
[Federal Register Volume 82, Number 98 (Tuesday, May 23, 2017)]
[Notices]
[Pages 23657-23684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10588]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80720; File No. SR-BOX-2016-48]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing of Amendment No. 2 to a Proposed Rule Change To Adopt Rules 
for an Open-Outcry Trading Floor

May 18, 2017.
    On November 16, 2016, BOX Options Exchange LLC (``BOX'' or the 
``Exchange'') 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 adopt rules for an open-outcry trading floor. 
The proposed rule change was published for comment in the Federal 
Register on December 05, 2016.\3\ The Commission received three comment 
letters in response to the publication of the Notice.\4\ On January 10, 
2017, the Commission extended the time period within which to approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to approve or disapprove the 
proposed rule change to March 05, 2017.\5\ On February 21, 2017, the 
Commission received a response letter from the Exchange, as well as 
Amendment No. 1 to the proposed rule change.\6\ On March 1, 2017, the

[[Page 23658]]

Commission instituted proceedings to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 1.\7\ 
In response to the OIP, the Commission received five additional comment 
letters.\8\ On May 17, 2017, the Exchange filed Amendment No. 2 to the 
proposed rule change, which replaced and superseded the original 
filing, as modified by Amendment No. 1, in its entirety.\9\ The 
Commission is publishing this notice to solicit comments from 
interested persons on Amendment No. 2. Items I and II below have been 
prepared by the Exchange. On May 18, 2017, the Commission extended the 
time period within which to approve or disapprove the proposed rule 
change to August 2, 2017.\10\
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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. 79421 (November 29, 
2016), 81 FR 87607 (``Notice'').
    \4\ See letters to Brent J. Fields, Secretary, Commission, from 
Angelo Evangelou, Deputy General Counsel, The Chicago Board Options 
Exchange, Inc. (``CBOE''), dated January 10, 2017; Steve 
Crutchfield, Head of Market Structure, CTC Trading Group, LLC (``CTC 
Trading''), dated December 31, 2016; and Joan C. Conley, Senior Vice 
President and Corporate Secretary, The Nasdaq Stock Market LLC 
(``Nasdaq''), dated December 22, 2016.
    \5\ See Securities Exchange Act Release No. 79768 (January 10, 
2017), 82 FR 4956 (January 17, 2017).
    \6\ See letter to Brent J. Fields, Secretary, Commission, from 
Lisa J. Fall, President, Exchange, received February 21, 2017, and 
Amendment No. 1, dated February 21, 2017. Amendment No. 1 is 
available at: https://www.sec.gov/comments/sr-box-2016-48/box201648.shtml.
    \7\ See Securities Exchange Act Release No. 80134 (March 1, 
2017), 82 FR 12864 (March 7, 2017) (``OIP'').
    \8\ See letters to Brent J. Fields, Secretary, Commission, from 
Angelo Evangelou, Deputy General Counsel, CBOE, dated April 21, 
2017; Steve Crutchfield, Head of Market Structure, CTC Trading, 
dated April 13, 2017; John Kinahan, CEO, Group One Trading, LP, 
dated April 11, 2017; Elizabeth King, General Counsel and Corporate 
Secretary, New York Stock Exchange, dated March 28, 2017; and Joan 
C. Conley, Senior Vice President and Corporate Secretary, Nasdaq, 
dated March 27, 2017.
    \9\ See Amendment No. 2, dated May 17, 2017. Amendment 2 is 
available on the Exchange's Web site at http://lynxstorageaccount.blob.core.windows.net/boxvr/SE_resources/SR-BOX-2016-48_Amendment_2.pdf.
    \10\ See Securities Exchange Act Release No. 80719 (May 18, 
2017).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change was filed on November 16, 2016, which was 
published in the Federal Register.\11\ The Exchange filed an Amendment 
1 to this rule change on February 21, 2017, which was published in the 
Federal Register notice along with the Order Instituting 
Proceedings.\12\ The Exchange is proposing an Amendment 2 to provide 
more specificity to the rule change. This Amendment 2 amends and 
replaces the Original Filing and Amendment 1 in their entirety.
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    \11\ See Securities Exchange Act Release No. 79421 (November 29, 
2016), 81 FR 87607 (December 5, 2016) (``Original Filing'').
    \12\ See Securities Exchange Act Release No. 80134 (March 1, 
2017), 82 FR 12864 (March 7, 2017) (SR-BOX-2016-48).
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    This Amendment 2 makes the following changes to the Original Filing 
as modified by Amendment 1, to: (i) Clarify that the Trading Floor will 
have a single Crowd Area; \13\ (ii) clarify that the BOX Order Gateway 
(``BOG'') is a component of the Trading Host; \14\ (iii) clarify the 
public outcry process; \15\ (iv) remove proposed Rule 7010(d); \16\ (v) 
provide clarity regarding Trading Floor admittance; \17\ (vi) provide 
more specificity on how trade-through and priority rules are enforced; 
\18\ (vii) provide clarity on the handling of orders by Floor Brokers; 
\19\ (viii) clarify the processing of orders by the Trading Host; \20\ 
(ix) include the requirement of the presence of a Floor Market Maker 
when a Floor Broker announces an order; \21\ (x) include the 
requirement of a Floor Broker to pass an examination as part of the 
registration process; \22\ (xi) provide clarity on the allocation 
process; \23\ (xii) provide additional detail on orders from the 
Trading Floor; \24\ (xiii) clarify the submission parameters and 
process of a QOO Order; \25\ (xiv) clarify that orders are announced on 
the Trading Floor; \26\ (xv) clarify the guarantee provision; \27\ 
(xvi) clarify that combination orders are Complex Orders; \28\ (xvii) 
clarify priority in the trading crowd; \29\ (xviii) clarify that 
single-sided orders may be represented on the Trading Floor; \30\ (xix) 
remove proposed Rule 7620; \31\ (xx) remove the continuous electronic 
quoting obligation; \32\ (xxi) clarify that orders for covered accounts 
\33\ relying on an exemption under Section 11(a)(1)(G) of the Exchange 
Act (the ``G Exemption'') are not allowed when the Trading Floor is 
utilized; \34\ (xxii) clarify the responsibilities of an Options 
Exchange Official; \35\ (xxiii) clarify certain rules related to 
behavior on the Trading Floor; \36\ (xxiv) provide certain data to the 
SEC with respect to activity on the Trading Floor; and (xxv) make 
grammatical changes to the rule text.
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    \13\ See changes in Exhibit 4 to proposed Rules 100(a)(67), 
7660(i), and IM-8510-2(b). The Commission notes that Exhibits 3, 4, 
and 5, which were submitted with Amendment No. 2, are available on 
the Commission's Web site at https://www.sec.gov/rules/sro/box.htm.
    \14\ See changes in Exhibit 4 to proposed Rule 100(b)(2), 
7580(e)(2), 7600(c), IM-7580-2, and 8510(i).
    \15\ See changes in Exhibit 4 to proposed Rule 100(b)(5).
    \16\ See changes in Exhibit 4 to proposed Rule 7010(d).
    \17\ See changes in Exhibit 4 to proposed Rule 7520.
    \18\ See changes in Exhibit 4 to proposed Rule7600(a).
    \19\ See changes in Exhibit 4 to proposed Rule 7580(e).
    \20\ See changes in Exhibit 4 to proposed Rules 100(b)(2), 
100(b)(3), 7240(b)(3)(iii), 7580(e), 7600(a), 7600(c), and 8510(i).
    \21\ See changes in Exhibit 4 to proposed Rule 7580(a).
    \22\ See changes in Exhibit 4 to proposed Rules 2020(h) and 
7550.
    \23\ See changes in Exhibit 4 to proposed Rules 7600(a), 
7600(d), and 7600(h).
    \24\ See changes in Exhibit 4 to proposed Rules 7600 and 
7580(e).
    \25\ As described in greater detail below, the Exchange is 
proposing to adopt a Qualified Open Outcry (``QOO'') Order type. All 
orders executed from the Trading Floor must be QOO Orders. See 
changes in Exhibit 4 to proposed Rule 7600(c).
    \26\ See changes in Exhibit 4 to proposed Rules 7580(e)(1), 
7580(e)(2), 7600(a), 7600(b), IM-7600-1, 7640(b), 8510(i), and IM-
8510-2(b).
    \27\ See changes in Exhibit 4 to proposed Rule 7600(f).
    \28\ See changes in Exhibit 4 to proposed Rules 7580(c), IM-
7590-1, 7600(f)(2), and IM-7600-1(d).
    \29\ See changes in Exhibit 4 to proposed Rules 7610(d)(1) and 
IM-7600-1(c).
    \30\ See changes in Exhibit 4 to proposed Rules 7580(e)(1), 
7580(e)(2), and IM-7600-4.
    \31\ See changes in Exhibit 4 to proposed Rules 7620 and IM-
7600-5.
    \32\ See changes in Exhibit 4 to proposed Rules 8500(a) and 
8510(c)(1).
    \33\ A ``covered account'' is the member's account, the account 
of an associated person, or an account with respect to which it or 
an associated person thereof exercises investment discretion.
    \34\ See changes in Exhibit 4 to proposed Rules 7620(d), IM-
7600-5, and 8510(h).
    \35\ See changes in Exhibit 4 to proposed Rule 100(b)(6).
    \36\ See changes in Exhibit 4 to proposed Rule 8510(h)(4).
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    The Exchange is amending the rule text to clarify that the Trading 
Floor will have a single Crowd Area where all option classes will be 
located.\37\ The Exchange believes this change will provide greater 
clarity on how the Trading Floor will be organized by removing the 
Exchange's discretion to have multiple Crowd Areas. The Exchange 
believes this change is reasonable as it adds more clarity to the rule 
text by making clear in the rules the number of Crowd Areas on the 
Trading Floor.
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    \37\ See changes in Exhibit 4 to proposed Rules 100(a)(67), 
7660(i), and IM-8510-2(b).
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    The Exchange is amending the rule text to clarify that the BOG is a 
component of the Trading Host.\38\ The Exchange believes that this 
change will provide greater clarity on the relationship between the BOG 
and Trading Host. Specifically, the Exchange believes clarifying that 
the BOG is a component of the Trading Host will provide greater detail 
on how QOO Orders submitted by Floor Brokers are processed by the 
Trading Host. The Exchange believes this change is reasonable as it 
adds more clarity to the rule text.
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    \38\ See changes in Exhibit 4 to proposed Rules 100(b)(2), 
7580(e)(2), 7600(c), IM-7580-2, and 8510(i).
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    The Exchange is amending rule text to clarify the public outcry 
process on the Trading Floor.\39\ The proposed change

[[Page 23659]]

will provide how long a Floor Participant has to respond to a Floor 
Broker when an order is announced and additional details on the public 
outcry process. Specifically, a Floor Broker must a give a Floor 
Participant a reasonable amount of time to respond. The Exchange 
believes this change is reasonable as it adds clarity and removes any 
potential confusion from the rule text.
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    \39\ See changes in Exhibit 4 to proposed Rule 100(b)(5).
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    The Exchange is amending the rule text to remove proposed Rule 
7010(d).\40\ The Exchange is removing the proposed Rule because it is 
not necessary. Specifically, the proposed Rule provides that the Board 
may impose a charge upon Options Participants measured by their 
respective net commissions on transactions effected on the Trading 
Floor of the Exchange. The Exchange does not believe the provision is 
necessary because the Exchange does not intend to charge fees based on 
net commissions.\41\ The Exchange believes this change is reasonable as 
it removes a proposed Rule that is not necessary for the Trading Floor.
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    \40\ See changes in Exhibit 4 to proposed Rule 7010(d).
    \41\ The Exchange notes that this proposed change does not 
prevent the Exchange from charging fees on the Trading Floor.
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    The Exchange is amending the rule text to provide clarity regarding 
Trading Floor admittance.\42\ The proposed change makes clear that the 
Exchange must follow applicable disciplinary rules and procedures when 
the Exchange withdraws existing approval to access the Trading Floor. 
The Exchange believes this change is reasonable as it adds clarity to 
the rule text by providing additional detail on the admittance process 
of the Exchange and the existing disciplinary rules that are 
applicable.
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    \42\ See changes in Exhibit 4 to proposed Rule 7520.
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    The Exchange is amending the rule text to provide more specificity 
on how trade-through and priority rules are enforced.\43\ The proposed 
changes will make clear that the Trading Host will enforce trade-
through and priority rules in the same manner for QOO Orders as the 
Trading Host does for all other orders on BOX. As is the case with all 
orders on BOX, the QOO Order is validated when the QOO Order is 
received by the Trading Host.
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    \43\ See changes in Exhibit 4 to proposed Rule 7600(a).
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    The Exchange is amending rule text to provide clarity on the 
handling of orders by Floor Brokers.\44\ The Exchange is amending the 
rule text to make clear that Floor Brokers must comply with certain 
requirements when representing an order on the Trading Floor. The 
Exchange notes that the proposed change does not impose any new 
requirements, but simply seeks to clarify the rules surrounding Floor 
Broker order handling requirements. As such, the Exchange believes that 
these changes are reasonable as they provide clarity to the rules.
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    \44\ See changes in Exhibit 4 to proposed Rule 7580(e).
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    The Exchange is amending the rule text describing the processing of 
an order by the Trading Host.\45\ As part of this clarifying change, 
the Exchange is amending the rule text on how orders are submitted from 
the Trading Floor. The Exchange is making this change because a QOO 
Order is not executed until the Trading Host processes the QOO Order as 
opposed to when it is announced on the Trading Floor. Additionally, the 
Exchange is amending the rule text to make clear that all options 
transactions on BOX are executed automatically by the Trading Host. The 
Exchange believes these changes are reasonable as they eliminate 
confusion and provide clarity to the rules.
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    \45\ See changes in Exhibit 4 to proposed Rules 100(b)(2), 
100(b)(3), 7240(b)(3)(iii), 7580(e), 7600(a), 7600(c), and 8510(i).
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    The Exchange is amending the rule text to include the requirement 
of the presence of a Floor Market Maker when a Floor Broker announces 
an order.\46\ This proposed change is designed to better align the 
Exchange's rules with those of another options exchange.\47\ The 
Exchange believes this change is reasonable as it enhances consistency 
between the Exchange's proposed rules and existing rules at another 
exchange with a trading floor.
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    \46\ See changes in Exhibit 4 to proposed Rule 7580(a).
    \47\ See NASDAQ PHLX LLC (``PHLX'') Rule 1063(a).
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    The Exchange is amending the rule text to include the requirement 
of a Floor Broker to pass an examination as part of the registration 
process.\48\ In the Original Filing, the Exchange was proposing to make 
Floor Broker examinations discretionary, which was a departure from 
another options exchange with a trading floor. Therefore, the Exchange 
believes this change is reasonable as it enhances consistency between 
the exchange's proposed rules and existing rules of another exchange 
with a trading floor.\49\
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    \48\ See changes in Exhibit 4 to proposed Rules 2020(h) and 
7550.
    \49\ See PHLX Rule 1061.
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    The Exchange is amending rule text to provide additional detail on 
orders from the Trading Floor.\50\ The proposed change provides details 
of how a Floor Broker may execute orders from the Trading Floor. The 
proposed change also provides additional details on a Floor Broker's 
responsibility to announce an order to the trading crowd. Additionally, 
as part of this proposed change, the Exchange is moving proposed Rule 
7580(e)(3) and combining it with proposed Rule 7600(a) in order to make 
the rule text clearer. The Exchange believes the proposed change is 
reasonable as it provides additional detail and clarity to the rule 
text.
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    \50\ See changes in Exhibit 4 to proposed Rules 7600 and 
7580(e).
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    The Exchange is amending the rule text to provide clarity on the 
allocation process.\51\ The allocation process has not changed from the 
Original Filing; the proposed change is clarifying the timing and 
procedure that a Floor Broker must use on the Trading Floor. 
Specifically, the executing Floor Broker is responsible for providing 
the correct allocation of the initiating side of the QOO Order to an 
Options Exchange Official or his or her designee who will properly 
record the order in the Exchange's system. Additionally, the proposed 
change reformatted the rule text to make it clearer for Participants. 
As part of this change, the Exchange is clearly laying out how the 
initiating side of the QOO Order is allocated. The Exchange is also 
clarifying the rule text language with respect to the book sweep size. 
The Exchange believes that these changes are reasonable because they 
add clarity and provides additional detail to the rules.
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    \51\ See changes in Exhibit 4 to proposed Rules 7600(a), 
7600(d), and 7600(h).
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    The Exchange is amending the rule text to clarify the submission 
parameters and process of a QOO Order.\52\ This proposed change is 
designed to provide additional clarity on how the open-outcry process 
on the Trading Floor will occur. Specifically, the Exchange is adding 
rule text requiring a Floor Broker to submit the QOO Order to the BOG 
without undue delay. Although the Original Filing did not specifically 
state this, it was generally understood that a Floor Broker would 
submit the QOO Order to the BOG after announcement and would not 
unreasonably delay the submission, provided that the executing Floor 
Broker allows adequate time for Floor Participants to participate in 
the transaction as provided in proposed Rule 100(b)(5). The Exchange is 
also providing additional detail on the requirements for submitting a 
Complex

[[Page 23660]]

