Id. The Exchange notes that the Commission found pursuant 
to Rule 9b-1 under the Act, that FLEX Options, including FLEX Equity 
Options, are standardized options for purposes of the options 
disclosure framework established under Rule 9b-1 of the Act. Id.
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    The Exchange notes that FLEX options are currently traded on CBOE, 
NYSE American LLC (``NYSE American''), NYSE Arca, Inc. (``NYSE Arca''), 
and Nasdaq PHLX LLC (``PHLX'').\26\ The Exchange notes further that 
CBOE offers electronic and open outcry FLEX option trading while NYSE 
American, NYSE Arca, and PHLX offer only open outcry trading of FLEX 
options.
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    \26\ See CBOE Rules 4.20-4.22 and 5.70-5.75 and NYSE American 
Rules 900G-910G and NYSE Arca Rules 5.30-O-5.41-O and PHLX Options 
8, Section 34.
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    In August 2017, the Commission approved the Exchange's proposal to 
adopt rules for an open outcry trading floor.\27\ The Exchange based 
the rules for the BOX Trading Floor on the rules of the options 
exchanges that had established trading floors at that time. When the 
BOX Trading Floor was adopted in 2017, it was the first options trading 
floor to be established since the 1970s.\28\ As such, the BOX Trading 
Floor rules have certain differences to the trading floor rules at the 
other options exchanges, to account for the unique nature of BOX's 
Trading Floor and to modernize the existing trading floor rules and 
surveillance practices. The BOX Trading Floor has been operating since 
2017 and is now well-established. The Exchange believes that its unique 
features for open-outcry trading provide value to Floor Participants. 
The Exchange now proposes to allow for the trading of FLEX Equity 
Options as FOO Orders on the BOX Trading Floor.\29\
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    \27\ See Securities Exchange Act Release No. 81292 (August 2, 
2017), 82 FR 37144 (August 8, 2017) (SR-BOX-2016-48) (Order 
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1 
and 2, To Adopt Rules for an Open-Outcry Trading Floor) (finding 
that the proposed rule change was consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange).
    \28\ See https://www.optionsplaybook.com/options-introduction/stock-option-history/.
    \29\ The Exchange notes that the Commission has received one 
comment letter in support of the proposed rule change. The commenter 
believes that permitting BOX to offer FLEX Equity Options will 
expand competition and capacity and thus drive better execution 
experiences for the public. See Letter from Anish Vora, CEO, FCF 
Holdings LLC, and Board of Directors of NYSE, to the SEC (September 
29, 2023) (https://www.sec.gov/comments/sr-box-2023-20/srbox202320-638842.htm).
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Proposal
    The Exchange proposes to adopt Rule 5055 titled FLEX Equity Options 
which describes and governs FLEX Equity Options. Rule 5055(a) details 
the applicability of other Exchange rules with respect to the proposed 
FLEX Equity Options. Specifically, the trading of FLEX Equity Options 
is subject to all other Rules applicable to the trading of options on 
the Exchange, unless otherwise provided in Rules 5055 and 7605.\30\ The 
Exchange has conducted a thorough review of its existing Rules to 
ensure that proposed Rule 5055(a) accurately reflects the application 
of the Exchange's Non-FLEX Equity Option Rules to FLEX Equity 
Options,\31\ as well as those Non-FLEX Equity Option Rules that would 
not apply to FLEX Equity Options.\32\ As described herein, the only 
means by which the Exchange intends to permit FLEX Equity Options to be 
traded is via the proposed FOO Order type. To the extent the Exchange 
proposes to adopt additional rules for the trading of FLEX Equity 
Options, including electronic trading of FLEX Equity Options or any 
other order type or trading mechanism,\33\ the Exchange would file a 
separate proposed rule change with the Commission.
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    \30\ See proposed Rule 5055(a). Proposed Rule 5055(a) is based 
on CBOE Rule 5.72(a).
    \31\ See proposed Rule 5055(a). For example, Rules 7010 (Fees 
and Charges), 7020 (Days and Hours of Business), 7030 (Units of 
Trading), and 7080 (Trading Halts) apply to FLEX Equity Options and 
Non-FLEX Equity Options alike. The Exchange notes that an Options 
Exchange Official may halt trading in any option contract in the 
interests of a fair and orderly market (factors that shall be 
considered are enumerated in Rule 7080(a)(1)) and will halt trading 
in FLEX Equity Options when Non-FLEX Equity Options on the same 
underlying security are halted. The BOX Trading System is also 
designed to enforce the Exchange's trading halt rules such that a 
trading halt in Non-FLEX Equity Options will result in a trading 
halt in FLEX Equity Options on the same underlying security.
    \32\ See, for example, infra note 40 and accompanying text, 
explaining that FLEX Equity Options may only trade as a FOO Order on 
the Trading Floor and may not trade using any other order type or 
trading mechanism, including those designed for electronic trading.
    \33\ Id.
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    The rules proposed by the Exchange are uniquely applicable to FLEX 
Equity Options in order to accommodate their special characteristics. 
For example, the BOX Book \34\ and the Complex Order Book \35\ shall 
not be available for transactions in FLEX Equity Options because, 
consistent with other exchanges' FLEX rules, there will be no pre-
established series \36\ and no electronic trading of FLEX Equity 
Options.\37\ While electronic trading in FLEX options is available on 
CBOE,\38\ the Exchange at this time intends to introduce FLEX Equity 
Options on the Trading Floor in open outcry only, consistent with other 
markets that trade these customized options solely on their trading 
floors in open outcry.\39\ The Exchange notes that rules that 
contemplate the operation of or

[[Page 44724]]

interaction with the BOX Book and the Complex Order Book will not apply 
to FLEX Equity Options, given that FLEX Equity Options may only be 
traded as FOO Orders on the Trading Floor and FOO Orders may not be 
placed in the BOX Book or the Complex Order Book.\40\ Additionally, the 
Exchange is proposing to codify that Options Exchange Officials have 
the same duties and ability to enforce rules applicable to the trading 
of FLEX Equity Options as they do for all other activity on the Trading 
Floor.\41\
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    \34\ 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).
    \35\ The term ``Complex Order Book'' means the electronic book 
of Complex Orders maintained by the BOX Trading Host. See BOX Rule 
7240(a)(8).
    \36\ See infra note 56.
    \37\ See proposed Rule 5055(a)(1). Proposed Rule 5055(a)(1) is 
based on NYSE Arca Rule 5.30-O(c).
    \38\ See, e.g., CBOE Rules 5.73 and 5.74.
    \39\ See, e.g., NYSE Arca Rule 5.30-O(c).
    \40\ The Exchange notes that FLEX Equity Options may not trade 
via the PIP, COPIP, Facilitation and Solicitation Auctions, or as 
Qualified Contingent Cross (``QCC''), Complex QCC, Customer Cross, 
Complex Customer Cross Orders, and any new order type not explicitly 
included within the FLEX Equity Option rules pursuant to rule 
filings submitted under Section 19(b) of the Act. See BOX Rules 
7110, 7150, 7245, and 7270. If the Exchange intended to allow FLEX 
Equity Options to trade via the PIP, COPIP, Facilitation and 
Solicitation Auctions, or as (``QCC''), Complex QCC, Customer Cross, 
and Complex Customer Cross Orders, the Exchange would be required to 
file a proposed rule change with the Commission to amend its rules 
to allow for the inclusion of FLEX Equity Options in the relevant 
rule text.
    \41\ See proposed Rule 5055(a)(2).
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    FLEX Equity Options will only be permitted in puts and calls that 
do not have the same exercise style (American or European), same 
expiration date and same exercise price as Non-FLEX Equity Options that 
are already available for trading on the same underlying security.\42\ 
In addition, once, and if, identical option series are listed for 
trading as Non-FLEX Equity Options, (1) all existing open positions 
established under the FLEX trading procedures shall be fully fungible 
with transactions in the respective Non-FLEX Equity Option series, and 
(2) any further trading in the series would be as Non-FLEX Equity 
Options subject to the non-FLEX trading procedures and rules.\43\ 
Therefore, FOO Orders, whose terms must be different from options that 
are already available for trading, would not be fungible with interest 
resting on the BOX Book or Complex Order Book. Accordingly, the 
Exchange believes FOO Orders would not be able to trade through 
interest resting on the BOX Book or Complex Order Book nor would 
interest resting on the BOX Book or Complex Order Book lose priority to 
FOO Orders.
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    \42\ See proposed Rule 5055(e)(1). Proposed Rule 5055(e)(1) is 
based on NYSE Arca Rule 5.32-O, Commentary .01.
    \43\ See proposed Rule 5055(f)(1). Proposed Rule 5055(f)(1) is 
based on NYSE Arca Rule 5.32-O, Commentary .01.
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    The Exchange proposes Rule 5055(b) which defines the following 
terms: FLEX Equity Option, Non-FLEX Equity Option, FLEX Market Maker, 
and FLEX Open Outcry Order. Specifically, the term ``FLEX Equity 
Option'' means an option on a specified underlying security that is 
subject to Rule 5055.\44\ ``Non-FLEX Equity Option'' means an option 
contract that is not a FLEX Equity Option.\45\ ``FLEX Open Outcry 
Order'' (``FOO Order'') means a FLEX Equity Option order as defined in 
proposed Rule 7605.\46\ ``FLEX Market Maker'' means a Market Maker that 
is qualified by the Exchange to trade FLEX Equity Options and meets the 
requirements of proposed Rule 5055(k).\47\ The proposed functionality 
for FOO Orders is designed to be similar to the Exchange's existing 
Qualified Open Outcry (``QOO'') Orders because both order types will be 
transacted on the Trading Floor and BOX believes they should follow 
similar procedures, excluding provisions related to the BOX Book, as 
discussed below.\48\ FLEX Equity Options shall not be traded other than 
as FOO Orders, which may only be traded on the Trading Floor.\49\ The 
Exchange also proposes to specify in proposed Rule 5055(b)(3) that, for 
the avoidance of doubt, FLEX Equity Options may not be traded using any 
other order type or trading mechanism offered by the Exchange.
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    \44\ See proposed Rule 5055(b)(1). The Exchange notes that 
proposed Rule 5055(e)(2)(i) provides that FLEX Equity Options on 
underlying securities may be authorized pursuant to Rule 5020.
    \45\ See proposed Rule 5055(b)(2). Proposed Rule 5055(b)(2) is 
based on NYSE Arca Rule 5.30-O(b)(11).
    \46\ See proposed Rule 5055(b)(3).
    \47\ See proposed Rule 5055(b)(4).
    \48\ See BOX Rule 7600. See also Securities Exchange Act Release 
No. 81292 (August 2, 2017), 82 FR 37144 (August 8, 2017) (SR-BOX-
2016-48) (Order Approving a Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2, To Adopt Rules for an Open-Outcry Trading 
Floor).
    \49\ See proposed Rule 5055(b)(3).
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    The Exchange proposes Rule 5055(c) which states that, in addition 
to the restrictions in Rule 5055(b)(3), certain Exchange rules do not 
apply to transactions in FLEX Equity Options. Specifically, Rule 7600 
``Qualified Open Outcry Orders--Floor Crossing'' and Rule 7620 
``Accommodation Transactions'' do not apply to transactions in FLEX 
Equity Options.\50\ These rules represent order types that currently 
apply to Non-FLEX Equity Options on the BOX Trading Floor and are 
specifically excluded given that the Exchange is proposing the FOO 
Order type to be used exclusively for trading FLEX Equity Options. 
However, the Exchange proposes that certain Rule 7600 Interpretive 
Materials apply to FLEX Equity Options; in particular IM-7600-2 \51\ 
and IM-7600-5.\52\ IM-7600-2

[[Page 44725]]

and IM-7600-5 relate to tied hedge orders and to compliance with 
Section 11(a)(1) of the Act, respectively, and will apply to the 
proposed FOO Orders in the same manner as they currently apply to QOO 
Orders. Because these provisions would apply equally to FLEX Equity 
Options as they do to Non-FLEX Equity Options, they need not be 
duplicated for purposes of the proposed rules.
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    \50\ See proposed Rule 5055(c). Proposed Rule 5055(c) is based 
on NYSE Arca Rule 5.30-O(d).
    \51\ BOX IM-7600-2 provides that nothing prohibits a Floor 
Broker from buying or selling a stock, security futures, or futures 
position following receipt of an option order, including a Complex 
Order, provided that prior to announcing such order to the trading 
crowd: (a) the option order is in a class designated as eligible for 
``tied hedge'' transactions (as described below) as determined by 
the Exchange and is within the designated tied hedge eligibility 
size parameters, which parameters shall be determined by the 
Exchange and may not be smaller than 500 contracts per order. 
Additionally, there shall be no aggregation of multiple orders to 
satisfy the size parameter, and for Complex Orders involved in a 
tied hedge transaction at least one leg must meet the minimum size 
requirement; (b) such Floor Broker shall create an electronic record 
that it is engaging in a tied hedge transaction in a form and manner 
prescribed by the Exchange; (c) such hedging position is: (1) 
comprised of a position designated as eligible for a tied hedge 
transaction as determined by the Exchange and may include the same 
underlying stock applicable to the option order, a security future 
overlying the same stock applicable to the option order or, in 
reference to an index or Exchange-Traded Fund Shares (``ETF''), a 
related instrument. A ``related instrument'' means, in reference to 
an index option, securities comprising ten percent or more of the 
component securities in the index or a futures contract on any 
economically equivalent index applicable to the option order. A 
``related instrument'' means, in reference to an ETF option, a 
futures contract on any economically equivalent index applicable to 
the ETF underlying the option order; (2) brought without undue delay 
to the trading crowd and announced concurrently with the option 
order; (3) offered to the trading crowd in its entirety; and (4) 
offered, at the execution price received by the Floor Broker 
introducing the option, to any in-crowd Floor Participant who has 
established parity or priority for the related options; (d) the 
hedging position does not exceed the option order on a delta basis; 
(e) all tied hedge transactions (regardless of whether the option 
order is a simple or Complex Order) are treated the same as Complex 
Orders for purposes of the Exchange's open outcry allocation and 
reporting procedures. Tied hedge transactions are subject to the 
existing NBBO trade-through requirements for options and stock, as 
applicable, and may qualify for various exceptions; however, when 
the option order is a simple order, the execution of the option leg 
of a tied hedge transaction does not qualify for the NBBO trade-
through exception for a Complex Trade (defined in Rule 7610(e)); (f) 
in-crowd Floor Participants that participate in the option 
transaction must also participate in the hedging position and may 
not prevent the option transaction from occurring by giving a 
competing bid or offer for one component of such order; (g) in the 
event the conditions in the non-options market prevents the 
execution of the non-option leg(s) at the agreed prices, the trade 
representing the options leg(s) may be cancelled; and (h) prior to 
entering tied hedge orders on behalf of Customers, the Floor Broker 
must deliver to the Customer a written notification informing the 
Customer that his order may be executed using the Exchange's tied 
hedge procedures. The written notification must disclose the terms 
and conditions contained in this Interpretative Material and be in a 
form approved by the Exchange. See BOX IM-7600-2. The Exchange notes 
that another exchange makes similar orders available for FLEX 
trading. See PHLX Options 8, Section 34(b)(2) (new citation of PHLX 
Options 8, Section 34(f)(2) to be implemented prior to August 2024).
    \52\ BOX IM-7600-5 provides that a Participant shall not utilize 
the Trading Floor to effect any transaction for its own account, the 
account of an associated person, or an account with respect to which 
it or an associated person thereof exercises investment discretion 
by relying on an exemption under Section 11(a)(1)(G) of the Exchange 
Act. See BOX IM-7600-5.
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    The Exchange proposes Rule 5055(d) which states that FLEX Equity 
Options will have no trading rotations.\53\ Trading rotations are used 
to open or reopen a series of options on BOX at a single price.\54\ 
There is a period of time before the market in the underlying security 
opens during which orders placed on the BOX Book do not generate trade 
executions but may participate in the Opening Match.\55\ FLEX Equity 
Options will not be placed on the BOX Book, and therefore will not have 
trading rotations because there will be no requirement for specific 
FLEX Equity Option series to be quoted or traded each day. FLEX Equity 
Options are created with terms unique to individual investment 
objectives. As such, each investor may require FLEX Equity Options with 
slightly different terms than those already created. These individually 
defined FLEX Equity Options are customized for each investor and 
therefore trading rotations may not be useful for other investors who 
may create their own FLEX Equity Options because trading rotations are 
designed, in part, to determine a single opening, or reopening, price 
based on orders and quotes from multiple Participants. With the bespoke 
nature of FLEX Equity Options there is not the opportunity, nor need, 
to bring together multiple orders and quotes as part of a trading 
rotation.
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    \53\ See proposed Rule 5055(d). Proposed Rule 5055(d) is based 
on NYSE Arca Rule 5.31-O(b).
    \54\ See BOX Rules 7070(e)(2) and (l).
    \55\ See BOX Rules 7070(a) and (e). The Exchange notes that 
trading rotations are referred to in BOX Rule 7070(e) as the Opening 
Match.
---------------------------------------------------------------------------

    Further, the Exchange proposes Rule 5055(e) which provides that 
FLEX Equity Options will not be preestablished for trading and, 
provided the options on an underlying security are otherwise eligible 
for FLEX trading, FLEX Equity Options shall be permitted in puts and 
calls that do not have the same exercise style, same expiration date, 
and same exercise price as Non-FLEX Equity Options that are already 
available for trading on the same underlying security. Proposed Rule 
5055(e) further provides that FLEX Equity Options must include one of 
each of the terms of a FLEX Equity Option that are described in the 
proposed Rule.\56\ Specifically, (i) the Exchange may authorize for 
trading a FLEX Equity Option class on any underlying security if it may 
authorize trading a Non-FLEX Equity Option class on that underlying 
security pursuant to Rule 5020,\57\ and that has Non-FLEX Equity 
Options on such security listed and traded on at least one national 
securities exchange, even if the Exchange does not list that Non-FLEX 
Equity Option class for trading; \58\ (ii) the option type may be put 
or call; \59\ (iii) the exercise price may be any dollar amount in 
minimum increments of $0.01; \60\ (iv) the exercise style may be 
American or European; \61\ and (v) the expiration date may be any 
business day (specified to the day, month, and year) no more than 15 
years from the date of the FLEX Equity Option transaction.\62\ 
Additionally, the exercise settlement of FLEX Equity Options shall be 
by physical delivery of the underlying security.\63\
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    \56\ Proposed Rule 5055(e) is based on NYSE Arca Rule 5.32-O. 
The Exchange notes that it is not proposing FLEX Index Options and 
thus has not incorporated applicable provisions as Index Options do 
not trade on BOX.
    \57\ Rule 5020 provides criteria for the listing of options on 
several different underlying types of securities, including 
securities registered with the SEC under Regulation NMS of the Act 
(``NMS stock''), Exchange-Traded Fund Shares, and Index-Linked 
Securities. See BOX Rule 5020.
    \58\ See proposed Rule 5055(e)(2)(i). Proposed Rule 
5055(e)(2)(i) is based on NYSE Arca Rule 5.32-O(f)(1).
    \59\ See proposed Rule 5055(e)(2)(ii). Proposed Rule 
5055(e)(2)(ii) is based on NYSE Arca Rule 5.32-O(b)(2).
    \60\ See proposed Rule 5055(e)(2)(iii). Proposed Rule 
5055(e)(2)(iii) is based on NYSE Arca Rule 5.32-O(f)(2) (exercise 
prices and premiums may be stated in terms of: (i) a dollar amount; 
(ii) a method for fixing at the time a FLEX Request for Quote or 
FLEX Order is traded; or (iii) a percentage of the price of the 
underlying security at the time of the trade or as of the close of 
trading on the NYSE Arca on the trade date). The Exchange notes that 
the proposal only includes exercise, bid, and offer prices in terms 
of a dollar amount.
    \61\ See proposed Rule 5055(e)(2)(iv). Proposed Rule 
5055(e)(2)(iv) is based on NYSE Arca Rule 5.32-O(b)(3).
    \62\ See proposed Rule 5055(e)(2)(v). Proposed Rule 
5055(e)(2)(v) is based on NYSE Arca Rules 5.32-O(b)(4) and (6). The 
Exchange notes that it has omitted the exception for FLEX Index 
Options because BOX does not list FLEX Index Options and FLEX Index 
Options are not part of this proposal.
    \63\ See proposed Rule 5055(e)(3). Proposed Rule 5055(e)(3) is 
based on NYSE Arca Rule 5.32-O(f)(3)(i). The Exchange notes that 
NYSE Arca Rule 5.32-O(f)(3)(i) includes references to Exchange-
Traded Fund Shares and FLEX ByRDs that the Exchange is not including 
because the Exchange believes it is not necessary to specifically 
reference Exchange-Traded Fund Shares as they are included under the 
term underlying security. Additionally, the Exchange notes that FLEX 
ByRDs are not being proposed on the Exchange.
---------------------------------------------------------------------------

    Next, the Exchange proposes Rule 5055(f) titled Fungibility of FLEX 
Equity Options. Proposed Rule 5055(e)(1), described above, limits FLEX 
Equity Option terms such that options on an underlying security 
otherwise eligible for FLEX trading will only be permitted in puts and 
calls that do not have the same exercise style (American or European), 
same expiration date and same exercise price as Non-FLEX Equity Options 
that are already available for trading on the same underlying 
security.\64\ Notwithstanding the foregoing, FLEX Equity Options that 
may in the future have the same terms as Non-FLEX Equity Options will 
be permitted before the options are listed for trading as Non-FLEX 
Equity Options. Once and if the identical option series are listed for 
trading as Non-FLEX Equity Options: (i) all existing open positions 
established under the FLEX trading procedures shall be fully fungible 
with transactions in the respective Non-FLEX Equity Option series,\65\ 
and (ii) any further trading in the series would be as Non-FLEX Equity 
Options subject to the non-FLEX trading procedures and rules,\66\ in 
addition to any other rules that apply to Non-FLEX Equity Options.\67\ 
In the event a Non-

[[Page 44726]]

FLEX Equity Option series is added intra-day, the holder or writer of a 
FLEX Equity Option position established under the FLEX trading 
procedures would be permitted to close such position under the FLEX 
trading procedures against another closing only FLEX Equity Option 
position for the balance of the trading day on which the series is 
added.\68\ In the event the Non-FLEX Equity Option series is added on a 
trading day after the position is established, the holder or writer of 
a FLEX Equity Option position established under the FLEX trading 
procedures would be permitted to close such position as a non-FLEX 
transaction consistent with the requirements of Rule 5055(f)(1).
---------------------------------------------------------------------------

    \64\ See proposed Rule 5055(e)(1). Proposed Rule 5055(e)(1) is 
based on NYSE Arca Rule 5.32-O, Commentary .01. The Exchanges notes 
that its system enforces the requirement that a FLEX Equity Option 
does not have the same exercise style (American or European), same 
expiration date and same exercise price as a Non-FLEX Equity Option 
that is already available for trading on the same underlying 
security. Specifically, the system will reject an order in a FLEX 
Equity Option if the order is received with the same exercise style 
(American or European), same expiration date and same exercise price 
as a Non-FLEX Equity Option that is already available for trading on 
the same underlying security on the Exchange.
    \65\ An open position resulting from a transaction on the 
Exchange becomes fungible post-trade and is separate from the 
execution occurring on the Exchange. For example, assume a 
Participant buys one (1) American style AAPL call option expiring on 
October 9, 2024, with a strike price of 150, which is a FLEX series 
because there is no standard option listed with those same terms. 
Now assume, while holding this position, a standard option with the 
same terms is listed (American style AAPL call option expiring on 
October 9, 2024, with a strike price of 150). After this standard 
option is listed, the Participant purchases one (1) contract in this 
non-FLEX option series. After this second transaction, the 
Participant will have an open position of two (2) contracts in the 
standard AAPL call expiring on October 9, 2024, with a 150 strike 
price.
    \66\ This includes all priority and trade-through requirements 
on the Exchange (see, e.g., Rule 7130).
    \67\ See proposed Rule 5055(f)(1). Proposed Rule 5055(f)(1) is 
based on NYSE Arca Rule 5.32-O, Commentary .01. The Exchange notes 
that FLEX Equity Options previously traded as part of a Complex FOO 
Order or Multi-Leg FOO Order where the respective Non-FLEX Equity 
Option series is later listed may not be traded as part of a Complex 
FOO Order or Multi-leg FOO Order except as provided in proposed 
Rules 5055(f)(2) and 7605(d)(3) and (4) once such Non-FLEX Equity 
Option series has been listed on the Exchange. See proposed Rules 
7605(d)(1), (3) and (4). For example, assume a Participant executes 
a Complex FOO Order to buy strategy A + B where A and B are both 
FLEX Equity Option series. Now assume that prior to the opening on 
the next trading day, a Non-FLEX Equity Option series with the same 
terms (underlying security, type, exercise price, exercise style, 
and expiration date) as A has been listed on the Exchange. If the 
Participant decided to close out their open position in strategy A + 
B, it would need to be done as two separate orders for the component 
legs of the original order: (i) selling B, a FLEX Equity Option, by 
submitting a FOO Order, and (ii) selling the corresponding Non-FLEX 
Equity Option series that has the same terms as A because A has 
become fungible with the Non-FLEX Equity Option series with the 
identical terms. Trading in A would be subject to the non-FLEX 
trading procedures and rules. See proposed Rule 5055(f)(1).
    \68\ See proposed Rule 5055(f)(2). Proposed Rule 5055(f)(2) is 
based on NYSE Arca Rule 5.32-O, Commentary .01. The Exchange notes 
that Complex FOO Orders and Multi-Leg FOO Orders, discussed below, 
may be traded with one or more closing only component legs. The 
Exchange notes that proposed Rule 5055(f) differs from NYSE Arca 
Rule 5.32-O, Commentary .01 in that it includes proposed Rules 
5055(f)(2) and (3), which detail the interaction between proposed 
Rules 5055(e)(1) and (f)(1).
---------------------------------------------------------------------------

    The Exchange proposes Rule 5055(g) which states that the minimum 
quoting and trading increment for FLEX Equity Option contracts traded 
on BOX will be one cent ($0.01) for all series.\69\
---------------------------------------------------------------------------

    \69\ See proposed Rule 5055(g). Proposed Rule 5055(g) is based 
on CBOE Rule 5.4(c)(4). The Exchange notes that minimum increments 
in percentage terms have been omitted because they are not part of 
this proposal.
---------------------------------------------------------------------------

    The Exchange proposes Rule 5055(h) which states that FLEX Equity 
Options will be subject to the exercise by exception provisions of Rule 
805 of the OCC, titled Expiration Exercise Procedure.\70\ Rule 805 
provides provisions for the automatic exercise of certain options upon 
expiration.
---------------------------------------------------------------------------

    \70\ See proposed Rule 5055(h). Proposed Rule 5055(h) is based 
on NYSE Arca Rule 5.32-O(f)(4).
---------------------------------------------------------------------------

    The Exchange proposes Rule 5055(i) which details position limits 
for FLEX Equity Options. Specifically, 5055(i)(1) states that FLEX 
Equity Options will not be subject to position limits, except as long 
as the options positions remain open, positions in FLEX Equity Options 
that expire on a third Friday-of-the-month shall be aggregated with 
positions in Non-FLEX Equity Options on the same underlying security 
and shall be subject to the position and exercise limits set forth in 
this proposed rule, and in the current BOX rules.\71\ Positions in FLEX 
Equity Options shall not be taken into account when calculating 
position limits for Non-FLEX Equity Options, other than for positions 
in FLEX Equity Options that expire on a third Friday-of-the-month, as 
discussed below.\72\
---------------------------------------------------------------------------

    \71\ See BOX Rules 3120 (Position Limits) and 3140 (Exercise 
Limits). The Exchange notes that Complex FOO Orders and Multi-Leg 
FOO Orders when executed result in position changes for the 
individual component legs of the transaction based on the 
composition of the Complex or Multi-Leg FOO Order.
    \72\ See proposed Rule 5055(i). Proposed Rule 5055(i) is based 
on NYSE Arca Rules 5.35-O(a)(iii) and (b). The Exchange notes that 
Index Options and Binary Return Derivatives (``ByRDs'') are not 
traded on BOX and therefore FLEX Index Options and FLEX ByRDs will 
not be traded on BOX and are not included in proposed Rule 5055(i). 
See also CBOE Rule 8.35 and NYSE American Rule 906G and PHLX Options 
8, Section 34(e).
---------------------------------------------------------------------------

