
[Federal Register Volume 78, Number 127 (Tuesday, July 2, 2013)]
[Notices]
[Pages 39805-39806]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15780]



[[Page 39805]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69863; File No. SR-BOX-2013-32]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend BOX Rule 7130 (Execution and Price/Time Priority) To Adjust the 
NBBO Exposure Period

    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 June 20, 2013, BOX Options Exchange LLC (the ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule from 
interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend BOX Rule 7130 (Execution and Price/
Time Priority) to adjust the NBBO exposure period. 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
    The Exchange proposes to amend BOX Rule 7130 (Execution and Price/
Time Priority) to allow the Exchange to set the duration of the NBBO 
exposure period available to certain unexecuted orders. This is a 
competitive filing based on the rules of the International Securities 
Exchange (``ISE'').\3\
---------------------------------------------------------------------------

    \3\ See Supplementary Material .02 to ISE Rule 1901. The rule 
was adopted in 2008. See
    Securities Exchange Act Release No. 58038 (June 26, 2008), 73 FR 
38261 (July 3, 2008) (SR-ISE-2008-50) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to the 
Exposure of Public Customer Orders to all ISE Members). ISE's 
current NBBO Exposure period is set at 150 milliseconds. See ISE 
Market Information Circular 2012-09 from February 29, 2012.
---------------------------------------------------------------------------

    Under the current BOX Rules, certain orders are exposed at the 
national best bid or offer (``NBBO'') to all Exchange Participants for 
one (1) second to give Participants an opportunity to execute against 
the order at the NBBO or better. If no Participants execute against the 
order during the exposure period, the order will be rejected (in the 
case of Non-Customer Orders), routed to an Away Exchange \4\ (in the 
case of Public Customer Orders), or, if the best BOX price is then 
equal to the NBBO, executed on the BOX Book.\5\ The Exchange proposes 
to amend the exposure period language in Rule 7130(b)(4)(ii) to state 
that the order will be exposed on the BOX Book at the NBBO for a time 
period established by the Exchange, not to exceed one second.
---------------------------------------------------------------------------

    \4\ The Exchange is a participant in the Options Order 
Protection and Locked/Crossed Market Plan (``Plan''). The Plan 
requires the Participating Options Exchanges to adopt rules 
``reasonably designed to prevent Trade-Throughs.'' Under the Plan, 
the Exchange cannot execute orders at a price that is inferior to 
the NBBO, nor can the Exchange place an order on its books that 
would cause the Exchange's best bid or offer (``BBO'') to lock or 
cross another exchange's quote. In compliance with this requirement, 
incoming orders are not automatically executed at prices inferior to 
another exchange's Protected Bid or Protected Offer, nor placed on 
the limit order book if they would lock or cross an Away Market. If 
the Exchange cannot execute or book an order it will route the order 
to an Away Exchange on behalf of the Options Participant who 
submitted the Eligible Order through a third-party broker dealer.
    \5\ Only orders that are specifically designated by Options 
Participants as eligible for routing will be routed to an Away 
Exchange (``Eligible Orders''). However, Market-on-Opening Orders, 
any Improvement Auction orders, or any order identified with the 
condition ``Fill and Kill'' shall not be eligible for routing. See 
BOX Rule 15030(a).
---------------------------------------------------------------------------

    The proposed change will give the Exchange the flexibility of 
lowering the NBBO exposure period when necessary, which the Exchange 
believes will benefit market participants by providing them with more 
timely executions and reducing their market risk. Today's market 
participants possess sophisticated trading technology and, as with 
other time periods on BOX, a longer exposure period may not be 
necessary.\6\ Additionally, these longer time periods expose market 
participants to additional, and because of current systems technology, 
unnecessary, market risk.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release Nos. 59638 (March 27, 
2009), 74 FR 15020 (April 2, 2009) (SR-BX-2009-015) (Order Granting 
Approval of Reduction of Certain Order Handling and Exposure Periods 
on BOX From Three Seconds to One Second), and 66306 (February 2, 
2012), 77 FR 6608 (February 8, 2012) (SR-BX-2011-084) (Order 
Granting Approval to Reduce the PIP From One Second to One Hundred 
Milliseconds); 68965 (February 21, 2013), 78 FR 13387 (February 27, 
2013) (SR-BOX-2013-08) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Reduce the Directed Order Exposure Period 
on BOX From Three Seconds to One). In connection with the first two 
proposals, BOX distributed a survey to Participants. The results 
indicated that the time it takes a message to travel between BOX and 
the Participants typically is not more than 50 milliseconds each 
way, and that it typically takes not more than 10 milliseconds for 
Participant systems to process the information and generate a 
response. The speed at which technology systems can process 
information has only increased since then. As such, the Exchange 
believes that the information gathered from Participants supports 
the assertion that having the flexibility to reduce the NBBO 
exposure period to under one second will continue to provide 
Participants with sufficient time to ensure effective interaction 
with orders.
---------------------------------------------------------------------------