QOO Order. As part of this proposed change, the Exchange is also making 
certain clarifying changes to the rule text. As such, the Exchange 
believes the change is reasonable since it provides additional clarity 
to the rules by codifying this requirement of Floor Brokers.
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    \52\ See changes in Exhibit 4 to proposed Rule 7600(c).
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    The Exchange is amending the rule text to clarify that orders are 
announced on the Trading Floor.\53\ This proposed rule change is 
designed to clarify when an execution occurs. In the Original Filing, 
the Exchange used the terms ``executed'', ``announced'' and 
``represented'' on the Trading Floor interchangeably. In actuality, an 
order is announced on the Trading Floor but not executed; the execution 
occurs when the QOO Order is processed by the Trading Host. 
Additionally, a Floor Broker may represent an order on the Trading 
Floor, however, this only means he is holding the order and does not 
necessarily mean he is announcing the order for execution. The Exchange 
believes that these clarifications are reasonable since they are 
designed to clarify and remove confusion from the rule text.
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    \53\ See changes in Exhibit 4 to proposed Rules 7580(e)(2), 
7600(a), 7600(b), IM-7600-1, 7640(b), 8510(i), and IM-8510-2(b).
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    The Exchange is amending the rule text related to guarantees.\54\ 
Specifically, the Exchange is amending the rule text to remove language 
that may lead to confusion among Floor Participants. The Exchange 
believes this change is reasonable as it provides clarity to the rule 
text.
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    \54\ See changes in Exhibit 4 to proposed Rule 7600(f).
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    The Exchange is amending the rule text to clarify that combination 
orders, including spreads, straddles, and stock options, are Complex 
Orders.\55\ The Exchange is making this change in order to clarify the 
usage of certain terms throughout the Exchange's Rulebook. The Exchange 
believes that this minor change is designed to provide clarity in the 
rules and is reasonable.
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    \55\ See changes in Exhibit 4 to proposed Rules 7580(c), IM-
7590-1, 7600(f)(2), and IM-7600-1(d).
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    The Exchange is amending the rule text to clarify priority in the 
trading crowd.\56\ Specifically, the proposed change clarifies that 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 when a Floor Broker announces an order to the trading 
crowd. The Exchange believes this change is reasonable because it will 
provide clarity and guidance to Floor Participants on the requirements 
of the rules.
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    \56\ See changes in Exhibit 4 to proposed Rules 7610(d)(1) and 
IM-7600-1(c).
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    The Exchange is amending the rule text to clarify that single-sided 
orders may be represented on the Trading Floor.\57\ Single-sided orders 
have always been allowed on the Trading Floor; however, the Original 
Filing was silent on whether they may be represented on the Trading 
Floor. This proposed change is simply codifying that single-sided 
orders are allowed on the Trading Floor and, therefore, the Exchange 
believes the change is reasonable.
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    \57\ See changes in Exhibit 4 to proposed Rule IM-7600-4.
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    The Exchange is removing proposed Rule 7620.\58\ Proposed Rule 7620 
is not necessary since orders executed by Floor Brokers from the 
Trading Floor must be QOO Orders processed by the Trading Host and 
proposed Rule 7600 provides adequate details on the process of 
executing orders from the Trading Floor. Specifically, paragraph (a) of 
proposed Rule 7620 is covered by proposed Rule 7600(d)(2) and paragraph 
(b) is covered by proposed Rule 7600(d)(3)(ii). Paragraph (c) was 
inadvertently included. Paragraph (c) provides that bids and offers of 
non-Public Customers on the BOX Book ranked behind any Public Customer 
Orders at the same price have last priority. This provision is not 
applicable to the Trading Floor because the executing Floor Broker has 
last priority on the Trading Floor, not bids and offers of non-Public 
Customers on the BOX Book ranked behind any Public Customer Orders at 
the same price.\59\ Lastly, paragraph (d) is being moved to proposed 
IM-7600-5. The Exchange believes this proposed change is reasonable as 
it removes unnecessary rule text.
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    \58\ See changes in Exhibit 4 to proposed Rules 7620 and IM-
7600-5.
    \59\ At the same price, bids and offers of non-Public Customers 
on the BOX Book ranked behind any Public Customer Orders are not 
allocated to orders from the Trading Floor.
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    The Exchange is amending rule text to remove the continuous 
electronic quoting obligation for Floor Market Makers.\60\ The proposed 
change will better align the rule text with that of other exchanges 
with trading floors that do not have electronic quoting requirements 
for Floor Market Makers. As such, the Exchange believes this change is 
reasonable as it enhances consistency between the Exchange's proposed 
Rule and existing rules at other exchanges with trading floors.
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    \60\ See changes in Exhibit 4 to proposed Rules 8500(a) and 
8510(c)(1).
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    The Exchange is amending the rule text to clarify that orders for 
covered accounts relying on an exemption under Section 11(a)(1)(G) of 
the Exchange Act (the ``G Exemption'') are not allowed on the Trading 
Floor.\61\ The Exchange is proposing this change to clarify that 
Participants may not utilize the Trading Floor to effect certain 
transactions. The Exchange is providing this information to Floor 
Brokers to provide clarity on applicable restrictions.
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    \61\ See changes in Exhibit 4 to proposed Rules 7620(d), IM-
7600-5, and 8510(h).
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    The Exchange is amending rule text to clarify the responsibilities 
of an Options Exchange Official.\62\ The Exchange is proposing this 
change to make clear the authority of Options Exchange Officials on the 
Trading Floor. The Exchange believes the proposed change is reasonable 
as it is clarifying the authority of the Options Exchange Officials and 
not proposing any change to their authority.
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    \62\ See changes in Exhibit 4 to proposed Rule 100(b)(6).
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    The Exchange is amending rule text to clarify certain rules related 
to behavior on the Trading Floor.\63\ This change is designed to 
clarify the rule text where the potential for confusion exists. The 
Exchange believes this change is reasonable as it clarifies the rule 
text and removes the possibility of confusion.
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    \63\ See changes in Exhibit 4 to proposed Rule 8510(h)(4).
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    The Exchange is proposing to provide data to the SEC with respect 
to activity on the Trading Floor. Specifically, the Exchange will 
provide information regarding size, participation, and price 
improvement by spread and trade type, effective spread, Floor Market 
Maker participation, and BOX Book participation. This information will 
be provided on a confidential basis with non-firm specific information 
being available quarterly on the Exchange's Web site.
    Lastly, the Exchange is proposing to make various grammatical 
changes to the rule text. The changes are simply designed to correct 
errors in the rule text.
    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

[[Page 23661]]

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 is proposing to adopt rules to allow for open-outcry 
trading on a physical trading floor (``Trading Floor''). The Exchange 
notes that this is not a novel proposal and that other exchanges 
currently offer open-outcry trading in addition to electronic 
trading.\64\ The Exchange is proposing a hybrid model similar to these 
other exchanges.
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    \64\ NYSE Arca, Inc. (``NYSE Arca''), PHLX, Chicago Board 
Options Exchange, Incorporated (``CBOE''), and NYSE MKT LLC (``NYSE 
MKT'').
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General
    The Exchange is proposing various changes to the definition section 
of the Rulebook to accommodate the proposed Trading Floor. First, the 
Exchange is proposing to define ``Floor Participant'' as Floor Brokers 
as defined in Rule 7540 and Floor Market Makers as defined in Rule 
8510(b).\65\ The Exchange is proposing to define ``Trading Floor'' or 
``Options Floor'' as the physical trading floor of the Exchange located 
in Chicago.\66\ 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.
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    \65\ See proposed Rule 100(a)(26).
    \66\ See proposed Rule 100(a)(67).
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    The Exchange is proposing to add the definition of ``Presiding 
Exchange Officials.'' \67\ Specifically, the President of the Exchange 
and his or her designated staff shall be responsible for monitoring: 
(1) Dealings of Floor Participants and their associated persons on the 
Trading Floor, and of the premises of the Exchange immediately adjacent 
thereto; (2) 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; (3) all Trading Floor employees of Floor 
Brokers and Floor Market Makers, and shall make and enforce such rules 
with respect to such employees as may be deemed necessary; (4) all 
connections or means of communications with the Trading Floor and may 
require the discontinuance of any such connection or means of 
communication when, in the opinion of the President or his or her 
designee, it is contrary to the welfare or interest of the Exchange; 
(5) the location of equipment and the assignment and use of space on 
the Trading Floor; and (6) relations with other options exchanges. The 
Exchange is also proposing 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 
and regulations relating to trading access, order, decorum, health, 
safety and welfare on the Exchange.\68\
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    \67\ See proposed Rule 100(b)(1). Proposed Rule 100(b)(1) is 
based on PHLX Rule 1000(e).
    \68\ See proposed Rule 100(b)(6). Proposed Rule 100(b)(6) is 
based on NYSE Arca Rule 6.1(b)(34).
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BOX Order Gateway
    Next, the Exchange is proposing to add a definition for the ``BOX 
Order Gateway.'' The BOX Order Gateway (``BOG'') is a component of the 
Trading Host \69\ which enables Floor Brokers and/or their employees to 
enter transactions on the Trading Floor.\70\ Specifically, a Floor 
Broker will have a connection to the BOG giving the Floor Broker the 
ability to submit orders to the Trading Host. Once orders are submitted 
through the BOG they are immediately processed by the Trading Host. The 
Trading Host will establish an electronic audit trail for options 
orders represented and executed by Floor Brokers.\71\ The audit trail 
will provide an accurate, time-sequenced record of all orders from the 
Trading Floor, beginning with the receipt of an order by the Exchange, 
and further documenting the life of the order. Additional information 
on the requirements for Floor Broker's audit trail requirements are 
described in greater detail below. Additionally, the Exchange is 
proposing to clarify that all transactions executed on the Exchange 
shall be executed automatically by the Trading Host pursuant to Rule 
7130 or 7600.\72\ The Exchange is also proposing to clarify that bids 
and offers on the Trading Floor, to be effective, must be made by 
public outcry on the Trading Floor and that all bids and offers shall 
be general ones and shall not be specified for acceptance by particular 
Floor Participants.\73\
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    \69\ The term ``Trading Host'' means the automated trading 
system used by BOX for the trading of options contracts. See Rule 
100(a)66.
    \70\ See proposed Rule 100(b)(2). Proposed Rule 100(b)(2) is 
based on PHLX Rule 1080.06. Proposed Rule 100(b)(2) is slightly 
different to PHLX Rule 1080.06 to account for the fact that all 
orders from the Trading Floor are not deemed executed until they are 
processed by the Trading Host. Specifically, with respect to 
providing a time-sequenced record, the Exchange is not including the 
distinction between electronic and other orders, and quotations on 
the trading floor. The Exchange is not including these references 
because, as mentioned above, all orders from the Trading Floor are 
electronic and not deemed executed until they are processed by the 
Trading Host.
    \71\ To be clear, the execution of an order represented on the 
Trading Floor does not occur until the order is processed by the 
Trading Host.
    \72\ See proposed Rule 100(b)(3). Proposed Rule 100(b)(3) is 
based on PHLX Rule 1000(f). The Exchange notes that PHLX includes 
additional methods for executions on PHLX's Trading Floor that BOX 
is not including in proposed Rule 100(b)(3). The Exchange does not 
believe that these methods are necessary as the Exchange believes 
that all transactions from the Trading Floor shall be processed by 
the Trading Host to ensure an accurate and complete audit trail.
    \73\ See proposed Rule 100(b)(4). Proposed Rule 100(b)(4) is 
based on PHLX Rule 1000(g). The Exchange notes that PHLX includes 
information about bidding and offering electronically as well as in 
public outcry; however, the Exchange is only proposing to include 
information about public outcry. BOX already has rules in place that 
govern electronic bidding and offering and therefore there is no 
need to mention it in proposed Rule 100(b)(4).
---------------------------------------------------------------------------

    The Exchange is also proposing to provide details on how the public 
outcry process will work on the Trading Floor. Specifically, the 
Exchange is proposing that bids and offers must be made in an audible 
tone of voice and a Floor Market Maker shall be considered ``out'' on a 
bid or offer if he does not affirmatively respond to the Floor Broker 
who is announcing the order, provided that a Floor Broker must give a 
Floor Participant a reasonable amount of time to respond.\74\ A 
``reasonable

[[Page 23662]]

amount of time'' 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. A Floor Participant who is 
bidding and offering in immediate and rapid succession shall be deemed 
``in'' until he says ``out'' on either bid or offer. Once the trading 
crowd has provided a quote, it will remain in effect until: (i) A 
reasonable amount of time has passed, or (ii) there is a significant 
change in the price of the underlying security, or (iii) 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 case of equity and index 
options, in the underlying security, and any other relevant factors. A 
Floor Participant must verbalize that he is ``in'' after a Floor Broker 
announces an order, even if a valid quote has been provided by the 
Floor Participant prior to the announcement of the order by a Floor 
Broker.\75\ The Exchange believes that requiring the Floor Participant 
to confirm that they are still ``in'' after providing a valid quote 
will ensure that a Floor Participant is only participating in trades 
that he intends.
---------------------------------------------------------------------------

    \74\ See proposed Rule 100(b)(5). Proposed Rule 100(b)(5) is 
based on PHLX Rule 1000(g). The Exchange notes that proposed Rule 
100(b)(5) is slightly different to PHLX Rule 1000(g). Specifically, 
PHLX Rule 1000(g) considers a member to be ``in'' on a bid or offer 
while he remains at the post, unless he shall distinctly and audibly 
say ``out.'' The Exchange is requiring the Floor Market Maker to 
make an affirmative assertion that he is ``in''. The Exchange 
believes that this difference is reasonable and necessary. Requiring 
an affirmative response by a Floor Market Maker will allow for a 
more efficient process for executing orders on the Trading Floor. 
The Exchange is concerned that requiring every Floor Market Maker to 
affirmatively be ``out'' on every order before it is executed will 
lead to unnecessary delays on the Trading Floor and has the 
potential to cause disruptions. The Exchange notes that CBOE Rule 
6.74(a) does not consider members of the trading crowd in on the 
order; they must respond to the Floor Broker. Additionally, the 
Exchange is not including part of PHLX Rule 1000(g) that requires a 
member to audibly say ``out'' before the Floor Broker submits the 
order for execution and, if the order is not executed, the member 
must audibly say ``out'' before each time the Floor Broker resubmits 
the order for execution. The Exchange is not including this 
provision of PHLX's Rule 1000(g) because, as previously stated, a 
Floor Participant, including a Floor Market Maker, must provide an 
affirmative response if they want to be in on the trade.
    \75\ A Floor Broker may request a market prior to announcing an 
order on the Trading Floor (``market probe''). When a Floor Broker 
conducts a market probe, any responses from Floor Participants are 
public to all Floor Participants. When a Floor Broker conducts a 
market probe, he probes all Floor Participants.
---------------------------------------------------------------------------

    The Exchange is proposing that all bids or offers made on the 
Trading Floor for options contracts shall be deemed to be for one 
options contract unless a specific number of option contracts is 
expressed in the bid or offer and that bid or offer for more than one 
option contract shall be deemed to be for the amount thereof or a 
smaller number of options contracts.\76\ The Exchange is also proposing 
the following process for the solicitation of quotations on the Trading 
Floor.\77\ Specifically, in response to a Floor Broker's solicitation 
of a single bid or offer, Floor Participants may discuss, negotiate, 
and agree upon the price or prices at which an order of a size greater 
than the Exchange's disseminated size can be executed at that time, or 
the number of contracts that could be executed at a given price or 
prices, subject to the provisions of the Options Order Protection and 
Locked/Crossed Market Plan \78\ and the Exchange's Rules respecting 
Trade-Throughs. Notwithstanding the foregoing, a single Floor 
Participant may voice a bid or offer independently from, and 
differently from, the Participants of a trading crowd.
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    \76\ See proposed Rule 7040(d). Proposed Rule 7040(d) is based 
on PHLX Rule 1033(a).
    \77\ See proposed Rule 7040(d)(2).
    \78\ See Securities Exchange Act Release No. 60405 (July 30, 
2009), 74 FR 39362 (August 6, 2009).
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    The Exchange is proposing to adopt Rule 7230(f) Limitation of 
Liability, which codifies that each Options Participant that physically 
conducts business on the Exchange's Trading Floor is required, at its 
sole cost, to procure and maintain liability insurance that provides 
defense and indemnity coverage for itself, any person associated with 
it, and the Exchange for any action or proceeding brought relating to 
the conduct of the Options Participant or associated person.\79\ The 
insurance shall provide defense and indemnity coverage to the Exchange 
for the Exchange's sole, concurrent, or contributory negligence, or 
other wrongdoing, relating to or in connection with such claim and the 
Exchange shall be expressly named by endorsement as an Additional 
Insured under the Insurance. The Exchange's status and rights to 
coverage under the insurance shall be the same rights of the named 
insured of the insurance, including, without limitation, rights to the 
full policy limits; and the limits for the insurance shall be not less 
than $1,000,000 without erosion by defense costs, but under no 
circumstance shall the Exchange be entitled to less than the full 
policy limits of such insurance. The insurance shall state that it is 
primary to any insurance maintained by the Exchange. Each Options 
Participant annually shall cause a certificate of insurance to be 
issued directly to the Exchange demonstrating that insurance compliant 
with this proposed Rule has been procured and is maintained. Each 
Options Participant also shall furnish a copy of the insurance to the 
Exchange for review upon the Exchange's request at any time. This 
proposed section (f) is the only section of Rule 7230 specifically 
limited to Options Participants physically located on the Exchange's 
Trading Floor.
---------------------------------------------------------------------------

    \79\ Proposed Rule 7230(f) is based on PHLX Rule 652(c)(2).
---------------------------------------------------------------------------

Registration
    In order for a Participant to be admitted to the Trading Floor the 
Participant will be required to register with the Exchange. 
Additionally, all Floor Participants must be registered as a 
Participant \80\ on BOX prior to registering as either a Floor Broker 
or Floor Market Maker.
---------------------------------------------------------------------------

    \80\ 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 options trading on BOX as an ``Order 
Flow Provider'' or ``Market Maker''. See Rule 100(a)(40).
---------------------------------------------------------------------------

    The Exchange is proposing to adopt Rule 2020(h) Trading Floor 
Registration, which codifies that each Floor Broker, Floor Market Maker 
and registered representative on the Exchange Trading Floor must be 
registered as ``Member Exchange'' (``ME'') under ``BOX'' on Form U4. 
Each Floor Market Maker and registered representative on the Exchange 
Trading Floor must successfully complete the appropriate floor trading 
examination(s), if prescribed by the Exchange, in addition to 
requirements imposed by other Exchange Rules.\81\ Each Floor Broker on 
the Exchange Trading Floor is required to successfully complete the 
appropriate floor trading examination, in addition to the requirements 
imposed by other Exchange Rules. The Exchange is also proposing to 
adopt procedures and a timeframe for submitting changes of registration 
status to the Exchange. Specifically, following the termination of or 
the initiation of a change in the trading status of any such Floor 
Participant who has been issued an Exchange access card and a Trading 
Floor badge, the appropriate Exchange form must be completed, approved 
and dated by a firm principal, officer, or member of the firm with 
authority to do so, and submitted to the appropriate Exchange 
department as soon as possible, but no later than 9:30 a.m. ET the next 
business day by the Options Participant employer. Additionally, the 
Exchange proposes to specify that every effort should be made to obtain 
the person's access card and Trading Floor badge and to submit these to 
the appropriate Exchange department.
---------------------------------------------------------------------------