    The Exchange proposes that rather than be subject to FLEX position 
limits, each Participant (other than a Market Maker) that maintains a 
position on the same side of the market in excess of the standard 
position limit for Non-FLEX Equity Options \73\ of the same class on 
behalf of its own account or for the account of a customer shall report 
information on the FLEX Equity Option position, positions in any 
related instrument, the purpose or strategy for the position and the 
collateral used by the account. This report shall be in the form and 
manner prescribed by the Exchange. The Exchange notes that other 
exchanges that offer FLEX equity options, adopted position limit 
reporting when FLEX equity options were first permitted to trade 
without position limits and exercise limits.\74\ In addition, whenever 
the Exchange determines that a higher margin requirement is necessary 
in light of the risks associated with a FLEX Equity Option position in 
excess of the standard position limit for Non-FLEX Equity Options of 
the same class, the Exchange may, pursuant to its authority under Rule 
10130(b), consider imposing additional margin upon the account 
maintaining such under-hedged position. Additionally, it should be 
noted that the clearing firm carrying the account will be subject to 
capital charges under Rule 15c3-1 under the Act \75\ to the extent of 
any margin deficiency resulting from the higher margin requirement.\76\
---------------------------------------------------------------------------

    \73\ See BOX Rule 3120 (Position Limits). The Exchange notes 
that Complex FOO Orders and Multi-Leg FOO Orders when executed 
result in position changes for the individual component legs of the 
transaction based on the composition of the Complex or Multi-Leg FOO 
Order.
    \74\ See Securities Exchange Act Release Nos. 39032 (September 
9, 1997), 62 FR 48683 (September 16, 1997) (SR-Amex-96-19; SR-CBOE-
96-79; SR-PCX-97-09) (Order Granting Approval to Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval 
to Amendment No. 1 to Proposed Rule Change by the American Stock 
Exchange, Inc. and the Chicago Board Options Exchange, Inc., and 
Order Granting Approval to Proposed Rule Change by the Pacific 
Exchange, Inc., Relating to the Elimination of Position and Exercise 
Limits for FLEX Equity Options) (approval of a pilot program for the 
elimination of position and exercise limits on FLEX Equity Options) 
and 42223 (December 10, 1999), 64 FR 71158 (December 20, 1999) (SR-
Amex-99-40; SR-PCX-99-41; SR-CBOE-99-59) (Order Granting Accelerated 
Approval to Proposed Rule Change Relating to the Permanent Approval 
of the Elimination of Position and Exercise Limits for FLEX Equity 
Options).
    \75\ See 17 CFR 240.15c3-1.
    \76\ See proposed Rule 5055(i)(1). Proposed Rule 5055(i)(1) is 
based on NYSE Arca Rule 5.35-O(b).
---------------------------------------------------------------------------

    The Exchange proposes Rule 5055(j) which governs exercise limits 
for FLEX Equity Options. Specifically, proposed Rule 5055(j) states 
that exercise limits for FLEX Equity Options shall be equivalent to the 
position limits established in this proposal; accordingly, except as 
described below, there shall be no exercise limits for FLEX Equity 
Options.\77\ FLEX Equity Options will not be taken into account when 
calculating exercise limits for Non-FLEX Equity Options, except that as 
long as the option positions remain open, positions in FLEX Equity 
Options which expire on a third Friday-of-the-month shall be aggregated 
with positions in Non-FLEX Equity Options on the same underlying 
security and will be subject to Non-FLEX Equity Option exercise limits 
as applicable.\78\
---------------------------------------------------------------------------

    \77\ See proposed Rule 5055(j). Proposed Rule 5055(j) is based 
on NYSE Arca Rule 5.36-O. See also proposed Rule 5055(i).
    \78\ See proposed Rule 5055(i).
---------------------------------------------------------------------------

    The Exchange proposes Rule 5055(k) which details the Letter of 
Guarantee required for Market Makers to trade FLEX Equity Options. 
Specifically, proposed Rule 5055(k) states that no Market Maker shall 
effect any transaction in FLEX Equity Options unless a Letter of 
Guarantee has been issued by a clearing member organization and filed 
with the Exchange pursuant to Rule 8070 specifically accepting 
financial responsibility for all FLEX Equity Option transactions made 
by such Market Maker and such letter has not been revoked under Rule 
8070(c).\79\ A

[[Page 44727]]

Letter of Guarantee will be required for a Market Maker to be qualified 
to trade FLEX Equity Options.
---------------------------------------------------------------------------

    \79\ See proposed Rule 5055(k). Proposed Rule 5055(k) is based 
on NYSE Arca Rule 5.41-O(a). The Exchange notes that, while NYSE 
Arca allows an existing Letter of Guarantee to be amended 
specifically to include FLEX transactions upon approval by the OCC, 
the Exchange's proposal does not include such a provision because 
the Exchange will require a separate Letter of Guarantee. The 
Exchange notes that a Market Maker's Letter of Guarantee will remain 
effective until a revocation is received by the Exchange.
---------------------------------------------------------------------------

    Similarly, the Exchange proposes Rule 5055(l), which provides that 
no Floor Broker \80\ shall effect any transaction in FLEX Equity 
Options unless a Letter of Authorization has been issued by a clearing 
member organization and filed with the Exchange specifically accepting 
responsibility for the clearance of FLEX Equity Option transactions of 
the Floor Broker, and that such letter will remain in effect until a 
written revocation is received by the Exchange.\81\
---------------------------------------------------------------------------

    \80\ A Floor Broker is an individual who is registered with the 
Exchange for the purpose, while on the Trading Floor, of accepting 
and handling options orders. A Floor Broker must be registered as an 
Options Participant prior to registering as a Floor Broker. See BOX 
Rule 7540.
    \81\ See proposed Rule 5055(l). Proposed Rule 5055(l) is based 
on NYSE Arca Rule 5.41-O(b). The Exchange notes that, while NYSE 
Arca allows an existing Letter of Authorization to be amended 
specifically to include FLEX transactions upon approval by the OCC, 
the Exchange's proposal does not include such a provision because 
the Exchange will require a separate Letter of Authorization. The 
Exchange notes that a Floor Broker's Letter of Authorization will 
remain effective until a written revocation is received by the 
Exchange.
---------------------------------------------------------------------------

FLEX Open Outcry (``FOO'') Orders
    The Exchange proposes to introduce a new order type to facilitate 
FLEX Equity Option transactions on the BOX Trading Floor. Specifically, 
the Exchange proposes to adopt a FOO Order type and to model it after a 
current order type on the Trading Floor--QOO Orders.\82\ Trading FLEX 
options on an exchange floor in a similar manner as non-FLEX options is 
consistent with how FLEX orders are traded on another exchange.\83\ FOO 
Orders must consist of options with terms as defined in proposed Rule 
5055. Further, FOO Orders are limited solely to FLEX Equity 
Options.\84\ FOO Orders are limited solely to the BOX Trading Floor and 
may be entered only by Floor Brokers.\85\ Floor Brokers must also be 
registered under Rule 7550. Prior to the announcement of such FOO 
Orders in the trading crowd, Floor Brokers must record all FOO Orders 
pursuant to Rule 7580(e)(1).\86\
---------------------------------------------------------------------------

    \82\ See proposed Rule 7605. See also Securities Exchange Act 
Release No. 81292 (August 2, 2017), 82 FR 37144 (August 8, 2017) 
(SR-BOX-2016-48) (Order Approving a Proposed Rule Change, as 
Modified by Amendment Nos. 1 and 2, To Adopt Rules for an Open-
Outcry Trading Floor) (finding that the proposed rule change was 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange).
    \83\ CBOE allows a FLEX Order to be represented and executed in 
the same manner as a non-FLEX Order. See CBOE Rule 5.72(d). The 
Exchange notes that CBOE Rule 5.72(d) excludes certain provisions 
applicable to non-FLEX options, such as those related to Book 
priority. Similarly, the Exchange has proposed to exclude certain 
provisions applicable to Non-FLEX Equity Options, including those 
related to BOX Book priority. See infra note 122 (explaining that 
book priority provisions are not necessary for FOO Orders because 
there will be no FLEX Equity Option interest on the BOX Book). See 
also proposed Rule 5055(a)(1) (providing that the BOX Book and 
Complex Order Book shall not be available for transactions in FLEX 
Equity Options).
    \84\ See proposed Rule 7605(a).
    \85\ See proposed Rule 7605(b). Proposed Rule 7605(b) is based 
on BOX Rules 7600(a)(2) and (3) and NYSE Arca Rule 5.41-O(b). 
Additionally, the Exchange is proposing to add a statement 
clarifying that Floor Brokers must record all FOO Orders pursuant to 
Rule 7580(e)(1) prior to the announcement of such FOO Orders, which 
is the requirement for all orders on the Trading Floor.
    \86\ BOX Rule 7580(e)(1) outlines the requirements for a Floor 
Broker to record and systematize any orders prior to announcement of 
such order in the trading crowd.
---------------------------------------------------------------------------

    Floor Market Makers in good standing under Rule 8500 may apply to 
be FLEX Market Makers. FOO Orders may be traded by FLEX Market Makers 
and will be subject to Rule 8510, including provisions for the course 
and conduct of dealings, class assignments, and option priority and 
parity, unless otherwise specified in proposed Rule 7605.\87\ All Floor 
Market Makers in good standing may apply to be FLEX Market Makers. The 
Exchange shall qualify at least three FLEX Market Makers in accordance 
with a FLEX-specific qualification process prescribed by the Exchange 
to perform as Market Makers in FLEX Equity Options on the Trading 
Floor.\88\ The Exchange notes that each FLEX Market Maker will be 
required to quote all classes of FLEX Equity Options on the Trading 
Floor.\89\ Additionally, a Floor Broker shall ascertain that at least 
one FLEX Market Maker is present in the Crowd Area prior to announcing 
an order for execution.\90\ The Exchange notes that the Commission 
provided in its order approving the BOX Trading Floor that this 
requirement, among others, is designed to increase the opportunities 
for another Floor Participant to compete to interact with the orders on 
the Trading Floor.\91\ For FLEX Equity Options, this means that at 
least one of the FLEX Market Makers, out of the at least three required 
to be qualified by the Exchange, is present in the Crowd Area when the 
FOO Order is announced.\92\
---------------------------------------------------------------------------

    \87\ See proposed Rule 7605(c). Proposed Rule 7605(c) is based 
on NYSE Arca Rules 5.37-O(a) and 5.41-O(a). The Exchange notes that, 
while NYSE Arca requires at least three FLEX Qualified Market Makers 
per class, the Exchange's proposal does not qualify FLEX Market 
Makers per class. The Exchange emphasizes that, pursuant to proposed 
Rule 7605(c), all FLEX Market Makers must first be registered as 
Market Makers under the Rule 8000 series and as Floor Market Makers 
under Rule 8500 before they can be qualified as FLEX Market Makers. 
Accordingly, all FLEX Market Makers will be subject to the Rule 8000 
series (as Market Makers) and Rules 8500 and 8510 (as Floor Market 
Makers) in their entirety, and such FLEX Market Makers will be 
required to be familiar with and abide by those Exchange rules where 
applicable. The statement in proposed Rule 7605(c) providing that 
FLEX Market Makers are subject to the obligations and restrictions 
of Rule 8510 ``unless otherwise specified'' in Rule 7605 is simply 
intended to allow for certain obligations and restrictions unique to 
FLEX Market Makers' trading in FLEX Equity Options that differ from 
those Market Makers' activities in Non-FLEX Equity Options. See, 
e.g., proposed Rules 7605(g) and (h) (providing FLEX-specific 
quoting obligations and spread differential requirements). For the 
avoidance of doubt, nothing in proposed Rule 7605 is intended to 
eliminate or reduce any generally applicable Market Maker or Floor 
Market Maker obligation, such as a Market Maker's obligation to 
maintain a course of dealings reasonably calculated to contribute to 
the maintenance of a fair and orderly market.
    \88\ Id. The Exchange notes that qualification of three Floor 
Market Makers as FLEX Market Makers is a prerequisite for FOO Order 
trading on the Trading Floor. Additionally, FLEX Market Maker 
qualification will include the completion of a FLEX-specific Letter 
of Guarantee and an examination requiring knowledge of FLEX Equity 
Options, including FLEX Equity Option terms, FLEX Market Maker 
qualification requirements, FLEX Market Maker quoting obligations, 
and FOO Order trading procedures. See proposed Rule 5055(k). The 
Exchange notes that its qualification exam does not substitute for 
any FINRA exam that may also be required. FLEX Market Maker 
qualification will also include the standard qualification process 
and requirements applicable to Market Makers and Floor Market Makers 
more generally, as only Floor Market Makers in good standing and 
registered under Rule 8000 may apply to be FLEX Market Makers.
    \89\ The Exchange notes that Floor Market Makers are not 
currently appointed to specific classes of Non-FLEX Equity Options 
on the Trading Floor as there is only one trading crowd where all 
classes are traded. Instead, Floor Market Makers are required to 
quote all classes when present on the Trading Floor pursuant to BOX 
Rule 8510(e) (In Classes of Option Contracts Other Than Those to 
Which Appointed). Specifically, Rule 8510(e) provides that whenever 
a BOX Floor Market Maker enters the trading crowd he must undertake 
the obligations specified in Rule 8510(d) (In Classes of Option 
Contracts to Which Assigned--Affirmative Obligations). This results 
in all BOX Floor Market Makers being required to quote all classes 
on the Trading Floor. The same will apply to FLEX Market Makers. See 
infra note 152.
    \90\ See proposed Rule 7605(e)(3). Proposed Rule 7605(e)(3) is 
similar to BOX Rule 7580(a), which applies to QOO Orders on the 
Trading Floor and requires a Floor Broker to ascertain that at least 
one Floor Market Maker is present in the Crowd Area prior to 
announcing an order for execution.
    \91\ See Securities Exchange Act Release No. 81292 (August 2, 
2017), 82 FR 37144 (August 8, 2017) (SR-BOX-2016-48) (Order 
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1 
and 2, To Adopt Rules for an Open-Outcry Trading Floor).
    \92\ The Exchange notes that the requirement to have at least 
three qualified FLEX Market Makers is a baseline that must be met in 
order for any FLEX Equity Option to be traded on the Trading Floor. 
The requirement that at least one FLEX Market Maker be present when 
an FOO Order is announced is an additional order-by-order 
requirement that promotes order competition and is the same 
requirement for QOO Orders currently.

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[[Page 44728]]

    On the BOX Trading Floor today, a Floor Broker may bring an 
unmatched order (i.e., the initiating side of a QOO Order) to the 
Trading Floor in order to seek liquidity. If the Floor Broker attempts 
to source the contra-side, the Floor Broker must announce the unmatched 
order to the trading crowd.\93\ After finding sufficient quantity to 
match the initiating side of an unmatched order pursuant to Rules 
7580(e)(2) and 7600(b), the Floor Broker is then able to submit a two-
sided QOO Order to the BOG \94\ as required.\95\ Floor Brokers may also 
enter single-sided orders into the BOX Book using BOX's electronic 
interface. Specifically, a Floor Broker may receive a matched or 
unmatched order via a telephone call on the Trading Floor \96\ or may 
have the matched or unmatched order sent electronically to the Floor 
Broker's order entry mechanism on the Trading Floor prior to submitting 
the QOO Order to the BOG. Similar to how QOO Orders are introduced on 
the Trading Floor today, FOO Orders may be brought to the floor as 
matched or unmatched orders with a Floor Broker receiving the matched 
or unmatched order via the same methods that Floor Brokers receive them 
currently on the Trading Floor.\97\ The Exchange again notes that 
trading FLEX options on an exchange floor in a similar manner as non-
FLEX options is consistent with how FLEX orders are traded on another 
exchange.\98\
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    \93\ The Exchange notes that a Floor Broker must announce an 
agency order that is represented to the trading crowd before 
submitting the order to the BOG for execution, whether the Floor 
Broker is representing a single-sided order and soliciting contra-
side interest, or the Floor Broker has sufficient interest to match 
against the agency order already. See Rule 7580(e)(2).
    \94\ The BOX Order Gateway (``BOG'') is a component of the 
Trading Host which enables Floor Brokers and/or their employees to 
enter transactions on the Trading Floor. See BOX Rule 100(b)(2).
    \95\ See BOX IM-7600-4.
    \96\ When a Floor Broker receives an order, matched or 
unmatched, via telephone, the Floor Broker must enter the order 
electronically into the Floor Broker's order entry mechanism.
    \97\ See, e.g., Securities Exchange Act Release No. 80720 (May 
18, 2017), 82 FR 23657, 23666 (May 23, 2017) (SR-BOX-2016-48) 
(Notice of Filing of Amendment No. 2 to a Proposed Rule Change to 
Adopt Rules for an Open-Outcry Trading Floor) (``[A] Floor Broker 
may receive a matched or unmatched order via a telephone call on the 
Trading Floor or may have the matched or unmatched order sent 
electronically to the Floor Broker's order entry mechanism on the 
Trading Floor . . . . '').
    \98\ CBOE allows a FLEX Order to be represented and executed in 
a similar manner as a non-FLEX Order. See CBOE Rule 5.72(d). The 
Exchange notes that CBOE Rule 5.72(d) excludes certain provisions 
applicable to non-FLEX options, such as those related to Book 
priority. Similarly, the Exchange has proposed to exclude certain 
provisions applicable to Non-FLEX Equity Options, including those 
related to BOX Book priority. See infra note 122 (explaining that 
book priority provisions are not necessary for FOO Orders because 
there will be no FLEX Equity Option interest on the BOX Book). See 
also proposed Rule 5055(a)(1) (providing that the BOX Book and 
Complex Order Book shall not be available for transactions in FLEX 
Equity Options).
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    Next, pursuant to proposed Rule 7605(d), FOO Orders may be Complex 
Orders (``Complex FOO Order'') or Multi-Leg Orders (``Multi-Leg FOO 
Order'') as defined in Rules 7240(a)(7) and (10) with no more than the 
applicable number of legs, as determined by the Exchange and 
communicated to Participants,\99\ including tied hedge orders as 
defined in IM-7600-2.\100\ However, the priority provisions of Rules 
7240(b)(2) and (3) do not apply to Complex FOO Orders or Multi-Leg FOO 
Orders because there will be no Complex Order Book for such orders, nor 
will there be a BOX Book for the individual FLEX Equity Option 
components of the Complex FOO Orders or Multi-Leg FOO Orders.\101\ Each 
option leg of a Complex FOO Order or Multi-Leg FOO Order must be for a 
FLEX Equity Option series with the same underlying security and must 
have the same exercise style (American or European).\102\ If a Non-FLEX 
Equity Option series is added intra-day for a component leg(s) of a 
Complex FOO Order or Multi-Leg FOO Order, the holder or writer of a 
position in the component leg(s) resulting from such Complex FOO Order 
or Multi-Leg FOO Order would be permitted to close its position(s) 
under the FLEX trading procedures against another closing only FLEX 
Equity Option position for the balance of the trading day on which the 
Non-FLEX Equity Option series is added. If a Non-FLEX Equity Option 
series is added for a component leg(s) of a Complex FOO Order or Multi-
Leg FOO Order on a trading day after the Complex FOO Order or Multi-Leg 
FOO Order position is established, the holder or writer of a position 
in the component leg(s) resulting from such Complex FOO Order or Multi-
Leg FOO Order would be required to execute separate FLEX Equity Option 
and Non-FLEX Equity Option transactions to close its position(s), such 
that FLEX Equity Option component leg(s) would trade under the FLEX 
trading procedures and Non-FLEX Equity Option component leg(s) would 
trade subject to the non-FLEX trading procedures and rules.\103\
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    \99\ The Exchange notes that this process is the same as current 
Rule 7600(a)(4) for QOO Orders on the BOX Trading Floor. See BOX 
Informational Circular 2022-18 (June 7, 2022), https://boxoptions.com/assets/IC-2022-18-Upcoming-Enhancements-to-Complex-Orders.pdf (providing that the maximum number of legs for Complex 
Orders is currently 16). A separate notice will be issued for 
Complex FOO Orders and Multi-Leg FOO Orders.
    \100\ The Exchange notes that tied hedge orders may not be 
smaller than 500 contracts per order. See BOX IM-7600-2(a).
    \101\ The Exchange notes that, as with a simple FOO Order, the 
priority and allocation rules applicable to Complex FOO Orders and 
Multi-Leg FOO Orders are in proposed Rules 7605(i) (allocation of 
the initiating side of a FOO Order against the contra-side of the 
FOO Order and interest from the Trading Crowd) and (k) (Floor Broker 
guarantee when crossing orders) and current Rule 7610 (priority 
among Floor Participants in the Trading Crowd).
    \102\ See proposed Rule 7605(d). Proposed Rule 7605(d) is based 
on CBOE Rules 1.1 (definition of ``Complex Order'') and 5.70(b) and 
BOX Rule 7600(a)(4). The Exchange does not reference FLEX Index 
Options or related attributes because Index Options are not traded 
on BOX and FLEX Index Options are not proposed herein.
    \103\ See Proposed Rules 7605(d)(3) and (4). The Exchange is 
proposing Rules 7605(d)(3) and (4) to clarify the treatment of 
Complex FOO Orders and Multi-Leg FOO Orders when a Non-FLEX Equity 
Option is subsequently listed for a component leg.
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Announcement, Representation, and Execution of a FOO Order
    The Exchange proposes Rule 7605(e) which details announcement and 
representation of FOO Orders on the BOX Trading Floor that is 
consistent with the current Trading Floor requirements.\104\ 
Specifically, the

[[Page 44729]]

Exchange proposes that all FOO Orders must be represented to the 
trading crowd as provided in Rule 7580(e)(2) \105\ prior to submitting 
the agency FOO Order as part of a two-sided order to the Trading Host. 
The Exchange notes that Floor Brokers may bring unmatched orders (i.e., 
the initiating side of a FOO Order) to the Trading Floor in order to 
seek a contra-side. Once a contra-side is sourced, the Floor Broker 
shall submit the two-sided FOO Order to the BOG.\106\ When a Floor 
Broker submits a FOO Order for execution, the order will be executed in 
accordance with the proposed rules. A FOO Order on the Exchange is not 
deemed executed until it is processed by the Trading Host. All 
transactions occurring from the Trading Floor must be processed by the 
Trading Host. Floor Brokers are responsible for handling all orders in 
accordance with Exchange priority rules.
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    \104\ Proposed Rule 7605(e) is based on BOX Rules 7600(a), 
(a)(1), (b) and (c). The Exchange notes that the QOO Order 
provisions related to market conditions, the NBBO, the BOX Book, 
book sweep, the Complex Order Book, auctions, and away routing have 
been omitted because there will be no NBBO, no BOX Book, no Complex 
Order Book, no electronic auctions, and no book sweep for FOO 
Orders. See BOX Rules 7600(c)-(e) and (h). A book sweep is the 
number of contracts, if any, of the initiating side of a QOO Order 
that the Floor Broker is willing to relinquish to orders and quotes 
on the BOX Book that have priority pursuant to Rules 7600(d)(1) and 
(2). See BOX Rule 7600(h). Book sweeps will not apply to FOO Orders. 
As provided in proposed Rules 5055(e)(1) and (f)(1), FOO Orders must 
have different terms from orders on the BOX Book and, therefore, 
could not execute against interest on the BOX Book. For the same 
reason, the Complex Order priority provisions in Rules 7240(b)(2) 
and (3), which address the priority of Complex Orders and interest 
on the BOX Book, do not apply to Complex FOO Orders or Multi-Leg FOO 
Orders. See proposed Rule 7605(d). The priority and allocation of 
FOO Orders will be determined by proposed Rules 7605(i) and (k) and 
current Rule 7610. See supra note 101. The Exchange also notes that 
proposed Rule 7605(e) requires that Floor Brokers announcing a FOO 
Order give Floor Participants a reasonable amount of time to 
respond, as provided in Rule 100(b)(5). Proposed Rule 7605(e) 
further provides that the Exchange shall establish, and announce via 
Regulatory Notice, a minimum period of time that qualifies as a 
reasonable amount of time that a Floor Broker must allow Floor 
Participants to respond, which must be between three seconds and 
five minutes. This differs from current Rule 7600(c), which simply 
states that Floor Brokers must allow adequate time for Floor 
Participants to participate in the transaction as provided in Rule 
100(b)(5).
    \105\ BOX Rule 7580(e)(2) provides that ``A Floor Broker must 
announce an agency order that he is representing to the trading 
crowd before submitting the order to the BOG for execution. This 
announcement must take place whether the Floor Broker is 
representing a single-sided order and soliciting contra-side 
interest, or the Floor Broker has sufficient interest to match 
against the agency order already. If a Floor Broker is holding two 
agency orders, he will choose which order is the initiating side.''
    \106\ See proposed IM-7605-1. Proposed IM-7605-1 is based on IM-
7600-4.
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    There will be an initiating side and a contra-side of a FOO Order. 
The initiating side is the order which must be filled in its entirety. 
The contra-side must guarantee the full size of the initiating side of 
the FOO Order and can be composed of multiple firms. When the Floor 
Broker is soliciting interest from the trading crowd when the 
initiating side was announced or to the extent the trading crowd offers 
a better price, the contra-side will be the solicited interest from the 
trading crowd.\107\ If the Floor Broker had sufficient interest to 
match against the initiating side when the initiating side was 
announced, such Floor Broker interest will be the contra-side to the 
initiating side. If Floor Participants \108\ responded with interest to 
the initiating side where the Floor Broker provided sufficient interest 
to match against the initiating side, the Floor Broker will allocate 
the initiating side of the FOO Order pursuant to proposed Rule 
7605(i).\109\ The Exchange notes that this negotiation and agreement 
that occurs in the trading crowd does not result in a final trade, but 
rather a ``meeting of the minds'' that is then submitted through the 
BOG for execution. Consistent with current Trading Floor operations, 
all FOO Orders must be announced to the trading crowd, as provided in 
Rule 7580(e)(2), prior to the FOO Order being submitted to the 
BOG.\110\ An Options Exchange Official will certify that the Floor 
Broker adequately announced the FOO Order to the trading crowd.
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    \107\ The Exchange notes that priority of bids and offers from 
Floor Participants in the trading crowd is determined by Rule 7610.
    \108\ The term ``Floor Participant'' means Floor Brokers as 
defined in Rule 7540 and Floor Market Makers as defined in Rule 
8510(b). See BOX Rule 100(a)(26).
    \109\ See proposed Rule 7605(e)(1). Proposed Rule 7605(e)(1) is 
based on BOX Rule 7600(a)(1). The Exchange notes that provisions 
related to market conditions, the NBBO, the BOX Book, book sweep, 
and the Complex Order Book have been omitted because there will be 
no NBBO, no BOX Book, no Complex Order Book, and no book sweep for 
FOO Orders. See supra note 104. The priority and allocation of FOO 
Orders will be determined by proposed Rules 7605(i) and (k) and 
current Rule 7610. See supra note 101.
    \110\ See proposed Rule 7605(e)(2). Proposed Rule 7605(e)(2) is 
based on BOX Rules 7600(b) and (c). The Exchange notes that 
provisions related to market conditions, the NBBO, the BOX Book, 
book sweep, and the Complex Order Book have been omitted because 
there will be no NBBO, no BOX Book, no Complex Order Book, and no 
book sweep for FOO Orders. See supra note104. The priority and 
allocation of FOO Orders will be determined by proposed Rules 
7605(i) and (k) and current Rule 7610. See supra note 101.
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    The FOO Order is not deemed executed until it is processed by the 
Trading Host. Once the Floor Broker submits the FOO Order to the BOG 
there will be no opportunity for the submitting Floor Broker,\111\ or 
anyone else, to alter the terms of the FOO Order. After announcing the 
FOO Order to the trading crowd, the Floor Broker must submit the FOO 
Order to the BOG for processing by the Trading Host without undue 
delay, provided that the executing Floor Broker must give Floor 
Participants a reasonable amount of time to respond, as provided in 
Rule 100(b)(5). Additionally, the Exchange shall establish, and 
announce via Regulatory Notice, a minimum period of time (which amount 
of time must be between three seconds and five minutes) that qualifies 
as a reasonable amount of time for responses under proposed Rule 
7605(e)(2). Such threshold will constitute the minimum possible time 
that a Floor Broker must give to the trading crowd to respond to a FOO 
Order; however, based on the characteristics and circumstances of each 
specific FOO Order, a reasonable amount of time, as provided in Rule 
100(b)(5), may require a response interval longer than the minimum 
threshold. An Options Exchange Official may not waive the minimum 
threshold established by the Exchange.
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    \111\ The Exchange notes that trades may be allocated as 
provided in proposed Rule 7605(j). The Exchange notes further that 
the Exchange may nullify a transaction or adjust the execution price 
of a transaction in accordance with Rule 7170 (Nullification and 
Adjustment of Options Transactions including Obvious Errors). See 
also BOX Rule 7640(b) (relating to trading disputes and adjustment 
or nullification of transactions on the Trading Floor).
---------------------------------------------------------------------------

    The Exchange notes that the proposed floor interaction practice is 
consistent with the process in BOX Rule 7600 for QOO Orders on the BOX 
Trading Floor where the main differences are that FOO Orders will not 
be eligible for the BOX Book or the Complex Order Book, there is no 
NBBO, and that Floor Brokers must allow Floor Participants a minimum 
period of time (which amount of time must be between three seconds and 
five minutes) that qualifies as a reasonable amount of time that a 
Floor Broker must allow Floor Participants to respond to FOO Orders. 
Consistent with QOO Orders, a FOO Order is not deemed executed until it 
is processed by the Trading Host.\112\ The Exchange notes that a 
reasonable amount of time for Floor Participants to respond to a FOO 
Order, the same as a QOO Order, will be interpreted on a case-by-case 
basis by an Options Exchange Official based on current market 
conditions and trading activity on the Trading Floor, provided, for FOO 
Orders, the minimum threshold discussed above must be satisfied.\113\
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    \112\ See proposed Rule 7605(e).
    \113\ See BOX Rule 100(b)(5). The Exchange notes that an Options 
Exchange Official takes into account various factors including 
complexity of the trade, general prevailing market conditions, and 
activity on the Trading Floor at the time the order is announced.
---------------------------------------------------------------------------

    The Exchange proposes Rule 7605(f) which states that the minimum 
size for FLEX Equity Options transactions and quotations shall be one 
(1) contract.\114\ The Exchange also proposes Rule 7605(g) which states 
that there are no maximum differences between the bid and the offer for 
FLEX Equity Option quotes.\115\
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    \114\ See proposed Rule 7605(f). Proposed Rule 7605(f) is based 
on NYSE Arca Rule 5.32-O(b)(7).
    \115\ See proposed Rule 7605(g). Proposed Rule 7605(g) is based 
on NYSE Arca Rule 5.37-O(d). The Exchange notes that it has omitted 
the first part of NYSE Arca Rule 5.37-O(d), which provides FLEX 
Appointed Market Makers need not provide continuous FLEX Quotes and 
the Exchange has included the second part of NYSE Arca Rule 5.37-
O(d), which provides FLEX Appointed Market Makers need not quote a 
minimum bid-offer spread in FLEX Equity Options. The Exchange has 
omitted the first part of NYSE Arca Rule 5.37-O(d) because, pursuant 
to proposed Rule 7605(h), the Exchange is instead proposing that 
FLEX Market Makers be obligated to quote FLEX Equity Options in 
response to any request for quote by a Floor Broker or Options 
Exchange Official and must provide a two-sided market, which the 
Exchange believes will promote a robust and competitive market for 
FOO Orders on the Trading Floor and facilitate a fair and orderly 
market for the trading of FLEX Equity Options on the Exchange. The 
Exchange further notes that on NYSE Arca, FLEX Appointed Market 
Makers are appointed in classes of FLEX Index Options. FLEX 
Qualified Market Makers are appointed in FLEX Equity Options on NYSE 
Arca. Further, FLEX Appointed Market Makers have an obligation to 
enter a quote in response to a request for quote in a FLEX Index 
Option while FLEX Qualified Market Makers do not have a similar 
obligation for FLEX Equity Options. The Exchange believes that this 
distinction is the reason why NYSE Arca Rule 5.37-O(d) only 
specifically exempts FLEX Appointed Market Makers from quoting with 
a minimum bid-offer spread since they are the only FLEX market 
makers with the requirement to respond to a request for quote. 
Similarly, the Exchange is proposing that there be no maximum 
differences between the bid and offer for FLEX Equity Option quotes 
that, pursuant to proposed Rule 7605(h), a FLEX Market Maker is 
required to provide in response to a request for quote by a Floor 
Broker or Options Exchange Official.

