
[Federal Register Volume 78, Number 58 (Tuesday, March 26, 2013)]
[Notices]
[Pages 18413-18414]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06875]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69186; File No. SR-BOX-2013-12]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To Add 
Interpretive Material to Rule 7080 in Connection With the 
Implementation of the Limit Up-Limit Down Plan

March 20, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 8, 2013, BOX Options Exchange LLC (``BOX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II, below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add Interpretive Material to Rule 7080 in 
connection with the implementation of Limit Up-Limit Down procedures 
for securities that underlie options traded on BOX. 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 Web site at http://boxexchange.com.

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

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

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

1. Purpose
    Previously, the Commission approved a National Market System Plan 
to Address Extraordinary Market Volatility across the equities markets 
(as amended, the ``Plan'').\3\ The purpose of the proposed rule change 
is to implement joint industry principles across the options exchanges 
to address the implementation of the Plan. In particular, the proposed 
rule change will address the trading conditions for options on BOX 
Market LLC (the Exchange's options trading facility, ``BOX''), when an 
underlying equity security enters a Limit State, or Straddle State, as 
those terms are defined within the Plan.
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    \3\ See Securities Exchange Act Release No. 67091 (May 31, 2012) 
77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down Release'').
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    The Exchange currently allows the entry of market orders, which are 
orders to buy or sell at the best price available at the time of 
execution (``Market Orders'').\4\ The purpose of this proposed rule 
change is to add to the Exchange Rules new IM-7080-1 (Trading 
Conditions During Limit State or Straddle State) to provide for how the 
Exchange will treat orders during occurrences when an underlying NMS 
stock is in a Limit State or a Straddle State. IM-7080-1 will provide 
that if the underlying security has entered a Limit State or Straddle 
State as those terms are defined within the Plan, certain conditions 
shall apply during the Limit State or Straddle State. Specifically, all 
Market Orders and BOX-Top Orders will be rejected and any resting 
Market Orders and BOX-Top Orders will be cancelled.
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    \4\ See BOX Rule 7110(c).
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    The Limit Up/Limit-Down Plan is designed to prevent executions from 
occurring outside of dynamic price bands disseminated to the public by 
the single plan processor as defined in the Limit Up-Limit Down Plan. 
Under the Plan, a Limit State will be declared if the national best 
offer equals the lower price band and does not cross the national best 
bid, or the national best bid equals the upper price band and does not 
cross the national best offer. A Straddle State is when the national 
best bid (offer) is below (above) the lower (upper) price band and the 
security is not in a Limit State, and trading in that security deviates 
from normal trading characteristics such that declaring a trading pause 
would support the Plan's goal to address extraordinary market 
volatility. Accordingly, when the underlying security is in a Limit 
State or Straddle State, there will not be a reliable price for the 
security to serve as a benchmark for the price of the related option.
    In such a state, the Exchange does not believe that it should 
permit the execution of Market Orders or BOX-Top Orders, which are un-
priced orders that execute at the best price available at the time the 
Exchange receives such orders. However, limit orders, which are orders 
to buy or sell at the price stated or better (``Limit Orders'), contain 
a limit price that will protect them from being executed at inferior 
prices.\5\ Limit Orders will not be rejected during the Limit or 
Straddle State.\6\
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    \5\ Id.
    \6\ The Exchange will not reject pending transactions in the 
Exchange's Facilitation or Solicitation Mechanisms (BOX Rule 7270), 
as all such transactions are initiated with a limit price. Market 
Orders received via the Exchange's Price Improvement mechanism (BOX 
Rule 7150) will be rejected, while Limit Orders will be accepted. 
However, if the PIP auction commences before the underlying has 
moved into a Limit or Straddle State it will not be terminated or 
canceled, as market conditions were reasonable when the auction 
started. Subject to regulatory approval, the Exchange expects to 
launch a Complex Order Offering. See Securities Exchange Act Release 
No. 69027 (March 4, 2013), 78 FR 15093 (March 8, 2013) (SR-BOX-2013-
01) (Notice of Filing Regarding Complex Orders). When this 
functionality is approved Complex Orders that are Market Orders will 
be also be rejected when the underlying enters a Limit or Straddle 
State.
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    The Exchange believes that the rejection of Market Orders or BOX-
Top Orders when the underlying security is subject to a Limit State or 
Straddle State will help to maintain a fair and efficient marketplace 
for the execution of options. Furthermore, the Exchange will reject all 
incoming Market Orders or BOX-Top Orders during the opening of in the 
event that the underlying NMS stock is open, but has entered into a 
Limit State or Straddle State. When this occurs, any resting Market 
Orders will be eliminated and new Market Orders

[[Page 18414]]

will be rejected during the pre-opening. The series will open as 
scheduled, but Market Orders and BOX-Top Orders will continue to be 
rejected until the underlying NMS stock stays out of a Limit or 
Straddle State.
    Lastly, the Exchange proposes that current IM-7080-1 regarding 
Trading Pause be renumbered to IM-7080-2.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Securities Exchange Act of 1934 
(the ``Act''),\7\ in general, and furthers the objections of Section 
6(b)(4) of the Act,\8\ in particular, in that it is designed to promote 
just and equitable principles 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. 
Specifically, the Exchange believes that the proposal is designed to 
help maintain fair and orderly markets by imposing certain modified 
conditions for Market Orders and BOX-Top Orders during times of 
uncertainty regarding the price of the underlying security due to 
extraordinary market volatility in such underlying security.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    When the underlying equity security is in a Limit State or Straddle 
State, there will not be a reliable price for the security to serve as 
a benchmark for the price of the option. This circumstance raises 
particular concerns for the quality of execution for retail customers 
buying or selling options. Accordingly, the Exchange and its options 
exchange competitors are proposing rules that will treat listed options 
on the subject underlying security in a uniform fashion across the 
various markets. As such, the Exchange believes it is in the interests 
of the public and for investor protection to reject Market Orders and 
BOX-Top Orders and cancel such resting orders when the underlying 
equity security enters a Limit State or Straddle State.

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

    The Exchange and its options exchange competitors are proposing 
rules designed to treat listed options on any underlying equity 
security affected as part of the Plan in a uniform fashion across the 
various markets. As such, the Exchange believes the proposals among the 
various options exchanges will impact all market participants equally, 
and will benefit market participants in periods of extraordinary market 
volatility and as consistent with the purposes of the Act. For this 
reason, the Exchange does not believe that the proposed rule change 
will impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) of the Act \11\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \11\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-BOX-2013-12 on the subject line.

Paper comments

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

All submissions should refer to File No. SR-BOX-2013-12. 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 Web site (http://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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-BOX-2013-12 and should be 
submitted on or before April 16, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06875 Filed 3-25-13; 8:45 am]
BILLING CODE 8011-01-P