    When setting this NBBO exposure period, the Exchange will take into 
consideration the technological ability of Participants to respond as 
well as similar exposure periods implemented by the Exchange and other 
exchanges. The Exchange will notify Participants of the duration of the 
exposure period, and any changes to the duration, via regulatory 
circular at least one week prior to the implementation date. BOX 
believes this will give Participants an opportunity to change any 
system settings to coincide with the implementation date.
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 Section 6(b)(5) of the Act,\8\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general to protect investors and the 
public interest. In particular, the proposed rule change will 
facilitate and provide investors with prompt and timely execution of 
their options orders, while continuing to provide market

[[Page 39806]]

participants with an opportunity to compete for orders exposed at the 
NBBO.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As proposed, the NBBO exposure period will not exceed one second 
and will be set by the Exchange, taking into consideration the 
technological ability of Participants to respond as well as similar 
exposure periods implemented by other exchanges. The Exchange believes 
having the ability to set the appropriate duration for the NBBO 
exposure period will provide flexibility and thereby improve order 
execution opportunities for Participants. As a result, the Exchange 
believes the proposed rule change promotes just and equitable 
principles of trade, will foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
    Additionally, the proposed change will reduce market risk for BOX 
Participants responding to orders exposed at the NBBO by providing more 
timely executions of these orders. As such, BOX believes the proposed 
rule change would help perfect the mechanism for a free and open 
national market system, and generally help protect investors' and the 
public interest. The Exchange believes the proposed rule change is not 
unfairly discriminatory because the exposure time period for responding 
to orders exposed at the NBBO would be the same for all Participants. 
Further, all Participants will have advance notice of the NBBO exposure 
period and any changes via regulatory circular. All Participants on BOX 
have today, and will continue to have, an equal opportunity to respond 
to orders exposed at the NBBO. As such, the Exchange believes the 
proposed change is not unfairly discriminatory and would benefit 
investors.

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

    The Exchange believes the proposed change will reduce market risk 
for BOX Participants whose orders are exposed at the NBBO and those 
responding to orders exposed at the NBBO, and that the proposed rule 
change is not unfairly discriminatory because the exposure time period 
would be the same for all Participants. All Participants on BOX have 
today, and will continue to have, an equal opportunity to respond to 
orders exposed at the NBBO. Further, all Participants will have advance 
notice of the NBBO exposure period and any changes via regulatory 
circular. As such, the Exchange believes that a possible reduction in 
the exposure period would not be unfairly discriminatory and would 
benefit investors. The Exchange all also believes that the proposed 
change will not burden intermarket competition and instead will help 
the market operate efficiently by giving Participants the opportunity 
to trade on an order before it is routed away or canceled. 
Additionally, and as indicated above, the Exchange notes that the rule 
change is being proposed as a competitive response to the rules of the 
ISE.\9\
---------------------------------------------------------------------------

    \9\ See supra, note 3.
---------------------------------------------------------------------------

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

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

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

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) by 
its terms does not become operative for 30 days after the date of this 
filing, 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 \10\ and Rule 19b-4(f)(6) thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has met this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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 Number SR-BOX-2013-32 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 Number SR-BOX-2013-32. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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 Number SR-BOX-2013-32 and should be 
submitted on or before July 23, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15780 Filed 7-1-13; 8:45 am]
BILLING CODE 8011-01-P