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[[Page 44730]]

    Pursuant to proposed Rule 7605(h), FLEX Market Makers have an 
obligation to quote a FLEX Equity Option in response to any request for 
quote by a Floor Broker or Options Exchange Official and must provide a 
two-sided market.\116\
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    \116\ See proposed Rule 7605(h). Proposed Rule 7605(h) is based 
on BOX Rule 8510(c)(2). The Exchange notes that proposed Rule 
7605(h) does not include the provisions of current Rule 8510(c)(2) 
related to quote spread parameter requirements and quotation sizes, 
which requirements are provided separately in proposed Rules 7605(f) 
and (g).
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Allocation of FOO Orders
    Next, the Exchange proposes Rule 7605(i) which details the 
allocation process for FOO Orders. Specifically, the FOO Order will be 
matched by the Trading Host against the contra-side of the FOO Order, 
regardless of whether the contra-side order submitted by the Floor 
Broker is ultimately entitled to receive an allocation pursuant to 
proposed Rules 7605(i)(1)-(2). If no Floor Participant, other than the 
executing Floor Broker, is entitled to an allocation, then no further 
steps are necessary. If however, Floor Participants are entitled to an 
allocation, the remaining balance of the initiating side of the FOO 
Order will be allocated as described below.\117\
---------------------------------------------------------------------------

    \117\ See proposed Rule 7605(i). Proposed Rule 7605(i) is based 
on BOX Rule 7600(d)(3). The Exchange notes that provisions of BOX 
Rules 7600(d)(1)-(2) were omitted from proposed Rule 7605(i) because 
those provisions are related to the BOX Book, which is inapplicable 
to FOO Orders.
---------------------------------------------------------------------------

    First, if the FOO Order satisfies the provisions of proposed Rule 
7605(k), discussed below, the executing Floor Broker is entitled to 40% 
of the remaining quantity of the initiating side of the FOO Order.\118\ 
Next, FLEX Market Makers that respond with interest when the Floor 
Broker announces the FOO Order to the trading crowd, as outlined in 
Rule 7580(e)(2) and proposed Rule 7605(e), are allocated.\119\ When 
multiple Floor Participants respond with interest, priority in the 
Trading Crowd is established pursuant to Rule 7610.\120\ Last, if 
interest remains after Floor Participants that responded with interest 
receive their allocation, the remaining quantity of the initiating side 
of the FOO Order will be allocated to the executing Floor Broker.\121\ 
The Exchange again notes that similar allocation and priority 
provisions are already established and apply to responses for QOO 
Orders on the BOX Trading Floor.\122\
---------------------------------------------------------------------------

    \118\ See proposed Rule 7605(i)(1). The Exchange notes that 
proposed Rule 7605(i)(1) is based on BOX Rule 7600(d)(3)(i).
    \119\ See proposed Rule 7605(i)(2). The Exchange notes that 
proposed Rule 7605(i)(2) is based on BOX Rule 7600(d)(3)(ii).
    \120\ Id. Priority in the trading crowd under Rule 7610 is 
determined first by price and then by sequence. Specifically, on the 
Trading Floor, the highest (lowest) bid (offer) shall have priority; 
when two or more bids (offers) represent the highest (lowest) price, 
priority shall be afforded to such bids (offers) in the sequence in 
which they were made. If, however, the bids (offers) of two or more 
Floor Participants are made simultaneously, or if it is impossible 
to determine clearly the order of time in which they are made, such 
bids (offers) will be deemed to be on parity and priority will be 
afforded to them, insofar as practicable, on an equal basis. The 
Floor Broker announcing the order is responsible for determining the 
sequence in which bids or offers are vocalized on the Trading Floor 
from Floor Participants in response to the Floor Broker's bid, 
offer, or call for a market. Rule 7610 also provides priority 
provisions where a Floor Broker requests a market in order to fill a 
large order and the Floor Participants provide a collective 
response. See BOX Rule 7610. The Exchange notes that currently for 
Non-FLEX Equity Options, priority in the trading crowd is determined 
without regard to market participant type, including Public 
Customer.
    \121\ See proposed Rule 7605(i)(3). The Exchange notes that 
proposed Rule 7605(i)(3) is based on BOX Rule 7600(d)(3)(iii).
    \122\ The Exchange notes that FOO Order allocation and priority 
differs from QOO Order provisions related to the priority of orders 
on the BOX Book. See BOX Rules 7600(c)-(e) and (h), and 7600(f)(1) 
and (3). See also supra note 104. In particular, with respect to QOO 
Order executions BOX Rules 7600(d)(1) and (2) provide priority for 
better-priced interest on the BOX Book and for Public Customer 
Orders on the BOX Book at the same price or non-Public Customer 
Orders ranked ahead of such same-priced Public Customer Orders. As 
the Exchange noted when it proposed the QOO order type, these 
priority provisions were designed to provide increased opportunities 
for orders on the BOX Book to interact with trades on the Trading 
Floor and to maintain consistency with options trade-through and BOX 
Book priority rules. See Securities Exchange Act Release No. 80720 
(May 18, 2017), 82 FR 23657, 23681-82 (May 23, 2017) (SR-BOX-2016-
48) (Notice of Filing of Amendment No. 2 to a Proposed Rule Change 
to Adopt Rules for an Open-Outcry Trading Floor). These priority 
provisions are not necessary for FOO Orders because there will be no 
FLEX Equity Option interest on the BOX Book. The Exchange's existing 
rules for determining priority of bids and offers from Floor 
Participants in the trading crowd are based on price-time priority 
without regard to market participant type, including Public 
Customer. See BOX Rule 7610. This is consistent with floor priority 
rules for FLEX options on other options exchanges. See, e.g., PHLX 
Options 8, Section 34(c)(4), NYSE American Rule 904G(e).
---------------------------------------------------------------------------

    The Exchange proposes that after execution of the FOO Order, the 
executing Floor Broker is responsible for providing the correct 
allocations of the initiating side of the FOO Order to an Options 
Exchange Official or his or her designee, if necessary, who will 
properly record the order in the Exchange's system.\123\ The executing 
Floor Broker must provide the correct allocations to an Options 
Exchange Official or his or her designee, in writing, without 
unreasonable delay.\124\ The Exchange notes that the same procedure for 
recording trade allocations applies to QOO Orders on the BOX Trading 
Floor today.
---------------------------------------------------------------------------

    \123\ See proposed Rule 7605(j). Proposed Rule 7605(j) is based 
on BOX Rule 7600(d)(4).
    \124\ Id.
---------------------------------------------------------------------------

    Similar to the allocation process in place for QOO Orders, the 
Exchange proposes to allow for a participation guarantee for certain 
FOO Orders executed by Floor Brokers on the Trading Floor. 
Specifically, when a Floor Broker holds an option order of the eligible 
order size or greater, the Floor Broker is entitled to cross 40% of the 
remaining contracts of the original order, after all bids or offers at 
better prices are filled, with other orders that the Floor Broker is 
holding.\125\ The Exchange may determine, on an option by option basis, 
the eligible size for an order on the Trading Floor to be subject to 
this guarantee; however, the eligible order size may not be less than 
50 contracts. In determining whether an order satisfies the eligible 
order size requirement, any Complex FOO Order or Multi-Leg FOO Order 
must contain one leg alone which is for the eligible order size or 
greater.\126\ Nothing in the proposed rule is intended to prohibit a 
Floor Broker from trading more than their percentage entitlement if the 
other Participants of the trading crowd do not choose to trade the 
remaining portion of the order.\127\ The Exchange notes that the 
proposed guarantee process is similar to the guarantee process 
currently in place for QOO Orders on the BOX Trading Floor.\128\
---------------------------------------------------------------------------

    \125\ See proposed Rules 7605(i), 7605(k)(1) and (3). Proposed 
Rules 7605(k)(1) and (3) are based on BOX Rules 7600(f)(1) and (3). 
The Exchange notes that the proposed FOO Order guarantee differs 
from the QOO Order guarantee because BOX Rule 7600(f)(3) contains 
provisions that pertain to the BOX Book, which is inapplicable to 
FOO Orders.
    \126\ See proposed Rule 7605(k)(2). Proposed Rule 7605(k)(2) is 
based on BOX Rule 7600(f)(2).
    \127\ See proposed Rule 7605(k)(4). Proposed Rule 7605(k)(4) is 
based on BOX Rule 7600(f)(4).
    \128\ The Exchange notes that the proposed FOO Order guarantee 
differs from the QOO Order guarantee because BOX Rule 7600(f)(3) 
contains provisions that pertain to the BOX Book, which is 
inapplicable to FOO Orders.

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[[Page 44731]]

    The below examples are designed to illustrate the allocation of the 
initiating side of a FOO Order.
    Example 1--Assume a Floor Broker wishes to execute a FOO Order for 
500 contracts. When he announces the order, FLEX Market Maker 1 and 
FLEX Market Maker 2 both respond to the FOO Order for 250 contracts 
each at the same price as the Floor Broker's contra-side. FLEX Market 
Maker 1 responded first so he will have time priority over FLEX Market 
Maker 2. Since the FOO Order is for at least 50 contracts, the Floor 
Broker is entitled to match at least 40% of the initiating side with 
the Floor Broker's contra-side.
    Result: The initiating side of the FOO Order will match against the 
Floor Broker's contra-side order for the full 500 contracts. After the 
execution of the FOO Order, because other Floor Participants are 
entitled to an allocation, the executing Floor Broker is then 
responsible for providing an Options Exchange Official or his or her 
designee the following allocation of the initiating side of the FOO 
Order: \129\
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    \129\ After execution of the FOO Order, the executing Floor 
Broker is responsible for providing the correct allocations of the 
initiating side of the FOO Order to an Options Exchange Official or 
his or her designee, if necessary, who will properly record the 
order in the Exchange's system. The executing Floor Broker must 
provide the correct allocations to an Options Exchange Official or 
his or her designee, in writing, without unreasonable delay. See 
proposed Rule 7605(j). This is consistent with how QOO Orders are 
allocated on the Trading Floor today. See BOX Rule 7600(d)(4).
---------------------------------------------------------------------------

    1. 200 contracts (40%, or 500 * .40) for the contra-side order 
submitted by the Floor Broker.
    2. 250 contracts for FLEX Market Maker 1 with time priority.
    3. Remaining 50 contracts to FLEX Market Maker 2.
    Example 2--Assume a Floor Broker wishes to execute a FOO Order for 
40 contracts. When he announces the order, FLEX Market Maker 1 and FLEX 
Market Maker 2 both respond to the FOO Order for 20 contracts each at 
the same price as the Floor Broker's contra-side. FLEX Market Maker 1 
responded first so he will have time priority over FLEX Market Maker 2. 
Since the FOO Order is for less than 50 contracts, the Floor Broker is 
not entitled to a 40% guarantee.
    Result: The initiating side FOO Order will match against the Floor 
Broker's contra-side for the full 40 contracts. After execution of the 
FOO Order, because other Floor Participants are entitled to an 
allocation, the executing Floor Broker is then responsible for 
providing an Options Exchange Official or his or her designee with the 
following allocation of the initiating side of the FOO Order:
    1. 20 contracts for FLEX Market Maker 1 with time priority.
    2. 20 contracts for FLEX Market Maker 2.
    3. The initiating side is filled and the executing Floor Broker 
will receive no allocation.
    Example 3--Assume a Floor Broker wishes to execute a FOO Order for 
40 contracts in ABC at 1.05 (initiating side is to sell). When he 
announces the order, FLEX Market Maker 1 and FLEX Market Maker 2 both 
respond to the FOO Order for 20 contracts each. FLEX Market Maker 1 
responded first at an improved price to buy 20 at 1.06 so he will have 
price priority over FLEX Market Maker 2.\130\ Since the FOO Order is 
for less than 50 contracts, the Floor Broker is not entitled to a 40% 
guarantee.
---------------------------------------------------------------------------

    \130\ Pursuant to Rule 7610, FLEX Marker Maker 1 would have 
priority over FLEX Market Maker 2 even if FLEX Market Maker 2 
responded first because FLEX Market Maker 1 responded at a better 
price.
---------------------------------------------------------------------------

    Result: The Floor Broker will submit two FOO Orders for 20 
contracts each: a FOO Order at 1.06 for 20 contracts and a FOO Order at 
1.05 for 20 contracts. The initiating side of each FOO Order will match 
against the Floor Broker's contra-side orders for the full 20 
contracts. After execution of the FOO Orders, the executing Floor 
Broker is then responsible for providing an Options Exchange Official 
or his or her designee with the following allocation of the initiating 
side of the FOO Orders:
    1. FOO Order at 1.06--20 contracts for FLEX Market Maker 1.
    2. FOO Order at 1.05--20 contracts for FLEX Market Maker 2.
    3. The executing Floor Broker will receive no allocation of either 
FOO Order.
Additional Provisions
    The Exchange also proposes that all orders entrusted to a Floor 
Broker will be considered Not Held Orders, unless otherwise specified 
by a Floor Broker's client. A Not Held Order is an order marked ``not 
held'', ``take time'', or which bears any qualifying notation giving 
discretion as to the price or time at which such order is to be 
executed.\131\
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    \131\ See proposed Rule 7605(l). Proposed Rule 7605(l) is based 
on BOX Rule 7600(g). See also NYSE Arca Rules 5.34-O and 6.62-O(f). 
The Exchange notes that NYSE Arca Rule 5.34-O provides a Floor 
Broker with additional discretion with respect to the number of FLEX 
contracts to be purchased or sold. The Exchange is not proposing the 
same discretion for FOO Orders so that the requirements for Floor 
Brokers handling FOO Orders are the same as handling QOO Orders 
currently on the Trading Floor.
---------------------------------------------------------------------------

    The Exchange further proposes IM-7605-1 which allows Floor Brokers 
to bring unmatched orders (i.e., the initiating side of a FOO Order) to 
the Trading Floor in order to seek contra-side interest. Once a contra-
side is sourced pursuant to current Rule 7580(e)(2) and proposed Rule 
7605(e), the Floor Broker shall submit the two-sided FOO Order to the 
BOG.\132\ The Exchange notes that this provision is identical to IM-
7600-4, with the exception of internal rule references, which applies 
to QOO Orders on the BOX Trading Floor.
---------------------------------------------------------------------------

    \132\ See proposed IM-7605-1. Proposed IM-7605-1 is based on IM-
7600-4.
---------------------------------------------------------------------------

    The Exchange proposes IM-7605-2 to guide conduct on the floor.\133\ 
In particular, the Floor Broker must disclose all securities that are 
components of the Public Customer order which is subject to crossing 
before requesting bids and offers for the execution of all components 
of the order. Once the trading crowd has provided a quote, it will 
remain in effect until a reasonable amount of time has passed, there is 
a significant change in the price of the underlying security, or the 
market given in response to the request has been improved. In the case 
of a dispute, the term ``significant change'' will be interpreted on a 
case-by-case basis by an Options Exchange Official based upon the 
extent of recent trading in the option and in the underlying security, 
and any other relevant factors.\134\ The Participants of the trading 
crowd who established the market will have priority over all other 
orders that were not announced in the trading crowd at the time that 
the market was established and will maintain priority over such orders 
except for orders that improve upon the market.\135\ When a Floor 
Broker announces an order to the trading crowd pursuant to Rule 
7580(e)(2), it shall be the responsibility of the Floor Participant who 
established the market to alert the Floor Broker of the fact that the 
Floor Participant has priority. Complex FOO Orders, Multi-Leg FOO 
Orders or tied hedge orders on opposite sides of the market may be 
crossed, provided that the Floor Broker holding such orders proceeds in 
the manner described in proposed Rule 7605 and

[[Page 44732]]

IM-7600-2 as appropriate. Floor Participants may not prevent a Complex 
Order from being completed by giving a competing bid or offer for one 
component of such order.\136\ In determining whether an order satisfies 
the eligible tied hedge order size requirement, any Complex FOO Order 
or Multi-Leg FOO Order must contain one leg which, standing alone, is 
for the eligible order size or greater.\137\ A Floor Broker crossing a 
Public Customer FOO Order with an order that is not a Public Customer 
Order, when providing for a reasonable opportunity \138\ for the 
trading crowd to participate in the transaction, shall disclose the 
Public Customer Order that is subject to crossing.
---------------------------------------------------------------------------

    \133\ See proposed IM-7605-2. Proposed IM-7605-2 is based on IM-
7600-1.
    \134\ The Exchange believes that, by providing the Options 
Exchange Official with the ability to consider any other relevant 
factors, Options Exchange Officials will retain the necessary 
discretion to perform their duties if a new or unforeseen 
circumstance arises.
    \135\ See BOX IM-7600-1.
    \136\ The Exchange notes that while a Complex Order could be 
prevented from being completed by competing bids or offers on 
multiple components of such orders, competing bids or offers in any 
one of the multiple components may not prevent a Complex Order from 
being completed and each one is prohibited.
    \137\ See proposed IM-7605-2(d). The eligible tied hedge order 
size requirement is determined by the Exchange and may not be 
smaller than 500 contracts per order. See BOX IM-7600-2.
    \138\ The Exchange is proposing that a minimum response period, 
which must be between three seconds and five minutes, shall be 
established by the Exchange and announced via Regulatory Notice. See 
proposed Rule 7605(e)(2).
---------------------------------------------------------------------------

    The Exchange proposes to amend Rule 100(b)(3) to provide: ``All 
Exchange options transactions shall be executed automatically by the 
Trading Host as provided in applicable Exchange Rules.'' \139\ The 
Exchange notes that Rule 100(b)(3) already applies to Non-FLEX Equity 
Options. The proposed amendment is to replace specific rule references 
with a more general reference to avoid any unintended ambiguity and 
permit the Rule to apply in connection with FLEX Equity Options.
---------------------------------------------------------------------------

    \139\ See proposed Rule 100(b)(3).
---------------------------------------------------------------------------

    The Exchange proposes to amend Rule 7620, titled Accommodation 
Transactions, and IM-7620-1 to exclude FLEX Equity Options as defined 
in proposed Rule 5055.\140\ The Exchange notes that Rule 7620(b) 
currently states that it applies to all options except for option 
classes participating in the Penny Interval Program under Rule 7260, 
and IM-7620-1(b) currently states that it applies to all options 
including those in the Penny Interval Program. The proposed amendments 
will ensure consistency with proposed Rule 5055(c), which provides that 
Rule 7620 (Accommodation Transactions) shall not apply to transactions 
in FLEX Equity Options.
---------------------------------------------------------------------------

    \140\ See proposed Rule 7620.
---------------------------------------------------------------------------

    The Exchange has not yet determined the fees for FOO transactions 
executed on the Trading Floor. Prior to commencing trading of the 
proposed FOO Orders on the Trading Floor, the Exchange intends to 
submit a proposed rule change to the Commission setting forth the 
proposed fees.
    The Exchange has also analyzed its capacity and represents that it 
believes the Exchange and the Options Price Reporting Authority 
(``OPRA'') have the necessary systems capacity to handle the additional 
message traffic associated with the listing of new series that may 
result from the introduction of FLEX Equity Options.\141\ Additionally, 
the Exchange has surveillance coverage in place to monitor issues 
unique to FLEX trading and has developed FLEX-specific surveillance 
reports to ensure monitoring of compliance with the proposed rules. In 
addition to the FLEX-specific surveillance, the Exchange believes it 
has an adequate surveillance program in place and intends to apply the 
same program procedures to FLEX Equity Options that it applies to the 
Exchange's other options products, as applicable. FLEX Equity Options 
products and their respective symbols will be integrated into the 
Exchange's existing surveillance system architecture and will be 
subject to the relevant surveillance processes. The Exchange believes 
that any potential risk of manipulative activity is mitigated by these 
existing surveillance technologies, procedures, and reporting 
requirements, which allow the Exchange to properly identify disruptive 
and/or manipulative trading activity. The Exchange notes that, if the 
Exchange amends or changes these rules in the future, then the Exchange 
will review and update the related surveillance coverage and reports as 
required.
---------------------------------------------------------------------------

    \141\ The Exchange will report FLEX Equity Option trades and, if 
necessary, trade cancels to OPRA.
---------------------------------------------------------------------------

    In addition to its own surveillance programs, the Exchange also 
works with other self-regulatory organizations (``SROs'') and exchanges 
on intermarket surveillance related issues. Through its participation 
in the Intermarket Surveillance Group (``ISG'') \142\ the Exchange 
shares information and coordinates inquiries and investigations with 
other exchanges designed to address potential intermarket manipulation 
and trading abuses. The Exchange also notes that Financial Industry 
Regulatory Authority, Inc. (``FINRA''), conducts cross-market 
surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement.\143\ Accordingly, the Exchange believes that the 
cross-market surveillance performed by the Exchange or FINRA, on behalf 
of the Exchange, coupled with the Exchange's own monitoring comprises a 
comprehensive surveillance program that is adequate to monitor for 
issues unique to FLEX trading.
---------------------------------------------------------------------------

    \142\ ISG is an industry organization formed in 1983 to 
coordinate intermarket surveillance among the SROs by cooperatively 
sharing regulatory information pursuant to a written agreement 
between the parties. The goal of the ISG's information sharing is to 
coordinate regulatory efforts to address potential intermarket 
trading abuses and manipulations.
    \143\ The Exchange notes that it is responsible for FINRA's 
performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The proposed FLEX Equity Option rules are based predominately on 
the rules of NYSE Arca. However, the Exchange omitted certain NYSE Arca 
rules from the proposed rules discussed herein due to differences in 
the scope and operation of FLEX Option \144\ trading at NYSE Arca, 
compared to the scope and operation of the proposed FLEX Equity Option 
trading herein. The Exchange is not including NYSE Arca rule provisions 
that relate to FLEX Index Options as Index Options are not traded on 
BOX and FLEX Index Options are not proposed herein.\145\ In particular, 
NYSE Arca Rule 5.39-O requires net liquidating equity of $100,000 in an 
account in which transactions in FLEX Index Options will be conducted. 
As the Exchange does not trade Index Options, FLEX Index Options are 
not proposed herein, and the Exchange already imposes minimum net 
capital requirements,\146\ it does not propose additional requirements.
---------------------------------------------------------------------------

    \144\ The term ``Flexible Exchange Option'' or ``FLEX Option'' 
means a customized options contract. See NYSE Arca Rule 5.30-O(b)(4) 
and CBOE Rule 1.1 (definition of, ``FLEX Option'').
    \145\ See NYSE Arca Rules 5.39-O and 5.40-O.
    \146\ See BOX Rules 8010, 8080, and 10200.
---------------------------------------------------------------------------

    Next, NYSE Arca Rule 5.40-O requires at least $1 million of net 
liquidating equity in the account of a FLEX Appointed Market Maker. 
However, FLEX Appointed Market Makers are appointed for FLEX Index 
Options on NYSE Arca but are not required for FLEX Equity Options.\147\ 
Instead, NYSE Arca only requires FLEX Qualified Market Makers for FLEX 
Equity Options.\148\ And, this subset of Market Makers is not required 
to have at least $1 million of net liquidating equity. Therefore, the 
Exchange's proposal does not propose to include additional net 
liquidating equity requirements for FLEX Market Makers.

