
[Federal Register Volume 78, Number 183 (Friday, September 20, 2013)]
[Notices]
[Pages 57911-57913]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-22880]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70395; File No. SR-BOX-2013-38]


Self-Regulatory Organizations; BOX Options Exchange LLC; Order 
Approving a Proposed Rule Change To Modify the Complex Order Filter

September 16, 2013.

I. Introduction

    On July 22, 2013, BOX Options Exchange LLC (the ``Exchange'' or 
``BOX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to modify the Exchange's rules governing the 
filtering of inbound Complex Orders. The proposed rule change was 
published for comment in the Federal Register on August 5, 2013.\3\ The 
Commission received no comments regarding the proposal. This order 
approves the proposed rule change.
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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. 70063 (July 30, 
2013), 78 FR 47463 (``Notice'').
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II. Description of the Proposal

    BOX proposes to amend BOX Rule 7240(b)(3)(iii) to modify the 
procedures governing the filtering of inbound Complex Orders. BOX also 
proposes to amend BOX Rule 7130(a) to provide that the Exchange's High 
Speed Vendor Feed (``HSVF'') is available to market participants and 
that Complex Orders exposed during the Complex Order filtering process 
are included in the HSVF.

A. Complex Order Filter

    BOX's Complex Order Filter provides a process designed to assure 
that each component leg of an inbound Complex Orders is executed at a 
price that is equal to or better than the national best bid or offer 
(``NBBO'') and BOX best bid or offer (``BBO'') for that series.\4\ BOX 
proposes to revise its rules to specifically provide that the Complex 
Order Filter operates in a series of

[[Page 57912]]

sequential steps, set forth in BOX Rule 7240(b)(3)(iii)(A)-(D), that 
result in a Complex Order being fully or partially executed, cancelled, 
or entered on the Complex Order Book.\5\
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    \4\ See BOX Rule 7240(b)(3)(iii).
    \5\ See Notice, 78 FR at 47463.
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    Under the first step in the filtering process, a Complex Order with 
an execution price that is equal to or better than both the cNBBO and 
the cBBO will be executed against existing interest on the BOX Book or 
the Complex Order Book.\6\ BOX proposes to revise the rule to indicate 
that such Complex Order will be executed ``to the extent possible,'' to 
clarify that the Complex Order may receive a partial execution.\7\
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    \6\ See BOX Rule 7240(b)(3)(iii)(A). The cBBO is the best net 
bid and offer price for a Complex Order Strategy based on the BBO on 
the BOX Book for the individual options components of that Strategy. 
The cNBBO is the best net bid and offer price for a Complex Order 
Strategy based on the NBBO for the individual options components of 
that Strategy. See BOX Rule 7240(a)(1) and (3).
    \7\ See BOX Rule 7240(b)(3)(iii)(A).
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    Under the next step of the current filtering process, a BOX-Top 
Complex Order or a Market Complex Order that is executable against the 
cNBBO but that is not executable on BOX is exposed on the Complex Order 
Book for a period of up to one second.\8\ In contrast, under current 
BOX rules, a Limit Complex Order that is executable against the cNBBO 
but that is not executable on BOX is not subject to exposure, but 
instead is entered on the Complex Order Book.\9\ BOX proposes to amend 
its rules to make the exposure period available to Limit Complex 
Orders, as well as BOX-Top and Market Complex Orders, with an exposure 
price equal to, or better than, the same side cNBBO. If the Complex 
Order's exposure price is worse than the same side cNBBO, the Complex 
Order will not be exposed and will be cancelled, except that a Limit 
Complex Order with an exposure price worse than the same side cNBBO 
that does not lock or cross the Complex Order Book will be entered on 
the Complex Order Book.\10\
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    \8\ See BOX Rule 7240(b)(3)(iii)(C)(II). In setting the exposure 
period, BOX will take into consideration the technological ability 
of Participants to respond and similar exposure periods implemented 
by BOX and other exchanges. See Notice, 78 FR at 47464. BOX will 
notify Participants of the duration of the exposure period, and any 
changes to its duration, via regulatory circular. See id.
    \9\ See BOX Rule 7240(b)(3)(iii)(C)(I).
    \10\ See BOX Rule 7240(b)(3)(iii)(B).
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    The revised rule provides that to the extent any inbound Limit, 
BOX-Top, or Market Complex Order is not executable as provided in BOX 
Rule 7240(b)(3)(iii)(A) (i.e., at a price that is equal to or better 
than both the cNBBO and the cBBO), the inbound Complex Order will be 
exposed to Participants for a time period established by BOX, not to 
exceed one second, if the Complex Order's exposure price would be equal 
to, or better than, the same side cNBBO. During the exposure period, 
(i) a Limit Complex Order will be exposed at the order's limit price, 
or if the limit price is equal to or better than the opposite side 
cNBBO, at the opposite side cNBBO; (ii) a BOX-Top Complex Order will be 
exposed at the opposite side cNBBO or, if a limit price has been 
determined by a partial execution of the order, at the order's limit 
price; and (iii) a Market Complex Order will be exposed at the opposite 
side cNBBO.\11\
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    \11\ See BOX Rule 7240(b)(3)(iii)(B).
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    BOX also proposes to allow a Participant to elect not to subject 
its Complex Order to the exposure period.\12\ Unless a Participant 
specifies that its Complex Order not be exposed, the Complex Order will 
be exposed by default.\13\ A Complex Order that is not subject to the 
exposure period will be cancelled or submitted to the Complex Order 
Book, in accordance with the Participant's instructions.\14\
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    \12\ See BOX Rule 7240(b)(3)(iii)(B).
    \13\ See Notice, 78 FR at 47464.
    \14\ See BOX Rule 7240(b)(3)(iii)(B).
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    Under current BOX rules, any unexecuted quantity of a Complex Order 
remaining at the end of the exposure period will be cancelled. BOX 
proposes to amend its rules to provide more specificity regarding when 
any unexecuted quantity of a Complex Order remaining at the end of the 
exposure period will be cancelled. Specifically, such unexecuted 
quantity will be cancelled if: (i) The Participant submitting the order 
provides instructions to cancel the order at that point; (ii) the 
Complex Order is a Market Order; (iii) the Complex Order is a BOX-Top 
Order, no part of which has been executed; or (iv) the Complex Order is 
a BOX-Top or Limit Order at a limit price that could execute on BOX but 
only at a price that is not equal to or better than the opposite side 
cNBBO.\15\ Any unexecuted quantity of a Limit or BOX-Top Complex Order 
that is not cancelled will be entered on the Complex Order Book at its 
limit price.\16\
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    \15\ In addition, a Participant may voluntarily cancel a Complex 
Order at any time, including during the exposure period. See Notice, 
78 FR at 47464. See also BOX Rule 7240(b)(3)(iii)(C).
    \16\ See BOX Rule 7240(b)(3)(iii)(D).
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B. BOX Rule 7130