    \81\ See proposed Rule 2020(h). Proposed Rule 2020(h) is based 
on PHLX Rule 620(a).
---------------------------------------------------------------------------

    The Exchange is also proposing to add Rule 2020(i), which details 
Non-Participant and Clerk Registration. Specifically, all Trading Floor 
personnel, including clerks, interns, stock execution clerks and any 
other associated persons, of a Floor Participant not required to 
register pursuant to proposed Rule 2020(h) must be registered as 
``Floor Employee'' (``FE'') under BOX on Form U4. Further, the Exchange 
may require successful completion of an examination in addition to 
requirements imposed by other Exchange Rules.\82\ The Exchange is also 
proposing to adopt procedures and a timeframe for submitting changes

[[Page 23663]]

of Trading Floor personnel registration status to the Exchange. 
Specifically, following the termination of or the initiation of a 
change in the status of any such personnel of a Floor Participant who 
has been issued an Exchange access card and a Trading Floor badge, the 
appropriate Exchange form must be completed, approved and dated by a 
Floor Participant principal, officer, or member of the Floor 
Participant with authority to do so, and submitted to the appropriate 
Exchange department as soon as possible, but no later than 9:30 a.m. ET 
the next business day by the Floor Participant employer. Additionally, 
the Exchange proposes to specify that every effort should be made to 
obtain the person's access card and Trading Floor badge and to submit 
these to the appropriate Exchange department.
---------------------------------------------------------------------------

    \82\ See proposed Rule 2020(i). Proposed Rule 2020(i) is based 
on PHLX Rule 620(b).
---------------------------------------------------------------------------

Broker's Blanket Bonds
    Currently, Rule 4180 Brokers' Blanket Bond provides that every OFP 
\83\ approved to transact business with the public and every Clearing 
Participant \84\ shall carry Brokers' Blanket Bonds covering officers 
and employees of the OFP in such form and in such amounts as the 
Exchange may require. The Exchange is now proposing that any Floor 
Participant that has registered solely to conduct business as a Floor 
Market Maker or a Floor Broker who does not conduct business with the 
public shall be exempt from the provisions of Rule 4180.\85\
---------------------------------------------------------------------------

    \83\ The terms ``Order Flow Provider'' or ``OFP'' mean those 
Options Participants representing as agent Customer Orders on BOX 
and those non-Market Maker Participants conducting proprietary 
trading. See Rule 100(a)(45).
    \84\ The term ``Clearing Participant'' means an Options 
Participant that is self-clearing or an Options Participant that 
clears BOX Transactions for other Options Participants of BOX. See 
Rule 100(a)(13).
    \85\ See proposed Rule 4180(g). Proposed Rule 4180(g) is based 
on PHLX Rule 705(f)(1)(B).
---------------------------------------------------------------------------

Doing Business on BOX
    The majority of the proposed rules governing the activity on the 
Trading Floor will be contained in the 7000 series, Doing Business on 
BOX, of the Exchange's Rules.
Trading on the Exchange Floor
    Dealings on the Trading Floor will be limited to the hours during 
which the Exchange is open for the transaction of business.\86\ 
Specifically, the Exchange's normal trading hours for equity options 
are 9:30 a.m. ET to 4:00 p.m. ET and for options on Exchange-Traded 
Fund Shares and broad-based indexes transactions may be effected until 
4:15 p.m. ET. Additionally, to be considered in the determination of 
the opening price and to participate in the opening trade, the Floor 
Broker must submit the order into the BOX Book \87\ electronically.\88\ 
The Floor Broker may do so from the Trading Floor using their terminal; 
however, the order will not receive any special or different treatment 
from any other pre-opening order submitted from off the Trading Floor. 
Additionally, a Floor Participant who wishes to place a Limit Order on 
the BOX Book must submit such a Limit Order electronically.\89\
---------------------------------------------------------------------------

    \86\ See proposed Rule 7500. Proposed Rule 7500 is based on PHLX 
Rule 102.
    \87\ The term ``Central Order Book'' or ``BOX Book'' means the 
electronic book of orders on each single option series maintained by 
the BOX Trading Host. See Rule 100(a)(10).
    \88\ See proposed Rule 7070(d). Proposed Rule 7070(d) is based 
on PHLX Rule 1017(c).
    \89\ See proposed IM-8510-8. Proposed IM-8510-8 is based on PHLX 
Rule 1014.18.
---------------------------------------------------------------------------

    The Exchange is proposing certain restrictions for dealings on the 
Trading Floor. Specifically, that no Options Participant shall, while 
on the Trading Floor, make any transactions with any non-Options 
Participants in any security admitted to dealing on the Exchange.\90\ 
Additionally, no employee of a Floor Participant shall be admitted to 
the Trading Floor unless that person is registered with and approved by 
the Exchange.\91\ The Exchange may in its discretion require the 
payment of a fee with respect to each employee so approved, and may at 
any time in its discretion withdraw any approval so given. In 
exercising Exchange discretion in withdrawing approval, the Exchange 
will follow applicable disciplinary rules and procedures, including the 
ability to appeal such Exchange determination.\92\
---------------------------------------------------------------------------

    \90\ See proposed Rule 7510. Proposed Rule 7510 is based on PHLX 
Rule 104.
    \91\ See proposed rule 7520. Proposed Rule 7520 is based on PHLX 
Rule 443.
    \92\ The applicable disciplinary rules and procedures are 
located in 13000 Series of the Exchange's Rules.
---------------------------------------------------------------------------

Floor Brokers
    As previously mentioned, the Exchange is proposing two categories 
of Participants on the Trading Floor; Floor Brokers and Floor Market 
Makers. A Floor Broker is an individual who is registered with the 
Exchange for the purpose, while on the Trading Floor, of accepting and 
handling option orders.\93\ A Floor Broker who wishes to conduct 
business on the Trading Floor must be registered as a Participant on 
BOX prior to registering as a Floor Broker. A Floor Broker may take 
into his own account, and subsequently liquidate, any position that 
results from an error made while attempting to execute, as Floor 
Broker, an order.
---------------------------------------------------------------------------

    \93\ See proposed Rule 7540. Proposed Rule 7540 is based on PHLX 
Rule 1060. In addition to the definition in the PHLX Rule, the 
Exchange is proposing that Floor Brokers must register as Options 
Participants on BOX prior to registering as a Floor Broker on the 
Trading Floor. The Exchange believes that this additional 
requirement is reasonable as it will allow the Exchange to 
adequately monitor Participants and have uniform registration 
requirements for all Participants.
---------------------------------------------------------------------------

    Prior to being admitted to the Trading Floor, a Floor Broker shall 
file an application in writing with the Exchange staff on such form or 
forms as the Exchange may prescribe.\94\ The applications received from 
potential Floor Brokers will be reviewed by the Exchange,\95\ which 
shall consider an applicant's ability as demonstrated by his passing a 
Floor Broker's examination \96\ and such other factors as the Exchange 
deems appropriate.\97\ After reviewing the Floor Broker's application, 
the Exchange shall either approve or disapprove the applicant's 
registration as a Floor Broker.
---------------------------------------------------------------------------

    \94\ See proposed Rule 7550. Proposed Rule 7550 is based on PHLX 
Rule 1061.
    \95\ The Trading Floor application for Floor Participants is 
attached as Exhibit 3.
    \96\ The Floor Broker's examination will cover Exchange-specific 
rules dealing with the Trading Floor.
    \97\ A potential Floor Broker must follow the same application 
process as all Options Participants today. Rule 2040 provides 
restrictions and requirements on persons applying to become an 
Options Participant.
---------------------------------------------------------------------------

Responsibilities of Floor Brokers
    Floor Brokers will have certain responsibilities while conducting 
business on the Trading Floor. The proposed rules covering Floor 
Brokers' responsibilities are based on the rules of another exchange 
\98\ with certain differences due to the design and functionality of 
the Exchange's Trading Floor. Specifically, a Floor Broker handling an 
order must use due diligence to cause the order to be executed at the 
best price or prices available to him in accordance with the Rules of 
the Exchange.\99\ In addition to the Floor Broker requirements of 
proposed Rule 7570 concerning due diligence, a Floor Broker shall 
ascertain that at least one Floor Market Maker is present in the Crowd 
Area prior to announcing an order for execution.\100\
---------------------------------------------------------------------------

    \98\ See PHLX Rule 1063.
    \99\ See proposed Rule 7570. Proposed Rule 7570 is based on PHLX 
Rule 155.
    \100\ See proposed Rule 7580(a). Proposed Rule 7580(a) is based 
on PHLX Rule 1063(a). The Exchange notes that it is not copying the 
provisions of PHLX Rule 1063(a) that cover foreign currency options 
because the Exchange does not list for trading foreign currency 
options.
---------------------------------------------------------------------------

    Floor Brokers must make reasonable efforts to ascertain whether 
each order entrusted to them is for the account of

[[Page 23664]]

a Public Customer or broker-dealer.\101\ If it is determined the order 
is for the account of a broker-dealer, the responsible Floor Broker 
must advise the trading crowd of that fact while announcing the order 
via public outcry and make the appropriate notation in his order entry 
mechanism.
---------------------------------------------------------------------------

    \101\ See proposed IM-7580-2. Proposed IM-7580-2 is based on 
PHLX Rule 1063.02.
---------------------------------------------------------------------------

    The Exchange is also proposing rules for how a Floor Broker must 
handle contingency orders that are dependent upon the price of the 
underlying security and for how a Floor Broker must handle orders he is 
representing when they are for the account of a Market Maker.\102\ 
Specifically, for contingency orders, the Exchange is proposing that 
the Floor Broker shall be responsible for satisfying the dependency 
requirement on the basis of the last reported price of the underlying 
security in the primary market that is generally available on the 
Trading Floor at any given time. Unless mutually agreed by the 
Participants involved, an execution or non-execution that results shall 
not be altered by the fact that such reported price is subsequently 
found to have been erroneous. For orders from the account of a Market 
Maker, the Floor Broker must inform the crowd that he is handling an 
order for the account of a Market Maker and comply with proposed IM-
8510-6 and IM-8510-9.\103\ The purpose of requiring a Floor Broker, who 
is handling a Market Maker's order, to comply with Proposed IM-8510-6 
and IM-8510-9 is to prevent a Floor Market Maker from employing a Floor 
Broker in an effort to circumvent the restrictions in proposed IM-8510-
6 and IM-8510-9.\104\ Lastly, the Exchange is proposing that a Floor 
Broker shall not be held responsible for the execution of a Complex 
Order based upon transaction prices that are established at the opening 
or close of trading or during any trading rotation.\105\
---------------------------------------------------------------------------

    \102\ See proposed Rules 7580(b) and (d). Proposed Rule 7580(b) 
is based on CBOE Rule 6.73(b). The Exchange notes that CBOE's Rule 
provides for ``one-cancels-the-other orders,'' which BOX is not 
including because the Exchange does not offer these types of orders.
    \103\ See proposed Rule 7580(d). Proposed Rule 7580(d) is based 
on PHLX Rule 1063(d). PHLX's Rule provides for additional rules to 
which the Floor Broker must comply than what the Exchange is 
proposing. Specifically, PHLX Rule 1063(d) cites commentary .10, 
.11, .12, and .13 to PHLX Rule 1014; however, the Exchange is only 
proposing to copy commentary .11 and .12 to PHLX Rule 1014, see 
proposed IM-8510-6 and IM-8510-9. The Exchange is not copying PHLX 
1014.10 because it deals with specialists, which the Exchange is not 
proposing to have on the Trading Floor. Next, the Exchange is not 
copying PHLX Rule 1014.13, which deals with minimum quantity that a 
Floor Market Maker must execute in person per quarter, because the 
Exchange believes that having an in person requirement is an 
unnecessary restriction and does not fit the Exchange's Trading 
Floor.
    \104\ Proposed IM-8510-6 provides that an Options Exchange 
Official may temporarily limit the number of Floor Market Makers in 
the trading crowd who are establishing or increasing a position in 
the interest of a fair and orderly market. Proposed IM-8510-9 
prohibits a Floor Market Maker from acquiring a ``long'' position by 
pairing off with a sell order before the opening, unless all off-
Floor bids at the price are filled.
    \105\ See proposed Rule 7580(c).
---------------------------------------------------------------------------

    The Exchange is proposing requirements for Floor Brokers 
representing orders on the Trading Floor.\106\ These requirements are 
in addition to those in proposed Rule 7600. Specifically, in order to 
create an electronic audit trail for options orders represented by 
Floor Brokers on the Exchange's Trading Floor, a Floor Broker or such 
Floor Broker's employee shall, contemporaneously upon receipt of an 
order, including single-sided and double-sided orders, and prior to 
announcement of such an order in the trading crowd, record all options 
orders represented by such Floor Broker onto the Floor Broker's order 
entry mechanism.\107\ The following specific information with respect 
to orders represented by a Floor Broker shall be recorded by such Floor 
Broker or such Floor Broker's employees: (i) the order type (i.e., 
Public Customer, Professional, broker-dealer, Market Maker) and order 
receipt time; (ii) the option symbol; (iii) buy, sell, cross or cancel; 
(iv) call, put, complex (i.e., spread, straddle), or contingency order; 
(v) number of contracts; (vi) limit price or market order or, in the 
case of a multi-leg order, net debit or credit, if applicable; (vii) 
whether the transaction is to open or close a position; and (viii) The 
Options Clearing Corporation (``OCC'') clearing number of the broker-
dealer that submitted the order.\108\ Additionally, a Floor Broker must 
enter complete identification for all orders entered on behalf of 
Market Makers. Any additional information with respect to the order 
shall be input contemporaneously upon receipt, which may occur after 
the announcement and execution of the order.\109\ In the event of a 
malfunction in the Trading Host or any other related Trading Floor 
systems, including the BOG, orders will not be allowed to execute from 
the Trading Floor.
---------------------------------------------------------------------------

    \106\ See proposed Rule 7580(e).
    \107\ See proposed Rule 7580(e)(1). Proposed Rule 7580(e)(1) is 
based on PHLX Rule 1063(e)(i). PHLX's Rule provides for procedures 
for submitting orders on the Trading Floor in the event of a 
malfunction of PHLX's floor order system, which BOX is not 
including. The Exchange will not allow orders on the Trading Floor 
in the event that there is a malfunction with the Trading Host or 
any other related Trading Floor systems, including the BOG. The 
Exchange believes that providing a trade ticket backup would raise 
numerous issues with the audit trail.
    \108\ This information is also required when submitting a QOO 
Order.
    \109\ For example this may include information required to 
properly allocate the QOO Order to Floor Participants that responded 
when the QOO Order was announced to the trading crowd pursuant to 
proposed Rules 7580(e)(2) and 7600(b).
---------------------------------------------------------------------------

    All orders entrusted to a Floor Broker will be considered Not Held 
Orders, unless otherwise specified by a Floor Broker's client.\110\ 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. An order entrusted to a Floor 
Broker will be considered a Not Held Order, unless otherwise specified 
by a Floor Broker's client.\111\Additionally, the Exchange is proposing 
that it shall be considered conduct inconsistent with just and 
equitable principles of trade for any Floor Broker or Floor Market 
Maker to intentionally disrupt the open outcry process.\112\
---------------------------------------------------------------------------

    \110\ See proposed IM-7580-3. Proposed IM-7580-3 is based on 
CBOE Rule 6.73.06.
    \111\ See proposed Rule 7600(g). Proposed Rule 7600(g) is based 
on CBOE Rule 6.53(g).
    \112\ See proposed IM-7580-4.
---------------------------------------------------------------------------

    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.\113\ 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.\114\
---------------------------------------------------------------------------

    \113\ See proposed Rule 7580(e)(2).
    \114\ If only one of the agency orders is for the account of a 
Public Customer, that order must be the agency order. If both agency 
orders are for the accounts of Public Customers, it is the Floor 
Brokers sole decision to determine which order is the agency order. 
If neither agency order is for the account of a Public Customer, it 
is the Floor Brokers sole decision to determine which order is the 
agency order.
---------------------------------------------------------------------------

    The Exchange is proposing rules with respect to Floor Brokers and 
discretionary transactions.\115\ Specifically, no Floor Broker shall 
execute or cause to be executed any order on the Exchange with respect 
to which such Floor Broker is vested with discretion as to: (i) The 
choice of the class of options to be bought or sold, (ii) the number of 
contracts to be bought or sold, or (iii) whether any such transaction 
shall be one of purchase or sale. However, these proposed rules

[[Page 23665]]

shall not apply to any discretionary transactions executed by a Floor 
Market Maker for an account in which he has an interest. Additionally, 
no Floor Broker shall hold a Not Held Market Order to buy and a Not 
Held Market Order to sell the same series of options for the same 
account or for accounts of the same beneficial owner.\116\ Also, no 
Floor Broker shall leg a Complex Order for a Market Maker or accept 
opening or discretionary orders for a Market Maker who is associated 
with the same Options Participant as such Floor Broker or who is 
associated with another Options Participant which is affiliated with 
the same Options Participant as such Floor Broker. A Floor Broker may 
not exercise any discretion with respect to the order of a Market Maker 
or the order of an options market marker registered on another 
exchange.\117\
---------------------------------------------------------------------------

    \115\ See proposed Rule 7590. Proposed Rule 7590 is based on 
PHLX Rule 1065.
    \116\ See proposed IM-7590-1.
    \117\ See proposed IM-7590-2.
---------------------------------------------------------------------------

    Floor Brokers may use any communication device on the Trading Floor 
and in the Crowd Area to receive orders, provided that audit trail and 
record retention requirements of the Exchange are met.\118\ However, no 
person in the Crowd Area or on the Trading Floor may use any 
communication device for the purpose of recording activities on the 
Trading Floor or maintaining an open line of continuous communication 
whereby a non-associated person not located in the Crowd Area may 
continuously monitor the activities in the Crowd Area. The ability for 
Floor Brokers to receive orders while in the Crowd Area is based on the 
rules of another exchange.\119\
---------------------------------------------------------------------------