[[Page 44733]]

The Exchange notes that Market Makers, including Floor Market Makers 
and FLEX Market Makers are still subject to several financial 
requirements, including net liquidating equity in its Market Maker 
account of not less than $200,000.\149\ Additionally, the Exchange 
believes that the large infrastructure needed to trade as a Market 
Maker, including their adequacy of capital and operational capacity is 
such that current Market Makers are likely to have net liquidating 
equity well beyond $1 million. In fact, another exchange which trades 
FLEX Options has removed a net liquidating equity requirement while 
still requiring market makers to maintain net capital sufficient to 
comply with the requirements of Rule 15c3-1, under the Act.\150\ The 
Exchange has a similar provision, Rule 10200, that requires each 
Participant subject to Rule 15c3-1 under the Act to comply with the 
capital requirements prescribed therein among other requirements.\151\
---------------------------------------------------------------------------

    \147\ See NYSE Arca Rule 5.37-O(a).
    \148\ See id. The Exchange notes that NYSE Arca allows but does 
not require appointment of two or more FLEX Appointed Market Makers 
to FLEX Equity Options in lieu of appointing FLEX Qualified Market 
Makers.
    \149\ See BOX Rule 8080(a)(1). Rule 8080 also requires Market 
Makers to maintain net capital sufficient to comply with the 
requirements of Rule 15c3-1 under the Act and each Market Maker that 
is a Clearing Participant shall also maintain net capital sufficient 
to comply with the requirements of the OCC. See BOX Rules 8080(a)(2) 
and (b). See also BOX Rule 8010 (``To qualify for registration as a 
Market Maker, an Options Participant must meet the requirements 
established in SEC Rule 15c3-1(a)(6)(i) . . .'').
    \150\ See CBOE Rule 11.6 and Securities Exchange Act Release No. 
87024 (September 19, 2019), 84 FR 50545 (September 25, 2019) (SR-
CBOE-2019-059) (Notice of Filing and Immediate Effectiveness of a 
proposed rule change to amend certain rules relating to market 
makers upon migration to the trading system used by CBOE affiliated 
exchanges).
    \151\ See BOX Rule 10200 (Participants must comply with the 
additional requirements of the Rule 10200 Series and Market Makers 
must comply with the minimum financial requirements contained in 
Rule 8010).
---------------------------------------------------------------------------

    An additional difference in the appointment of FLEX Market Makers 
is that NYSE Arca appoints FLEX Qualified Market Makers to each FLEX 
Equity Option of a given class, while the Exchange will qualify FLEX 
Market Makers for all FLEX Equity Options. The Exchange believes that 
the structure of its Trading Floor, with one crowd or trading area, 
will operate more efficiently without qualifying FLEX Market Makers by 
class.\152\ Accordingly, a Floor Broker or Options Exchange Official 
may request a FLEX Equity Option quote in any class from a FLEX Market 
Maker. The Exchange notes that FLEX Market Makers will be subject to 
Rule 8510, including provisions for the course and conduct of dealings, 
class assignments, and option priority and parity, unless otherwise 
specified in proposed Rule 7605.\153\
---------------------------------------------------------------------------

    \152\ FLEX Market Makers will be required to quote all classes 
on the Trading Floor pursuant to BOX Rule 8510(e) (In Classes of 
Option Contracts Other Than Those to Which Appointed). Specifically, 
whenever a FLEX Market Maker enters the single trading crowd, which 
includes all classes, Rule 8510(e) requires that he undertake the 
obligations specified in Rule 8510(d) (In Classes of Option 
Contracts to Which Assigned--Affirmative Obligations).
    \153\ See proposed Rules 7605(f)-(h) (providing FOO Order 
quoting obligations). The Exchange notes that current Floor Market 
Maker quoting obligations and restrictions are detailed in Rule 
8510. See also supra note 87 (describing the general applicability 
of the Rule 8000 series and Rules 8500 and 8510 to FLEX Market 
Makers in their capacity as Market Makers and Floor Market Makers, 
respectively).
---------------------------------------------------------------------------

    Further, the Exchange notes differences between the proposed 
quoting obligations and those applicable on NYSE Arca. Specifically, a 
NYSE Arca FLEX Qualified Market Maker may, but shall not be obligated 
to, enter a FLEX Quote in response to a Request for Quotes on a FLEX 
Equity Option of the class in which he or she is qualified.\154\ 
However, a FLEX Official on NYSE Arca may call upon FLEX Qualified 
Market Makers appointed in a class of FLEX Equity Options to make FLEX 
Quotes in response to a specific Request for Quotes in that class of 
FLEX Equity Options whenever in the opinion of the FLEX Official the 
interests of a fair, orderly and competitive market are best served by 
such action and shall make such a call upon FLEX Qualified Market 
Makers whenever no FLEX Quotes are made in response to a specific 
Request for Quotes.\155\ The Exchange's proposal differs from NYSE 
Arca's rule in that FLEX Market Makers have an obligation to quote a 
FLEX Equity Option in response to any request for quote by a Floor 
Broker or Options Exchange Official and must provide a two-sided 
market.\156\ The Exchange believes that the proposed quoting 
requirements allow reasonable opportunities for Floor Brokers to get 
quotes on FOO Orders and notes that the quoting requirements for QOO 
Orders on the BOX Trading Floor are similar to those proposed for FOO 
Orders.\157\
---------------------------------------------------------------------------

    \154\ See NYSE Arca Rule 5.37-O(b).
    \155\ See NYSE Arca Rule 5.37-O(c).
    \156\ See proposed Rule 7605(h).
    \157\ See BOX Rule 8510(c)(2). The Exchange notes that proposed 
Rule 7605(h) and current Rule 8510(c)(2) are similar except that 
proposed Rule 7605(h) does not include the provisions of current 
Rule 8510(c)(2) related to quote spread parameter requirements and 
quotation sizes, which requirements are provided separately in 
proposed Rules 7605(f) and (g).
---------------------------------------------------------------------------

    Among other NYSE Arca provisions not incorporated by the Exchange, 
are certain of NYSE Arca's ``Special Terms for FLEX Equity Options.'' 
\158\ Specifically, these special terms include that exercise prices 
and premiums may be stated in terms of: (i) a dollar amount; (ii) a 
method for fixing at the time a FLEX Request for Quote or FLEX order is 
traded; or (iii) a percentage of the price of the underlying security 
at the time of the trade or as of the close of trading on the NYSE Arca 
on the trade date. The Exchange will only offer exercise prices and 
premiums in a dollar amount because the additional methods for fixing 
prices are a matter of individual preference, and the Exchange believes 
that the requirements of Participants will be met by pricing exercise 
prices and premiums in a dollar amount.\159\
---------------------------------------------------------------------------

    \158\ See NYSE Arca Rule 5.32-O(f)(2).
    \159\ The Exchange's belief that the requirements of 
Participants will be met by stating exercise prices and premiums in 
a dollar amount is based on conversations with Participants 
regarding their preferences for stating the terms of exercise prices 
and premiums.
---------------------------------------------------------------------------

    Another NYSE Arca provision not adopted by the Exchange in this 
proposal allows discretionary orders where Floor Brokers have 
discretion regarding the quantity of FLEX contracts traded.\160\ The 
Exchange prohibits discretion regarding quantity, and other terms, 
including the choice of the class of options to be bought or sold, and 
whether any such transaction shall be one of purchase or sale except to 
any discretionary transactions executed by a Floor Market Maker for an 
account in which he has an interest.\161\ The Exchange believes that 
proposed Rule 7605(l) combined with current Rule 7590, allowing Floor 
Brokers to have discretion over some terms of a FOO Order such as price 
and time while not allowing discretion over terms such as quantity, 
strikes a balance between allowing Floor Brokers to provide full 
services to clients and preventing erroneous trades based on differing 
expectations or miscommunications between Floor Brokers and their 
clients. The Exchange notes that Rule 7600(g) governing QOO Orders is 
identical to proposed Rule 7605(l) and believes that consistency of 
handling between QOO Orders and FOO Orders may reduce confusion and 
increase efficiency on the Trading Floor.
---------------------------------------------------------------------------

    \160\ See NYSE Arca Rule 5.34-O.
    \161\ See BOX Rule 7590 and proposed Rule 7605(l).
---------------------------------------------------------------------------

    Another NYSE Arca rule not proposed by the Exchange provides that 
NYSE Arca may designate FLEX Officials.\162\ The Exchange is not 
proposing a similar rule because Rule 100(b)(6) already provides that 
any Exchange employee or officer designated as an Options Exchange 
Official will from time to time as provided in these rules have the 
ability to recommend and enforce rules

[[Page 44734]]

and regulations relating to trading access, order, decorum, health, 
safety and welfare on the Exchange. Specifically, Options Exchange 
Officials have duties enumerated in Rules 100(b)(5), 7610, 7640, and 
8510, as well as in proposed Rule 7605 regarding announcement, quoting, 
and recording of FOO Orders, priority in the trading crowd, disputes on 
the trading floor, and obligations and restrictions applicable to Floor 
Market Makers and FLEX Market Makers. The general authority for Options 
Exchange Officials under these current Exchange Rules will be the same 
for FLEX Equity Option transactions on the trading floor as it is for 
Non-FLEX Equity Option transactions.\163\ The Exchange believes that 
Options Exchange Officials will have the authority necessary to enforce 
the proposed FLEX Equity Option and FOO Order rules such that 
designation of a unique FLEX Official would be redundant and 
unnecessary, as the Exchange's existing Options Exchange Officials will 
have the ability to perform the same functions as a separately 
designated FLEX Official. Specifically, the duties of FLEX Officials on 
NYSE Arca are mainly related to their Request for Quotes (``RFQ'') 
procedure unique to FLEX Options trading on NYSE Arca.\164\ The 
Exchange has elected not to adopt a similar procedure, as discussed 
below, instead basing the FOO Order process on the QOO Order process 
already monitored by Options Exchange Officials. Additionally, the 
Exchange's system is designed to review the terms of a FLEX Equity 
Option for compliance with the applicable Rules as opposed to being a 
requirement of an Options Exchange Official to review.\165\ Options 
Exchange Officials will continue to be responsible for monitoring all 
open outcry activity on the Trading Floor. Therefore, the Exchange will 
not require a separate official to govern any unique process for FLEX 
Equity Options. Additionally, the Exchange represents that Options 
Exchange Officials will receive appropriate training on the terms of 
FLEX Equity Options and all rules applicable to FLEX Equity Options and 
FOO Orders, including their responsibility to certify that a Floor 
Broker has adequately announced a FOO Order to the trading crowd,\166\ 
consistent with the manner in which they are currently trained with 
respect to QOO Orders.\167\ The Exchange further notes that NYSE Arca's 
rules do not require the exchange to designate FLEX Officials.\168\
---------------------------------------------------------------------------

    \162\ See NYSE Arca Rule 5.38-O.
    \163\ See proposed Rule 5055(a)(2).
    \164\ NYSE Arca Rule 5.38-O provides that ``[a] FLEX Official is 
responsible for: (1) reviewing the conformity of FLEX Requests for 
Quotes and FLEX Quotes to the terms and specifications contained in 
Rule 5.32-O [Terms of FLEX Options]; (2) posting FLEX Requests for 
Quotes for dissemination; (3) determining the BBO; (4) ensuring that 
FLEX contracts are executed in conformance with the priority 
principles set forth in Rule 5.33-O; and (5) calling upon FLEX 
Qualified Market Makers to make FLEX Quotes in specific classes of 
FLEX Equity Options as provided in paragraph (c) of Rule 5.37-O.'' 
See NYSE Arca Rule 5.38-O.
    \165\ See supra note 64. The Exchange notes that NYSE Arca Rule 
5.38-O(b)(1) provides that it is the responsibility of their FLEX 
Officials to review the terms of a FLEX order.
    \166\ See proposed Rule 7605(e)(2).
    \167\ BOX Rules currently provide that the President of the 
Exchange and his or her designated staff shall be responsible for 
monitoring, among other things, the activities of Floor Participants 
and their associated persons and shall establish standards and 
procedures for the training and qualification of Floor Participants 
and their associated persons active on the Trading Floor. See BOX 
Rule 100(b)(1).
    \168\ See NYSE Arca Rule 5.38-O(a) (``The Exchange may at any 
time designate an Exchange employee to act as a FLEX Official in one 
or more classes of FLEX Options [emphasis added] . . . .'').
---------------------------------------------------------------------------

    As mentioned above, rather than adopt the NYSE Arca RFQ procedure 
for FLEX Equity Options,\169\ the Exchange instead proposes to utilize 
the current process used on the BOX Trading Floor for QOO Orders with 
the addition of a minimum time period that a Floor Broker must allow 
Floor Participants when responding to FOO Orders.\170\ The Exchange 
believes that using the order announcement and responsive quote process 
for both QOO Orders and FOO Orders on the BOX Trading Floor will result 
in less confusion and greater efficiency for all BOX Trading Floor 
Participants.
---------------------------------------------------------------------------

    \169\ See NYSE Arca Rule 5.33-O.
    \170\ See proposed Rule 7605 and current Rule 7600. The minimum 
time period, which must be between three seconds and five minutes, 
will be established by the Exchange and communicated via Regulatory 
Notice. See proposed Rule 7605(e)(2). See also Securities Exchange 
Act Release No. 81292 (August 2, 2017), 82 FR 37144 (August 8, 2017) 
(SR-BOX-2016-48) (Order Approving a Proposed Rule Change, as 
Modified by Amendment Nos. 1 and 2, To Adopt Rules for an Open-
Outcry Trading Floor).
---------------------------------------------------------------------------

    The Exchange notes that the manner in which the Exchange has 
proposed rules with respect to announcement of orders and responsive 
quotes is similar to how CBOE treats its FLEX Options; specifically, 
CBOE allows a FLEX Order \171\ to be represented and executed in a 
similar manner as a non-FLEX Option.\172\ The Exchange believes CBOE's 
approach is consistent with the Act and proposes to also require Floor 
Brokers to allow for a reasonable amount of time to participate in FLEX 
Equity Option transactions. Further, unlike CBOE, the Exchange proposes 
to establish and announce, via Regulatory Notice, a minimum period of 
time that a Floor Broker must allow Floor Participants to respond 
(which amount of time must be between three seconds and five minutes). 
The Exchange believes that it is unnecessary to specify a specific 
maximum time period for responses to FLEX orders as Options Exchange 
Officials on BOX's Trading Floor will be responsible both to enforce 
the minimum period of time and to ensure that Floor Participants have a 
reasonable amount of time to respond to FOO Orders.\173\ The Exchange 
notes that the proposed order announcement procedure for FOO Orders is 
similar to the rules and procedures currently in place for QOO Orders 
on the BOX Trading Floor.
---------------------------------------------------------------------------

    \171\ ``FLEX Orders'' are orders submitted in FLEX Options. See 
CBOE Rule 5.70.
    \172\ See CBOE Rule 5.72(d). See also supra notes 83 and 98.
    \173\ See supra note 170 and accompanying text. The Exchange 
notes that while CBOE specifies a maximum time period for responses 
to FLEX orders, the proposal herein allows Options Exchange 
Officials to interpret a reasonable amount of time on a case-by-case 
basis. The Exchange believes that this is appropriate because it 
reflects the current operation of the Trading Floor and will promote 
efficient operations without further constraining the announcement 
process.
---------------------------------------------------------------------------

Minor Rule Violation Plan
    The Exchange's disciplinary rules, including Exchange Rules 
applicable to ``minor rule violations,'' are set forth in the Rule 
12000 Series of the Exchange's current Rules. As described in Rule 
12140, the MRVP provides that in lieu of commencing a disciplinary 
proceeding, the Exchange may, subject to the certain requirements set 
forth in the Rule, impose a fine, not to exceed $5,000, on any Options 
Participant, or person associated with or employed by an Options 
Participant, with respect to any Rule violation listed in Rules 
12140(d) or (e) as discussed below. Any fine imposed pursuant to this 
Rule that (i) does not exceed $2,500 and (ii) is not contested, shall 
be reported on a periodic basis, except as may otherwise be required by 
Rule 19d-1 under the Act or by any other regulatory authority. Further, 
the Rule provides that any person against whom a fine is imposed under 
the Rule shall be served with a written statement setting forth: (i) 
the Rule(s) allegedly violated; (ii) the act or omission constituting 
each such violation; (iii) the fine imposed for each violation; and 
(iv) the date by which such determination becomes final and such fine 
must be paid or contested, which date shall be not less than twenty-
five (25) calendar days after the date of service of such written 
statement. Rules 12140 (d) and (e) set forth the list of specific 
Exchange Rules under which an Options Participant or person associated 
with or employed by

[[Page 44735]]

an Options Participant may be subject to a fine for violations of such 
Rules and the applicable fines that may be imposed by the Exchange. As 
with all the violations incorporated into its MRVP, the Exchange will 
proceed under this Rule only for violations that are minor in nature. 
Any other violation will be addressed pursuant to Rules 12030 (Letters 
of Consent) or 12040 (Charges).
    The Exchange proposes to amend its MRVP to add certain rules 
relating to FLEX Equity Options to the list of rules eligible for minor 
rule violation plan treatment by amending Rule 12140. Specifically, the 
Exchange proposes to amend Rule 12140(e)(3), which covers the failure 
to properly execute a QOO Order, to include failure to properly execute 
a FOO Order (proposed Rule 7605).\174\ Additionally, the Exchange 
proposes to amend Rule 12140(e)(9), which covers compliance with 
quotation requirements for Floor Market Makers as set forth in Rule 
8510(c)(2), and is designed to sanction violations thereof, to also 
include compliance with the quotation requirements for FLEX Market 
Makers set forth in proposed Rule 7605(h) and sanction violations of 
such requirements.\175\
---------------------------------------------------------------------------

    \174\ See proposed Rule 12140(e)(3). The Exchange notes that 
adding proposed Rule 7605 for FOO Orders to current Rule 12140(e)(3) 
is consistent with the existing provision to enforce current Rule 
7600 for QOO Orders because Floor Participants have the same general 
requirements for executing FOO and QOO Orders on the Trading Floor. 
The Exchange notes further that fines defined under Rule 12140(e)(3) 
may apply to any failure to properly execute a FOO Order in 
accordance with applicable provisions of proposed Rule 7605 
governing such execution requirements. Proposed Rule 7605(h), 
however, which relates to a FLEX Market Maker's quoting obligation, 
is specifically proposed for inclusion in proposed Rule 12140(e)(9).
    \175\ See proposed Rule 12140(e)(9). The Exchange notes that 
proposed Rule 7605(h) and current Rule 8510(c)(2) are similar except 
that proposed Rule 7605(h) does not include the provisions of 
current Rule 8510(c)(2) related to quote spread parameter 
requirements and quotation sizes, which requirements are provided 
separately in proposed Rules 7605(f) and (g). However, the Exchange 
believes it is appropriate to include proposed Rule 7605(h) with 
Rule 8510(c)(2) in the MRVP given the similar nature of the 
underlying requirement to provide quotations.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \176\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \177\ in particular, in that it is designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
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. 
Specifically, the Exchange believes the adoption of the proposed rules 
allowing FLEX Equity Options to trade on the BOX Trading Floor as FOO 
Orders is consistent with the goals of the Act to remove the 
impediments to and perfect the mechanism of a free and open market 
because it will benefit Participants by providing an additional venue 
for Participants to provide and seek liquidity for customized, large, 
or complex FLEX option orders. As the Commission noted in its order 
granting FLEX Equity Option trading on CBOE and what was then the 
Pacific Stock Exchange (now NYSE Arca), trading FLEX Equity Options on 
an exchange is an alternative to trading customized options in OTC 
markets and carries with it the advantages of exchange markets such as 
transparency, parameters and procedures for clearance and settlement, 
and a centralized counterparty clearing agency.\178\ Therefore, the 
Exchange believes the proposed rule change will promote these same 
benefits for the market as a whole by providing an additional venue for 
market participants to seek liquidity for customized, large-sized, or 
complex FLEX option orders. The Exchange believes that providing an 
additional venue for these FLEX orders will benefit investors, the 
national market system, Participants, and BOX by increasing competition 
for order flow and executions, and thereby spur product enhancements 
and potentially result in lower prices for exchange services related to 
FLEX Equity Options.
---------------------------------------------------------------------------

    \176\ 15 U.S.C. 78f(b).
    \177\ 15 U.S.C. 78f(b)(5).
    \178\ See Securities Exchange Act Release No. 36841 (February 
14, 1996), 61 FR 6666 (February 21, 1996) (SR-CBOE-95-43) (SR-PSE-
95-24) (Order Approving the Trading of Flexibly Structured Equity 
Options by CBOE and PSE).
---------------------------------------------------------------------------

    The Exchange further believes that the proposal is designed to 
prevent fraudulent and manipulative acts and practices as the Exchange 
has reviewed all current surveillance in light of any changes required, 
including surveillance and technology to detect disruptive or 
manipulative trading activity for FOO Orders on the Trading Floor, and 
will modify or add any surveillance as appropriate. As described above, 
the Exchange will apply its existing surveillance program to FLEX 
Equity Options and has developed FLEX-specific surveillance reports. 
The Exchange notes that, if the Exchange amends or changes these rules 
in the future, then the Exchange will review and update the related 
surveillance coverage and reports as required.
    As described below, the Exchange also believes the proposed changes 
to Rule 12140(e) are consistent with Section 6(b)(6) of the Act,\179\ 
which provides that members and persons associated with members shall 
be appropriately disciplined for violation of the provisions of the 
rules of the exchange, by expulsion, suspension, limitation of 
activities, functions, and operations, fine, censure, being suspended 
or barred from being associated with a member, or any other fitting 
sanction. The Exchange further believes the proposed changes to Rule 
12140(e) are designed to provide a fair procedure for the disciplining 
of members and persons associated with members, consistent with 
Sections 6(b)(7) and 6(d) of the Act.\180\
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    \179\ 15 U.S.C. 78f(b)(6).
    \180\ 15 U.S.C. 78f(b)(7) and 78f(d).
---------------------------------------------------------------------------

General
    The Exchange believes that proposed Rule 5055(a) stating that the 
trading of FLEX Equity Options is subject to all other Rules applicable 
to the trading of options on the Exchange, unless otherwise provided in 
Rules 5055 and 7605, is consistent with the Act because it will ensure 
that, except where otherwise provided in Rules 5055 and 7605, the 
Exchange's existing rules will continue to apply to FLEX Equity 
Options, which will provide increased consistency for Participants 
trading FLEX Equity Options and Non-FLEX Equity Options on BOX. The 
Exchange reiterates that rules which contemplate the operation of or 
interaction with the BOX Book and the Complex Order Book will not apply 
to FLEX Equity Options, given that FLEX Equity Options may only be 
traded as FOO Orders and FOO Orders may not be placed in the BOX Book 
or the Complex Order Book.\181\ Specifically, proposed Rule 5055(a) 
will specify that the BOX Book and the Complex Order Book shall not be 
applicable for transactions in FLEX Equity Options and thereby provide 
clarity for market participants that FLEX Equity Options may only be 
traded on the Trading Floor. As described above, while electronic 
trading in FLEX options is available on one market today, the Exchange 
at this time intends to introduce FLEX Equity Options on the Trading 
Floor only, consistent with other markets that trade these customized 
options solely on their

[[Page 44736]]

trading floors. The Exchange also believes that providing further 
detail about rules that shall not apply in proposed Rule 5055(c) is 
consistent with the Act because it will provide clarity for market 
participants about existing rules that will not be applicable to FLEX 
Equity Options on BOX. In particular, specifying that Rules 7600 and 
7620 will not apply to FLEX Equity Options will avoid potential 
confusion about which order types apply to FLEX Equity Options on BOX, 
as the Exchange is instead proposing Rule 7605 to apply to transactions 
in FLEX Equity Options. Specifically, Rule 7600 contains priority 
provisions related to the BOX Book and the Complex Order Book neither 
of which are applicable to transactions in FLEX Equity Options. The 
Exchange notes that another exchange excludes similar rules from 
application to transactions in FLEX Equity Options.\182\ However, 
proposed Rule 5055(c) also specifies that IM-7600-2 and IM-7600-5 shall 
apply to FLEX Equity Options. The Exchange believes that expressly 
applying these provisions is consistent with the Act because, although 
the remainder of Rule 7600 will not apply to FOO Orders, IM-7600-2, and 
IM-7600-5 relate, respectively, to tied hedge orders and to compliance 
with Section 11(a)(1) of the Act and should apply to the proposed FOO 
Orders in the same manner as they currently apply to QOO Orders. 
Specifically, tied hedge orders are a combination of an option and 
hedging position that must follow the procedures set forth in IM-7600-2 
which is designed to protect investors and the public interest with 
provisions that limit the types of combinations considered to be tied 
hedge orders as well as prescribing Floor Broker duties for the 
handling of such orders. The Exchange believes that expressly applying 
IM-7600-2 to FOO Orders is consistent with the Act, as this will 
provide greater consistency between the trading of FLEX Equity Options 
and Non-FLEX Equity Options on the BOX Trading Floor and reduce the 
potential for market participant confusion. Next, IM-7600-5 prevents 
Participants from utilizing the Trading Floor to effect any 
transactions for their own account, the account of an associated 
person, or an account with respect to which the Participant or an 
associated person thereof exercises investment discretion by relying on 
an exemption under Section 11(a)(1)(G) of the Act (``G Exemption''). 
IM-7600-5 thereby provides notice to Floor Participants that when 
utilizing the trading floor to effect transactions in covered accounts, 
they cannot rely on the G Exemption and must rely on other available 
exemptions to the prohibition in Section 11(a)(1) of the Act.\183\ In 
this manner, IM-7600-5 provides increased clarity to Floor Participants 
about their ability to comply with Section 11(a)(1) of the Act and it 
is therefore consistent with the Act and would protect investors and 
the public interest to continue to apply this rule to FOO Orders.
---------------------------------------------------------------------------

    \181\ See supra notes 101 and 104 and accompanying text.
    \182\ See NYSE Arca Rules 5.30-O(c) and (d).
    \183\ See infra note 257 and accompanying text (describing the 
Section 11(a)(1) prohibition and defining ``covered accounts'').
---------------------------------------------------------------------------

    The Exchange believes that the definitions proposed in Rule 5055(b) 
will provide increased clarity to market participants which will 
protect investors and the public interest by specifying definitions for 
FLEX Equity Options and Non-FLEX Equity Options, and by specifying that 
FLEX Equity Option transactions will be governed as proposed in Rule 
7605 and shall not be traded other than as FOO Orders, which may only 
be traded on the Trading Floor. The Exchange believes further that the 
term ``FLEX Market Maker'' will clarify the difference between Floor 
Market Makers and FLEX Market Makers, where the latter are qualified 
for trading FLEX Equity Options and have an obligation to provide 
quotes in response to FOO Orders.\184\ The Exchange also believes that 
specifying that FLEX Equity Options may not be traded using any other 
order type or trading mechanism offered by the Exchange will provide 
increased clarity to Participants that the only means by which the 
Exchange intends to permit FLEX Equity Options to be traded is via the 
proposed FOO order type. The Exchange notes that, should it decide to 
propose additional order types or electronic trading for FLEX Equity 
Options, it will revise the defined term ``FLEX Open Outcry Order'' 
accordingly.
---------------------------------------------------------------------------

    \184\ The Exchange notes that Floor Market Makers are not 
obligated to apply to be FLEX Market Makers, but may elect to do so 
subject to proposed Rules 5055(k) and 7605(c).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 5055(d) which specifies 
that there shall be no trading rotations in FLEX Equity Options is 
designed to promote just and equitable principles of trade and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it provides notice to 
Participants regarding the mechanisms applicable to FLEX trading, which 
will not include trading rotations due to the customized nature of FLEX 
Equity Options and the fact that there will be no requirement for 
specific FLEX Equity Option series to be quoted or traded each 
day.\185\ The Exchange notes that QOO Orders on the Trading Floor can 
only participate in a trading rotation if entered into the BOX Book and 
as discussed herein FLEX Equity Options will not be eligible to be 
placed on the BOX Book.\186\ The Exchange also notes that another 
exchange does not hold trading rotations for FLEX Equity Options.\187\
---------------------------------------------------------------------------

    \185\ See Securities Exchange Act Release No. 31920 (February 
24, 1993), 58 FR 12280, 12284 (March 3, 1993) (SR-CBOE-92-17) (Order 
Approving Proposed Rule Change by the Chicago Board Options 
Exchange, Inc. Relating to the Listing and Trading of Flexible 
Exchange Options Based on the Nasdaq 100 Index).
    \186\ See BOX Rule 7070(d).
    \187\ See NYSE Arca Rule 5.31-O(b).
---------------------------------------------------------------------------

FLEX Equity Option Terms
    The Exchange believes that the terms of FLEX Equity Options 
pursuant to proposed Rule 5055(e) serve to perfect the mechanism of a 
free and open market and a national market system because they will 
permit investors to customize some of the terms of their FLEX Equity 
Options to implement more precise trading strategies and hedges which 
may not be possible using Non-FLEX Equity Options.\188\ These investors 
may have improved capability to execute strategies to meet their 
specific investment objectives by using customized FLEX Equity Options. 
However, only certain terms are subject to flexible structuring by the 
parties to FLEX Equity Option transactions, and most of such terms have 
a specified number of alternative configurations. The Exchange believes 
that these restrictions are reasonable and designed to further the 
objectives of the Act and to promote just and equitable principles of 
trade because limiting FLEX Equity Option terms enables the efficient, 
centralized clearance and settlement and active secondary trading of 
opened FLEX Equity Options. Further, these terms are consistent with 
those currently offered at another exchange.\189\
---------------------------------------------------------------------------

    \188\ See proposed Rule 5055(e)(1) (providing that FLEX Equity 
Options shall be permitted in puts and calls that do not have the 
same exercise style, same expiration date, and same exercise price 
as Non-FLEX Equity Options that are already available for trading on 
the same underlying security).
    \189\ See NYSE Arca Rule 5.32-O.
---------------------------------------------------------------------------

    The Exchange also believes that proposed Rule 5055(e)(1) to prevent 
FLEX Equity Options and Non-FLEX Equity Options with the same terms 
from trading concurrently is designed to promote just and equitable 
principles of trade and prevent fraudulent and manipulative acts and 
practices.\190\ In particular, a Non-FLEX Equity Option