    BOX proposes to revise BOX Rule 7130(a) to provide that (i) the 
HSVF is made available to market participants, rather than displayed 
only to Options Participants; and (ii) Complex Orders exposed during 
the Complex Order filtering process are included in the HSVF.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\17\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\18\ which 
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 remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \17\ In approving the proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
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    The proposal will expand the availability of the exposure period to 
Limit Complex Orders that are executable against the cNBBO but are not 
executable on BOX.\19\ Currently, such Limit Complex Orders would be 
sent to the BOX Book. The Commission believes that making the exposure 
period available to such Limit Complex Orders could benefit investors 
by providing additional execution opportunities for such Limit Complex 
Orders.\20\
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    \19\ See BOX Rule 7240(b)(3)(iii)(B).
    \20\ A Complex Order with an exposure price worse than the same 
side cNBBO will be cancelled, except that a Limit Complex Order with 
a price worse than the same side cNBBO that would not lock or cross 
the Complex Order Book will be entered on the Complex Order Book. 
See BOX Rule 7240(b)(3)(iii)(B).
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    The proposal also revises the Complex Order filtering process to 
allow a Participant to elect not to have its Complex Order subjected to 
the exposure period, or to have any unexecuted portion of its order 
cancelled at the conclusion of the exposure period.\21\ The Commission 
believes that these changes could benefit market participants by 
providing them with additional flexibility in determining how their 
Complex Orders are processed.
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    \21\ See BOX Rules 7240(b)(3)(iii)(B) and 7240(b)(3)(iii)(C)(i).
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    The Commission believes that the new provisions in BOX Rule 
7240(b)(3)(iii)(C) setting forth the circumstances in which any 
unexecuted quantity of a Complex Order will be

[[Page 57913]]

cancelled at the end of the exposure period (in addition to a 
cancellation requested by the submitting Participant),\22\ and the 
provisions in BOX Rule 7240(b)(3)(iii)(D) indicating that any 
unexecuted quantity of a Limit or BOX-Top Order that is not cancelled 
will be entered on the Complex Order Book, should benefit market 
participants by providing additional transparency regarding the 
operation of the Complex Order filtering process.
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    \22\ See note 15, supra, and accompanying text.
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    As noted above, BOX Rule 7130(a), as amended, indicates that 
Complex Orders exposed during the exposure period are included in the 
HSVF, and that the HSVF is available to market participants, rather 
than only to Options Participants. The Commission notes that BOX Rule 
7130(a)(2) currently states that BOX makes the HSVF available to all 
market participants at no cost.\23\ The modifications to BOX Rule 
7130(a) relating to the HSVF are designed to conform the rule to the 
more specific language in BOX Rule 7130(a)(2) \24\ and to provide 
additional information regarding the exposure of complex orders under 
revised BOX Rule 7240.
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    \23\ See Securities Exchange Act Release No. 68833 (February 5, 
2013), 78 FR 9758 (February 11, 2013) (notice of filing and 
immediate effectiveness of File No. SR-BOX-2013-04) (making the HSVF 
available to all market participants).
    \24\ BOX states that the changes to BOX Rule 7130 are 
clarifications of the rule text and do not represent changes to the 
operation of the Exchange. See Notice, 78 FR at 47464.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-BOX-2013-38) is approved.
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-22880 Filed 9-19-13; 8:45 am]
BILLING CODE 8011-01-P