    \118\ See proposed Rule 7660(i).
    \119\ See CBOE Rule 6.23(c).
---------------------------------------------------------------------------

    The Exchange is not including certain PHLX rules related to Floor 
Broker duties to allocate, match and time stamp trades executed in open 
outcry and to submit the matched trade tickets to the exchange.\120\ 
BOX does not believe that these rules are necessary because all orders 
on the Trading Floor are only executed when they are received by the 
Trading Host, which will allow the Exchange to capture the required 
audit trail information.
---------------------------------------------------------------------------

    \120\ See PHLX Rule 1014(g)(vi).
---------------------------------------------------------------------------

Qualified Open Outcry Orders--Floor Crossing
    After an order has been announced to the trading crowd as provided 
in Rule 7580(e)(2), the Floor Broker must submit the agency order as 
part of a two-sided order (``Qualified Open Outcry Order'' or ``QOO 
Order'') to the Trading Host for execution.\121\ When a Floor Broker 
submits a QOO Order for execution, the order will be executed based on 
the market conditions of when the order is received by the Trading Host 
and in accordance with Exchange rules.\122\ A QOO 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 and trade-through rules.\123\ QOO 
Order functionality will assist the Floor Broker in respecting the BOX 
Book, consistent with Exchange priority rules, as described in proposed 
Rules 7600(c) and (d). The proposed QOO Order will only be allowed on 
the Trading Floor and only Floor Brokers may use the QOO Order. QOO 
Orders may be multi-leg orders up to four (4) legs, including Complex 
Orders, as defined in Rule 7240(a)(5) \124\ and tied to hedge orders as 
defined in proposed IM-7600-2. Such hedging position is 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. 
Also, such hedging position is 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.
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    \121\ See proposed Rule 7600(a). Proposed Rule 7600(a) is based 
on PHLX Rule 1063(e)(iv). The Exchange notes that the Trading Host 
does not include all the same functionality as PHLX's trading floor 
systems; the Trading Host will not attempt to execute an order 
multiple times if at first it cannot be executed. The Exchange also 
notes that Complex Orders are limited to four (4) legs on BOX. 
Additionally, the Exchange is not including specific functionality 
that will assist a Floor Broker in clearing the electronic book as 
PHLX does. The Exchange is not including this functionality because 
the QOO Order will assist Floor Brokers in respecting the BOX Book. 
Proposed Rule 7600(a) also includes additional information to cover 
the specific aspects of the QOO Order.
    \122\ For example, a Floor Broker wishes to execute 1000 ABC at 
1.03. At the time the QOO Order is announced to the trading crowd 
the NBBO for ABC is 1.00-1.08. When the Trading Host receives the 
QOO Order the NBBO is now 1.04-1.09. In this situation, the Trading 
Host would reject the QOO Order to avoid trading through the NBBO. 
Similarly, assume when the Floor Broker announced the QOO Order 
there were no orders on the BOX Book, the QOO Order had a book sweep 
size of 10, and the initiating side is to sell. When the Trading 
Host receives the QOO Order there is now a Public Customer Order on 
the BOX Book to buy 20 ABC at 1.03 and the NBBO is still 1.00-1.08. 
In this situation, the Trading Host would reject the QOO Order to 
avoid violating the priority provisions of the Exchange.
    \123\ In addition to the Trading Host preventing trade-through 
and priority violations of the BOX Book, the Exchange has robust 
surveillance procedures in place to monitor for these violations.
    \124\ The term ``Complex Order'' means any order involving the 
simultaneous purchase and/or sale of two or more different options 
series in the same underlying security, for the same account, in a 
ratio that is equal to or greater than one-to-three (.333) and less 
than or equal to three-to-one (3.00) and for the purpose of 
executing a particular investment strategy.
---------------------------------------------------------------------------

    There will be an initiating side and a contra-side to the QOO 
Order.\125\ 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 QOO Order and the Floor Broker may provide a 
book sweep size as provided in proposed Rule 7600(h). If the Floor 
Broker was 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. If the Floor Broker had sufficient interest to match 
against the initiating side when the agency order was announced, such 
Floor Broker interest will be the contra-side to the initiating side. 
If Floor Participants 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 QOO Order(s) pursuant to Rule 7600(d).
---------------------------------------------------------------------------

    \125\ See proposed Rule 7600(a)(1). This does not prevent a 
Floor Broker from representing a single-sided order on the Trading 
Floor. Floor Brokers are permitted to bring single-sided orders to 
the Trading Floor in order to find contra-side liquidity. Once a 
contra-side is sourced pursuant to proposed Rule 7580(e)(2), the 
Floor Broker shall submit the two-sided QOO Order to the BOG.
---------------------------------------------------------------------------

    A QOO Order will be rejected if there is an ongoing auction in the 
option series when the QOO Order is received by the Trading Host.\126\ 
A Complex QOO Order \127\ will not be rejected if there is an ongoing 
auction in the options series of some, but not all, of the components 
of the Complex QOO Order.
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    \126\ See proposed Rule 7600(a)(5).
    \127\ A Complex QOO Order is a Complex Order, as defined in Rule 
7240(a)(5), submitted as a QOO Order.

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[[Page 23666]]

    A Floor Broker is welcome to bring an unmatched order to the 
Trading Floor in order to seek liquidity. The Floor Broker may announce 
the unmatched order (i.e., the initiating side of a QOO Order) to the 
trading crowd in an attempt to source the contra-side. After finding 
sufficient quantity to match the initiating side pursuant to proposed 
Rule 7580(e)(2) and proposed Rule 7600(b), the Floor Broker would now 
be able to submit a two-sided QOO Order to the BOG as required.\128\ 
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 \129\ 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.
---------------------------------------------------------------------------

    \128\ See proposed IM-7600-4.
    \129\ 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.
---------------------------------------------------------------------------

    The Exchange is proposing that the execution price of the QOO Order 
must be equal to or better than the NBBO.\130\ Additionally, the QOO 
Order (1) may not trade through any equal or better priced Public 
Customer bids or offers on the BOX Book or any non-Public Customer bids 
or offers on the BOX Book that are ranked ahead of such equal or better 
priced Public Customer bids or offers, and (2) may not trade through 
any non-Public Customer bids or offers on the BOX Book that are priced 
better than the proposed execution price. The Exchange notes this 
proposed Rule is based on the rules of NYSE Arca.\131\
---------------------------------------------------------------------------

    \130\ See proposed Rule 7600(c).
    \131\ See NYSE Arca Rules 6.47 and 6.75. The Exchange notes that 
it is providing an additional provision that NYSE Arca does not have 
in its Rule. Specifically, the Exchange is providing for a book 
sweep size as provided in proposed Rule 7600(h).
---------------------------------------------------------------------------

    The Floor Broker must submit the QOO Order to the BOG for 
processing by the Trading Host, as provided in proposed Rule 7600. The 
Exchange is proposing that the QOO Order is not deemed executed until 
the QOO Order is processed by the Trading Host.\132\ Once the Floor 
Broker submits the QOO Order to the BOG there will be no opportunity 
for the submitting Floor Broker, or anyone else, to alter the terms of 
the QOO Order.\133\ After announcing the QOO Order to the trading 
crowd, the Floor Broker must submit the QOO Order to the BOG without 
undue delay, provided that the executing Floor Broker allows adequate 
time for Floor Participants to participate in the transaction as 
provided in proposed Rule 100(b)(5).
---------------------------------------------------------------------------

    \132\ The execution of the QOO Order will be reported after it 
is processed by the Trading Host in the same manner as all other 
orders on BOX.
    \133\ The Exchange notes that the processing of an incoming QOO 
Order by the Exchange is instantaneous.
---------------------------------------------------------------------------

    The Exchange is additionally proposing that when a Floor Broker 
executes a Complex QOO Order, the priority and rules for Complex Orders 
contained in Rule 7240(b)(2) and (3) will continue to apply, except 
that the Floor Broker may disable the NBBO aspect of the Complex Order 
Filter under Rule 7240(b)(3)(iii). For Complex QOO Orders, the Complex 
QOO Orders (1) may not trade through any equal or better priced Public 
Customer Complex bids or offers on the Complex Order Book \134\ or any 
non-Public Customer Complex bids or offers on the Complex Order Book 
that are ranked ahead of such equal or better priced Public Customer 
Complex bids or offers, and (2) may not trade through any non-Public 
Customer bids or offers on the Complex Order Book that are priced 
better than the proposed execution price. Additionally, the Complex QOO 
Order may be executed at a price without giving priority to equivalent 
bids or offers in the individual series legs on the initiating side, 
provided at least one options leg betters the corresponding bid or 
offer on the BOX Book by at least one minimum trading increment as set 
forth in Rule 7240(b)(1).
---------------------------------------------------------------------------

    \134\ The term ``Complex Order Book'' means the electronic book 
of Complex Orders maintained by the BOX Trading Host. See Rule 
7240(a)(6).
---------------------------------------------------------------------------

    As mentioned above, the Exchange is also proposing to amend the 
current rules related to Complex Orders on the Exchange in order to 
incorporate the trading of Complex Orders on the Trading Floor. 
Currently, incoming Complex Orders to the Exchange are filtered to 
ensure that each leg of a Complex Order will be executed at a price 
that is equal to or better than the NBBO and BOX BBO.\135\ The Exchange 
is now proposing that Floor Brokers may disable, on an order by order 
basis, the NBBO aspect of this protection for Complex QOO Orders. The 
Exchange notes that other options exchanges do not require the legs of 
a Complex Order to be executed at a price that is equal to or better 
than the NBBO and exchange BBO.\136\
---------------------------------------------------------------------------

    \135\ See Rule 7240(b)(3)(iii).
    \136\ See ISE Rule 722(b)(3).
---------------------------------------------------------------------------

    All QOO Orders must be announced to the trading crowd, as provided 
in proposed Rule 7580(e)(2), prior to the QOO Order being submitted to 
the BOG.\137\ 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 processing by the 
Trading Host. The submitting Floor Broker must announce the order to 
the trading crowd and give Floor Participants a reasonable opportunity 
to respond to trade against the initiating side of the QOO Order. An 
Options Exchange Official will certify that the Floor Broker adequately 
announced the QOO Order to the trading crowd.\138\ When a Complex QOO 
Order is announced on the Trading Floor, Floor Participants wishing to 
participate must respond to all legs of the unique Complex QOO Order. 
For example, if a Floor Broker is executing a Complex QOO Order in A+B, 
a Floor Participant may respond with interest in A+B, but may not 
respond to only Leg A or Leg B. The executing Floor Broker's allocation 
process is identical to the process for non-Complex QOO Orders in 
proposed Rule 7600(d).
---------------------------------------------------------------------------

    \137\ See proposed Rule 7600(b). Proposed Rule 7600(b) is based 
on NYSE Arca Rule 6.47(a)(1).
    \138\ The Options Exchange Official will have a terminal that 
will allow him to certify that the Floor Broker adequately 
represented the QOO Order to the trading crowd.
---------------------------------------------------------------------------

    The Exchange believes that by having the QOO Order execute when it 
is processed by the Trading Host, the Exchange is providing a system 
that will prevent executions that appear to be at prices that are worse 
than the NBBO due to the fact that on traditional open-outcry floors 
the time that the execution is printed may be substantially after the 
time an execution actually occurred on the trading floor. The Exchange 
believes that having the QOO Order execute when it is processed by the 
Trading Host will minimize trade-through violations and provide an 
accurate and sequential audit trail. The Exchange notes that this is 
similar to the way executions on PHLX occur.\139\
---------------------------------------------------------------------------

    \139\ See PHLX Rule 1063(e)(iv). The Exchange is not including 
functionality that allows a Floor Broker to attempt to execute an 
order multiple times if it cannot be executed when the order is 
first submitted as PHLX does.
---------------------------------------------------------------------------

Priority in the Trading Crowd
    The Exchange is proposing rules for determining priority of bids 
and offers on the Trading Floor.\140\ Specifically,

[[Page 23667]]

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. BOX is proposing that the Floor Broker 
will be 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. A 
Floor Participant that established priority pursuant to IM-7600-1(c) 
must inform the Floor Broker of such priority when the Floor Broker 
announces the order. Any disputes regarding a Floor Broker's 
determination of time priority sequence will be resolved by the Options 
Exchange Official. An Options Exchange Official may nullify a 
transaction or adjust its terms if they determine the transaction to 
have been in violation of Exchange Rules.
---------------------------------------------------------------------------

    \140\ See proposed Rule 7610. Proposed Rule 7610 is based on 
NYSE Arca Rule 6.75. The Exchange notes that it is not including 
certain sections of the NYSE Arca rule that apply to Lead Market 
Maker guarantee participation because the Exchange will not have 
Lead Market Makers on the Trading Floor. Specifically, a Lead Market 
Maker on NYSE Arca that establishes first priority during the 
vocalization process is entitled to buy or sell as many contracts as 
the Floor Broker may have available to trade. Additionally, on NYSE 
Arca, if the Lead Market Maker establishes some other priority other 
than first, the Lead Market Maker is entitled to buy or sell the 
number of contracts equal to the Lead Market Maker's guaranteed 
participation level. The Exchange is also omitting sections of the 
NYSE Arca rule that cover manual executions on the trading floor 
because the Exchange is requiring that all orders on the Trading 
Floor will not execute until they are processed by the Trading Host. 
The Exchange is not including provisions of NYSE Arca's rule that 
apply to stock-option orders because the Exchange does not offer 
this type of order. Additionally, the Exchange is not including the 
same level of detail as NYSE Arca does when referring to the actions 
that an Options Exchange Official can take when there is a dispute 
regarding a Floor Broker's determination of time priority on the 
Trading Floor. The Exchange believes that by allowing an Options 
Exchange Official the ability to nullify a transaction or adjust its 
terms when the transaction has violated the Exchange's Rules will 
provide the Exchange with the ability to better monitor and enforce 
the Exchange's Rules on the Trading Floor.
---------------------------------------------------------------------------

    The Exchange is proposing that the Floor Participant with first 
priority is entitled to buy or sell as many contracts as the Floor 
Broker may have available to trade. If there are any contracts 
remaining, the Floor Participant with second priority will be entitled 
to buy or sell as many contracts as there are remaining in the Floor 
Broker's order, and so on, until the Floor Broker's order has been 
filled entirely. An Options Exchange Official has the same 
responsibilities as a Floor Broker when the Options Exchange Official 
calls for a market.
    The Exchange's proposed rules will also cover the situation where a 
Floor Broker requests a market in order to fill a large order and the 
Floor Participants provide a collective response.\141\ In such 
situation, if the size of the response, in the aggregate, is less than 
or equal to the size of the order to be filled, the Floor Participants 
will each receive a share of the order that is equal to the size of 
their respective bids or offers. If, however, the size of the response 
exceeds the size of the order to be filled, that order will be 
allocated on a size pro rata basis. Specifically, in such 
circumstances, the size of the order to be allocated is multiplied by 
the size of an individual Floor Participant's quote divided by the 
aggregate size of all Floor Participants' quotes. For example, assume 
there are 200 contracts to be allocated, Floor Market Maker #1 is 
bidding for 100, Floor Market Maker #2 is bidding for 200 and Floor 
Market Maker #3 is bidding for 500. Under the ``size pro rata'' 
allocation formula, Floor Market Maker #1 will be allocated 25 
contracts (200 x 100 / 800); Floor Market Maker #2 will be allocated 50 
contracts (200 x 200 / 800); and Floor Market Maker #3 will be 
allocated 125 contracts (200 x 500 / 800).
---------------------------------------------------------------------------

    \141\ See proposed Rule 7610(d)(5).
---------------------------------------------------------------------------

Allocation
    The following describes how the initiating side of a QOO Order is 
allocated.\142\ First, the initiating side of the QOO Order will match 
against any bids or offers on the BOX Book priced better than the 
contra-side, provided that an adequate book sweep size was provided by 
the Floor Broker pursuant to paragraph (h).\143\ Multiple orders at the 
same price are matched based on time priority.
---------------------------------------------------------------------------

    \142\ See proposed Rule 7600(d).
    \143\ See proposed Rule 7600(d)(1).
---------------------------------------------------------------------------

    Next, at the same price as the contra-side of the QOO Order, if any 
contracts of the initiating side remain, the initiating side of the QOO 
Order will match against Public Customer Orders on the BOX Book, along 
with bids or offers of non-Public Customers ranked ahead of such Public 
Customer Orders on the BOX Book, provided that an adequate book sweep 
size was provided by the Floor Broker pursuant to paragraph (h).\144\ 
Multiple bids or offers at the same price are matched based on time 
priority.
---------------------------------------------------------------------------

    \144\ See proposed Rule 7600(d)(2).
---------------------------------------------------------------------------

    The remaining balance of the initiating side of the QOO Order, if 
any, will then be matched by the Trading Host against the contra-side 
of the QOO Order,\145\ regardless of whether the contra-side order 
submitted by the Floor Broker is ultimately entitled to receive an 
allocation,\146\ pursuant to proposed Rules 7600(d)(3)(i) or (iii). 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 QOO Order will be 
allocated as described below.
---------------------------------------------------------------------------

    \145\ See proposed Rule 7600(d)(3).
    \146\ For the avoidance of doubt, the Exchange would like to 
make clear that the matching of the initiating side of the QOO Order 
against interest on the BOX Book and the matching of the remaining 
portion of initiating side of the QOO Order against the contra-side 
order provided by the Floor Broker will be completed automatically 
by the Trading Host.
---------------------------------------------------------------------------

    First, if the QOO Order satisfies the provisions of proposed Rule 
7600(f), the executing Floor Broker is entitled to 40% of the remaining 
quantity of the initiating side of the QOO Order.\147\ Next, Floor 
Participants that responded with interest when the executing Floor 
Broker announced the QOO Order to the trading crowd, as outlined in 
proposed Rules 7580(e)(2) and 7600(b), are allocated.\148\ When 
multiple Floor Participants respond with interest, priority is 
established pursuant to proposed Rule 7610.\149\ Finally, if interest 
remains after Floor Participants that responded with interest receive 
their allocation, the remaining quantity of the initiating side of the 
QOO Order will be allocated to the executing Floor Broker.\150\ After 
execution of the QOO Order, the executing Floor Broker is responsible 
for providing the correct allocations of the initiating side of the QOO 
Order to an Options Exchange Official or his or her designee, if 
necessary, who will properly record the order in the Exchange's 
system.\151\ The executing Floor Broker must provide the correct 
allocations to an Options