[[Page 44737]]

trading pursuant to Rule 7600 as a QOO Order has different priority 
rules than a FOO Order trading pursuant to proposed Rule 7605.\191\ 
Allowing an option with the same terms to trade under both rules 
concurrently would result in inconsistent order handling and could 
allow the order priority of QOO Orders to be circumvented. Therefore, 
the Exchange proposes to prevent this situation by permitting FLEX 
Equity Option transactions only in options with a different term 
(exercise style, expiration date, or exercise price) than Non-FLEX 
Equity Options that otherwise meet the requirements of proposed Rule 
5055(e). This is designed to prevent FLEX Equity Options from being 
surrogates for Non-FLEX Equity Options. Additionally, in the event that 
a Non-FLEX Equity Option series is added intra-day, the holder or 
writer of a FLEX Equity Option position established under the FLEX 
trading procedures would be permitted to close such position under the 
FLEX trading procedures against another closing only FLEX Equity Option 
position for the balance of the trading day on which the series is 
added. In the event that the Non-FLEX Equity Option series is added on 
a trading day after the position is established, the holder or writer 
of a FLEX Equity Option position established under the FLEX trading 
procedures would be permitted to close such position as a non-FLEX 
transaction consistent with the requirements of proposed Rule 
5055(f)(1). This proposed rule will prevent an option with the same 
terms from trading as both a FLEX Equity Option and a Non-FLEX Equity 
Option concurrently, while providing a narrow exception for closing 
positions.\192\ Further opening trades in such options would be as Non-
FLEX Equity Options subject to the Non-FLEX Equity Option trading 
procedures and rules, including Rule 7600 for Trading Floor 
transactions.\193\ The Exchange believes that enforcing consistent 
handling and priority for identical and fungible options prevents 
fraudulent and manipulative acts and practices, and promotes just and 
equitable principles of trade to protect investors and the public 
interest by ensuring consistent treatment of these options. The 
Exchange further believes that providing a narrow exception to permit 
the closing of a FLEX Equity Option position for the balance of the 
trading day on which the fungible Non-FLEX Equity Option is added 
perfects the mechanism of a free and open market and a national market 
system because it provides investors the ability to close their open 
FLEX Equity Option positions the same day as the identical Non-FLEX 
Equity Option is added.\194\ As noted herein, these requirements are 
consistent with those at another exchange.\195\
---------------------------------------------------------------------------

    \190\ See proposed Rule 5055(e)(1).
    \191\ For example, the BOX Book will be inapplicable to FOO 
Orders and thus certain priority provisions applicable to QOO Orders 
are not applicable to FOO Orders. Specifically, FOO Order priority 
differs from QOO Order provisions related to the priority of orders 
on the BOX Book. See BOX Rules 7600(c)-(e) and (h). The priority of 
FOO Orders will be determined by proposed Rules 7605(i) and (k) and 
BOX Rule 7610.
    \192\ See proposed Rule 5055(f)(2). See also proposed Rules 
7605(d)(3) and (4). See Exchange Act Release Nos. 62321 (June 17, 
2010), 75 FR 36130 (June 24, 2010) (SR-NYSEArca-2010-46) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Amending 
Commentary .01 to Rule 5.32 To Permit Certain FLEX Options To Trade 
Under the FLEX Trading Procedures for a Limited Time on a Closing 
Only Basis) and 62870 (September 8, 2010), 75 FR 56147 (September 
15, 2010) (SR-CBOE-2010-078) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Permit Certain FLEX Options 
To Trade Under the FLEX Trading Procedures for a Limited Time on a 
Closing Only Basis).
    \193\ See proposed Rule 5055(f)(1). See also Exchange Act 
Release Nos. 59417 (February 18, 2009), 74 FR 8591 (February 25, 
2009) (SR-CBOE-2008-115) (Notice of Filing of Amendments No. 1 and 2 
and Order Granting Accelerated Approval to a Proposed Rule Change, 
as Modified by Amendments No. 1 and 2 Thereto, Relating to FLEX 
Options Expirations); 60548 (August 20, 2009), 74 FR 43191 (August 
26, 2009) (SR-NYSEAmex-2009-44) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE AMEX LLC Amending the 
Permissible Expiration Dates for Flexible Exchange Options); 60549 
(August 20, 2009), 74 FR 44415 (August 28, 2009) (SR-NYSE-Arca-2009-
75) (Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change by NYSE Arca, Inc. Amending Permissible Expiration Dates for 
Flexible Exchange Options); and 60549 (September 16, 2009), 74 FR 
48619 (September 23, 2009) (SR-Phlx-2009-81) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to FLEX 
Option Expirations).
    \194\ The Exchange notes that investors will be able to close 
any such positions utilizing Non-FLEX Equity Option trading 
procedures beginning the next trading day.
    \195\ See NYSE Arca Rule 5.32-O, Commentary .01.
---------------------------------------------------------------------------

    Further, the Exchange believes that allowing FLEX Equity Options to 
trade in minimum increments of $0.01 \196\ perfects the mechanism of a 
free and open market and a national market system because it provides 
investors with increased ability to meet their specific investment 
objectives and allows for increased opportunities for price improvement 
through a finer trading increment. The Exchange notes that another 
exchange currently trades FLEX Equity Options in minimum increments of 
$0.01.\197\
---------------------------------------------------------------------------

    \196\ See proposed Rule 5055(g).
    \197\ See CBOE Rule 5.4(c)(4). The Exchange notes that minimum 
increments in percentage terms are not part of this proposal.
---------------------------------------------------------------------------

    The Exchange further believes that subjecting FLEX Equity Options 
to the exercise by exception provisions of Rule 805 of the OCC \198\ 
fosters cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities.\199\ Specifically, OCC 
Rule 805 provides that, unless contrary instructions are given, option 
contracts that are in-the-money by specified amounts shall be 
automatically exercised. Application of Rule 805 to FLEX Equity Options 
provides consistency with Non-FLEX Equity Options and prevents 
confusion in the clearing process with respect to exercise 
instructions. The Exchange notes that another exchange provides that 
FLEX Equity Options shall be subject to the exercise by exception 
provisions of OCC Rule 805.\200\
---------------------------------------------------------------------------

    \198\ See proposed Rule 5055(h).
    \199\ The Exchange notes that Rule 805 of the OCC currently 
applies to Non-FLEX Equity Options on BOX. See BOX Rule 9000(b).
    \200\ See NYSE Arca Rule 5.32-O(f)(4).
---------------------------------------------------------------------------

Position Limits
    Position and exercise limits are designed to address potential 
manipulative schemes and adverse market impacts surrounding the use of 
options, such as disrupting the market in the security underlying the 
options. While position and exercise limits should address and 
discourage the potential for manipulative schemes and adverse market 
impact, if such limits are set too low, participation in the options 
market may be discouraged. The Exchange believes that any decision 
regarding imposing position and exercise limits for FLEX Equity Options 
must therefore be balanced between mitigating concerns of any potential 
manipulation and the cost of inhibiting potential hedging activity that 
could be used for legitimate economic purposes.\201\
---------------------------------------------------------------------------

    \201\ The Exchange notes that although no position limits are 
proposed for FLEX Equity Options, there are several mitigating 
factors, which include aggregation of FLEX Equity Option and Non-
FLEX Equity Option positions that expire on a third Friday-of-the-
month and subjecting those positions to position and exercise 
limits, position reporting, and daily monitoring of market activity.
---------------------------------------------------------------------------

    Similar to the other exchanges that trade FLEX Equity Options, the 
Exchange believes that eliminating position and exercise limits for 
FLEX Equity Options, while requiring positions in FLEX Equity Options 
that expire on a third Friday-of-the-month to be aggregated with 
positions in Non-FLEX Equity Options on the same underlying 
security,\202\ removes

[[Page 44738]]

impediments to and perfects the mechanism of a free and open market and 
a national market system because it allows BOX to create a product and 
market that is an improved but comparable alternative to the OTC market 
in customized options. OTC transactions occur through bilateral 
agreements, the terms of which are not publicly disclosed to the 
marketplace. As such, OTC transactions do not contribute to the price 
discovery process that exists on a public exchange.
---------------------------------------------------------------------------

    \202\ See proposed Rules 5055(i) and (j). See also NYSE Arca 
Rules 5.35-O(a)(iii), (b) and 5.36-O and CBOE Rules 8.35 and 8.42 
and NYSE American Rules 906G and 907G and PHLX Options 8, Section 
34(e) and (f).
---------------------------------------------------------------------------

    The Exchange believes that the proposed elimination of position and 
exercise limits for FLEX Equity Options may encourage market 
participants to transfer their liquidity demands from OTC markets to 
exchanges and enable liquidity providers to provide additional 
liquidity to BOX through transactions in FLEX Equity Options. The 
Exchange notes that the Commission previously approved the elimination 
of position and exercise limits for FLEX Equity Options, finding that 
such elimination would allow exchanges ``to better compete with the 
growing OTC market in customized equity options, thereby encouraging 
fair competition among brokers and dealers and exchange markets.'' 
\203\ The Commission has also stated that the elimination of position 
and exercise limits for FLEX Equity Options ``could potentially expand 
the depth and liquidity of the FLEX equity market without significantly 
increasing concerns regarding intermarket manipulations or disruptions 
of the options or the underlying securities.'' \204\
---------------------------------------------------------------------------

    \203\ See Securities Exchange Act Release No. 42223 (December 
10, 1999), 64 FR 71158, 71159 (December 20, 1999) (SR-Amex-99-40) 
(SR-PCX-99-41) (SR-CBOE-99-59) (Order Granting Accelerated Approval 
to Proposed Rule Change Relating to the Permanent Approval of the 
Elimination of Position and Exercise Limits for FLEX Equity 
Options).
    \204\ See id.
---------------------------------------------------------------------------

    Additionally, the Exchange believes that requiring positions in 
FLEX Equity Options that expire on a third Friday-of-the-month to be 
aggregated with positions in Non-FLEX Equity Options on the same 
underlying security subjects FLEX Equity Options and Non-FLEX Equity 
Options to the same position and exercise limits on third Friday-of-
the-month expirations. These limitations are intended to serve as a 
safeguard against potential adverse effects of large FLEX Equity Option 
positions expiring on the same day as Non-FLEX Equity Option positions. 
The Exchange notes that another exchange has the same requirement.\205\
---------------------------------------------------------------------------

    \205\ See NYSE Arca Rule 5.35-O(b)(i).
---------------------------------------------------------------------------

    The Exchange believes that any potential risk of manipulative 
activity is mitigated by existing surveillance technologies, 
procedures, and reporting requirements at the Exchange, which allows 
the Exchange to properly identify disruptive and/or manipulative 
trading activity. In addition to its own surveillance programs, the 
Exchange also works with other SROs and exchanges on intermarket 
surveillance related issues. Through its participation in ISG the 
Exchange shares information and coordinates inquiries and 
investigations with other exchanges designed to address potential 
intermarket manipulation and trading abuses. The Exchange also notes 
that FINRA, conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement.\206\ The Exchange 
also represents that it has reviewed its procedures to detect potential 
manipulation in light of any changes required for FLEX Equity Options 
to confirm appropriate surveillance coverage. These procedures utilize 
daily monitoring of market activity via automated surveillance 
techniques to identify unusual activity in both options and their 
underlying securities and are designed to protect investors and the 
public interest by ensuring that the Exchange has an adequate 
surveillance program in place.
---------------------------------------------------------------------------

    \206\ The Exchange notes that it is responsible for FINRA's 
performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 5055(i)(1) further 
mitigates concerns for potential market manipulation and/or disruption 
in the underlying markets and thus protects investors and the public 
interest because position reporting will be required (other than for a 
Market Maker) and the Exchange may determine that a higher margin 
requirement is necessary in light of the risks associated with a FLEX 
Equity Option position in excess of the standard limit for Non-FLEX 
Equity Options of the same class. The Exchange may, pursuant to its 
authority under Rule 10130(b), impose additional margin upon the 
account maintaining such under-hedged position as a safeguard against 
potential adverse effects of large FLEX Equity Option positions. The 
Exchange notes that the clearing firm carrying the account will be 
subject to capital charges under SEC Rule 15c3-1 to the extent of any 
margin deficiency resulting from a higher margin requirement imposed by 
the Exchange. The Exchange also notes that other exchanges currently 
trading FLEX options have similar position and exercise limits.\207\
---------------------------------------------------------------------------

    \207\ See NYSE Arca Rules 5.35-O(a)(iii), (b) and 5.36-O and 
CBOE Rules 8.35 and 8.42 and NYSE American Rules 906G and 907G and 
PHLX Options 8, Section 34(e) and (f).
---------------------------------------------------------------------------

Letters of Guarantee and Authorization
    Pursuant to proposed Rule 5055(k), the Exchange will require FLEX 
Market Makers to provide a Letter of Guarantee issued by a clearing 
member organization and filed with the Exchange specifically accepting 
financial responsibility for all FLEX Equity Option transactions made 
by such person as long as such letter has not been revoked under Rule 
8070(c).\208\ Market Makers that are qualified by the Exchange and have 
provided such a Letter of Guarantee will be permitted to trade FLEX 
Equity Options on BOX.\209\ The Exchange believes that requiring a 
Letter of Guarantee specific to FLEX Equity Options protects investors 
and the public interest because it signifies that the clearing member 
has specifically accepted financial responsibility for transactions in 
FLEX Equity Options entered into by the Market Maker which will protect 
the counterparties of those trades and such protections will flow to 
other clearing members and ultimately to the OCC as the central 
counterparty and guarantor of both FLEX Equity Option and Non-FLEX 
Equity Option transactions. The Exchange notes that another exchange 
requires a Letter of Guarantee for FLEX transactions.\210\
---------------------------------------------------------------------------

    \208\ See proposed Rule 5055(k).
    \209\ See proposed Rule 7605(c). The Exchange notes that Market 
Makers are subject to the qualifications in Exchange rules including 
net capital and financial requirements. See BOX Rule 8000 series.
    \210\ See NYSE Arca Rule 5.41-O(a).
---------------------------------------------------------------------------

    Pursuant to proposed Rule 5055(l), prior to effecting any 
transaction in FLEX Equity Options, Floor Brokers are required to 
provide a Letter of Authorization issued by a clearing member 
organization and filed with the Exchange specifically accepting 
financial responsibility for all FLEX Equity Option transactions made 
by such person, and such letter remains in effect until a written 
revocation is received by the Exchange.\211\ Floor Brokers that have 
provided such a Letter of Authorization and are qualified by the 
Exchange will be permitted to trade FLEX Equity Options on BOX.\212\ 
The Exchange believes that requiring a Letter of Authorization specific 
to FLEX

[[Page 44739]]

Equity Options protects investors and the public interest because it 
signifies that the clearing member has accepted financial 
responsibility for transactions in FLEX Equity Options entered into by 
the Floor Broker which will protect the counterparties of those trades 
and such protections will flow to other clearing members and ultimately 
to the OCC as the central counterparty and guarantor of both FLEX 
Equity Option and Non-FLEX Equity Option transactions. The Exchange 
notes that another exchange requires a separate Letter of Authorization 
for Floor Brokers to trade FLEX Equity Options.\213\
---------------------------------------------------------------------------

    \211\ See proposed Rules 5055(l) and 7605(b).
    \212\ The Exchange notes that Floor Brokers are subject to 
registration requirements in Exchange rules including a Floor Broker 
examination and other factors deemed appropriate by the Exchange. 
See BOX Rule 7550.
    \213\ See NYSE Arca Rule 5.41-O(b).
---------------------------------------------------------------------------

FOO Orders
    The Exchange believes that the proposed rule change to adopt a new 
order type \214\ for FLEX Equity Option transactions on the BOX Trading 
Floor is consistent with the Act. The Exchange modeled its proposed 
rule governing FOO Orders after Rule 7600 applicable to QOO Orders to 
harmonize current procedures on BOX's Trading Floor, which the Exchange 
believes will reduce investor confusion and thus remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.\215\ Specifically, the proposed elements of a FOO Order 
are designed to aid Floor Brokers in their duties and to maintain order 
and structure on the Trading Floor. For example, as with a QOO Order, 
the rules applicable to FOO Orders will ensure that all FLEX Equity 
Option transactions executed on the Trading Floor by Floor Brokers are 
systematized before they are represented to the trading crowd and 
provide an accurate timestamp of when the order was executed by the 
Floor Broker.\216\ As described above, the main differences from QOO 
Orders are that FOO Orders will not interact with the BOX Book or the 
Complex Order Book and that Floor Brokers must allow Floor Participants 
a minimum period of time to respond to FOO Orders.
---------------------------------------------------------------------------

    \214\ See proposed Rule 7605.
    \215\ See Securities Exchange Act Release No. 81292 (August 2, 
2017), 82 FR 37144 (August 8, 2017) (SR-BOX-2016-48) (Order 
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1 
and 2, To Adopt Rules for an Open-Outcry Trading Floor) (``After 
careful review and consideration of the comments received, the 
Commission finds that the proposed rule change, as modified by 
Amendment Nos. 1 and 2, is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to a 
national securities exchange.'').
    \216\ See proposed Rule 7605(e). The Exchange notes that in 
order to execute a FOO Order on the Trading Floor, it must be sent 
from a Floor Broker's system to the BOG. This requires that the 
Floor Broker adequately systematized the FOO Order. An order is 
systematized when a Floor Broker creates an electronic record of the 
order. As the Exchange described when it originally proposed the QOO 
order type, in order to execute a QOO Order from the Trading Floor, 
it must be sent from a Floor Broker's system to the BOG--which 
requires that the Floor Broker adequately systemized the QOO Order. 
See Securities Exchange Act Release No. 80720 (May 18, 2017), 82 FR 
23657, 23682 n.259 (May 23, 2017) (SR-BOX-2016-48) (Notice of Filing 
of Amendment No. 2 to a Proposed Rule Change to Adopt Rules for an 
Open-Outcry Trading Floor).
---------------------------------------------------------------------------

    Under this proposal, Floor Brokers will continue to allow a 
reasonable amount of time for Floor Participants to participate in a 
FOO Order. Additionally, the Exchange will establish and communicate 
via Regulatory Notice a minimum time that Floor Brokers must provide 
for Floor Participants to respond to FOO Orders, which amount of time 
must be between three seconds and five minutes. While other exchanges 
have adopted RFQ processes for FLEX Equity Options,\217\ the Exchange 
has proposed to follow a similar approach for trading FLEX Equity 
Options as CBOE, which does not have a different open outcry process 
for FLEX Option transactions as compared to non-FLEX Option 
transactions, but does establish a different order announcement process 
that requires a reasonable amount of time for traders to respond to a 
FLEX Order.\218\ In fact, the Exchange notes that CBOE recently changed 
its process for FLEX Option transactions from conducting a RFQ process 
to utilizing the same process as for a non-FLEX Option on its trading 
floor.\219\ In its rule filing, CBOE stated that aligning the open 
outcry process for FLEX Options with that of non-FLEX Options may 
reduce confusion regarding how FLEX Orders may trade in open outcry and 
encourage the submission of FLEX Orders for execution.\220\
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    \217\ See NYSE Arca Rule 5.33-O and PHLX Options 8, Section 
34(c) and NYSE American Rule 904G.
    \218\ See CBOE Rule 5.72(d)(1) (providing that FLEX Traders have 
a reasonable amount of time (which amount of time must be between 
three seconds and five minutes) from the time a FLEX Trader requests 
a quote in a FLEX Option series or represents a FLEX Order 
(including announcing a crossing transaction pursuant to Rule 5.87) 
to respond with bids and offers). The Exchange notes that PHLX has 
also taken a similar approach to CBOE. See Securities Exchange Act 
Release No. 97658 (June 7, 2023), 88 FR 38562 (June 13, 2023) (SR-
Phlx-2023-22) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend Various Options 8 Rules).
    \219\ See Securities Exchange Act Release No. 87235 (October 4, 
2019), 84 FR 54671 (October 10, 2019) (SR-CBOE-2019-084) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Extend the Operation of its Flexible Exchange Options (``FLEX 
Options'') Pilot Program Regarding Permissible Exercise Settlement 
Values for FLEX Index Options).
    \220\ Id.
---------------------------------------------------------------------------

    The Exchange similarly proposes to align its open outcry process 
for FLEX Equity Options with that of Non-FLEX Equity Options and to 
establish a minimum time for responses to FOO Orders. The Exchange also 
believes that, in addition to the required minimum time, it is 
appropriate to continue to have Options Exchange Officials determine 
whether Floor Participants have been provided a reasonable amount of 
time to respond to a FOO Order, which is consistent with the current 
procedure on the BOX Trading Floor for QOO Orders.\221\ The Options 
Exchange Official will make this determination on a case-by-case basis 
based on the current market conditions and trading activity on the 
Trading Floor.\222\ Options Exchange Officials are employees of the 
Exchange, reporting to the Chief Regulatory Officer, and are trained 
and qualified to enforce the Exchange's rules. The Exchange believes 
that Options Exchange Officials will ensure that FOO Orders follow the 
Exchange's rules, including that FLEX Market Makers are provided a 
reasonable amount of time to respond.\223\ FLEX Market Makers that do 
not believe a reasonable amount of time to respond was provided may 
appeal any related determination of an Options Exchange Official to the 
Exchange's Chief Regulatory Officer.\224\ Additionally, Floor Brokers 
have a general responsibility to use due diligence to cause orders to 
be executed at the best price or prices available to them in accordance 
with the Rules of the Exchange.\225\ Further, it shall be considered 
conduct inconsistent with just and equitable principles of trade for 
any Floor Broker to intentionally disrupt the open outcry process.\226\ 
Thus, the Exchange believes that the proposed process promotes just and 
equitable principles of trade and removes impediments to and perfects 
the mechanism of a free and open market and a national market system 
because the proposed process provides

[[Page 44740]]

substantially similar opportunities for Floor Participants to respond 
to FOO Orders as an RFQ process while maintaining consistency with 
existing Exchange processes for transactions on the Trading Floor. As 
noted herein, the proposed open outcry process is safeguarded by 
enforcement of the Exchange's rules by Options Exchange Officials. The 
Exchange again notes that, except for the inclusion of a minimum time 
period that a Floor Broker must allow Floor Participants to respond to 
FOO Orders, the proposed open outcry process for FOO Orders is similar 
to the current process for QOO Orders. Therefore, the Exchange believes 
the proposal will serve to avoid confusion and increase efficiency on 
the BOX Trading Floor.
---------------------------------------------------------------------------

    \221\ See supra note 170 (describing that the minimum time 
period, which must be between three seconds and five minutes, will 
be established by the Exchange and communicated via Regulatory 
Notice).
    \222\ The Exchange has a Minor Rule Violation Program (``MRVP'') 
pursuant to Rule 12140 (Imposition of Fines for Minor Rule 
Violations). The MRVP provides in part that improper vocalization of 
a trade may result in sanction. See BOX Rule 12140.
    \223\ See supra note 170 (describing that the minimum time 
period, which must be between three seconds and five minutes, will 
be established by the Exchange and communicated via Regulatory 
Notice).
    \224\ See BOX Rule 7640(e).
    \225\ See BOX Rule 7570.
    \226\ See BOX IM-7580-4.
---------------------------------------------------------------------------

    Proposed Rule 7605(b) states that FOO Orders will be limited solely 
to the Trading Floor. The Exchange believes that limiting FOO Orders to 
the Trading Floor is consistent with the Act because, due to their 
unique and customizable nature, FLEX Equity Option transactions are 
well suited for a trading floor environment where the terms of such 
options can be effectively negotiated. The Exchange notes that other 
exchanges limit FLEX Equity Options trading to their respective trading 
floors.\227\ To the extent the Exchange determines to adopt an 
electronic order type or mechanism for the trading of FLEX Equity 
Options, it will file a subsequent proposed rule change with the 
Commission.
---------------------------------------------------------------------------

    \227\ See NYSE American Rule 904G and NYSE Arca Rule 5.33-O and 
PHLX Options 8, Section 34(c).
---------------------------------------------------------------------------

    Proposed Rule 7605(c) provides that Floor Market Makers in good 
standing under Rule 8500 (Floor Market Maker) may apply to be FLEX 
Market Makers. FLEX Market Makers must be registered under Rule 8000, 
which protects investors and the public interest by ensuring that 
Market Makers are qualified to perform their duties, including filing 
an application, demonstrating knowledge of FLEX Equity Options, and 
providing additional information as the Exchange may consider 
necessary. The Exchange shall qualify at least three FLEX Market Makers 
in accordance with a FLEX-specific qualification process prescribed by 
the Exchange to provide competition for FOO Orders and reasonable 
opportunities for Participants to get quotes on FLEX Equity Options. 
The requirement to qualify at least three FLEX Market Makers is 
designed to remove impediments to and perfect the mechanism of a free 
and open market and a national market system. Similarly to Floor Market 
Makers, FLEX Market Makers will also be subject to Rule 8510, including 
provisions for the course and conduct of dealings, class assignments, 
and option priority and parity, unless otherwise specified in proposed 
Rule 7605.\228\ Specifically, Rule 8510 provides that transactions of a 
Floor Market Maker should constitute a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, quoting obligations, restrictions on trading in certain 
circumstances, and restrictions on conduct related to the allocation of 
trades. These rules are designed to protect investors and the public 
interest and are therefore consistent with the Act.
---------------------------------------------------------------------------

    \228\ Pursuant to proposed Rule 7605(h), FLEX Market Makers have 
an obligation to quote a FLEX Equity Option in response to any 
request for quote by a Floor Broker or Options Exchange Official and 
must provide a two-sided market. See also supra note 87 (describing 
the general applicability of the Rule 8000 series and Rules 8500 and 
8510 to FLEX Market Makers in their capacity as Market Makers and 
Floor Market Makers, respectively).
---------------------------------------------------------------------------

    Proposed Rule 7605(d) states that FOO Orders may be Complex FOO 
Orders or Multi-Leg FOO Orders, including as tied hedge orders, and 
that these orders may be crossed.\229\ However, the priority provisions 
of Rules 7240(b)(2) and (3) do not apply to Complex FOO Orders or 
Multi-Leg FOO Orders because there will be no pre-established series 
and no electronic trading.\230\ Further, only FLEX Equity Options on 
the same underlying and of the same exercise style (American or 
European) may be part of a Complex FOO Order or Multi-Leg FOO Order. 
Additionally, if a Non-FLEX Equity Option series is added intra-day for 
a component leg(s) of a Complex FOO Order or Multi-Leg FOO Order, the 
holder or writer of a FLEX Equity Option position in the component 
leg(s) resulting from such Complex FOO Order or Multi-Leg FOO Order 
would be permitted to close its position(s) under the FLEX trading 
procedures against another closing only FLEX Equity Option position for 
the balance of the trading day on which the Non-FLEX Equity Option 
series is added. If a Non-FLEX Equity Option series is added for a 
component leg(s) of a Complex FOO Order or Multi-Leg FOO Order on a 
trading day after the Complex FOO Order or Multi-Leg FOO Order position 
is established, the holder or writer of a FLEX Equity Option position 
in the component leg(s) resulting from such Complex FOO Order or Multi-
Leg FOO Order would be required to execute separate FLEX Equity Option 
and Non-FLEX Equity Option transactions to close its position(s), such 
that FLEX Equity Option component leg(s) would trade under the FLEX 
trading procedures and Non-FLEX Equity Option component leg(s) would 
trade subject to the non-FLEX trading procedures and rules. These 
proposed rules are designed to maintain order and structure, to detail 
the operation of Complex FOO Order and Multi-Leg FOO Order trading on 
the Trading Floor, and are similar to BOX's current Rule 7600(a)(4). 
The Exchange is proposing to use similar procedures for the trading of 
Complex QOO Orders, multi-leg QOO Orders, Complex FOO Orders, and 
Multi-Leg FOO Orders on the BOX Trading Floor because it will reduce 
investor confusion and increase efficiency. Additionally, offering 
order functionality such as Complex FOO Orders, Multi-Leg FOO Orders, 
and tied hedge orders provides investors with the flexibility and 
capability to meet their investment and hedging objectives. For these 
reasons, the Exchange believes that allowing Complex FOO Orders, Multi-
Leg FOO Orders, and tied hedge orders removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system and is therefore consistent with the Act. The Exchange notes 
that another exchange allows complex orders \231\ and tied hedge \232\ 
orders for FLEX Equity Options.
---------------------------------------------------------------------------

    \229\ See proposed Rule 7605(d), proposed IM-7605-2(d) and 
current IM-7600-2.
    \230\ BOX Rules 7240(b)(2) and (3) provide priority provisions 
for Complex Orders that take into consideration the prices of orders 
on the BOX Book and the Complex Order Book. Because there will be no 
BOX Book or Complex Book for Complex FOO Orders, there is no 
priority of orders on the BOX Book or Complex Book applicable to 
Complex FOO Orders. This is a distinction from Rule 7600(c), which, 
for purposes of QOO Orders, excludes the priority rules for Complex 
Orders contained in Rules 7240(b)(2) and (3) only from multi-leg QOO 
Orders that are not Complex Orders.
    \231\ See CBOE Rules 5.70(b) and 1.1 (definition of, ``Complex 
Order'') (providing that the term ``complex order'' means an order 
involving the concurrent execution of two or more different series 
in the same underlying security or index (the ``legs'' or 
``components'' of the complex order), for the same account, 
occurring at or near the same time and for the purpose of executing 
a particular investment strategy with no more than the applicable 
number of legs (which number CBOE determines on a class-by-class 
basis)). The Exchange notes that the term ``complex order'' on CBOE 
includes both Complex Orders and Multi-Leg Orders, as those terms 
are defined on BOX. See also CBOE Rule 5.87 Interpretations and 
Policies .07 and Securities Exchange Act Release No. 93122 
(September 24, 2021), 86 FR 54269 (September 30, 2021) (Order 
Granting Approval of SR-CBOE-2021-041).
    \232\ See PHLX Options 8, Section 34(b)(2) (new citation of PHLX 
Options 8, Section 34(f)(2) to be implemented prior to August 2024).
---------------------------------------------------------------------------