[[Page 23668]]

Exchange Official or his or her designee, in writing, without 
unreasonable delay.
---------------------------------------------------------------------------

    \147\ See proposed Rule 7600(d)(3)(i).
    \148\ See Proposed Rule 7600(d)(3)(ii).
    \149\ Proposed Rule 7610 provides that the highest bid or lowest 
offer shall have priority. Where two or more offers or bids are at 
the same price, priority shall be afforded in the sequence in which 
the offers or bids were made. If the bids or offers of more than one 
Floor Participant are made simultaneously, such bids or offers will 
be deemed to be on parity and priority will be afforded to them, 
insofar as practicable, on an equal basis. Accordingly, efforts will 
be made to assure that each Floor Participant on parity receives an 
equal number of contracts, to the extent mathematically possible. If 
the Floor Participants provide a collective response to a Floor 
Broker's request for a market in order to fill a large order, then 
the allocation will be size pro rata, if necessary.
    \150\ See Proposed Rule 7600(d)(3)(iii).
    \151\ See Proposed Rule 7600(d)(4). The Options Exchange 
Official or his or her designee is not responsible for confirming 
the accuracy of the allocations provided by the executing Floor 
Broker.
---------------------------------------------------------------------------

    The below examples are designed to illustrate the allocation of the 
initiating side of a QOO Order(s).
    Example 1 \152\--Assume there is no priority interest on the 
contra-side of the QOO Order, as provided in proposed Rule 7600(d)(2), 
on the BOX Book at the execution price of the QOO Order and a Floor 
Broker wishes to execute a QOO Order for 500 contracts. When he 
announces the order, Floor Market Maker 1 and Floor Market Maker 2 both 
respond to the QOO Order for 250 contracts each. Floor Market Maker 1 
responded first so he will have time priority over Floor Market Maker 
2. Since the QOO Order is for at least 500 contracts, the Floor Broker 
is entitled to match at least 40% of the initiating side with the Floor 
Broker's contra-side.\153\
---------------------------------------------------------------------------

    \152\ For the following three examples, assume the execution 
price of the QOO Order satisfies the submission requirements of 
proposed Rule 7000(c). Specifically, the execution price must be at 
a price (1) better than any Public Customer bids or offers on the 
BOX Book, and (2) no worse than any non-Public Customer bids or 
offers on the BOX Book, on the initiating side.
    \153\ The Floor Broker's 40% guarantee is outlined in proposed 
Rule 7600(f).
---------------------------------------------------------------------------

    Result: The initiating side of the QOO Order will match against the 
Floor Broker's contra-side order for the full 500 contracts. After the 
execution of the QOO Order, 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 QOO 
Order:

    1. 200 contracts (500 * .40) for the contra-side order submitted 
by the Floor Broker.
    2. 250 for Floor Market Maker 1 with time priority.
    3. Remaining 50 contracts to Floor Market Maker 2.

    Example 2--Assume there is no priority interest on the contra-side 
of the QOO Order, as provided in proposed Rule 7600(d)(2), on the BOX 
Book at the execution price of the QOO Order and a Floor Broker wishes 
to execute a QOO Order for 400 contracts. When he announces the order, 
Floor Market Maker 1 and Floor Market Maker 2 both respond to the QOO 
Order for 200 contracts each. Floor Market Maker 1 responded first so 
he will have time priority over Floor Market Maker 2. Since the QOO 
Order is for less than 500 contracts, the Floor Broker is not entitled 
to a 40% guarantee.
    Result: The initiating side QOO Order will match against the Floor 
Broker's contra-side for the full 400 contracts. After execution of the 
QOO Order, 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 QOO Order:

    1. 200 contracts for Floor Market Maker 1 with time priority.
    2. 200 contracts for Floor Market Maker 2.
    3. The executing Floor Broker will receive no allocation.

    Example 3--Assume there is no priority interest on the contra-side 
of the QOO Order, as provided in proposed Rule 7600(d)(2), on the BOX 
Book at the execution price of the QOO Order and a Floor Broker wishes 
to execute a QOO Order for 400 contracts in ABC at 1.05 (initiating 
side is to sell). The NBBO for ABC is 1.00-1.10. When he announces the 
order, Floor Market Maker 1 and Floor Market Maker 2 both respond to 
the QOO Order for 200 contracts each. Floor Market Maker 1 responded 
first at an improved price to buy 200 at 1.06 so he will have price 
priority over Floor Market Maker 2. Since the QOO Order is for less 
than 500 contracts, the Floor Broker is not entitled to a 40% 
guarantee.
    Result: The Floor Broker will submit two QOO Orders for 200 
contracts each. A QOO Order at 1.06 for 200 contracts and a QOO Order 
at 1.05 for 200 contracts. The initiating side of the QOO Orders will 
match against the Floor Broker's contra-side orders for the full 200 
contracts. After execution of the QOO 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 QOO Orders:

    1. QOO Order at 1.06--200 contracts for Floor Market Maker 1.
    2. QOO Order at 1.05--200 contracts for Floor Market Maker 2.
    3. The executing Floor Broker will receive no allocation of 
either QOO Order.

    Example 4--Assume there is no priority interest on the contra-side 
of the QOO Order, as provided in proposed Rule 7600(d)(2), on the BOX 
Book at the execution price of the QOO Order and a Floor Broker wishes 
to execute a QOO Order for 600 contracts in ABC at 1.05 (initiating 
side is to sell). The NBBO for ABC is 1.00-1.10. When he announces the 
order, Floor Market Maker 1 and Floor Market Maker 2 both respond to 
the QOO Order for 300 contracts each. Floor Market Maker 1 responded 
first at an improved price to buy 300 at 1.06 so he will have price 
priority over Floor Market Maker 2. Since the QOO Order is more than 
500 contracts, the Floor Broker is entitled to a 40% guarantee.
    Result: The Floor Broker will submit two QOO Orders for 300 
contracts each. A QOO Order at 1.06 for 300 contracts and a QOO Order 
at 1.05 for 300 contracts. The initiating side of the QOO Orders will 
match against the Floor Broker's contra-side orders for the full 300 
contracts. After execution of the QOO 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 QOO Orders:

    1. QOO Order at 1.05--120 (300 *.40) contracts for the contra-
side order submitted by the Floor Broker.\154\
---------------------------------------------------------------------------

    \154\ The Floor Broker's guarantee only applies to 40% of the 
contracts at the given price level.
---------------------------------------------------------------------------

    2. QOO Order at 1.06--300 contracts for Floor Market Maker 1.
    3. QOO Order at 1.05--180 contracts for Floor Market Maker 2.

    Example 5--In the same scenario as above, but there is priority 
interest of 100 contracts on the BOX Book, as provided in proposed Rule 
7600(d)(2), at the execution price of the QOO Order and a Floor Broker 
elects to have a book sweep size of 100 contracts.
    Result:

    1. The initiating side of the QOO Order will first match against 
the priority interest on the BOX Book for 100 contracts.
    2. Then the remaining 300 contracts of the initiating side of 
the QOO Order will match against the executing Floor Broker's 
contra-side order. After execution of the QOO Order, 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 QOO Order:
    a. 250 contracts for Floor Market Maker 1 with time priority.
    b. 50 contracts to Floor Market Maker 2.
    c. The executing Floor Broker will receive no allocation.

    The Exchange is also proposing that the QOO Order will not route to 
an away exchange and the QOO Order will not trade through any away 
exchange displaying a better price than the proposed execution price 
for the QOO Order.\155\
---------------------------------------------------------------------------

    \155\ See proposed Rule 7600(e).
---------------------------------------------------------------------------

Book Sweep Size
    The Exchange is proposing to provide a book sweep size to help 
Floor Brokers execute orders when there are bids or offers on the BOX 
Book that have priority over the contra-side of the QOO Order.\156\ 
Specifically, a Floor Broker may, but is not required to, provide a 
book sweep size. The book sweep size is the number of contracts, if 
any, of the initiating side of the QOO Order that the Floor Broker is 
willing to relinquish to interest on the BOX Book that has priority 
pursuant to proposed Rule 7600(d)(1) and (2). Specifically, any equal 
or better priced Public Customer

[[Page 23669]]

Orders on the BOX Book or any non-Public Customer bids or offers on the 
BOX Book that are ranked ahead of such equal or better priced Public 
Customer Orders, and any non-Public Customer bids or offers on the BOX 
Book that are priced better than the proposed execution price. If the 
number of contracts on the BOX Book that have priority over the contra-
side order is greater than the book sweep size, then the QOO Order will 
be rejected by the Trading Host. If the number of contracts on the BOX 
Book that have priority over the contra-side order is less than or 
equal to the book sweep size, then the QOO Order will be allowed to 
execute. In such case, the initiating side will execute against 
interest on the BOX Book with priority and then the remaining quantity, 
if any, will execute against the contra-side order. The Exchange 
believes that this proposed feature will aid Floor Brokers in having 
more of their executions accepted by the Trading Host and will benefit 
the market as a whole by providing a tool to assist Floor Brokers in 
executing orders when there is priority interest on the BOX Book. 
Additionally, the book sweep size will provide increased opportunity 
for orders on the BOX Book to be executed. The Exchange notes, however, 
that it shall be considered conduct inconsistent with just and 
equitable principles of trade for any Floor Broker to use the book 
sweep size for the purpose of violating the Floor Broker's duties and 
obligations.\157\
---------------------------------------------------------------------------

    \156\ See proposed Rule 7600(h).
    \157\ See proposed IM-7600-3.
---------------------------------------------------------------------------

    The Exchange notes that another exchange provides functionality to 
help Floor Brokers clear the electronic book.\158\ PHLX's system has 
functionality that will return the order to the Floor Broker if, after 
attempting to execute the order multiple times, the order cannot be 
executed. The Exchange believes this is similar to the proposed book 
sweep size that may result in a Floor Broker's order not executing once 
it is submitted.\159\
---------------------------------------------------------------------------

    \158\ PHLX's Floor Broker Management System (``FBMS'') provides 
execution functionality that will assist the Floor Broker in 
clearing the exchange book, consistent with exchange priority rules. 
See PHLX Rule 1063(e)(iv). Additionally, if a Floor Broker on PHLX 
enters a two-sided order through the FBMS, and there is interest on 
the PHLX electronic book at a price that would prevent the Floor 
Broker's order from executing, the FBMS will provide the Floor 
Broker with the quantity of contracts on the electronic book that 
have priority and need to be satisfied before the Floor Broker's 
order can execute at the agreed upon price. If the Floor Broker 
wishes to still execute his order, he can cause a portion of the 
floor based order to trade against this priority interest on the 
electronic book, thereby clearing the interest and permitting the 
remainder of the Floor Broker's order to trade at the desired price. 
The PHLX FBMS functionality is optional, and a Floor Broker can 
decide not to trade against the electronic book and therefore not 
execute his two-sided order at the particular price. See Securities 
Exchange Act Release No. 68960 (February 20, 2013), 78 FR 13132 
(February 26, 2013) (SR-Phlx-2013-09).
    \159\ The Exchange notes that the proposed functionality of the 
Trading Host on BOX will not attempt to execute an order multiple 
times. Instead, if, due to the book sweep size provided by the Floor 
Broker, the order cannot be executed by the Trading Host 
immediately, it will be rejected back to the Floor Broker. The 
similarity is in the fact that in both situations an order will not 
execute and will be rejected back to the Floor Broker. The Exchange 
believes that this difference between the Exchange and PHLX will 
incentivize Floor Brokers on BOX to provide an adequate book sweep 
size if they want the order to immediately execute.
---------------------------------------------------------------------------

Examples
    The following are examples of how the QOO Order will operate.
Example #1--Execution of a QOO Order
    The following example is designed to illustrate a QOO Order 
executing.

 NBBO 3.09-3.13
 QOO Order for 100 at 3.10 (initiating side is sell)
 Book sweep size = 0.

----------------------------------------------------------------------------------------------------------------
                                                    BOX Book
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
MM1.........................             150            3.09            3.15              10  MM2
BD1.........................              15            3.08            3.16              10  MM3
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is accepted because the price of the QOO Order 
($3.10) is better than the NBBO on both the initiating side ($3.13) and 
the contra-side ($3.09).
Example #2--Capping of the Book Sweep Size
    The following example illustrates how the Exchange will handle a 
QOO Order that is submitted with a book sweep size that is greater than 
the size of the QOO Order.

 NBBO 3.09-3.13
 QOO Order for 100 at 3.10 (initiating side is sell)
 Book sweep size = 200 (will be capped at the size of the QOO 
Order (100)).

----------------------------------------------------------------------------------------------------------------
                                                    BOX Book
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
MM1.........................             150            3.09            3.15              10  MM2
BD1.........................              15            3.08            3.16              10  MM3
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is accepted because the price of the QOO Order 
($3.10) is better than the NBBO on both the initiating side ($3.13) and 
the contra-side ($3.09).
Example #3--Rejecting a QOO Order based on the NBBO
    The following example illustrates how the Exchange will handle a 
QOO Order that is priced outside of the NBBO.

 NBBO 3.09-3.15
 QOO Order for 100 at 3.17 (initiating side is sell)
 Book sweep size = 100.

[[Page 23670]]



----------------------------------------------------------------------------------------------------------------
                                                    BOX Book
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
MM1.........................              50            3.09            3.15              10  MM2
BD1.........................              20            3.08            3.16              10  MM3
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is rejected because the price of the QOO Order 
(3.17) is worse than the NBBO (3.15) on the initiating side of the QOO 
Order.
Example #4--Executing of a QOO Order Utilizing the Book Sweep Size
    The following example illustrates a QOO Order that utilizes the 
book sweep size and therefore executes against interest on the BOX 
Book.

 NBBO 3.09-3.15
 QOO Order for 100 at 3.09 (initiating side is sell)
 Book sweep size = 100.

----------------------------------------------------------------------------------------------------------------
                                                    BOX Book
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
PC1.........................              50            3.09            3.15              10  MM2
PC2.........................              50            3.08            3.16              10  MM3
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is accepted, as the Floor Broker is willing to 
relinquish the full quantity of the initiating side to orders and 
quotes on the BOX Book. The initiating side will trade 50 contracts 
against PC1 at 3.09, and then the remaining 50 contracts will trade at 
3.09 against the contra-side.
Example #5--Insufficient Book Sweep Quantity
    The following example is designed to illustrate the situation where 
an executing Floor Broker did not provide an adequate book sweep size 
to have the QOO Order execute immediately when it was submitted to the 
Trading Host.

 NBBO 3.09-3.15
 QOO Order for 100 at 3.09 (initiating side is sell)
 Book sweep size = 40.

----------------------------------------------------------------------------------------------------------------
                                                    BOX Book
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
PC1.........................              50            3.09            3.15              10  MM2
PC2.........................              50            3.08            3.16              10  MM3
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is rejected, as the Floor Broker is not willing 
to relinquish adequate quantity of the initiating side. Specifically, 
the book sweep size of 40 is not sufficient to satisfy PC1's 50 
contracts which have priority. Upon rejection, the Floor Broker may: 
(i) Increase the book sweep size and resubmit the order; or (ii) not 
trade the order on BOX.
Example #6--Trading Through an Away Exchange
    The following example is designed to illustrate how the Trading 
Host will handle a QOO Order that is submitted at a price that would 
trade-through an away exchange.

 NBBO 3.09-3.13
 QOO Order for 100 at 3.14 (initiating side is buy)
 Book sweep size = 100.

----------------------------------------------------------------------------------------------------------------
                                                    BOX Book
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
MM1.........................              50            3.09            3.15              10  MM2
BD1.........................              20            3.08            3.16              10  MM3
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is rejected because the price of the QOO Order 
(3.14) is worse than the NBBO (3.13) on the contra-side of the QOO 
Order. The QOO Order is rejected even though the price of the QOO is 
better than the BOX Book on the initiating side (3.09) and the contra-
side (3.15). A QOO Order will not route to an away exchange and the QOO 
will not trade through any away exchange displaying a better price.
Example #7--Complex QOO Order on the Trading Floor
    The following is an example of an execution of a Complex QOO Order.

 Complex QOO Order for 100 of A+B at 2.01 (initiating side is 
buy)

[[Page 23671]]

 Floor Broker has disabled the away NBBO filter for the Complex 
QOO Order
 Book sweep size = 100
 NBBO for Complex Order \160\ A+B is 3.06-3.20
---------------------------------------------------------------------------

    \160\ The NBBO for Complex Orders is based on the NBBO for the 
individual options components of such Complex Order.
---------------------------------------------------------------------------

 BOX BBO for Complex Order \161\ A+B is 2.00-3.20
---------------------------------------------------------------------------

    \161\ The BOX BBO for Complex Orders is the best net bid and 
offer price based on the best bid and offer on the BOX Book for the 
individual option's components of the Complex Order.

----------------------------------------------------------------------------------------------------------------
                                         BOX Book For Complex Order A+B
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
 
 
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                              BOX Book Instrument A
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
PC1.........................              10            1.00            1.10              10  PC2
 
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                              BOX Book Instrument B
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
BD1.........................              10            1.00            2.10              10  BD2
 
----------------------------------------------------------------------------------------------------------------

    Result: Complex QOO Order is accepted because the price of the 
Complex QOO Order (2.01) is better than the BOX BBO on the initiating 
side (2.00) and the contra-side (3.20). Additionally, since the NBBO 
filter has been disabled by the Floor Broker, the Complex QOO Order 
will ignore the NBBO for Complex Order A+B (3.06-3.20). Even when the 
Complex QOO Order ignores the away NBBO, it must still respect interest 
on BOX.
Example #8--Complex QOO Order Rejected Due to the Book Sweep Size
    The following is an example of a Complex QOO Order that is rejected 
by the Trading Host because the Floor Broker did not provide an 
adequate book sweep size to satisfy the resting interest on the Complex 
Order Book.

 Complex QOO Order for 100 of A+B at 3.07 (initiating side is 
sell)
 Book sweep size = 25
 NBBO for Complex Order A+B is 3.06-3.20

----------------------------------------------------------------------------------------------------------------
                                         BOX Book For Complex Order A+B
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
MM1.........................              50            3.10
 
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                              BOX Book Instrument A
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
PC1.........................              10            1.06            1.10              10  PC2
 
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                              BOX Book Instrument B
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
BD1.........................             100            2.00            2.10             100  BD2
 
----------------------------------------------------------------------------------------------------------------

    Result: Complex QOO Order is rejected because the book sweep size 
is not adequate to satisfy the resting A+B Complex Orders on the 
Complex Order Book at 3.10 (50). If, however, the book sweep size was 
for at least 50 A+B, the Complex QOO Order would execute by having 50 
A+B execute against the resting Complex Orders on the Complex Order 
Book at 3.10. The remaining 50 A+B would execute against the contra-
side order at 3.07.
Example #9--Complex QOO Order Executing Against BOX Book Interest
    The following example is designed to illustrate the situation where 
the Complex QOO Order executes against Implied Orders \162\ and resting 
Complex Orders on the Complex Order Book.
---------------------------------------------------------------------------

    \162\ An ``Implied Order'' is a Complex Order at the cNBBO, 
derived from the orders at the BBO on the BOX Book for each 
component leg of a Strategy, provided each component leg is at a 
price equal to NBBO for that series. See Rule 7240(d)(1).


[[Page 23672]]


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

 Complex QOO Order for 100 of A+B at 3.04 (initiating side is 
sell)
 Book sweep size = 100
 NBBO for Complex Order A+B is 3.06-3.20

----------------------------------------------------------------------------------------------------------------
                                         BOX Book for Complex Order A+B
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
MM1.........................              60            3.06
 
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                              BOX Book Instrument A
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
PC1.........................              10            1.06            1.10              10  PC2
MM2.........................              90            1.05
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                              BOX Book Instrument B
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
BD1.........................             100            2.00            2.10             100  BD2
 
----------------------------------------------------------------------------------------------------------------

    Result: Complex QOO Order is accepted because the Floor Broker is 
willing to relinquish the full quantity of the initiating side to bids 
and offers on the BOX Book. The initiating side will execute against 
resting orders of the individual legs and resting A+B Complex Orders. 
Specifically, 10 A+B of the initiating side will execute against an 
Implied Order at 3.06 (leg A at 1.06 and leg B at 2.00), 60 A+B will 
execute at 3.06 against resting A+B Complex Order and 30 A+B against an 
Implied Order at 3.05 (leg A at 1.05 and leg B at 2.00).
Example #10--Complex QOO Order Executing Against BOX Book Interest with 
Remaining Interest
    The following example illustrates how the Exchange will handle a 
Complex QOO Order that executes against BOX Book interest first but 
leaves interest on the BOX Book.

 Complex QOO Order for 100 of A+B at 3.04 (initiating side is 
sell)
 Book sweep size = 100
 NBBO for Complex Order A+B is 3.06-3.20

----------------------------------------------------------------------------------------------------------------
                                         BOX Book for Complex Order A+B
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
 
 
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                              BOX Book Instrument A
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
PC1.........................              10            1.06            1.10              10  PC2
 
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                              BOX Book Instrument B
-----------------------------------------------------------------------------------------------------------------
           Account               Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
PC3.........................              20            2.00            2.10             100  BD2
 
----------------------------------------------------------------------------------------------------------------

    Result: Complex QOO Order is accepted. The initiating side will 
execute against resting orders of the individual legs and then against 
the contra-side. Specifically, 10 A+B of the initiating side will 
execute against an Implied Order at 3.06 (leg A at 1.06 and leg B at 
2.00), and 90 will execute against the contra-side at 3.04. The 
unexecuted interest on the BOX Book remains after the execution of the 
Complex QOO Order.
Example #11--Multiple Public Customer and non-Public Customer Orders on 
the BOX Book
    Under Proposed Rule 7600(d), multiple Public Customer and non-
Public Customer Orders on the BOX Book that have priority at the 
execution price of the QOO Order will be filled in the order they are 
ranked. The following example illustrates this situation.

 NBBO 3.10--3.13
 QOO Order for 100 at 3.10 (initiating side is sell)
 Surrender quantity = 100

[[Page 23673]]



----------------------------------------------------------------------------------------------------------------
                                                    BOX Book
-----------------------------------------------------------------------------------------------------------------
        Account \163\            Quantity           Buy            Sell          Quantity           Account
----------------------------------------------------------------------------------------------------------------
MM1.........................              50            3.10            3.15              10  MM2
PC1.........................              20            3.10  ..............  ..............  ..................
BD1.........................              50            3.10  ..............  ..............  ..................
PC2.........................              20            3.10  ..............  ..............  ..................
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is accepted because the price of the QOO Order 
($3.10) is better than or equal to the NBBO on both the initiating side 
($3.13) and the contra-side ($3.10). The initiating side will trade 50 
contracts against MM1 at $3.10, then 20 against PC1 at $3.10, and then 
30 against BD1 at $3.10. The remaining quantity of BD1 (20 contracts) 
and PC2's order for 20 contracts will remain on the BOX Book.
---------------------------------------------------------------------------

    \163\ This is the time sequence that the orders were received by 
BOX (i.e., MM1 was received first).
---------------------------------------------------------------------------

Guarantee
    The Exchange is proposing to allow for a participation guarantee 
for certain orders executed by Floor Brokers.\164\ Specifically, when a 
Floor Broker holds an order of the eligible order size or greater, the 
Floor Broker is entitled to cross a certain percentage of the order 
with other orders that the Floor Broker is holding. 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 500 contracts.\165\ In 
determining whether an order satisfies the eligible order size 
requirement, any multi-part or Complex Order must contain one leg alone 
which is for the eligible order size or greater. The percentage of the 
order which a Floor Broker is entitled to cross, after all equal or 
better priced Public Customer bids or offers on the BOX Book and any 
non-Public Customer bids or offers that are ranked ahead of such Public 
Customer bids or offers are filled, is 40% of the remaining contracts 
in the order. However, nothing in this proposed Rule is intended to 
prohibit a Floor Broker from trading more than his percentage 
entitlement if the other Participants of the trading crowd do not 
choose to trade the remaining portion of the order.
---------------------------------------------------------------------------

    \164\ See proposed Rule 7600(f). Proposed Rule 7600(f) is based 
on PHLX Rule 1064.02. The Exchange notes that there are certain 
differences from the PHLX rule due to the fact that the Exchange 
will not have specialists on the Trading Floor and the Exchange has 
different rules than PHLX when it comes to orders on the Trading 
Floor executing against interest on the electronic book.
    \165\ Any changes to the eligible order size shall be 
communicated to Participants via circular.
---------------------------------------------------------------------------

Additional Requirements
    The Exchange is proposing additional requirements for Floor 
Participants while present on the Trading Floor.\166\ First, BOX is 
proposing that a Floor Broker must disclose all securities that are 
components of the Public Customer Order before requesting bids and 
offers for the execution of all components of the order. Next, the 
Exchange is proposing rules pertaining to treatment of quotes provided 
by Floor Participants. Specifically, a quote provided by a Floor 
Participant will remain in effect until: (1) A reasonable amount of 
time has passed; or (2) there is a significant change in the price of 
the underlying security; \167\ or (3) the market given in response to 
the request has been improved.\168\ BOX is proposing that the Floor 
Participant who established the market will, at the given price, have 
priority over all other orders that were not announced in the trading 
crowd at the time that the market was established (but not over Public 
Customer orders on the BOX Book or any non-Public Customer orders that 
have priority over such Public Customer orders on the BOX Book) and 
will maintain priority over such orders except for orders that improve 
upon the market. Additionally, 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.
---------------------------------------------------------------------------

    \166\ See proposed IM-7600-1. Proposed IM-7600-1 is based on 
PHLX Rule 1064.02. The Exchange notes that there are certain 
differences from the PHLX rule in order to account for the fact that 
BOX will not have specialists on the Trading Floor. Additionally, 
the Exchange is proposing additional language to clarify it is the 
responsibility of the Floor Participant who established the market 
to alert the executing Floor Broker of such information.
    \167\ 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.
    \168\ See proposed IM-7600-1(b).
---------------------------------------------------------------------------

    The Exchange is proposing that Floor Participants may not prevent a 
Complex Order from being completed by giving a competing bid or offer 
for one component of such order. Lastly, the Exchange is proposing that 
if a Floor Broker is crossing a Public Customer Order with an order 
that is not a Public Customer Order, when providing an opportunity for 
the trading crowd to participate in the transaction, the Floor Broker 
shall disclose the Public Customer Order that is subject to crossing.
Tied Hedge
    BOX is proposing the adoption of rules that will allow for tied 
hedge transactions. Tied hedge transactions are transactions that 
involve an option transaction and a hedging transaction occurring on a 
non-option market, as described in greater detail below.\169\ 
Specifically, the Exchange is proposing 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 certain conditions are met. The option order must be in a class 
designated as eligible for tied hedge transactions 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. The Floor 
Broker must create an electronic record that it is engaged in a tied 
hedge transaction in a form and manner prescribed by the Exchange. The 
hedging position is 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.\170\ Additionally,

[[Page 23674]]

the hedging position must be brought without undue delay to the trading 
crowd and announced concurrently with the option order; offered to the 
trading crowd in its entirety; and 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. The hedging position must not exceed the option order 
on a delta basis to be eligible for treatment as a tied hedge order.
---------------------------------------------------------------------------

    \169\ See proposed IM-7600-2. Proposed IM-7600-2 is based on 
NYSE Arca Rule 6.47.01.
    \170\ 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.
---------------------------------------------------------------------------

    The Exchange is further proposing that 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 proposed Rule 7610(e)). 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. In the event 
the conditions in the non-options market prevent the execution of the 
non-option leg(s) at the agreed prices, the trade representing the 
options leg(s) may be cancelled. BOX is proposing that prior to 
entering tied hedge orders on behalf of Public Customers, the Floor 
Broker must deliver to the Public Customer a written notification 
informing the Public Customer that his order may be executed using the 
Exchange's tied hedge procedures. The proposed Rule dealing with tied 
hedge orders is based on the rules of another options exchange.\171\
---------------------------------------------------------------------------

    \171\ See NYSE Arca Rule 6.47.01.
---------------------------------------------------------------------------

    The Exchange is also proposing language related to Section 
11(a)(1)(G) of the Exchange Act.\172\ Specifically, a BOX 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.
---------------------------------------------------------------------------

    \172\ See proposed IM-7600-5.
---------------------------------------------------------------------------

Clerks
    The Exchange is proposing to adopt Rule 7630 Clerks, which provides 
requirements for Clerks on the Trading Floor.\173\ The proposal defines 
``Clerk'' as any registered on-floor person employed by or associated 
with a Floor Broker or Floor Market Maker and who is not eligible to 
effect transactions on the Trading Floor as a Floor Market Maker or 
Floor Broker. The proposed Rule codifies that Clerks must display the 
badge(s) supplied by the Exchange while on the Trading Floor. Further, 
Proposed Rule 7630(c) codifies that a Clerk shall be primarily located 
at a workstation assigned to his employer or assigned to his employer's 
clearing firm unless such Clerk is (1) entering or leaving the Trading 
Floor, (2) transmitting, correcting or checking the status of an order 
or reporting or correcting an executed trade or (3) supervising other 
Clerks if he is identified as a supervisor on the registration form 
submitted to the Exchange's Membership Department.
---------------------------------------------------------------------------

    \173\ Proposed Rule 7630 is based on PHLX Rule 1090.
---------------------------------------------------------------------------

    The Exchange is also proposing Rule 7630(d), which details the 
registration requirements for a Floor Broker who employs a Clerk that 
performs any function other than a solely clerical or ministerial 
function. On the Trading Floor, a Clerk may enter an order under the 
direction of a Floor Broker by way of any order handling entry 
device.\174\ Proposed Rule 7630(f) defines a Floor Market Maker Clerk 
as any on-floor Clerk employed by or associated with a Floor Market 
Maker, and details the registration requirements and conduct on the 
Trading Floor for Floor Market Maker Clerks. A Floor Market Maker Clerk 
is permitted to communicate verbal market information (i.e., bid, 
offer, and size) in response to requests for such information, provided 
that such information is communicated under the direct supervision of 
his or her Floor Market Maker employer. A Floor Market Maker Clerk may 
consummate electronic transactions under the express direction of his 
or her Floor Market Maker employer by matching bids and offers. Such 
bids and offers and transactions effected under the supervision of a 
Floor Market Maker are binding as if made by the Floor Market Maker 
employer.
---------------------------------------------------------------------------

    \174\ See proposed Rule 7630(e).
---------------------------------------------------------------------------

Disputes on the Trading Floor
    The Exchange is proposing to adopt Rule 7640 to codify the process 
for the resolution of trading disputes on the Trading Floor.\175\ 
Specifically, disputes occurring on and relating to the Trading Floor, 
if not settled by agreement between the Floor Participants interested, 
shall be settled by an Options Exchange Official.
---------------------------------------------------------------------------

    \175\ Proposed Rule 7640 is based on PHLX Rule 124. The Exchange 
notes that there are certain differences from the PHLX rule because 
the Exchange desires to have consistency with its existing rules 
related to reviewing an Exchange ruling.
---------------------------------------------------------------------------

    The Exchange is proposing that an Options Exchange Official shall 
institute the course of action deemed to be most fair to all parties 
under the circumstances at the time when issuing decisions for the 
resolution of trading disputes. An Options Official may direct the 
execution of an order or adjust the transaction terms or Participants 
to an executed order, and may also nullify a transaction if the 
transaction is determined to have been in violation of Exchange Rules. 
Options transactions that are the result of an Obvious Error or 
Catastrophic Error shall be subject to the provisions and procedures 
set forth in Rule 7170. The proposed Rule also states that all rulings 
rendered by an Options Exchange Official are effective immediately and 
must be complied with promptly; failure to do so may result in an 
additional violation.
    Proposed Rule 7640(e) states that all Options Exchange Official 
rulings are reviewable by the CRO or his or her designee, and sets 
forth the process for such review. Regulatory staff must be advised 
within 15 minutes of an Options Exchange Official's ruling that a party 
to such ruling has determined to appeal from such ruling to the CRO or 
his or her designee. The Exchange may establish the procedures for the 
submission of a request for a review of an Options Exchange Official 
ruling. Options Exchange Official rulings (including those concerning 
the nullification or adjustment of transactions) may be sustained, 
overturned, or modified by the CRO or his or her designee. In making a 
determination, the CRO or his or her designee may consider facts and 
circumstances not available to the ruling Options Exchange Official, as 
well as action taken by the parties in reliance on the Options Exchange 
Official's ruling (e.g., cover, hedge, and related trading activity). 
Further, all decisions made by the CRO or his or her designee

[[Page 23675]]

in connection with initial rulings on requests for relief and with the 
review of an Options Exchange Official ruling pursuant to this proposed 
Rule 7640(e) shall be documented in writing and maintained by the 
Exchange in accordance with the record keeping requirements set forth 
in the Securities Exchange Act of 1934, as amended, and the rules 
thereunder. A Floor Participant seeking review of an Options Exchange 
Official ruling shall be assessed a fee of $250.00 for each Options 
Exchange Official ruling to be reviewed that is sustained and not 
overturned or modified by the CRO or his or her designee.\176\ All 
decisions of the CRO or his or her designee shall be final and may not 
be appealed to the Exchange's Board of Directors. Additionally, all 
decisions of the CRO or his or her designee are effective immediately 
and must be complied with promptly. Failure to promptly comply with a 
decision of the Exchange may result in an additional violation.
---------------------------------------------------------------------------

    \176\ In addition, in instances where the Exchange, on behalf of 
an Options Participant, requests a review by another options 
exchange, the Exchange will pass any resulting charges through to 
the relevant Options Participant.
---------------------------------------------------------------------------

    Lastly, as discussed in proposed IM-7640-1, the Exchange may 
determine that an Options Exchange Official is ineligible to 
participate in a particular ruling where it appears that such Options 
Exchange Official has a conflict of interest. The Exchange also sets 
forth when a conflict of interest exists, and allows that Exchange 
staff may consider other circumstances, on a case-by-case basis, in 
determining the eligibility or ineligibility of a particular Options 
Exchange Official to participate in a particular ruling due to a 
conflict of interest.\177\
---------------------------------------------------------------------------

    \177\ See proposed IM-7640-1.
---------------------------------------------------------------------------

Trading for Joint Account
    The Exchange is proposing Rule 7650, which will govern Trading for 
Joint Accounts.\178\ Specifically, it stipulates that while on the 
Trading Floor, no Options Participant shall initiate the purchase or 
sale on the Exchange of any security for any account in which he, his 
Options Participant organization or a participant therein, is directly 
or indirectly interested with any person other than such Options 
Participant or participant therein. The Exchange further clarifies that 
these provisions shall not apply to any purchase or sale by any Options 
Participant for any joint account maintained solely for effecting bona 
fide domestic or foreign arbitrage transactions.
---------------------------------------------------------------------------

    \178\ Proposed Rule 7650 is based on PHLX Rule 772.
---------------------------------------------------------------------------