    Another provision designed to maintain order and structure on the 
Trading Floor is the Exchange's

[[Page 44741]]

proposal that FOO Orders entrusted to a Floor Broker will be considered 
a Not Held Order, unless otherwise specified by a Floor Broker's 
client.\233\ In particular, considering orders as Not Held will aid 
Floor Brokers in their duties on the Trading Floor because it provides 
clarity to both Floor Brokers and their clients regarding how each 
order is to be handled. Additionally, this rule is consistent with the 
current handling of QOO Orders on the BOX Trading Floor which will 
avoid confusion, increase efficiency, and ensure consistent treatment 
of orders on the Trading Floor. The Exchange further believes that this 
proposed rule protects investors and the public interest by clarifying 
order handling duties and expectations between Floor Brokers and 
Participants.
---------------------------------------------------------------------------

    \233\ See proposed Rule 7605(l). See also NYSE Arca Rules 5.34-O 
and 6.62-O(f).
---------------------------------------------------------------------------

    Additionally, the requirement, in proposed IM-7605-2, that 
Participants disclose Public Customer Orders subject to crossing with 
an order that is not a Public Customer Order and all securities that 
are components of the Public Customer Order is designed to maintain 
order and structure on the Trading Floor.\234\ The rule also clarifies 
that Complex FOO Orders, Multi-Leg FOO Orders, or tied hedge orders on 
opposite sides of the market may be crossed subject to 
limitations.\235\ The Exchange believes that providing clarity will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system and that full disclosure will 
prevent fraudulent and manipulative acts and practices by providing 
complete information to Participants which may prompt them to improve 
upon the Floor Broker's proposed crossing price. Additionally, rules 
governing how long a response is in effect and the effect of an 
established market on priority create order and structure on the 
Trading Floor.\236\ The Exchange believes that such order and structure 
protects investors and the public and notes that the same rules apply 
to QOO Orders.\237\
---------------------------------------------------------------------------

    \234\ See proposed IM-7605-2(a) and (e).
    \235\ See proposed IM-7605-2(d).
    \236\ See proposed IM-7605-2(b) and (c).
    \237\ See BOX IM-7600-1. The Exchanges notes that the portion of 
IM-7600-1 that references BOX Book Priority is not included in 
proposed IM-7605-2 because, as discussed, the BOX Book is not 
available for transactions in FLEX Equity Options.
---------------------------------------------------------------------------

    Proposed Rule 7605(e) is designed to aid Floor Brokers in their 
duties and to maintain structure and order on the Trading Floor. For 
example, by providing that a FOO Order is not executed until it is 
processed by the Trading Host,\238\ the Exchange is providing an 
accurate timestamp of when the order was actually executed by the Floor 
Broker and not just when it was submitted to the Exchange.\239\ 
Additionally, the process whereby Floor Brokers are required to 
systematize orders in their systems is designed to provide a complete 
and accurate audit trail and minimize the occurrence of disputes and 
regulatory violations.\240\ After systematization, a Floor Broker's 
system will then be required to send an order to the BOG. Further, 
Floor Brokers are responsible for providing the correct allocations of 
the initiating side of the FOO Order to an Options Exchange Official or 
his or her designee, if necessary, after order execution.\241\ Floor 
Brokers will also be required to ascertain that at least one FLEX 
Market Maker is present in the Crowd Area prior to announcing a FOO 
Order for execution, which is designed to increase competition for FLEX 
Equity Option interest on the Trading Floor.\242\ The Exchange notes 
that these rules are substantially similar to those currently in place 
for QOO Orders on the BOX Trading Floor.\243\ The Exchange believes 
that having substantially similar rules for all orders on the BOX 
Trading Floor will avoid any potential confusion and increase 
efficiency on the BOX Trading Floor, which will further the objectives 
and goals of the Act by helping to prevent fraudulent and manipulative 
acts and practices, promoting just and equitable principles of trade, 
and removing impediments to and perfecting the mechanisms of a free and 
open market and a national market system.
---------------------------------------------------------------------------

    \238\ See proposed Rule 7605(e)(2).
    \239\ FOO Orders will be submitted by Floor Brokers to the BOG, 
which is a component of the Trading Host. A Floor Broker will have a 
connection to the BOG giving the Floor Broker the ability to submit 
FOO Orders to the Trading Host.
    \240\ In order to execute a FOO Order on the Trading Floor, it 
must be sent from a Floor Broker's system to the BOG. This requires 
that the Floor Broker adequately systematized the FOO Order prior to 
announcing the FOO Order to the trading crowd. See proposed Rule 
7605(b).
    \241\ See proposed Rule 7605(j).
    \242\ See proposed Rule 7605(e)(3).
    \243\ See BOX Rule 7600(d)(4). See also BOX Rule 7580(a).
---------------------------------------------------------------------------

FLEX Market Maker Requirements
    The Exchange believes that the proposed rules applicable to FLEX 
Market Makers are reasonable and will foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, promote just and equitable principles of trade, and remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. Specifically, proposed Rules 7605(f), (g) and 
(h) state: (1) that the minimum size for FLEX Equity Option 
transactions and quotations shall be 1 contract; (2) that there are no 
maximum bid to ask spread differentials for FLEX Equity Option quotes; 
and (3) that FLEX Market Makers have an obligation to quote a FLEX 
Equity Option in response to any request for quote by a Floor Broker or 
Options Exchange Official and must provide a two-sided market.\244\ The 
Exchange believes that these rules reflect the unique nature of FLEX 
Equity Option trading which occurs relatively infrequently and with 
option premiums that can vary widely because any exercise price (in 
minimum increments of $0.01) and any expiration date on a business day 
within 15 years of trade date may be traded.\245\ The Exchange believes 
that these requirements strike a balance between the complexity of 
quoting customized options and the need to ensure that Floor Brokers 
are able to get a quote for any FLEX Equity Option selected by their 
clients. Further, these requirements remove impediments to and perfect 
the mechanism of a free and open market and a national market system by 
ensuring that there is a procedure in place to receive a two-sided 
quote for each FOO Order brought to the BOX Trading Floor. The Exchange 
notes that these requirements are similar to those currently in place 
at BOX and another options exchange.\246\
---------------------------------------------------------------------------

    \244\ See proposed Rules 7605(f)-(h).
    \245\ See proposed Rule 5055(e).
    \246\ See NYSE Arca Rules 5.32-O(b)(7) and 5.37-O(d) and BOX 
Rule 8510(c)(2).
---------------------------------------------------------------------------

Priority of Orders and Allocation of Trades
    The Exchange believes that the proposed rule to provide a Floor 
Broker with a guarantee or entitlement to cross 40% of the remaining 
contracts of the original order, after all bids or offers at better 
prices are filled, with other orders that he is holding,\247\ is 
reasonable and is consistent with the Act. Specifically, proposed Rules 
7605(i) and (k) will reward Floor Brokers who bring orders of an 
eligible size determined by the Exchange but not less than 50 contracts 
to the Exchange by guaranteeing them the ability to cross 40% of the 
remaining contracts of those orders after any better priced interest 
has been filled. The Exchange believes that establishing an eligible 
size for such guarantee for at least 50 contracts will encourage larger 
negotiated transactions while providing Floor Participants with a 
reasonable

[[Page 44742]]

opportunity to participate. The Exchange notes that other options 
exchanges provide a guarantee for FLEX Equity Options on their trading 
floors.\248\ Additionally, the Exchange currently provides a similar 
guarantee with respect to QOO Orders executed on the BOX Trading 
Floor.\249\ Allowing a similar guarantee for QOO Orders and FOO Orders 
is intended to maintain consistency and increase efficiency for the 
different order types offered on the BOX Trading Floor. The Exchange 
believes that allowing a guarantee will promote just and equitable 
principles of trade and remove impediments to and perfect the mechanism 
of a free and open market and a national market system by encouraging 
Floor Brokers to bring orders to the Trading Floor while maintaining 
the ability of other Floor Participants to participate in floor 
transactions and compete for such orders.
---------------------------------------------------------------------------

    \247\ See proposed Rules 7605(i) and (k).
    \248\ See NYSE American Rule 904G(e)(iii) (providing that ``[i]n 
the case of FLEX Equity Options only and notwithstanding [Rules 
904G(e)(i) and (ii)], whenever the Submitting Member has indicated 
an intention to cross or act as principal on the trade and has 
matched or improved the BBO during the BBO Improvement Interval, the 
Submitting Member will be permitted to execute the contra side of 
the trade that is the subject of the Request for Quotes, to the 
extent of at least 40% of the trade'') and PHLX Rule Options 8, 
Section 34(c)(5) (``In the case of FLEX equity options only and 
notwithstanding [Section 34(c)(4)], whenever the Requesting Member 
has indicated an intention to cross or act as principal on the trade 
and has matched or improved the BBO during the BBO Improvement 
Interval, the Requesting Member will be permitted to execute the 
contra side of the trade that is the subject of the RFQs, to the 
extent of at least 40% of the trade, provided the order is a Public 
Customer order or an order respecting the Requesting Member's firm 
proprietary account.''). See also NYSE American Rule 904G(f) (``A 
Submitting Member may effect crossing transactions only on public 
customer orders or orders respecting the Submitting Member's firm 
proprietary account.''). The Exchange notes differences between the 
guarantees on NYSE American and PHLX and the guarantee on BOX. 
First, neither PHLX nor NYSE American set an eligible order size and 
BOX proposes an eligible order size, determined by the Exchange, of 
50 or more contracts. Further, both NYSE American and PHLX require 
the contra side of a crossing order subject to the 40% guaranteed 
allocation to be either a Public Customer order or an order 
respecting the submitting firm's proprietary account whereas BOX 
does not impose such limitations. The Exchange notes that not 
limiting contra side participant types is consistent with current 
BOX rules on the Trading Floor for QOO Orders.
    \249\ See BOX Rule 7600(f).
---------------------------------------------------------------------------

    The Exchange believes that, after the allocation of any bids and 
offers at better prices and any eligible Floor Broker guarantee, 
allocating FLEX Equity Option trades between Floor Participants 
pursuant to the priority provisions of Rule 7610 is reasonable and 
promotes just and equitable principles of trade. The Exchange notes 
that, pursuant to Rule 7610, bids and offers are considered in order of 
the highest bid/lowest offer and priority shall be afforded to such 
bids and offers in the sequence in which they are made. In situations 
where the sequence cannot be determined, Floor Participants are treated 
on an equal basis and receive an equal number of contracts to the 
extent mathematically possible.\250\ The Exchange believes that Rule 
7610 is designed to be a fair and impartial method of trade allocation, 
to promote competition between Floor Participants, and to encourage 
quick responses of bids and offers at the best available prices. 
Additionally, consistent and objective trade allocation on the BOX 
Trading Floor may encourage FLEX Market Makers to provide liquidity 
which may improve the quality of responses to FOO Orders. The Exchange 
notes that Rule 7610 is currently applicable to QOO Orders on the BOX 
Trading Floor \251\ and that other exchanges use a similar 
procedure.\252\ Further, if interest remains after Floor Participants 
that responded with interest receive their allocation, the remaining 
quantity of the initiating side of the FOO Order will be allocated to 
the executing Floor Broker. This allocation is designed to further 
incentivize Floor Brokers after first allowing Floor Participants an 
opportunity to participate in the trade.
---------------------------------------------------------------------------

    \250\ See BOX Rule 7610. The Exchange notes that priority in the 
trading crowd is determined without regard to market participant 
type, including Public Customer.
    \251\ The Exchange notes that split-price priority applicable to 
QOO Orders is not applicable to FOO Orders. Split-price priority 
allows a Participant effecting a trade that betters the market to 
have priority on the balance of that trade at the next pricing 
increment, even if there are orders in the book at the same price. 
BOX Book will not be applicable to FOO Orders and thus there is no 
need for split-price priority. Accordingly, the Exchange does not 
propose to adopt provisions analogous to Rule 7600(i), IM-7600-6, or 
IM-7600-7 in proposed Rule 7605.
    \252\ CBOE Rule 5.72(d)(2) provides that FLEX Orders are 
allocated only to responses from the trading crowd pursuant to Rules 
5.85(a)(1) and (2)(C). Rule 5.85(a)(1) provides that bids and offers 
with the highest bid and lowest offer have priority and (2)(C) 
establishes priority between in-crowd market participants at the 
same price. The Exchange believes that these rules are similar to 
BOX Rule 7610 and are appropriate for FLEX Equity Option trading. 
But see NYSE Arca Rules 5.30-O(d) (providing that priority and order 
allocation procedures for open outcry do not apply to FLEX Equity 
Options) and 5.33-O (providing a RFQ procedure for FLEX transactions 
including priority provisions that provide priority in certain 
instances to FLEX Qualified Market Makers and limited priority to 
the submitting firm if it has matched or improved the market on NYSE 
Arca). As discussed herein, the Exchange does not believe that a RFQ 
procedure is necessary for FLEX Equity Option trading on BOX. 
Similarly, CBOE does not have a specific open outcry procedure for 
FLEX transactions. See CBOE Rule 5.72(d) (providing that a 
submitting FLEX Trader may represent and execute a FLEX Order on the 
Exchange's trading floor in the same manner as a Trading Permit 
Holder may represent and execute an order for a non-FLEX Option).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change to add certain 
proposed rules as eligible for a minor rule fine disposition under its 
MRVP will assist the Exchange in preventing fraudulent and manipulative 
acts and practices and promoting just and equitable principles of 
trade, and will serve to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, protect investors and the public interest. In particular, 
the Exchange believes that the proposed rule changes to Rule 12140(e) 
are consistent with Section 6(b)(6) of the Act,\253\ which provides 
that members and persons associated with members shall be appropriately 
disciplined for violation of the provisions of the rules of the 
exchange, by expulsion, suspension, limitation of activities, 
functions, and operations, fine, censure, being suspended or barred 
from being associated with a member, or any other fitting sanction. As 
noted, the proposed rule change adds certain rules as eligible for a 
minor rule fine disposition under the Exchange's MRVP. The Exchange 
believes violations of proposed Rules 7605 and 7605(h) to be minor in 
nature and will be more appropriately disciplined through the 
Exchange's MRVP, and therefore proposes to add them to the list of 
rules in Rule 12140(e) eligible for a minor rule fine disposition. The 
Exchange also believes that the proposed change is designed to provide 
a fair procedure for the disciplining of members and persons associated 
with members, consistent with Sections 6(b)(7) and 6(d) of the 
Act.\254\ Rule 12140, currently and as amended, does not preclude a 
Participant or person associated with or employed by a Participant from 
contesting an alleged violation and receiving a hearing on the matter 
with the same procedural rights through a litigated disciplinary 
proceeding. Further, the Exchange will be able to carry out its 
regulatory responsibility more quickly and efficiently by incorporating 
these violations into the MRVP. The Exchange notes that these 
violations are consistent with violations at other options 
exchanges.\255\ The Exchange also notes that the proposed additional 
violations are similar to minor rule violations already designated in 
the Exchange's

[[Page 44743]]

MRVP for activities related to the Trading Floor.
---------------------------------------------------------------------------

    \253\ 15 U.S.C. 78f(b)(6).
    \254\ 15 U.S.C. 78f(b)(7) and 78f(d).
    \255\ See, e.g., NYSE Arca Rule 10.12(h) and CBOE Rule 
13.15(g)(9).
---------------------------------------------------------------------------

    In requesting the proposed additions to BOX Rule 12140(e), the 
Exchange in no way minimizes the importance of compliance with Exchange 
Rules and all other rules subject to the imposition of fines under the 
MRVP. Minor rule fines provide a meaningful sanction for minor or 
technical violations of rules when the conduct at issue does not 
warrant stronger, immediately reportable disciplinary sanctions. The 
inclusion of a rule in the Exchange's MRVP does not minimize the 
importance of compliance with the rule, nor does it preclude the 
Exchange from choosing to pursue violations of eligible rules through a 
Letter of Consent if the nature of the violations or prior disciplinary 
history warrants more significant sanctions. Rather, the Exchange 
believes that the proposed rule change will strengthen the Exchange's 
ability to carry out its oversight and enforcement responsibilities in 
cases where full disciplinary proceedings are unwarranted in view of 
the minor nature of the particular violation. Rather, the option to 
impose a minor rule sanction gives the Exchange additional flexibility 
to administer its enforcement program in the most effective and 
efficient manner while still fully meeting the Exchange's remedial 
objectives in addressing violative conduct. Specifically, the proposed 
rule change is designed to prevent fraudulent and manipulative acts and 
practices because it will provide the Exchange the ability to issue a 
minor rule fine for violations relating to FOO Orders and FLEX Market 
Maker quoting of FLEX Equity Options where a more formal disciplinary 
action may not be warranted or appropriate. Finally, the Exchange 
believes that the proposed rule change will reinforce its surveillance 
and enforcement functions.
    The Exchange believes that amending Rule 7620 and IM-7620-1 to 
exclude FLEX Equity Options is consistent with proposed Rule 5055(c) 
which provides that Rule 7620 shall not apply to transactions in FLEX 
Equity Options. The amendment is designed to provide clarity by adding 
FLEX Equity Options to the exclusion list in Rule 7620 and IM-7620-1 to 
clarify that neither Cabinet orders nor Sub-Penny Cabinet orders will 
be available for FLEX Equity Options. The Exchange believes further 
that this amendment will protect investors and the public interest by 
removing potential ambiguity between Rule 7620 and proposed Rules 5055 
and 7605 and is therefore consistent with the Act.
    Lastly, the amendment of Rule 100(b)(3) to remove specific rule 
references is designed to clarify that all Exchange options 
transactions shall be executed automatically by the Trading Host as 
provided in applicable Exchange Rules. The Exchange believes that this 
amendment will protect investors and the public interest by removing 
potential ambiguity created by a list of specific rule references that 
may not be complete and is therefore consistent with the Act.
    The Exchange reiterates that FLEX Equity Options are currently 
traded on four other options exchanges currently conducting options 
trading.\256\ Therefore, the proposed rules perfect the mechanism of a 
free and open market and protect investors and the public interest by 
establishing FLEX Equity Options and FOO Orders on the BOX Trading 
Floor, which would provide market participants an additional execution 
venue to provide and seek liquidity for their customized orders, 
thereby increasing the opportunities to execute such orders to the 
benefit of all market participants.
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    \256\ FLEX options are currently traded on CBOE, NYSE American, 
NYSE Arca, and PHLX.
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Section 11(a) Analysis
    The proposed rule change is consistent with Section 11(a) of the 
Act and the rules thereunder. Section 11(a)(1) of the Act \257\ 
prohibits a member of a national securities exchange from effecting 
transactions on that exchange for its own account, the account of an 
associated person, or an account over which it or its associated person 
exercises investment discretion (collectively, ``covered accounts''), 
unless an exception applies. Sections 11(a)(1)(A)-(I) of the Act \258\ 
and the rules thereunder provide certain exemptions from this general 
prohibition, including the exemption set forth in Rule 11a2-2(T) under 
the Act.\259\ The proposed rule change would not limit in any way the 
obligation of a Participant, while acting as a Floor Broker or 
otherwise, to comply with Section 11(a) of the Act or the rules 
thereunder.\260\
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    \257\ 15 U.S.C. 78k(a)(1).
    \258\ 15 U.S.C. 78k(a)(1)(A)-(I).
    \259\ 17 CFR 240.11a2-2(T).
    \260\ A Floor Broker may utilize the Trading Floor to effect a 
transaction for a covered account only pursuant to Rule 7540 and for 
purposes of liquidating error positions.
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    As described above, the Exchange proposes to apply existing IM-
7600-5 to FLEX Equity Options,\261\ which states that a Participant 
shall not utilize the Trading Floor to effect any transaction for a 
covered account by relying on the G Exemption.\262\ Because no covered 
account transactions utilizing the Trading Floor may rely on the G 
Exemption, Participants utilizing the Trading Floor to effect 
transactions for covered accounts may only rely upon other exemptions 
to the Section 11(a)(1) prohibition.\263\
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    \261\ See proposed Rule 5055(c) (stating that IM-7600-5 shall 
apply to FLEX Equity Options).
    \262\ 15 U.S.C. 78k(a)(1)(G). Section 11(a)(1)(G) of the Act 
provides an exemption from the general prohibition in Section 
11(a)(1) of the Act for any transaction for a member's own account, 
provided that: (i) such member is primarily engaged in the business 
of underwriting and distributing securities issued by other persons, 
selling securities to customers, and acting as broker, or any one or 
more of such activities, and whose gross income normally is derived 
principally from such business and related activities; and (ii) such 
transaction is effected in compliance with rules of the Commission 
which, as a minimum, assure that the transaction is not inconsistent 
with the maintenance of fair and orderly markets and yields 
priority, parity, and precedence in execution to orders for the 
account of persons who are not members or associated with members of 
the exchange. See also 17 CFR 240.11a1-1(T) (setting forth 
requirements for relying on the G Exemption).
    \263\ Section 11(a) of the Act and the rules thereunder provide 
other exemptions to the Section 11(a)(1) prohibition, including, for 
example, the ``effect versus execute'' exemption (as discussed 
below), the exemption for transactions by a dealer acting in the 
capacity of a market maker, and the exemption for transactions to 
offset a transaction made in error.
---------------------------------------------------------------------------

    In addition to statutory exemptions, Rule 11a2-2(T) under the 
Act,\264\ known as the ``effect versus execute'' rule, provides 
Participants with an exemption from the Section 11(a)(1) prohibition. 
Rule 11a2-2(T) permits a Participant, subject to certain conditions, to 
effect transactions for covered accounts by arranging for an 
unaffiliated Participant, acting as a Floor Broker, to execute 
transactions on the Exchange. To comply with Rule 11a2-2(T)'s 
conditions, the initiating Participant: (i) must transmit the order 
from off the Trading Floor; (ii) may not participate in the execution 
of the transaction once the order has been transmitted to the 
Participant performing the execution; \265\ (iii) may not be affiliated 
with the executing Participant; and (iv) with respect to an account 
over which the Participant or an associated person has investment 
discretion, neither the Participant nor an associated person may retain 
any compensation in connection with effecting the transaction except as 
provided in the Rule. For the reasons set forth below, the Exchange 
believes that Participants utilizing FOO Orders on the Trading Floor 
may comply with the

[[Page 44744]]

conditions of Rule 11a2-2(T) under the Act.\266\
---------------------------------------------------------------------------

    \264\ 17 CFR 240.11a2-2(T).
    \265\ This prohibition also applies to associated persons of the 
initiating Participant. The Participant may, however, participate in 
clearing and settling the transaction.
    \266\ The Commission has previously found that the all-
electronic transactions effected through the Trading Host are 
consistent with the requirements of Section 11(a) of the Act and 
Rule 11a2-2(T) thereunder. See, e.g., Securities Exchange Act 
Release Nos. 72848 (August 14, 2014), 79 FR 49361 (August 20, 2014) 
(SR-BOX-2014-16) (order approving the Exchange's proposal to adopt 
new trade allocation algorithms for matching trades at the 
conclusion of the PIP and the COPIP); and 66871 (April 27, 2012), 77 
FR 26323 (May 3, 2012) (order granting the Exchange's application 
for registration as a national securities exchange). The Commission 
has also found that transactions effected by Participants through 
the Trading Floor are consistent with the requirements of Section 
11(a) of the Act and Rule 11a2-2(T) thereunder. See Securities 
Exchange Act Release No. 81292 (August 2, 2017), 82 FR 37144 (August 
8, 2017) (SR-BOX-2016-48) (order approving the Exchange's proposal 
to adopt rules for an open-outcry Trading Floor).
---------------------------------------------------------------------------

    Rule 11a2-2(T)'s first requirement is that orders for covered 
accounts be transmitted from off the Trading Floor. The Commission has 
found that the off-floor transmission requirement is met if a covered 
account order is transmitted from a remote location directly to an 
exchange's floor by electronic means.\267\ Floor Brokers will receive 
matched or unmatched orders either via telephone, or electronically to 
the Floor Broker's order entry mechanism. A Participant could submit an 
order for a covered account from off the Trading Floor to an 
unaffiliated Floor Broker for representation on the Trading Floor and 
use the ``effect versus execute'' exemption (assuming the other 
conditions of the rule are satisfied). A Participant that submits a FOO 
Order for a covered account utilizing the Trading Floor, and who wishes 
to rely on the ``effect versus execute'' exemption, must submit the 
order from off the Trading Floor.
---------------------------------------------------------------------------

    \267\ See, e.g., Securities Exchange Act Release Nos. 15533 
(January 29, 1979), 44 FR 6084 (January 31, 1979) (``1979 
Release''); and 14563 (March 14, 1978), 43 FR 11542 (March 17, 1978) 
(``1978 Release'').
---------------------------------------------------------------------------

    Second, Rule 11a2-2(T) requires that neither the initiating 
Participant nor an associated person of the initiating Participant 
participate in the execution of the transaction at any time after the 
order for the transaction has been transmitted. At no time following 
the submission of a FOO Order utilizing the Trading Floor will the 
submitting Participant or any associated person of such Participant 
acquire control or influence over the result or timing of the order's 
execution.\268\ In addition, once a Floor Broker submits a FOO order to 
the BOG for execution, neither the Floor Broker nor anyone else may 
alter the terms of the order.\269\ Moreover, when a Floor Broker 
submits a FOO Order for execution, the order will be executed in 
accordance with Exchange rules and based on market conditions of when 
the order is received by the Trading Host.\270\ Accordingly, a 
Participant and its associated persons would not participate in the 
execution of a FOO Order submitted for execution utilizing the Trading 
Floor.
---------------------------------------------------------------------------

    \268\ A Participant may cancel or modify the FOO Order, or 
modify the instructions for executing the FOO Order. The Commission 
has stated that the nonparticipation requirement is satisfied under 
such circumstances so long as the modifications or cancellations are 
also transmitted from off the floor. See 1978 Release, supra note 
267, at 11547 (stating that the ``non-participation requirement does 
not prevent initiating members from canceling of modifying orders 
(or the instructions pursuant to which the initiating member wishes 
orders to be executed) after the orders have been transmitted to the 
executing member, provided that any such instructions are also 
transmitted from off the floor'').
    \269\ See proposed Rule 7600(c).
    \270\ See proposed Rule 7600(a).
---------------------------------------------------------------------------

    Third, Rule 11a2-2(T) requires that the order be executed by a 
Participant that is not associated with the Participant initiating the 
order. To rely on the exemption in Rule 11a2-2(T), a Participant could 
submit a FOO Order for a covered account from off the Trading Floor to 
an unaffiliated Floor Broker. A Participant relying on Rule 11a2-2(T) 
could not submit a FOO Order for a covered account to its ``house'' 
Floor Broker on the Trading Floor for execution. If a Participant sends 
its FOO Order from off the floor to an affiliated Participant that is 
on the floor, who then directs the order into the Trading Host for 
execution, the off-floor Participant may not rely on the exemption in 
Rule 11a2-2(T).
    Fourth, in the case of a transaction effected for an account with 
respect to which the initiating Participant or an associated person 
thereof exercises investment discretion, neither the initiating 
Participant nor any associated person may retain any compensation in 
connection with effecting the transaction, unless the person authorized 
to transact business for the account has expressly provided otherwise 
by written contract referring to Section 11(a) of the Act and Rule 
11a2-2(T) thereunder.\271\ Participants and their associated persons 
trading for covered accounts over which they exercise investment 
discretion must comply with this condition in order to rely on the 
rule's exemption.
---------------------------------------------------------------------------

    \271\ In addition, Rule 11a2-2(T)(d) requires that, if a 
Participant or associated person is authorized by written contract 
to retain compensation in connection with effecting transactions for 
covered accounts over which the Participant or associated person 
thereof exercises investment discretion, the Participant or 
associated person must furnish at least annually to the person 
authorized to transact business for the account a statement setting 
forth the total amount of compensation retained by the Participant 
or any associated person thereof in connection with effecting 
transactions for the account during the period covered by the 
statement. See 17 CFR 240.11a2-2(T)(d). See also 1978 Release, supra 
note 267, at 11548 (stating that ``[t]he contractual and disclosure 
requirements are designed to assure that accounts electing to permit 
transaction-related compensation do so only after deciding that such 
arrangements are suitable to their interests'').
---------------------------------------------------------------------------

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. The Exchange notes that other 
exchanges currently offer FLEX option trading on their respective 
trading floors. The Exchange believes that the proposed rules will 
allow BOX to compete with these other exchanges and provide an 
additional execution venue for these transactions for market 
participants. Thus, the proposed rules will promote intermarket 
competition by increasing the number of exchanges where FLEX Equity 
Options can be traded. The proposal also promotes intermarket 
competition by providing another alternative, exchange markets, to 
bilateral OTC trading of options with flexible terms. Exchange markets, 
in contrast with bilateral OTC trading, are centralized, transparent, 
and have the guarantee of the OCC for options traded.
    Additionally, the Exchange believes that this proposal does not 
impose an undue burden on intramarket competition because Participants 
are not required to trade FLEX Equity Options and those that choose to 
trade FLEX Equity Options may do so on the same terms and pursuant to 
the same rules. To the extent that the proposed rules differ for FLEX 
Market Makers and Floor Brokers, these differences are based on the 
unique roles and obligations of Floor Brokers (e.g., systemization, 
announcement, and allocation of orders) and FLEX Market Makers (e.g., 
quoting in response to orders). Additionally, any burden on intramarket 
competition imposed by providing Floor Brokers with a guaranteed trade 
allocation on certain trades is mitigated by the facts that FLEX Market 
Maker quotes at better prices are allocated first and FLEX Market 
Makers may still participate after the Floor Broker's guarantee at the 
same price. Further, the Exchange notes that Floor Brokers source 
liquidity for the contra side of a two-sided order that may otherwise 
be unavailable on the Trading Floor due to the size and complexity of 
the order. The proposed

[[Page 44745]]

guarantee provides greater opportunity for the contra-side to 
participate in the trade which facilitates Floor Brokers in their 
generation of contra-side interest and increases the likelihood of 
securing sufficient contra-side interest. FLEX Market Makers do not 
construct two-sided orders and thus are not provided a guarantee. 
However, FLEX Market Makers may benefit from the Floor Broker guarantee 
as the guarantee is designed to incentivize Floor Brokers to bring 
their FLEX orders to the BOX Trading Floor where FLEX Market Makers 
have the ability to interact with these orders. The Exchange also does 
not believe the proposed rule change imposes any undue burden on 
intramarket competition between Participants that trade FLEX Equity 
Options and those that trade Non-FLEX Equity Options. As described 
above, the Exchange has proposed to use substantially similar 
procedures for the trading of QOO Orders and FOO Orders, with any 
modifications designed to reflect the unique nature of customizable 
FLEX Equity Options. The Exchange notes further that proposed Rules 
5055(e)(1) and (f) would prevent any FLEX Equity Options and Non-FLEX 
Equity Options with the same terms from trading concurrently on the 
Exchange, with a narrow exception for closing only orders.\272\
---------------------------------------------------------------------------

    \272\ See supra note 64.
---------------------------------------------------------------------------

    Lastly, the proposed MRVP changes are not intended to address 
competitive issues but rather are concerned solely with updating the 
Exchange's MRVP in connection with the proposed rules eligible for a 
minor rule fine disposition. Further, the proposal relates to the 
Exchange's role and responsibilities as a self-regulatory organization 
and the manner in which it disciplines its Participants and associated 
persons for violations of its rules. The Exchange believes the proposed 
MRVP changes, overall, will strengthen the Exchange's ability to carry 
out its oversight and enforcement functions and deter potential 
violative conduct.
    Based on the foregoing, the Exchange believes that the proposed 
rule changes discussed herein do not 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. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 3, is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange.\273\ In 
particular, the Commission finds that the proposed rule change, as 
amended, is consistent with Section 6(b)(1), 6(b)(5), 6(b)(6), and 
6(b)(7) \274\ of the Exchange Act. Section 6(b)(5) of the Exchange Act 
\275\ requires, among other things, that the rules of a national 
securities exchange be 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 
regulating, clearing, settling, and processing information with respect 
to, and 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. Section 6(b)(5) also requires that the rules of a national 
securities exchange not be designed to permit unfair discrimination 
among customers, issuers, brokers, or dealers. Further, the Commission 
finds that the proposed rule change, as amended, is consistent with 
Section 6(b)(1) of the Exchange Act,\276\ which requires, among other 
things, that a national securities exchange be so organized and have 
the capacity to carry out the purposes of the Exchange Act, and to 
comply and enforce compliance by its members and persons associated 
with its members, with the provisions of the Exchange Act, the rules 
and regulations thereunder, and the rules of the exchange, and with 
Sections 6(b)(6) and 6(b)(7) of the Exchange Act,\277\ which require a 
national securities exchange, among other things, to provide fair 
procedures for the disciplining of members and persons associated with 
members. The Commission also finds that the proposed rule change, as 
amended, is consistent with the public interest, the protection of 
investors, or otherwise in furtherance of the purposes of the Exchange 
Act, as required by Rule 19d-1(c)(2) under the Exchange Act,\278\ which 
governs minor rule violation plans.\279\
---------------------------------------------------------------------------

    \273\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \274\ 15 U.S.C. 78f(b)(5), (6), and (7).
    \275\ 15 U.S.C. 78f(b)(5).
    \276\ 15 U.S.C. 78f(b)(1).
    \277\ 15 U.S.C. 78f(b)(6) and (b)(7).
    \278\ 17 CFR 240.19d-1(c)(2).
    \279\ The Commission has also previously stated in approving 
other exchanges FLEX rules for equity options that, consistent with 
Section 11A, such rules should encourage fair competition among 
broker dealers and exchange markets by allowing exchanges to compete 
with the over-the-counter (``OTC'') market in customized options. 
See Securities Exchange Act Release No. 36841 (February 14, 1996), 
61 FR 6666 (February 21, 1996) (Order approving the listing and 
trading of FLEX Options).
---------------------------------------------------------------------------

    Specifically, the Exchange is proposing to trade FLEX Equity 
Options on the BOX Trading Floor. FLEX Equity Options allow market 
participants to customize certain specified terms (i.e., expiration 
date, exercise price and exercise style) of an equity option. The 
Exchange states that FLEX Equity Options provide an alternative to 
trading customized option in the OTC market and provides the 
``advantages of exchange markets such as transparency, parameters and 
procedures for clearance and settlement and a centralized counterparty 
clearing agency.'' \280\ The Exchange also states that its proposal 
will allow it to compete with other exchanges that currently trade FLEX 
Equity Options and provide an alternative trading venue for market 
participants.
---------------------------------------------------------------------------

    \280\ See Amendment No. 3, supra note 10, at 57. See also, 
Securities Exchange Act Release No. 36841 (February 14, 1996), 61 FR 
6666 (February 21, 1996) (SR-CBOE-95-43) (SR-PSE-95-24) (Order 
Approving the Trading of Flexibly Structured Equity Options by CBOE 
and PSE). The Options Clearing Corporation clears exchange traded 
FLEX options as well as non-FLEX options.
---------------------------------------------------------------------------

    The trading procedures and functionality applicable to FLEX Equity 
Options will be similar to the trading procedures and functionality for 
trading Non-FLEX Equity Options on the BOX Trading Floor, with certain 
exceptions, among others, to account for the customized nature of FLEX 
Equity Options and that there is no BOX Book or Complex Order Book 
available for FLEX Equity Options.\281\ The BOX proposal is also 
consistent with the FLEX Equity Options rules of other national 
securities exchanges that trade FLEX Equity Options.\282\ The

[[Page 44746]]

Commission believes that the Exchange's proposal is designed to provide 
investors with a tailored or customized product for equity options that 
can be traded on the Exchange that may be more suitable to their 
investment needs. For the reasons described in more detail below, the 
Commission believes the proposal is consistent with the Exchange 
Act.\283\
---------------------------------------------------------------------------

    \281\ See Amendment No. 3, supra note 10, at 13 and fn.40.
    \282\ In its proposal, BOX described the FLEX rules of other 
exchanges that its proposed FLEX rules are based on and where there 
were differences described those and the reasons for those 
differences. For example, the Exchange stated it primarily based its 
rules on NYSE Arca but omitted rules concerning index options 
because it is only proposing FLEX Equity Options. See Amendment No. 
3, supra note 10, at 46-54 fn.136-65. BOX also has represented that 
its proposal to trade FLEX Equity Option on its exchange floor in a 
similar manner as it trades non-FLEX options is consistent with how 
FLEX orders are traded on the Cboe Exchange, Inc. (``CBOE''). See 
Amendment No. 3, supra note 10, at 25 fn.75.
    \283\ The Commission received one comment in support of the 
proposed rule change. The public comment file for SR-BOX-2023-20 is 
available on the Commission's website at https://www.sec.gov/comme-2023-20/srbox202320.htm.
---------------------------------------------------------------------------

A. FLEX Equity Option Requirements (Proposed Rule 5055)

    The trading procedures applicable to FLEX Equity Options will be 
subject to many of the same rules that apply to the trading of Non-FLEX 
Equity Options on the Exchange, unless otherwise provided by proposed 
Rules 5055 and 7605.\284\ Among other things, proposed Rule 5055 will 
provide the framework under which FLEX Equity Options would be eligible 
for trading on the Exchange, including, but not limited to, the terms 
under which FLEX Equity Options would be available (detailing the 
underlying security, type, exercise price and style, and expiration 
date), the form of settlement, fungibility provisions, minimum quoting 
and trading increments, exercise by exception requirements, position 
and exercise limits, as well as letters of guarantee and authorization. 
As stated in its filing, the only means by which the Exchange intends 
to permit FLEX Equity Options to be traded is via the proposed FOO 
Order type on the Exchange's Trading Floor.\285\ The Exchange has 
represented that the BOX Book and the Complex Order Book shall not be 
available for transactions in FLEX Equity Options because, consistent 
with other exchanges' FLEX rules, there will be no pre-established 
series and no electronic trading of FLEX Equity Options.\286\ As a 
result, the Exchange notes that those Exchange rules that contemplate 
the operation of or interaction with the BOX Book and the Complex Order 
Book will not apply to FLEX Equity Options, given that FLEX Equity 
Options may only be traded as FOO Orders on the Trading Floor and FOO 
Orders may not be placed in the BOX Book or the Complex Order 
Book.\287\ Additionally, the Exchange has proposed that Options 
Exchange Officials have the same duties and ability to enforce rules 
applicable to the trading of FLEX Equity Options as they do for all 
other activity on the Trading Floor.\288\
---------------------------------------------------------------------------

    \284\ The Exchange represented that it conducted a thorough 
review of its existing Rules to ensure that proposed Rule 5055(a) 
accurately reflects the application of the Exchange's Non-FLEX 
Equity Option Rules to FLEX Equity Options, as well as those Non-
FLEX Equity Option Rules that would not apply to FLEX Equity 
Options. As an example of Non-FLEX Equity Rules that would apply, 
the Exchange referenced BOX Rule 7080 relating to trading halts. The 
Exchange stated that an Options Exchange Official may halt trading 
in any option contract in the interests of a fair and orderly market 
(factors that shall be considered are enumerated in Rule 7080(a)(1)) 
and will halt trading in FLEX Equity Options when Non-FLEX Equity 
Options on the same underlying security are halted. The Exchange 
further represented that the BOX Trading System is also designed to 
enforce the Exchange's trading halt rules such that a trading halt 
in Non-FLEX Equity Options will result in a trading halt in FLEX 
Equity Options on the same underlying security. See Amendment No. 3, 
supra note 10, at 10. As an example of Non-FLEX Equity Rules that 
would not apply, the Exchange referenced proposed Rule 7605 allowing 
FLEX Equity Options to only trade as FOO Orders and stating that 
FLEX Equity Options may not trade via the PIP, COPIP, Facilitation 
and Solicitation Auctions, or as Qualified Contingent Cross, Complex 
QCC, Customer Cross, Complex Customer Cross Orders, and any new 
order type not explicitly included within the FLEX Equity Option 
rules. See Amendment No. 3, supra note 10, at 10-11 fn.32.
    \285\ See Amendment No. 3, supra note 10, at 10 and proposed 
Rule 5055(b)(3). Rule 5055(b)(3) specifically states that FLEX 
Equity Options may not be traded using any other order type or 
trading mechanism offered by the Exchange. In its proposal the 
Exchange, consistent with the requirement that FLEX Equity Options 
can only trade on the Exchange as a FOO Order specified those order 
types and trading mechanisms that cannot be used for the trading of 
FLEX Equity Options. See Amendment No. 3, supra note 10, at 10-11 
fn.24 and 32.
    \286\ See Amendment No. 3, supra note 10, at 11. The Exchange 
notes that proposed Rule 5055(e)(1) and (f)(1) provide that FOO 
orders must have different terms for orders on the BOX Book, and, 
therefore, could not execute against interest on the BOX Book. See 
id. at fn.96. This is consistent with the rules of other exchanges 
that currently trade FLEX Equity Options and that also do not have a 
separate FLEX customer order book. See Securities Exchange Act 
Release No. 90457, (November 18, 2020), 85 FR at 75077 (November 24, 
2020).
    \287\ See Amendment No. 3, supra note 10, at 11 and proposed 
Rule 5055(a)(1).
    \288\ See Amendment No. 3, supra note 10, at 11-12 and proposed 
Rule 5055(a)(2).
---------------------------------------------------------------------------

    As proposed, FLEX Equity Options will only be permitted in puts and 
calls that do not have the same exercise style (American or European), 
same expiration date and same exercise price as Non-FLEX Equity Options 
that are already available for trading on the same underlying security, 
provided the option is otherwise eligible for trading.\289\ The 
Exchange states that its system enforces these requirements and that 
its system will reject an order in a FLEX Equity Option if the order 
received has the same exercise style (i.e., American or European), same 
expiration date and same exercise price as a Non-FLEX Equity Option 
available for trading in the same underlying security.
---------------------------------------------------------------------------

    \289\ See Amendment No. 3, supra note 10, at 12 and proposed 
Rule 5055(e)(1) and (2)(i) Additionally, under proposed Rule 
5055(e)(3) FLEX Equity Options must be physically settled by 
delivery of the underlying security.
---------------------------------------------------------------------------

    Additionally, Exchange proposed Rule 5055(f) titled ``Fungibility 
of FLEX Equity Options'' addresses the listing of a FLEX Equity Option 
before a Non-FLEX Equity Option with the same terms is listed for 
trading and the treatment of such outstanding FLEX Equity Option 
position after the Non-FLEX option is listed. Under Rule 5055(f) if, at 
any time in the future, an options series with identical terms to an 
open FLEX options position is listed for trading as a Non-FLEX Equity 
Option: (i) all existing open positions established under the FLEX 
trading procedures shall be fully fungible with transactions in the 
respective Non-FLEX Equity Options series, and (ii) any further trading 
in the series would be as Non-FLEX Equity Options subject to the non-
FLEX trading procedures and rules.\290\ In the event a Non-FLEX Equity 
Options series is added intra-day, however, the holder or writer of 
such FLEX Equity Options position would be permitted to close such 
position under the FLEX trading procedures only against another closing 
only FLEX Equity Option position for the balance of the trading day on 
which the Non-FLEX series was added.\291\ In addition, once the same 
Non-FLEX Option series is added on a trading day after the FLEX Equity 
is established it can only be closed out by a non-FLEX transaction 
except, as described above, for the limited intra-day exception. As the 
Commission has previously stated, it has been concerned about FLEX 
Options acting as a surrogate for trading in standardized Non-FLEX 
Options given the protections for investors in the Non-FLEX Options 
market, and the fungibility provisions could help to mitigate some of 
these concerns.\292\ The Commission continues to believe that requiring 
FLEX Equity Options to be fungible with their Non-FLEX counterparts 
could help to address the surrogacy concerns and ensure that market 
participants can avail

[[Page 44747]]

themselves of the protections provided in the standardized market.
---------------------------------------------------------------------------

    \290\ See proposed Rule 5055(f)(1).
    \291\ See proposed Rule 5055(f)(2). This is because in the event 
a Non-FLEX Equity Option with identical terms to a FLEX Equity 
Option is listed intraday, OCC could not net the positions in the 
contracts until the next day potentially leading to assignment risk. 
See Securities Exchange Act Release No. 62321 (June 17, 2010), 75 FR 
at 36131 (June 24, 2010).
    \292\ See Securities Exchange Act Release No. 59417 (February 
18, 2009), 74 FR 8591 (February 25, 2009) (Order providing for 
fungibility of FLEX and non-FLEX option series with same terms upon 
listing of non-FLEX option series).
---------------------------------------------------------------------------

    Finally, proposed Rules 5055(i) and 5055(j) details position and 
exercise limits, respectively, for FLEX Equity Options.\293\ Under 
proposed Rule 5055(i)(1) and (j) FLEX Equity Options will not be 
subject to position and exercise limits \294\ except, as long as the 
options positions remain open, positions in FLEX Equity Options that 
expire on the third Friday-of-the-month shall be aggregated with 
positions in Non-FLEX Equity Options on the same underlying security 
and shall be subject to the position limits for Non-FLEX Equity Options 
in current BOX Rule 3120 and the exercise limits set forth in in 
current BOX Rule 3140.\295\ The Exchange has proposed that rather than 
be subject to FLEX position limits, each Participant (other than a 
Market Maker) that maintains a position on the same side of the market 
in excess of the standard position limit under BOX Rule 3120 for Non-
FLEX Equity Options of the same class on behalf of its own account or 
for the account of a customer shall report information on the FLEX 
Equity Options position, positions in any related instrument, the 
purpose or strategy for the position and the collateral used by the 
account.\296\ Furthermore, whenever the Exchange determines that a 
higher margin requirement is necessary in light of the risks associated 
with a FLEX Equity Options position in excess of the stand position 
limit for Non-FLEX Equity Options of the same class, the Exchange may, 
pursuant to its authority under Rule 10130(b), impose additional margin 
upon the account maintaining such under-hedged position.\297\
---------------------------------------------------------------------------

    \293\ See proposed Rule 5055(i).
    \294\ Proposed Rule 5055(j) states that exercise limits for FLEX 
Equity Options are the same as position limits under proposed Rule 
5055(i).
    \295\ See proposed Rule 5055(i)(1) and (2).
    \296\ See proposed Rule 5055(i)(1).
    \297\ See proposed Rule 5055(i)(1). Proposed Rule 5055(i)(1) 
also states that the clearing firm carrying the account will be 
subject to capital charges under SEC Rule 15c3-1 to the extent of 
any margin deficiency resulting from a higher margin imposed by the 
Exchange.
---------------------------------------------------------------------------

    The enhanced reporting requirements and margin provisions as well 
as the requirement that FLEX Equity Options that expire on an 
Expiration Friday be subject to, and aggregated with, standard non-FLEX 
Options position and exercise limits, are the same position and 
exercise limit requirements that apply under the rules of the four 
other exchanges that currently trade FLEX Equity Options.\298\ It is 
therefore appropriate for BOX to have the same position and exercise 
limit rules for FLEX Equity Options as these other exchange markets. As 
the Commission has previously stated, while it cannot entirely rule out 
the potential for future adverse effects on the securities markets for 
the FLEX Equity Options or component securities underlying FLEX Equity 
Options, the continued enhanced market surveillance of positions should 
help the Exchange to take the appropriate action in order to avoid any 
manipulation or market risk concerns.\299\ The Commission expects BOX, 
as it has the other exchanges trading FLEX Equity Options, to take 
prompt action including timely communication with the Commission and 
other marketplace self-regulatory organizations responsible for 
oversight of trading in FLEX Equity Options and the underlying stocks, 
should any unanticipated adverse market effects develop.
---------------------------------------------------------------------------

    \298\ See, e.g., NYSE Arca Rule 5.35-O(b) and (b)(i).
    \299\ The Commission stated that the monitoring of accounts 
should provide the Exchanges with information necessary to determine 
whether to impose additional margin and/or assess capital charges 
and also determine whether a large position could have an undue 
effect on the underlying market and to take the appropriate action. 
See Securities Exchange Act Release No. 42223 (December 10, 1999), 
64 FR 71158 (December 20, 1999) (Order approving the elimination of 
position and exercise limits for FLEX Equity Options). See also 
Securities Exchange Act Release No. 42346 (January 18. 2000), 65 FR 
4010 (January 25, 2000) (Order approving the elimination of position 
and exercise limits for FLEX Equity Options).
---------------------------------------------------------------------------

    Accordingly, based on the above, the Commission finds that proposed 
Rule 5505 is consistent with the Exchange Act, and Section 6(b)(5) of 
the Exchange Act \300\ in particular, and its requirements that the 
rules of a national securities exchange be reasonably designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principals of trade, 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; and that 
the rules not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The Commission notes that Rule 
5055 is modeled on FLEX rules previously approved by the 
Commission.\301\
---------------------------------------------------------------------------

    \300\ 15 U.S.C. 78f(b)(5).
    \301\ See Amendment No. 3, supra note 10, at 10-25.
---------------------------------------------------------------------------

B. FLEX Open Outcry (``FOO'') Orders

    In its filing, the Exchange proposed to introduce a new order type, 
the FLEX Open Outcry Order, to facilitate FLEX Equity Options 
transactions on the BOX Trading Floor.\302\ The FOO Order is modeled on 
a current order type utilized on the Trading Floor, the Qualified Open 
Outcry (``QOO'') Order.\303\ As proposed, FOO Orders must consist of 
options with terms defined in Rule 5055, are limited solely to FLEX 
Equity Options, the BOX Trading Floor, and may only be entered by Floor 
Brokers registered under Rule 7550.\304\ As discussed in more detail 
above, the Exchange proposed to allow Floor Market Makers in good 
standing under Rule 8500 to apply to be FLEX Market Makers, and the 
Exchange will qualify at least three FLEX Market Makers.\305\ All FLEX 
Market Makers will be required to quote all classes when present on the 
Trading Floor.\306\ Similar to Non-FLEX Equity Options, a Floor Broker 
will have to ascertain that at least one FLEX Market Makers is present 
in the Crowd Area prior to announcing a FOO Order for execution, as 
this requirement, among others, is designed to increase the opportunity 
for another Floor Participant to compete to interact with orders on the 
Trading Floor.\307\ Furthermore, as discussed in

[[Page 44748]]

more detail above, FOO Orders may be brought to the Trading Floor as 
matched or unmatched orders with a Floor Broker receiving the matched 
or unmatched order via the same methods that Floor Brokers receive QOO 
orders on the Trading Floor.\308\
---------------------------------------------------------------------------

    \302\ See Amendment No. 3, supra note 10, at 24; see also 
proposed Rule 7605.
    \303\ See Amendment No. 3, supra note 10, at 24-25 fn.73-74. The 
Exchange cites to CBOE, which allows a FLEX Order to be represented 
to and executed in the same manner as a non-FLEX Order. See CBOE 
Rule 5.72(d).
    \304\ See Amendment No. 3, supra note 10, at 25. See proposed 
Rule 7605(a) and (b). Proposed Rule 7605(b) is based on BOX Rule 
7600(a)(2) and (3) and NYSE Arca Rule 5.41-O(b), but the Exchange 
proposed to add a clarifying statement that prior to announcement of 
the FOO Orders to the trading crowd, Floor Brokers must record all 
FOO Orders pursuant to Rule 7580(e)(1).
    \305\ See Amendment No. 3, supra note 10, at 26. For the 
qualification requirements, see Amendment No. 3, supra note 10, at 
26 fn.80.
    \306\ See Amendment No. 3, supra note 10, at 27 fn.81. See also 
proposed Rule 7506(c). The Exchange notes that ``all FLEX Market 
Makers will be subject to the Rule 8000 series (as Market Makers) 
and Rules 8500 and 8510 (as Floor Market Makers) in their entirety, 
and such FLEX Market Makers will be required to be familiar with and 
abide by those Exchange rules where applicable.'' According to the 
Exchange, the provision in proposed Rule 7605(c) providing that FLEX 
Market Makers are subject to the obligations and restrictions of 
Rule 8510 ``unless otherwise specified'' in Rule 7605 is simply 
intended to allow for certain obligations and restrictions unique to 
FLEX Market Makers' trading in FLEX Equity Options that differ from 
those Market Makers' activities in Non-FLEX Equity Options. See 
Amendment No. 3, supra note 10, at 26 fn.79. The Exchange also noted 
that nothing in proposed Rule 7605 is intended to eliminate or 
reduce any generally applicable Market Maker or Floor Market Maker 
obligations, such as a Market Maker's obligation to maintain a 
course of dealings reasonably calculated to contribute to the 
maintenance of a fair and orderly market. Id. The Exchange also 
noted, supra note 89, that each Floor Market Maker is currently 
qualified for all classes of Non-FLEX Equity Options on the Trading 
Floor.
    \307\ See Amendment No. 3, supra note 10, at 27 fn.82-83. See 
also Securities Exchange Act Release No. 81292 (August 2, 2017), 82 
FR 37144 (August 8, 2017) (SR-BOX-2016-48) (Order Approving a 
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To 
Adopt Rules for an Open-Outcry Trading Floor) (``BOX Open-Outcry 
Trading Floor Approval Order'').
    \308\ See also Amendment No. 3, supra note 10, at 28.
---------------------------------------------------------------------------

    As discussed in more detail above, the Exchange also proposed that 
FOO Orders may be either Complex Orders (``Complex FOO Orders'') or 
Multi-Leg Orders (``Multi-Leg FOO Orders'') as defined in Rule 
7240(a)(7) and (10), with no more than the applicable number of legs, 
as determined by the Exchange and communicated to Participants, 
including tied hedge orders defined in IM-7600-2.\309\ The Exchange 
notes that the priority provisions of Rule 7240(b)(2) and (3) will not 
apply to Complex FOO Orders or Multi-Leg FOO Orders because there is no 
Complex Order Book for such orders, nor is there a BOX Book for 
individual FLEX Equity Options components of the Complex FOO Orders or 
Multi-Leg FOO Orders.\310\ Furthermore, under proposed Rule 7605(d), 
each option leg of a Complex FOO Order or Multi-Leg FOO Order must be 
for a FLEX Equity Option series with the same underlying security and 
must have the same exercise style (i.e., American or European).\311\
---------------------------------------------------------------------------

    \309\ See Amendment No. 3, supra note 10, at 29.
    \310\ See id.
    \311\ See Amendment No. 3, supra note 10, at 29-30. See proposed 
Rule 7605(d). Proposed Rule 7605(d)(3) provides that if a Non-FLEX 
Equity Option series is added intra-day for a component leg(s) of a 
Complex FOO Order or Multi-Leg FOO Order, the holder or writer of a 
position in the component leg(s) resulting from such Complex FOO 
Order or Multi-Leg FOO Orders would be permitted to close its 
position(s) under the FLEX trading procedures against closing only 
FLEX Equity Option position for the balance of the trading day on 
which the Non-FLEX Equity Option series is added. Additionally, if a 
Non-FLEX Equity Option series is added for a component leg(s) of a 
Complex FOO Order or Multi-Leg FOO Order on a trading day after the 
Complex FOO Order or Multi-Leg FOO Order position is established, 
the holder or writer of a position in the component leg(s) resulting 
from such Complex FOO Orders or Multi-Leg FOO Orders would be 
required to execute separate FLEX Equity Option and Non-FLEX Equity 
Option transaction to close its position(s), such that FLEX Equity 
Option component leg(s) would trade under the FLEX trading 
procedures and Non-FLEX Equity Option component leg(s) would trade 
subject to the non-FLEX trading procedures and rules. See proposed 
Rule 7605(d)(3) and (4).
---------------------------------------------------------------------------

1. Announcement, Representation, and Execution of a FOO Order
    Proposed Rule 7605(e) covers the announcement and representation of 
FOO Orders on the BOX Trading Floor and the Exchange states that the 
rules are consistent with the Non-FLEX Trading Floor Requirements.\312\ 
All FOO Orders must be announced to the trading crowd, as provided in 
Rule 7580(e)(2), prior to the FOO Order being submitted to the BOG, and 
an Options Exchange Official will certify that the Floor Broker 
adequately announced the FOO Orders to the trading crowd.\313\ The 
Exchange specifies that a FOO Order is not deemed executed until it is 
processed by the Trading Host, and once a Floor Broker submits the FOO 
Order to the BOG, there will be no opportunity for the submitting Floor 
Broker (or anyone else) to alter the terms of the FOO Order.\314\ The 
Exchange states that the proposed floor interaction practice is 
consistent with the process of QOO Orders, but that FOO Orders are not 
eligible for the BOX Book or Complex Order Book, there is no NBBO, and 
that Floor Brokers, under Rule 7605(e)(2), must allow Floor 
Participants a minimum period of time (between three seconds and five 
minutes) that qualifies as a reasonable amount of time to respond to 
FOO Orders.\315\ The Exchange further notes that a reasonable amount of 
time for Floor Participants to respond to a FOO Order, the same as a 
QOO Order, will be interpreted on a case-by-case basis by an Options 
Exchange Official based on current market conditions and trading 
activity on the Trading Floor, provided, for FOO Orders, the minimum 
threshold between three second and five minutes must be satisfied.\316\
---------------------------------------------------------------------------