Communications and Equipment
    The Exchange is proposing Rule 7660 Communications and Equipment, 
which deals with communication and equipment on the Trading Floor. 
Specifically, the proposed Rule details which communication devices are 
prohibited; provides the Exchange with the ability to remove any 
communication device that is in violation; sets forth the registration 
requirement and process; specifies the capacity and functionality of 
communication devices; outlines the communication devices allowed to 
Floor Market Makers, Floor Brokers, and Clerks; requires the 
maintenance of telephone records, and excludes the Exchange from 
liability due to conflicts between communication devices or due to 
electronic interference. Additionally, the Exchange will establish a 
communication device policy and violations of such policy may result in 
disciplinary action by the Exchange.\179\ Proposed IM-7660-2 clarifies 
that proposed Rule 7660 and any relevant Exchange policy are intended 
to apply to all communication and other electronic devices on the Floor 
of the Exchange, including, but not limited to, wireless, wired, 
tethered, voice, and data. The Exchange notes that the proposed rules 
applicable to communication and equipment on the Trading Floor are 
based on the rules of another exchange.\180\ Lastly, Proposed IM-7660-3 
provides the Exchange with the ability to limit or revoke the use of 
any communication device on the Trading Floor whenever the Exchange 
determines that use of such communication device: (1) Interferes with 
the normal operation of the Exchange's own systems or facilities or 
with the Exchange's regulatory duties, (2) is inconsistent with the 
public interest, the protection of investors or just and equitable 
principles of trade, or (3) interferes with the obligations of a Floor 
Participant to fulfill its duties under, or is used to facilitate any 
violation of, the Act or rules thereunder, or Exchange rules. The 
Exchange notes that proposed IM-7660-3 is based on the rules of another 
exchange.\181\
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    \179\ See proposed IM-7660-1.
    \180\ See PHLX Rule 606. The Exchange notes that it is not 
copying PHLX Rule 606(b)(2)(i), which prohibits any member from 
establishing communication devices on the floor. The Exchange 
believes that this provision is not necessary and would be contrary 
to the Exchange's proposed Trading Floor design. Specifically, the 
Exchange will not be providing communication devices for Floor 
Participants; Floor Participants will be responsible for providing 
their own communication devices. Therefore, the inclusion of this 
provision would directly conflict with the Exchange's plan. 
Additionally, proposed Rule 7660(g) contains a provision not 
included in PHLX's rule that requires wireless telephone and other 
communication devices on the Options Floor to comply with applicable 
floor policies. The Exchange believes this provision is important as 
to make clear the restrictions and requirements applicable to 
communication devices on the Trading Floor.
    \181\ See CBOE Rule 6.23(b). The Exchange notes that although 
other provisions of proposed Rule 7660 are based on PHLX, PHLX does 
not allow Floor Brokers to receive orders while in the trading 
crowd; therefore, the Exchange is proposing to follow CBOE, which 
allows Floor Brokers to receive orders in the trading crowd.
---------------------------------------------------------------------------

Floor Market Makers
    The Exchange is proposing Rule 8500 Floor Market Maker, which 
details the rules surrounding Floor Market Makers, including 
registration as a Market Maker and suspension and termination of a 
Floor Market Maker.\182\ Specifically, with regard to suspension or 
termination, the registration of any Options Participant as a Floor 
Market Maker may be suspended or terminated by the Exchange upon a 
determination that such Options Participant has failed to properly 
perform as a Floor Market Maker.\183\
---------------------------------------------------------------------------

    \182\ See proposed Rules 8500 (a) and (b). Proposed Rules 8500 
(a) and (b) are based on PHLX Rule 1020. There are certain 
differences with PHLX's rule due to the fact that PHLX has 
additional categories of Participants that the Exchange does not.
    \183\ The 13000 Series of the Exchange's Rules provide 
procedures, including appealing, for Participants aggrieved by 
Exchange action, including suspension and termination.
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    The Exchange proposes that a Floor Market Maker shall not effect on 
the Exchange purchases or sales of any option in which such Floor 
Market Maker is registered, for any account in which he or his Options 
Participant is directly or indirectly interested, unless such dealings 
are reasonably necessary to permit such Floor Market Maker to maintain 
a fair and orderly market.\184\
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    \184\ See proposed Rule 8500(c).
---------------------------------------------------------------------------

    Also, the Exchange proposes certain expectations of Floor Market 
Makers. Specifically, proposed Rule 8500(d) details that it is 
ordinarily expected that a Floor Market Maker will engage, to a 
reasonable degree under the existing circumstances, in dealings for his 
own account in options when lack of price continuity or lack of depth 
in the options market or temporary disparity between supply and demand 
in the options market exists or is reasonably to be anticipated. The 
Exchange is proposing that transactions effected on the Exchange by a 
Floor Market Maker for his own account, and in the options in which he 
is registered, are to constitute a course of dealings reasonably 
calculated to contribute to

[[Page 23676]]

the maintenance of price continuity with reasonable depth, and to the 
minimizing of the effects of temporary disparity between supply and 
demand, immediate or reasonably to be anticipated. Transactions in such 
options not part of such a course of dealings are not to be effected by 
a Floor Market Maker for his own account.\185\
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    \185\ See proposed Rule 8500(d).
---------------------------------------------------------------------------

    The Exchange is proposing Rule 8510 which will govern the 
obligations and restrictions applicable to Floor Market Makers.\186\ 
Generally, 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, and those Participants should 
not enter into transactions or make bids or offers that are 
inconsistent with such a course of dealings.\187\ Additionally, the 
Exchange is proposing to define a Floor Market Maker as an Options 
Participant on the Exchange located on the Trading Floor who has 
received permission from the Exchange to trade in options for his own 
account.\188\
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    \186\ Proposed Rule 8510 is based on PHLX Rule 1014. PHLX Rule 
1014 includes numerous sections that the Exchange is not including 
in proposed Rule 8510. The majority of the sections that the 
Exchange is omitting are not relevant to BOX. Specifically, they 
involve rules related to Participant categories that the Exchange 
does not and will not have on BOX. These include Streaming Quote 
Trader, which is a Registered Option Trader who has received 
permission from PHLX to submit electronic quotes only while they are 
present on the floor, and specialists. Additionally, the Exchange is 
not copying PHLX Rule 1014.06, which covers information barriers, 
because the Exchange already has rules covering misuse of material 
information. See Securities Exchange Act Release No. 75916 
(September 14, 2015), 80 FR 56503 (September 18, 2015) (SR-BOX-2015-
31). The Exchange is not copying PHLX Rules 1014.13 and 1014.14 
because the PHLX Rules deal with types of activities and members 
that will not be present on BOX's Trading Floor. As previously 
mentioned, PHLX Rule 1014.13 requires an in person minimum that the 
Exchange does not believe is necessary on the Trading Floor.
    \187\ See proposed Rule 8510(a).
    \188\ See proposed Rule 8510(b).
---------------------------------------------------------------------------

    The Exchange is proposing a Continuous Open Outcry Quoting 
Obligation for Floor Market Makers.\189\ The Continuous Open Outcry 
Quoting Obligation requires Floor Market Makers to provide a two-sided 
market on the Trading Floor complying with the quote spread parameter 
requirements contained in proposed Rule 8510(d)(1).\190\ As part of the 
Continuous Open Outcry Quoting Obligation, such Floor Market Makers 
shall provide such quotations with a size of not less than 10 
contracts.
---------------------------------------------------------------------------

    \189\ See proposed Rule 8510(c).
    \190\ See proposed Rule 8510(c)(2).
---------------------------------------------------------------------------

    The Exchange also proposes affirmative obligations for Floor Market 
Makers in classes of option contracts to which they are assigned. 
Specifically, whenever a Floor Market Maker is called upon by an 
Options Exchange Official or a Floor Broker to make a market, the Floor 
Market Maker is expected to engage, to a reasonable degree under the 
existing circumstances, in dealing for his own account when there 
exists, or it is reasonably anticipated that there will exist, a lack 
of price continuity, a temporary disparity between the supply of and 
demand for a particular option contract, or a temporary distortion of 
the price relationships between option contracts of the same 
class.\191\ Additionally, the Exchange proposes the following 
obligations on Floor Market Makers while performing their market making 
activities on the Trading Floor: (1) Quote Spread Parameters (Bid/Ask 
Differentials) \192\ and (2) Maximum Option Price Change.\193\ 
Specifically, Floor Market Makers shall provide a bid/ask differential 
on the Trading Floor for options on equities and index options by 
bidding and/or offering so as to create differences of no more than 
$0.25 between the bid and the offer for each option contract for which 
the prevailing bid is less than $2; no more than $0.40 where the 
prevailing bid is $2 or more but less than $5; no more than $0.50 where 
the prevailing bid is $5 or more but less than $10; no more than $0.80 
where the prevailing bid is $10 or more but less than $20; and no more 
than $1 where the prevailing bid is $20 or more, provided that, in the 
case of equity options, the bid/ask differentials stated above shall 
not apply to in-the-money series where the market for the underlying 
security is wider than the differentials set forth above. For such 
series, the bid/ask differentials may be as wide as the quotation for 
the underlying security on the primary market, or its decimal 
equivalent rounded up to the nearest minimum increment. The Exchange 
may establish differences other than the above for one or more series 
or classes of options.\194\ Quotations provided in open outcry may not 
be made with $5 bid/ask differentials provided in Rule 8040(a)(7) and 
instead must comply with the legal bid/ask differential requirements 
described in this subparagraph. These proposed obligations for Floor 
Market Maker are based on the rules of another exchange.\195\
---------------------------------------------------------------------------

    \191\ See proposed Rule 8510(d).
    \192\ See proposed Rule 8510(d)(1).
    \193\ On the Trading Floor, a Floor Market Maker shall not be 
bidding more than $1 lower and/or offering no more than $1 higher 
than the last preceding transaction price for the particular option 
contract. However, this standard shall not ordinarily apply if the 
price per share of the underlying stock or Exchange-Traded Fund 
Share has changed by more than $1 since the last preceding 
transaction for the particular option contract. See proposed Rule 
8510(d)(2).
    \194\ The Exchange notes that the ability to provide different 
quoting requirements is not novel and the Exchange already has this 
ability when it comes to electronic quoting requirements. See Rule 
8040(a)(7). Additionally, another Exchange allows for the same on 
their floor. See PHLX Rule 1014(c)(i)(A)(1)(a).
    \195\ See PHLX Rule 1014(c)(i)(A). The Exchange is not including 
all of the PHLX rules related to Floor Market Maker quoting 
obligations. Specifically, the Exchange is not including PHLX rules 
applicable to foreign currency options because BOX does not list for 
trading foreign currency options.
---------------------------------------------------------------------------

    The Exchange is also proposing restrictions for Floor Market Makers 
in classes of option contracts other than those to which they are 
appointed. Specifically, with respect to classes in which Floor Marker 
Makers are not appointed, Floor Market Makers should not (1) 
individually or as a group, intentionally or unintentionally, dominate 
the market in option contracts of a particular class; or (2) effect 
purchases or sales on the Trading Floor of the Exchange except in a 
reasonable and orderly manner; (3) be conspicuous in the general market 
or in the market in a particular option.\196\ Further, the Exchange 
proposes additional restrictions on Floor Market Makers.\197\ 
Specifically, except as otherwise provided, no Floor Market Maker shall 
(1) initiate a transaction while on the Trading Floor for any account 
in which he has an interest and execute as Floor Broker an off-floor 
order in options on the same underlying interest during the same 
trading session, or (2) retain priority over an off-floor order while 
establishing or increasing a position for an account in which he has an 
interest while on the Trading Floor of the Exchange.\198\
---------------------------------------------------------------------------

    \196\ See proposed Rule 8510(e).
    \197\ See proposed Rule 8510(f).
    \198\ This provision shall not apply to (1) any transaction by a 
registered Floor Market Maker in an option in which he is so 
registered; or (2) any transaction, other than a transaction for an 
account in which a Floor Market Maker has an interest, made with the 
prior approval of an Options Exchange Official to permit a member to 
contribute to the maintenance of a fair and orderly market in an 
option, or any purchase or sale to reverse any such transaction; or 
(3) any transaction to offset a transaction made in error. See 
proposed Rule 8510(g).
---------------------------------------------------------------------------

    Proposed Rule 8510(h) discusses option priority and parity on the 
Trading Floor.\199\ Specifically, it references proposed Rule 7610, 
which

[[Page 23677]]

directs Floor Participants in the establishment of priority of orders 
on the Trading Floor. The Exchange is proposing to clarify that in 
situations where the allocation of contracts result in fractional 
amounts of contracts to be allocated to Floor Participants, the number 
of contracts to be allocated shall be rounded in a fair and equitable 
manner.
---------------------------------------------------------------------------

    \199\ Proposed Rule 8510(h) is based on PHLX Rule 1014(g)(i)(A). 
The Exchange is not including the provision discussing orders of 
controlled accounts because the provision is not applicable to the 
Exchange's Trading Floor. Specifically, the Exchange's Trading Floor 
does not require a distinction for controlled accounts.
---------------------------------------------------------------------------

    The Exchange is also clarifying that Floor Participants must follow 
just and equitable principles of trade when dealing on the Trading 
Floor.\200\ Specifically, it shall be considered conduct inconsistent 
with just and equitable principles of trade for: (a) A Floor Broker to 
allocate orders other than in accordance with the Exchange's priority 
rules applicable to floor trades; (b) a Floor Participant to enter into 
any agreement with another Floor Participant concerning allocation of 
trades; or (c) a Floor Participant to harass, intimidate or coerce 
another Floor Participant to make or refrain from making any complaint 
or appeal.
---------------------------------------------------------------------------

    \200\ See proposed Rule 8510(h)(4).
---------------------------------------------------------------------------

    The Exchange is proposing substantial Interpretive Material to 
supplement the Floor Market Maker Rules.\201\ Specifically, the 
Exchange is proposing IM-8510-1, which provides that the obligations of 
a Floor Market Maker with respect to those classes of options to which 
he is assigned shall take precedence over his other activities. The 
Exchange is proposing IM-8510-2, which details non-electronic orders 
and states that Floor Market Makers participating in a trading crowd 
may, in response to a verbal request for a market by a Floor Broker, 
state a bid or offer that is different than their electronically 
submitted bid or offer, provided that such stated bid or offer is not 
inferior to such electronically submitted bid or offer, except when 
such stated bid or offer is made in response to a Floor Broker's 
solicitation of a single bid or offer as set forth in proposed Rule 
7040(d)(2).\202\ A Floor Market Maker shall be deemed to be 
participating in the crowd if such Floor Market Maker is, at the time 
an order is announced in the crowd, physically located in the specific 
Crowd Area. A Floor Market Maker who is physically present in such 
Crowd Area may engage in options transactions in assigned issues as a 
crowd participant, provided that such Floor Market Maker fulfills the 
requirements set forth in proposed Rule 8510. The Exchange is proposing 
to define the term ``on the floor'' as meaning the Trading Floor of the 
Exchange; the rooms, lobbies and other premises immediately adjacent 
thereto made available by the Exchange for use by Floor Participants 
generally; other rooms, lobbies and premises made available by the 
Exchange primarily for use by Floor Participants; and the telephone and 
other facilities in any such place.\203\ The Exchange is also proposing 
that the provisions of this Proposed Rule 8510 do not apply to 
transactions initiated by a Floor Market Maker for an account in which 
he has an interest unless such transactions are either initiated by a 
Floor Market Maker while on the Floor or unless such transactions, 
although originated off the Floor, are deemed on-Floor transactions 
under the provisions of these Rules.\204\
---------------------------------------------------------------------------

    \201\ The proposed Interpretive Material to supplement the Floor 
Market Maker Rules is based mostly on commentary to PHLX Rule 1014. 
The Exchange notes that it is not copying all of the commentary to 
PHLX Rule 1014 as some of the commentary is not applicable because 
it involves specialists, who the Exchange does not have, or the 
commentary is covered by different proposed rules.
    \202\ Proposed IM-8510-2 is based on PHLX Rule 1014.05(c). The 
Exchange is not including all of PHLX Rue 1014.05(c). Specifically, 
the Exchange is not including provisions of the PHLX Rule related to 
specialist because the Exchange does not have specialists and is not 
proposing to have specialists. The Exchange is also not including 
PHLX provisions related to priority of orders represented on the 
floor because the Exchange is copying the floor priority provisions 
from NYSE Arca and they are covered by proposed Rule 7600(c)
    \203\ See proposed IM-8510-3(a). Proposed IM-8510-3(a) is based 
on PHLX Rule 1014.07.
    \204\ See proposed IM-8510-3(b). Proposed IM-8510-3(b) is based 
on PHLX Rule 1014.07.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes that an off-Floor order for an 
account in which a Participant has an interest is to be treated as an 
on-Floor order if it is executed by the Participant who initiated 
it.\205\ Proposed IM-8510-4 also includes additional transactions that 
will be considered on-Floor transactions, including any transaction for 
an account in which a Floor Market Maker has an interest if such 
transaction is initiated off the Trading Floor by such Floor Market 
Maker after he has been on the Trading Floor during the same day. 
Additionally, the following will be treated as on-Floor orders, any 
transactions for a Participant for an account in which it has an 
interest: (1) Which results in an order entered off the Floor following 
a conversation relating thereto with a Floor Participant on the Floor 
who is a partner of or stockholder in such Participant; or (2) which 
results from an order entered off the Floor following the unsolicited 
submission from the Floor to the office of a quotation in a stock or 
Exchange-Traded Fund Share and the size of the market by a Participant 
on the Floor who is a partner of or stockholder in such Participant; or 
(3) which results from an order entered off the Floor which is executed 
by a Participant on the Floor who is a partner of or stockholder in 
such Participant and who had handled the order on a ``not-held'' basis; 
\206\ or (4) which results from an order entered off the Floor which is 
executed by a Participant on the Floor who is a partner of or 
stockholder in such Participant and who has changed the terms of the 
order.
---------------------------------------------------------------------------

    \205\ See proposed IM-8510-4. Proposed IM-8510-4 is based on 
PHLX Rule 1014.08.
    \206\ However, the following are not on-Floor orders and such 
restrictions shall not apply to an order: (1) To sell an option for 
an account in which the Participant is directly or indirectly 
interested if, in facilitating the sale of a large block of stock or 
Exchange-Traded Fund Shares, the Participant acquired its position 
because the demand on the Floor was not sufficient to absorb the 
block at a particular price or prices; or (2) to purchase or sell an 
option for an account in which the Options Participant is directly 
or indirectly interested if the Options Participant was invited to 
participate on the opposite side of a block transaction by another 
Options Participant or a partner or stockholder therein because the 
market on the Floor could not readily absorb the block at a 
particular price or prices; or (3) to purchase or sell an option for 
an account in which the Participant is directly or indirectly 
interested if the transaction is on the opposite side of a block 
order being executed by the Participant for the account of its 
customer and the transaction is made to facilitate the execution of 
such order.
---------------------------------------------------------------------------

    The Exchange is proposing that an on-Floor order given by a Floor 
Market Maker to a commission broker, for an account in which the Floor 
Market Maker has an interest, is subject to all the rules restricting 
Floor Market Makers.\207\
---------------------------------------------------------------------------