    \312\ See Amendment No. 3, supra note 10, at 31; see also supra 
note 105 for a discussion on differences between the FOO 
announcement and representations versus QOO orders.
    \313\ See Amendment No. 3, supra note 10, at 33; see proposed 
Rule 7605(e). The Exchange specifies that all transactions on the 
Trading Floor must be processed by the Trading Host and that Floor 
Brokers are responsible for handling all orders in accordance with 
Exchange priority rules. See Amendment No. 3, supra note 10, at 32.
    \314\ See Amendment No. 3, supra note 10, at 33. The Exchange 
notes that once the FOO Order is announced to the trading crowd, the 
Floor Broker must submit the FOO Order to the BOG for processing by 
the Trading Host without undue delay, providing that the executing 
Floor Broker must give Floor Participants a reasonable amount of 
time to respond, per Rule 100(b)(5). The ``reasonable amount of 
time'' will be established by the Exchange, and announced via 
Regulatory Notice, as a minimum period of time (between three 
seconds and five minutes). See Amendment No. 3, supra note 10, at 
33-34.
    \315\ See id. There are no pre-established, outstanding series 
in FLEX Options so they are not continuously quoted. Therefore, 
there is no NBBO in FLEX Options. See Amendment No. 3, supra note 
10, at 34. This is the same as how FLEX Equity Options are traded on 
other exchanges. See Securities Exchange Act Release No. 90457, 
(November 18, 2020), 85 FR at 75077 (November 24, 2020).
    \316\ See Amendment No. 3, supra note 10, at 35. See also 
Amendment No. 3, supra note 10, at 34-35 fn.105 for factors an 
Options Exchange Official takes into account in determining 
reasonable time.
---------------------------------------------------------------------------

    Proposed Rule 7605(f) provides for the minimum size for a FLEX 
Equity Options transaction and quotation to be one contract,\317\ and 
proposed Rule 7605(g) provides that there is no maximum differences 
between the bid and offer for FLEX Equity Option quotes.\318\ Finally, 
proposed Rule 7605(h) states that FLEX Market Makers have an obligation 
to quote a FLEX Equity Option in response to any request for quote by a 
Floor Broker or Options Exchange Official and must provide a two-sided 
market.\319\
---------------------------------------------------------------------------

    \317\ See Amendment No. 3, supra note 10, at 35. See also 
proposed Rule 7605(f).
    \318\ See Amendment No. 3, supra note 10, at 35. See also 
proposed Rule 7605(g).
    \319\ See Amendment No. 3, supra note 10, at 36. See also 
proposed Rule 7605(h).
---------------------------------------------------------------------------

2. Allocation and Priority of FOO Orders
    Proposed Rule 7605(i) details the allocation process for FOO 
Orders, specifically that the FOO Order will be matched by the Trading 
Host on the contra-side of the FOO Order, regardless of whether the 
contra-side order submitted by the Floor Broker is ultimately entitled 
to receive an allocation pursuant to proposed Rule 7605(i)(1)-(2).\320\ 
Specifically: (i) if the FOO Order satisfies the provisions of proposed 
Rule 7605(k), the executing Floor Broker is entitled to 40% of the 
remaining quantity of the initiating side of the FOO Order; \321\ (ii) 
a FLEX Market Maker that responds with interest when the Floor Broker 
announces the FOO Order to the trading crowd, as specified in Rule 
7580(e)(2) and proposed Rule 7605(e), are allocated; (iii) if multiple 
Floor Participants respond with interest, priority in the Trading Crowd 
is established pursuant to Rule 7610; and (iv) if interest remains 
after Floor Participants that respond with interest receive their 
allocations, but the remaining quantity of the initiating side of the 
FOO Order will be allocated to the executing Floor Broker.\322\ These 
are similar allocation and priority provisions to those already 
established and applicable to responses for QOO Orders on the BOX 
Trading Floor.\323\
---------------------------------------------------------------------------

    \320\ See Amendment No. 3, supra note 10, at 36. The Exchange 
states that if no Floor Participant, other than the executing Floor 
Broker, is entitled to an allocation, then no further steps are 
necessary.
    \321\ See proposed Rule 7605(i)(1).
    \322\ See proposed Rule 7605(i)(3).
    \323\ See BOX Rule 7600(c)-(e), (h), (f)(1), and (3). See 
Amendment No. 3, supra note 10, at 37 fn.114. The Exchange states 
that the differences between the FOO and QOO priority provisions are 
due to the fact that there is no FLEX Equity Options interest on the 
BOX Book, and thus those Exchange provisions are not necessary. Id. 
Furthermore, the Exchange notes that the existing rules for 
determining priority of bids and offers from Floor Participants in 
the trading crowd are based on price-time priority without regard to 
market participant type, including Public Customer. See BOX Rule 
7610. According to the Exchange, this is consistent with floor 
priority rules for FLEX options on other options exchanges. See, 
e.g., PHLX Options 8, Section 34(c)(4) and NYSE American Rule 
904G(e).

---------------------------------------------------------------------------

[[Page 44749]]

    As proposed, after the execution of the FOO Order, the executing 
Floor Broker will be responsible for providing the correct allocation 
to the initiating side of the FOO Order to an Options Exchange Official 
(or designees) who will properly record the order on the Exchange's 
system.\324\ Additionally, the Exchange proposed to allow for a 
participation guarantee for certain FOO Orders executed by Floor 
Brokers on the Trading Floor, specifically when a Floor Broker holds an 
option order of eligible size \325\ or greater, the Floor Broker is 
entitled to cross 40% of the remaining contracts of the original order, 
after all bids or offers at better prices are filled, with other orders 
that the Floor Broker is holding.\326\ The Exchange states that nothing 
in the proposed rule is intended to prohibit a Floor Broker from 
trading more than their entitlement if the other Participants of the 
trading crowd do not choose to trade the remaining portion of the 
order.\327\
---------------------------------------------------------------------------

    \324\ See proposed Rule 7605(j). See Amendment No. 3, supra note 
10, at 38. The Exchange notes that the executing Floor Broker must 
provide the correct allocation to an Options Exchange Official (or 
designee) in writing, without unreasonable delay. Id.
    \325\ The Exchange may determine, on an option by option basis, 
the eligible size for an order on the Trading Floor to be subject to 
the guarantee as long as the eligible order size is not less than 50 
contracts. For Complex FOO Orders or Multi-Leg FOO Orders, the 
eligible order size requirement must contain one leg alone which is 
the eligible order size or greater. See proposed Rule 7605(k)(2) and 
Amendment No. 3, supra note 10, at 38-39.
    \326\ See proposed Rule 7605(i), (k)(1), and (3). See Amendment 
No. 3, supra note 10, at 38-39.
    \327\ See proposed Rule 7605(k)(4). See Amendment No. 3, supra 
note 10, at 39.
---------------------------------------------------------------------------

3. Additional Provisions
    As described in more detail above, the Exchange has proposed 
additional provisions related to FOO Orders and conduct on the Trading 
Floor in relation to FLEX Equity Options.\328\ Specifically, the 
Exchange proposed that all order entrusted to a Floor Broker will be 
considered ``Not Held Orders,'' unless otherwise specified by a Floor 
Broker's client.\329\ Additionally, proposed IM-7605-1 allows Floor 
Brokers to bring unmatched orders to the Trading Floor in order to seek 
contra-side interest, and once the contra-side is sourced pursuant to 
Rule 7580(e)(2) and 7605(e), the Floor Broker shall submit the two-
sided FOO Order to the BOG.\330\ The Exchange states that this 
provision is essentially identical to IM-7600-4, which applies to QOO 
Orders on the BOX Trading Floor. Lastly, the Exchange proposes IM-7605-
2 to guide conduct on the floor.\331\ Specifically, IM-7605-2 provides: 
(i) the Floor Broker must disclose all securities that are components 
of the Public Customer Order which is subject to crossing before 
requesting bids and offers for the execution of all components of the 
order; \332\ (ii) once the trading crowd has provided a quote, it will 
remain in effect until a reasonable amount of time has passed, or there 
is a significant change in the price of the underlying security, or the 
market given in response to the request has been improved; \333\ (iii) 
the Participant of the trading crowd who establishes the market will 
have priority over all other orders that were not announced in the 
trading crowd at the time that the market was established and will 
maintain priority over such orders except for orders that improve upon 
the market; \334\ (iv) Complex FOO Orders, Multi-Leg FOO Orders, or 
tied hedge orders on opposite sides of the market may be crossed, 
provided that the Floor Brokers holding such orders proceeds in the 
manner described in proposed Rule 7605 and IM-7600-2 as appropriate; 
\335\ and (v) a Floor Broker crossing a Public Customer Order with an 
order that is not a Public Customer Order, when providing for a 
reasonable opportunity for the trading crowd to participate in the 
transaction, shall disclosure the Public Customer Order that is subject 
to crossing.\336\
---------------------------------------------------------------------------

    \328\ See Amendment No. 3, supra note 10, at 42.
    \329\ See proposed Rule 7605(l). See Amendment No. 3, supra note 
10, at 42.
    \330\ See proposed IM-7605-1. See Amendment No. 3, supra note 
10, at 42.
    \331\ See Amendment No. 3, supra note 10, at 42.
    \332\ See proposed IM-7605-2(a). See also Amendment No. 3, supra 
note 10, at 42.
    \333\ See proposed IM-7605-2(b). See Amendment No. 3, supra note 
10, at 43. Proposed IM-7605-2(b) specifies that in the case of a 
dispute, the term ``significant change'' will be interpreted on a 
case-by-case basis by an Options Exchange Official based upon the 
extent of recent trading in the option and in the underlying 
security, and any other relevant factors.
    \334\ See proposed IM-7605-2(c). See Amendment No. 3, supra note 
10, at 43 and BOX IM-7600-1. Proposed IM-7605-2(c) also specifies 
that when a Floor Broker announces an order to the trading crowd 
pursuant to Rule 7580(e)(2), it is the responsibility of the Floor 
Participant who established the market to alert the Floor Broker of 
the fact that the Floor Participant has priority.
    \335\ See proposed IM-7605-2(d). See Amendment No. 3, supra note 
10, at 43. Proposed IM-7605-2(d) also provides that Floor 
Participants may not prevent a Complex FOO Order from being. 
completed by giving a competing bid or offer for one component of 
such order. Additionally, when determining whether an order 
satisfies the eligible tied hedge order size requirement, any 
Complex FOO Order or Multi-Leg FOO Order must contain one leg which, 
standing alone, is for the eligible order size or greater.
    \336\ See proposed IM-7605-2(e). See Amendment No. 3, supra note 
10, at 44.
---------------------------------------------------------------------------

4. FOO Order Summary
    Accordingly, the Commission finds that the establishment of the new 
FOO Order, including the rules for the FLEX Market Makers, the 
announcement, representation and execution of FOO Orders, allocation of 
FOO Orders, and additional provisions, is consistent with the Exchange 
Act, and Section 6(b)(5) of the Exchange Act \337\ in particular, and 
its requirements that the rules of a national securities exchange be 
reasonably designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principals of trade, 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; and that the rules not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers. The 
Commission notes that the FOO Order is modeled on the previously 
approved QOO Order,\338\ but tailored for FLEX Equity Options. The 
Commission believes that the proposed rules governing Complex FOO 
Orders and Multi-Leg FOO Orders are designed to protect the priority of 
interest on the BOX Book and the Complex Order Book because a Complex 
FOO or Multi-Leg FOO Order must be comprised solely of FLEX Equity 
Option series.\339\ Under the proposal, FLEX Equity Options will be 
permitted only in puts and calls that do not have the same exercise 
style, same expiration date, and same exercise price as Non-FLEX Equity 
Options that are already available for trading on the same underlying 
security.\340\ If any component leg of a Complex FOO or Multi-Leg FOO 
Order becomes a Non-FLEX Equity Option series, the proposed rules 
establish procedures for holders and writers of positions in the 
component leg(s) of the order to close their positions.\341\ 
Additionally, the

[[Page 44750]]

Commission believes that the FLEX Market Maker rules are consistent 
with those of the non-FLEX trading floor, including the requirement for 
one FLEX Market Maker to be present in the Crowd Area prior to 
announcing an order for execution.\342\ Furthermore, the Commission 
believes that the announcement, representation, execution, and 
allocation of FOO Orders is consistent with previously approved QOO 
orders and the deviations from the existing QOO Order rules is 
consistent with the Exchange Act due to the unique nature of the FLEX 
Equity Options as proposed.\343\
---------------------------------------------------------------------------

    \337\ 15 U.S.C. 78f(b)(5).
    \338\ See Amendment No. 3, supra note 10, at 25. See also BOX 
Open-Outcry Trading Floor Approval Order, supra note 307.
    \339\ See proposed Rule 7605(d)(1).
    \340\ See proposed Rule 5505(e)(1).
    \341\ If a Non-FLEX Equity Option series is added intra-day for 
a component leg(s) of a Complex FOO Order or Multi-Leg FOO Order, 
the holder or writer of a position in the component leg(s) resulting 
from such Complex FOO Order or Multi-Leg FOO Orders would be 
permitted to close its position(s) under the FLEX trading procedures 
against closing only FLEX Equity Option position for the balance of 
the trading day on which the Non-FLEX Equity Option series is added. 
If a Non-FLEX Equity Option series is added for a component leg(s) 
of a Complex FOO Order or Multi-Leg FOO Order on a trading day after 
the Complex FOO Order or Multi-Leg FOO Order position is 
established, the holder or writer of a position in the component 
leg(s) resulting from such Complex FOO Orders or Multi-Leg FOO 
Orders would be required to execute separate FLEX Equity Option and 
Non-FLEX Equity Option transactions to close its position(s), such 
that FLEX Equity Option component leg(s) would trade under the FLEX 
trading procedures and Non-FLEX Equity Option component leg(s) would 
trade subject to the non-FLEX trading procedures and rules. See 
proposed Rules 7605(d)(3) and (4).
    \342\ See Amendment No. 3, supra note 10, at 27. See also BOX 
Open-Outcry Trading Floor Approval Order, supra note 307. In the 
Open-Outcry Trading Floor Approval Order, the Commission notes that 
``this requirement . . . [is] designed to increase the opportunities 
for another Floor Participant to compete to interact with the orders 
on the Trading Floor.'' Id. at 37149.
    \343\ See Amendment No. 3, supra note 10, at 31 and 33. See also 
BOX Open-Outcry Trading Floor Approval, supra note 307, at 37151. In 
that Order, the Commission noted that the ``automated provided by 
the BOG and the Trading Host may benefit the Exchange, its members 
and users, and other market participants by, for example, producing 
more accurate and timely trade reports and should ensure compliance 
with trade-through and priority rules.'' Furthermore, the Commission 
noted that it ``believes that the functionality provided by the BOG 
and the Trading Host is reasonably designed to assist Floor 
Participants in complying with applicable Commission rules and 
regulations, and with the Exchange's Rules. Id.
---------------------------------------------------------------------------

C. Regulation and Oversight

    The Commission notes that surveillance is important, among other 
things, to detect and deter fraudulent and manipulative trading 
activity as well as other violations of Exchange rules and the federal 
securities laws. The Exchange has represented that it has reviewed its 
current surveillance in light of any changes required, including 
surveillance and technology to detect disruptive or manipulative 
trading activity for FOO Orders on the Trading Floor, and will modify 
or add any surveillance as appropriate.\344\ The Exchange also states 
it has surveillance in place to monitor issues unique to FLEX trading 
and has developed FLEX-specific surveillance reports to ensure 
monitoring of compliance with the proposed rules. In addition to the 
above, the Exchange states that it will apply its existing surveillance 
program, that applies to other options traded on the Exchange, to FLEX 
Equity Options.\345\ Finally, the Exchange has represented that if it 
amends or changes the FLEX rules in the future it will review and 
update the related surveillance coverage and reports as needed.\346\ 
Furthermore, as noted above, the Exchange represents that it believes 
it and the Options Price Reporting Authority (``OPRA'') have the 
necessary systems capacity to handle the additional message traffic 
associated with the listing of new series that may result from the 
introduction of FLEX Equity Options.\347\
---------------------------------------------------------------------------

    \344\ See Amendment No. 3, supra note 10, at 45 and 58.
    \345\ See id.
    \346\ The Commission notes that the Exchange, in its proposal, 
has represented that it works with other self-regulatory 
organizations (``SROs'') and exchanges on intermarket surveillance 
related issues. Through the Exchange's participation in the 
Intermarket Surveillance Group (``ISG'') the Exchange shares 
information and coordinates inquiries and investigations with other 
exchanges designed to address potential intermarket manipulation and 
trading abuses. In addition, the Exchange stated that the Financial 
Industry Regulatory Authority, Inc. (``FINRA''), conducts cross-
market surveillances on behalf of the Exchange pursuant to a 
regulatory services agreement. The Exchange stated its belief that 
the cross-market surveillance performed by the Exchange or FINRA, on 
behalf of the Exchange, coupled with the Exchange's own monitoring 
comprises a comprehensive surveillance program that is adequate to 
monitor for issues unique to FLEX trading.
    \347\ See Amendment No. 3, supra note 10, at 45. The Exchange 
noted that it will report FLEX Equity Options trade and, if 
necessary, trade cancels to OPRA. See supra note 141.
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    The Exchange also believes the proposed changes to Rule 12140(e) 
(Imposition of Fines for Minor Rule Violations), which provides that 
members and persons associated with members shall be appropriately 
disciplined for violation of the provisions of the rules of the 
exchange, by expulsion, suspension, limitation of activities, 
functions, and operations, fine, censure, being suspended or barred 
from being associated with a member, or any other fitting sanction are 
consistent with Sections 6(b)(6).\348\ The Exchange further believes 
that Rule 12140(e) is designed to provide a fair procedure for the 
disciplining of members and persons associated with members and is, 
therefore, consistent with Sections 6(b)(7) and 6(d) of the Exchange 
Act.\349\ The Exchange proposes to amend Rule 12140(e) to add certain 
violations of FLEX Rules concerning FOO Orders and FLEX Market Makers 
to be eligible for minor rule fines under the Exchange's MRVP.\350\ 
Specifically, the Exchange proposes to modify BOX Rule 12140 to specify 
that any Floor Participant that fails to properly execute a FOO Order 
under new Rule 7605 shall be subject to the fines detailed in Rule 
12140(e)(3) and that any FLEX Market Maker that fails to comply with 
the quotation requirement under new Rule 7605(h) shall be subject to 
the fines detailed in Rule 12140(e)(9).\351\ The Exchange states that 
the rules that it proposes to include in Rule 12140(e) are comparable 
to the rules at other options exchanges.\352\ The proposed additional 
violations are also similar to minor rule violations already designated 
in the Exchange's MRVP for activities related to the trading of Non-
FLEX Equity Options on the Trading Floor.\353\
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    \348\ See Amendment No. 3, supra note 10, at 85.
    \349\ See Amendment No. 3, supra note 10, at 85-86.
    \350\ See Amendment No. 3, supra note 10, at 55-56.
    \351\ See Amendment No. 3, supra note 10, at 56.
    \352\ See Amendment No. 3, supra note 10, at 86 fn.247 (citing 
to NYSE Arca Rule 10.12(h) and CBOE Rule 13.15(g)(9)).
    \353\ See Amendment No. 3, supra note 10, at 86.
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    The Exchange's proposed regulatory structure raises no new 
regulatory issues. Accordingly, the Commission finds that the 
Exchange's proposed regulatory structure, including the Exchange's 
proposed application of its existing rules along with the proposed rule 
changes and the updates to its surveillance program to monitor issues 
unique to FLEX trading are consistent with the Exchange Act and, in 
particular, the Section 6(b)(5) requirement that a national securities 
exchange's rules be designed to prevent fraudulent and manipulative 
acts and practices; promote just and equitable principles of trade, 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and protect investors and the 
public interest.\354\ The Commission also finds that the Exchange's 
proposed regulatory structure is consistent with the requirements of 
Section 6(b)(1) of the Exchange Act, which requires a national 
securities exchange to be so organized and have the capacity to be able 
to carry out the purposes of the Exchange Act and to comply, and to 
enforce compliance by its members and persons associated with its 
members, with the Exchange Act and the rules and regulations 
thereunder, and the rules of the Exchange,\355\ and with Sections 
6(b)(6) and 6(b)(7) of the Exchange

[[Page 44751]]

Act,\356\ which require an Exchange to provide fair procedures for the 
disciplining of members and persons associated with members.
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    \354\ See 15 U.S.C. 78f(b)(5).
    \355\ 15 U.S.C. 78f(b)(1).
    \356\ 15 U.S.C. 78f(b)(6) and (b)(7).
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    Finally, the Commission finds that the proposed changes to the Rule 
12140(e) are consistent with the public interest, the protection of 
investors, or otherwise in furtherance of the purpose of the Exchange 
Act, as required by Rule 19d-1(c)(2) under the Exchange Act,\357\ which 
governs minor rule violation plans. The Commission believes that BOX 
Rule 12140 is an effective way to discipline a member for a minor 
violation of a rule. The Commission believes that the Exchange's 
proposal to add rules related to FOO Orders and FLEX Market Makers to 
the list of rules that are eligible for minor rule violation plan 
treatment is consistent with the Exchange Act because it may help the 
Exchange's ability to better carry out its oversight and enforcement 
responsibilities.
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    \357\ 17 CFR 240.19d-1(c)(2).
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    In approving the proposed changes to the Rule 12140(e), the 
Commission in no way minimizes the importance of complying with the 
Exchange's rules and all other rules subject to fines under BOX Rule 
12140. The Commission believes that a violation of any SRO's rules, as 
well as Commission rules, is a serious matter. However, BOX Rule 12140 
provides a reasonable means of addressing rule violations that may not 
rise to the level of requiring formal disciplinary proceedings, while 
providing greater flexibility in handling certain violations. The 
Commission expects that the Exchange will continue to conduct 
surveillance with due diligence and make a determination based on its 
findings, on a case-by-case basis, whether a fine of more or less than 
the recommended amount is appropriate for a violation under BOX Rule 
12140 or whether a violation requires formal disciplinary action.

D. Section 11(a) of the Exchange Act

    Section 11(a)(1) of the Exchange Act \358\ prohibits a member of a 
national securities exchange from effecting transactions on that 
exchange for its own account, the account of an associated person, or 
an account over which it or its associated person exercises investment 
discretion (collectively, ``covered accounts'') unless an exception 
applies.\359\ Sections 11(a)(1)(A)-(I) of the Act \360\ and the rules 
thereunder provide certain exemptions from this general prohibition, 
including the exemption set forth in Rule 11a2-2(T) under the Act.\361\ 
As described above,\362\ the Exchange proposes to apply existing IM-
7600-5 to FLEX Equity Options,\363\ which states that a Participant 
shall not utilize the Trading Floor to effect any transaction for a 
covered account by relying on the G Exemption.\364\ Because no covered 
account transactions utilizing the Trading Floor may rely on the G 
Exemption, Participants utilizing the Trading Floor to effect 
transactions for covered accounts may only rely upon other exemptions 
to the Section 11(a)(1) prohibition.
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    \358\ 15 U.S.C. 78k(a)(1).
    \359\ Section 11(a) of the Act and the rules thereunder provide 
other exemptions to the Section 11(a)(1) prohibition, including, for 
example, the ``effect versus execute'' exemption, the exemption for 
transactions by a dealer acting in the capacity of a market maker, 
and the exemption for transactions to offset a transaction made in 
error. The ``effect versus execute'' exemption, set forth in Rule 
11a2-2(T) under the Exchange Act, permits an exchange member, 
subject to certain conditions, to effect transactions for covered 
accounts by arranging for an unaffiliated member to execute 
transactions on the exchange. See 17 CFR 240.11a2-2(T).
    \360\ 15 U.S.C. 78k(a)(1)(A)-(I).
    \361\ 17 CFR 240.11a2-2(T).
    \362\ See Amendment No. 3, supra note 10, at 88.
    \363\ See proposed Rule 5055(c) (stating that IM-7600-5 shall 
apply to FLEX Equity Options).
    \364\ 15 U.S.C. 78k(a)(1)(G). Section 11(a)(1)(G) of the Act 
provides an exemption from the general prohibition in Section 
11(a)(1) of the Act for any transaction for a member's own account, 
provided that: (i) such member is primarily engaged in the business 
of underwriting and distributing securities issued by other persons, 
selling securities to customers, and acting as broker, or any one or 
more of such activities, and whose gross income normally is derived 
principally from such business and related activities; and (ii) such 
transaction is effected in compliance with rules of the Commission 
which, as a minimum, assure that the transaction is not inconsistent 
with the maintenance of fair and orderly markets and yields 
priority, parity, and precedence in execution to orders for the 
account of persons who are not members or associated with members of 
the exchange. See also 17 CFR 240.11a1-1(T) (setting forth 
requirements for relying on the G Exemption).
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    The Exchange states that it believes the proposed rule change is 
consistent with Section 11(a) of the Act and rules thereunder.\365\ The 
Exchange states that the proposed rule change would not limit in any 
way the obligation of a Participant, while acting as a Floor Broker or 
otherwise, to comply with Section 11(a) or the rules thereunder.\366\ 
In its filing, the Exchange conducted an analysis detailing how 
Participants utilizing FOO Orders on the Trading Floor may comply with 
the requirements of Rule 11a2-2(T).\367\ The Commission previously 
stated that Participants utilizing the Trading Floor may comply with 
the conditions of Rule 11a2-2(T).\368\ The Commission further notes 
that each member of the Exchange is responsible for ensuring that its 
conduct is in compliance with the requirements of Section 11(a) of the 
Act and the rules promulgated thereunder.
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    \365\ See Amendment No. 3, supra note 10, at 88.
    \366\ See id.
    \367\ See Amendment No. 3, supra note 10, at 90-92.
    \368\ See BOX Open-Outcry Trading Floor Approval, supra note 
307, at 37153.
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IV. Solicitation of Comments on Amendment No. 3 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 3, is consistent with the Exchange 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-2023-20 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-BOX-2023-20. 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

[[Page 44752]]

withhold entirely from publication submitted material that is obscene 
or subject to copyright protection. All submissions should refer to 
file number SR-BOX-2023-20 and should be submitted on or before June 
11, 2024.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 3, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
3 in the Federal Register. The Commission notes that the original 
proposal and the proposal as modified by Amendment No. 2 were published 
for comment in the Federal Register.\369\
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    \369\ See Notice, supra note 3; OIP, supra note 8.
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    In Amendment No. 3, the Exchange amended the proposal to: (i) 
remove proposed Rule 5055(e)(2)(v)(a) regarding when a FLEX Equity 
Option order may be submitted; (ii) add rule language to proposed Rule 
5055(b)(3) to clarify that FOO Orders may only be traded on the Trading 
Floor; (iii) modified proposed Rule 7605(c) to clarify who is 
applicable to apply to be a FLEX Market Maker; and (iv) made various 
clarifications to the rule text, including proposed Rule 7605(d)(4), 
and add additional clarifying changes to the purpose section and 
statutory basis for the proposed rule change. These changes help to 
clarify the proposal by providing additional specificity and 
justification about the proposal.
    In addition, the Exchange made several changes to bring the 
proposed rules into closer alignment with the rules governing the 
trading of FLEX Equity Options on other national securities exchanges, 
including removing proposed Rule 5055(e)(2)(v)(a). These changes help 
make these aspects of the proposal substantially similar to the 
existing rules of national securities exchanges.
    For these reasons, the changes and additional information in 
Amendment No. 3 assist the Commission in evaluating the Exchange's 
proposal and in determining that it is consistent with the Exchange 
Act. Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Exchange Act,\370\ to approve the proposed rule change, 
as modified by Amendment No. 3, on an accelerated basis.
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    \370\ 15 U.S.C. 78f(b)(2).
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VI. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 3, is consistent with the 
Exchange Act and the rules and regulations thereunder applicable to a 
national securities exchange. In addition, the Commission finds, 
pursuant to Rule 9b-1 under the Exchange Act, that FLEX Equity Options 
are standardized options for purposes of the options disclosure 
framework established under Rule 9b-1 of the Exchange Act.\371\
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    \371\ 17 CFR 240.9b-1(a)(4). As part of the original approval 
process of the FLEX Options framework, the Commission delegated to 
the Director of the Division of Market Regulation the authority to 
authorize the issuance of orders designating securities as 
``standardized options'' pursuant to Rule 9b-1(a)(4) under the Act. 
See Securities Exchange Act Release No. 31911 (February 23, 1993), 
58 FR 11792 (March 1, 1993).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\372\ that the proposed rule change SR-BOX-2023-20, as 
modified by Amendment No. 3, be, and it hereby is, approved on an 
accelerated basis.
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    \372\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\373\
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    \373\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-11079 Filed 5-20-24; 8:45 am]
BILLING CODE 8011-01-P