    \207\ See proposed IM-8510-5. Proposed IM-8510-5 is based on 
PHLX Rule 1014.09.
---------------------------------------------------------------------------

    The Exchange is proposing that the number of Floor Market Makers in 
the trading crowd who are establishing or increasing a position may 
temporarily be limited when, in the judgment of an Options Exchange 
Official, the interests of a fair and orderly market are served by such 
limitation.\208\ Additionally, the Exchange is proposing that the 
Exchange may adopt policies affecting the location of Floor 
Participants on the Trading Floor in the interest of a fair and orderly 
market.\209\ Lastly, the Exchange is proposing that a Floor Market 
Maker cannot acquire a ``long'' position by pairing off with a sell 
order before the opening, unless all off-Floor bids at that price are 
filled.\210\
---------------------------------------------------------------------------

    \208\ See proposed IM-8510-6. Proposed IM-8510-6 is based on 
PHLX Rule 1014.12.
    \209\ See proposed IM-8510-7. Proposed IM-8510-7 is based on 
PHLX Rule 1014.17.
    \210\ See proposed IM-8510-9. Proposed IM-8510-9 is based on 
PHLX Rule 1014.11.
---------------------------------------------------------------------------

    The proposed rules applicable to Floor Market Makers are based 
predominately on the rules of PHLX. However, BOX omitted certain PHLX

[[Page 23678]]

rules from the proposed rules due to certain differences with how the 
Exchange is designing the Trading Floor. The Exchange is not including 
any of PHLX's waiver provisions in the proposed rules.\211\ The 
Exchange does not believe that waiver provisions are necessary because 
the Exchange is not having specialists who have entitlement guarantees 
that they could waive on the Trading Floor. Additionally, BOX is not 
including rules related to foreign currency options because the 
Exchange does not list for trading options on foreign currencies.
---------------------------------------------------------------------------

    \211\ See PHLX Rule 1014(g)(v)(D).
---------------------------------------------------------------------------

    The Exchange is not including certain PHLX rules related to 
participation guarantees, allocation and priority. PHLX participant 
guarantee rules are designed to provide a guarantee entitlement to 
specialists on the trading floor. BOX is not proposing to have 
specialists on the Trading Floor and therefore there is no reason to 
include these PHLX rules. Additionally, BOX's proposed allocation and 
priority rules for orders originating from the Trading Floor are based 
on the rules of NYSE Arca \212\ and not those of PHLX.
---------------------------------------------------------------------------

    \212\ See NYSE Arca Rules 6.47(a) and 6.75.
---------------------------------------------------------------------------

    The Exchange proposes Rule 8530 which details the resolution of an 
uncompared trade.\213\ Specifically, when a disagreement between Floor 
Participants arising from an uncompared Exchange options transaction 
cannot be resolved by mutual agreement prior to 10:00 a.m. on the first 
business day following the trade date, the parties shall promptly, but 
not later than 3:30 p.m. on such day close out the transaction in the 
following manner. The Floor Participant representing the purchaser in 
the uncompared Exchange options transaction shall promptly enter into a 
new Exchange options transaction on the Floor of the Exchange to 
purchase the option contract that was the subject of the uncompared 
Exchange options transaction. The Floor Participant representing the 
writer in the uncompared Exchange options transaction shall promptly 
enter into a new Exchange options transaction on the Floor of the 
Exchange to sell (write) the option contract that was the subject of 
the uncompared Exchange options transaction. Any claims for damages 
resulting from such transactions must be made promptly for the accounts 
of the Floor Participants involved and not for the accounts of their 
respective customers. Notwithstanding the foregoing, if either Floor 
Participant is acting for a firm account in an uncompared Exchange 
options transaction and not for the account of a Public Customer, such 
Floor Participant need not enter into a new transaction, in which event 
money differences will be based solely on the closing transaction of 
the other party to the uncompared transaction. In the event an 
uncompared transaction involves an option contract of a series in which 
trading has been terminated or suspended before a new Exchange options 
transaction can be effected to establish the amount of any loss, the 
Floor Participant not at fault may claim damages against the other 
Floor Participant involved in the transaction based on the terms of 
such transaction. All such claims for damages shall be made promptly.
---------------------------------------------------------------------------

    \213\ Proposed Rule 8530 is based on PHLX Rule 1039.
---------------------------------------------------------------------------

Fees
    The Exchange has not yet determined the fees for transactions 
originating from the Trading Floor. Prior to commencing trading on the 
Trading Floor, the Exchange will file proposed fees with the 
Commission.
Additional Changes
    The Exchange is also proposing minor edits to other sections of the 
Exchange's Rulebook in order to accommodate the various changes. 
Specifically, the Exchange is proposing several new definitions which 
results in the renumbering of numerous other definitions. Therefore, 
the Exchange is amending various references to definitions in the 
Rulebook.\214\
---------------------------------------------------------------------------

    \214\ See proposed changes to Rules 7130, 7150, and 7245.
---------------------------------------------------------------------------

    The Exchange notes that BOX Rule 3090 (Prevention of the Misuse of 
Material Nonpublic Information) will apply to Floor Participants. 
Specifically, Floor Brokers and Floor Market Makers will be required to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to prevent the misuse of material, non-public 
information by such Participant or persons associated with such 
Participant.\215\ The Exchange does not believe more prescriptive 
information barriers are necessary for these Participants, as neither 
Floor Brokers nor Floor Market Makers will have different or greater 
access to nonpublic information when compared to any other Options 
Participant on the Exchange.\216\ Accordingly, because these Floor 
Participants do not have any trading advantages at the Exchange due to 
their market role, the Exchange believes that they should be subject to 
the same rules as other Participants regarding the protection against 
the misuse of material non-public information, which in this case is 
BOX Rule 3090.
---------------------------------------------------------------------------

    \215\ As is the case today, information barriers of new entrants 
would be subject to review as part of a new firm application. 
Moreover, the policies and procedures of Market Makers, including 
those relating to information barriers, would be subject to review 
by the Exchange.
    \216\ A principles based approach to protect against the misuse 
of material non-public information for all of its registered Options 
Participants is consistent with the rules of other options and 
equities exchanges, except for prescribed rules relating to floor-
based designated market makers on the NYSE, who have access to 
specified non-public trading information. Further, the Exchange 
believes that the principles-based approach is appropriate with 
regard to BOX's market structure because it provides greater 
flexibility for how BOX Option Participants modify their internal 
policies and procedures in order to reflect their business model, 
business activities, or to their securities market itself. The 
Exchange also believes that the principles-based approach will 
provide for broader protections rather than a more prescriptive 
approach which would only protect certain defined non-public 
information.
---------------------------------------------------------------------------

    The Exchange notes that this principles-based approach to 
protecting against the misuse of material non-public information for 
all its Participants is consistent with the rules of other exchanges 
with physical trading floors.\217\ Except for prescribed rules relating 
to floor-based designated market makers on the NYSE, who have access to 
specified non-public trading information, each of these exchange have a 
principles based approach protecting against the misuse of material 
non-public information. In connection with approving these rule 
changes, the Commission found that, with adequate oversight by 
exchanges of their members, eliminating prescriptive information 
barrier requirements should not reduce the effectiveness of exchange 
rules requiring members to establish and maintain systems to supervise 
the activities of members, including written procedures reasonably 
designed to ensure compliance with applicable federal securities laws 
and regulations,

[[Page 23679]]

and with the rules of the applicable exchange.
---------------------------------------------------------------------------

    \217\ See Securities Exchange Act Release No. 75432 (July 13, 
2015), 80 FR 42597 (July 17, 2015) (Order Approving Adopting a 
Principles-Based Approach to Prohibit the Misuse of Material 
Nonpublic Information by Specialists and e-Specialists by Deleting 
Rule 927.3NY and Section (f) of Rule 927.5NY). See also Securities 
Exchange Act Release Nos. 60604 (Sept. 2, 2009), 76 FR 46272 (Sept. 
8, 2009) (SR-NYSEArca-2009-78) (Order approving elimination of NYSE 
Arca rule that required market makers to establish and maintain 
specifically prescribed information barriers, including discussion 
of NYSE Arca and Nasdaq rules) (``Arca Approval Order''); and 72534 
(July 3, 2014), 79 FR 39440 (July 10, 2014), [sic] SR-NYSE-2014-12) 
(Order approving amendments to NYSE Rule 98 governing designated 
market makers to move to a principles-based approach to prohibit the 
misuse of material non-public information) (``NYSE Approval 
Order'').
---------------------------------------------------------------------------

    The Exchange notes that the design of the proposed Trading Floor 
alleviates certain concerns related to misuse of information on trading 
floors. Specifically, the Exchange is not proposing to have a 
specialist on the Trading Floor, and, therefore, there are no concerns 
raised related to a specialist and an affiliated Market Maker 
coordinating their market making or otherwise sharing information. 
Further, the Exchange is not proposing to change what is considered to 
be material, non-public information that an affiliate of a Floor 
Participant could share with the Floor Participant. In that regard, 
Rule 3090 does not permit affiliates to have access to any non-public 
order or quote information of the Floor Participant, including hidden 
or undisplayed size or price information on such orders or quotes. 
Affiliates of Floor Participants would only have access to order and 
quotes that are publicly available to all market participants and the 
Exchange believes the current surveillance procedures are sufficient to 
monitor and protecting against the misuse of material non-public 
information with regard to any communications on and off the Trading 
Floor.
    The Exchange notes that all current Options Participants already 
have in place written policies and procedures to comply with Rule 3090 
and such policies and procedures have been approved by BOX 
Regulation.\218\ As such, Floor Participants would be obligated to 
ensure that their policies and procedures reflect the current state of 
their business and continue to be reasonably designed to achieve 
compliance with applicable federal securities laws and regulations, 
including Section 15(g) of the Act,\219\ and with applicable Exchange 
rules, including being reasonably designed to protect against the 
misuse of material, non-public information. While information barriers 
are not required, Rule 3090(a) requires that a Participant consider its 
business model or business activities in structuring its policies and 
procedures, which may dictate that an information barrier or a 
functional separation be part of the appropriate set of policies and 
procedures that would be reasonably designed to achieve compliance with 
applicable securities law and regulations and with applicable Exchange 
rules.
---------------------------------------------------------------------------

    \218\ FINRA currently approves Rule 3090 procedures on behalf of 
BOX Regulation pursuant to a Regulatory Services Agreement.
    \219\ 15 U.S.C. 780(g).
---------------------------------------------------------------------------

    The Exchange believes that the reliance on Rule 3090 ensures that 
all BOX Participants are required to protect against the misuse of any 
material non-public information. Rule 3090(b)(2) requires that a firm 
refrain from trading while in possession of material non-public 
information concerning imminent transactions in the security or a 
related product. The Exchange believes that this principles based 
approach provides all BOX Participants the flexibility when managing 
risk across the firm, including integrating options positions with 
other positions of the firm, or as applicable, by respective trading 
unit.
    Finally, FINRA has an exam program that reviews Participants for 
compliance with such procedures. As such, Floor Participants will be 
subject to FINRA's review when implementing such policies and 
procedures for the Trading Floor. In addition, once implemented, FINRA 
would continue to monitor a Floor Participant's compliance with those 
policies and procedures consistent with the current exam-based 
regulatory program associated with BOX Rule 3090.
    Lastly, the Exchange notes that it will submit a separate filing to 
the SEC which will cover minor rule violations on the Trading Floor. 
Specifically, the Exchange will file with the SEC to amend the 
Exchange's Minor Rule Violation Plan in Rule 12140. The Exchange will 
not commence operation of the Trading Floor until the Minor Rule 
Violation Plan has been amended to include violations which occur on 
the Trading Floor.
Trading Floor Data
    The Exchange will provide the Commission with data related to 
activity on the Trading Floor. Specifically, the Exchange will provide 
information regarding size, participation, price improvement by spread 
and trade type, effective spread, Floor Market Maker participation, and 
BOX Book participation. This information will be provided on a 
confidential basis with non-firm specific information being available 
quarterly on the Exchange's Web site.
2. Statutory Basis
    Insert text from Item 3b. [sic] The Exchange believes that its 
proposal is consistent with Section 6(b) of the Act \220\ in general, 
and furthers the objectives of Section 6(b)(5) of the Act \221\ in 
particular, in that it is 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.
---------------------------------------------------------------------------

    \220\ 15 U.S.C. 78f(b).
    \221\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

General
    BOX believes that the proposal is consistent with the Act and 
furthers the foregoing objectives by increasing the opportunities for 
Participants to execute orders and provide an additional venue for 
seeking liquidity. The Exchange believes the adoption of the proposed 
rules allowing for an open-outcry floor 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 mechanism for Participants to provide and seek liquidity 
for large and complex orders. The Exchange believes that the nature of 
open outcry transactions lends itself better to larger-sized 
transactions than the liquidity that is generally available 
electronically and the proposed rules would encourage greater 
participation in such large trades. Therefore, the proposed rule 
changes will benefit the market as a whole by providing an additional 
venue for market participants to seek liquidity for large-sized and 
complex orders. Providing an additional venue for these orders will 
benefit investors, the national market system, Participants, and the 
Exchange's market by increasing competition for order flow and 
executions, and thereby spur product enhancements and lower prices. The 
Exchange believes that the proposal is designed to prevent fraudulent 
and manipulative acts and practices because all surveillance coverage 
currently performed by the Exchange will cover trading from the Trading 
Floor. Additionally, the Exchange will have surveillance coverage in 
place to monitor issues unique to the Trading Floor.
    The Exchange believes the proposed changes to Rule 100(a) to 
include definitions of Floor Participant and Trading Floor are 
consistent with the goals of the Act. Specifically, the proposed 
changes are designed to protect investors and the public interest by 
providing background and clarity in the Rulebook. Additionally, 
proposed Rule 100(b) will provide additional clarity in the Rulebook. 
Specifically, the definition for Presiding Exchange Officials provides 
Floor Participants with notice of who is responsible for monitoring and 
regulating the Trading Floor. The other sections of proposed

[[Page 23680]]

Rule 100(b) provide general background for Floor Participants in the 
beginning of the Rulebook that will aid in understanding the applicable 
rules throughout, which will protect investors and the public by making 
the Exchange's Rulebook simpler to understand. Additionally, the 
Exchange notes that the various sections of proposed Rule 100(b) are 
based on the rules of another exchange with an open-outcry floor.\222\
---------------------------------------------------------------------------

    \222\ See PHLX Rules 1000(e), 1000(f), 1000(g),1080.06, and CBOE 
Rule 6.74(a).
---------------------------------------------------------------------------

    The Exchange believes that the proposed Rule detailing the 
requirements for public outcry \223\ is reasonable and consistent with 
the Act. Specifically, the Exchange believes this proposal is designed 
to protect investors and public interest by making clear the 
requirements for open outcry. The Exchange believes that the default of 
a Floor Market Maker being ``out'' promotes just and equitable 
principles of trade by ensuring a Floor Market Maker is only allocated 
if he desires. Additionally, the Exchange believes that requiring a 
Floor Broker to give Floor Participants a reasonable amount of time to 
respond to an order will protect investors and the public interest by 
ensuring that there is an opportunity for robust interaction on the 
Trading Floor.
---------------------------------------------------------------------------

    \223\ See proposed Rule 100(b)(5).
---------------------------------------------------------------------------

Participant Eligibility and Registration
    The Exchange believes that the proposed registration requirements, 
including floor trading examinations, if required, for Floor 
Brokers,\224\ Floor Market Makers and registered representatives on the 
Trading Floor, are reasonable and further the objectives of the 
Act.\225\ Specifically, these examinations address industry and 
Exchange specific topics that establish the foundation for the 
regulatory and procedural knowledge necessary for individuals required 
to register as Floor Brokers or Floor Market Makers and for such 
individuals to appropriately register under the Exchange's Rules. 
Requiring these examinations will help promote consistency in 
examination requirements and uniformity across the markets. 
Additionally, the registration requirements for Floor Participants are 
reasonable because they will help the Exchange to determine if a 
registrant is qualified to be a Floor Broker or Floor Market Maker and 
therefore will protect investors and the public interest.
---------------------------------------------------------------------------

    \224\ Floor Brokers are required to complete a floor trading 
examination. See proposed Rules 2020(h) and 7550.
    \225\ See proposed Rules 2020(h) and (i).
---------------------------------------------------------------------------

    Similarly, the Exchange believes that prescribing appropriate 
registration requirements including floor trading examinations for all 
other Trading Floor personnel, including clerks, interns, stock 
execution clerks and other associated persons, are reasonable as well. 
Specifically, these examinations address industry and Exchange specific 
topics that establish the foundation for the regulatory and procedural 
knowledge necessary to appropriately register under the Exchange rules. 
The proposed registration requirements for associated persons are 
reasonable because they will help the Exchange to determine if a 
registrant is qualified to be on the Trading Floor and therefore will 
protect investors and the public interest. Additionally, the proposed 
Rules covering eligibility and registration are based on the rules of 
another exchange that has an open-outcry floor.\226\
---------------------------------------------------------------------------

    \226\ See PHLX Rule 620(a) and (b).
---------------------------------------------------------------------------

Trading on the Exchange Floor
    The Exchange believes that the proposed rules governing activity on 
the Trading Floor, including Trading Floor hours, opening the market, 
admittance, joint accounts, and dealings on the Trading Floor,\227\ are 
reasonable restrictions that are designed to further the objectives of 
the Act. Specifically, the proposed rules are designed to maintain 
order and structure on the Trading Floor and apply to all Floor 
Participants. Additionally, these rules are based on those of competing 
options exchanges that also have open-outcry floors.\228\
---------------------------------------------------------------------------

    \227\ See proposed Rules 7070(d), 7500, 7510, 7520, and 7650.
    \228\ See PHLX Rules 1017(c), 102, 104, 443, and 772.
---------------------------------------------------------------------------

    The Exchange believes the proposal to require each Options 
Participant that physically conducts business on the Trading Floor to 
procure and maintain liability insurance \229\ should assist in 
preventing unnecessary waste of Exchange resources, which can be easily 
diverted to defending litigation claims and responding to non-Exchange 
related litigation matters on behalf of its Participants. The proposal 
is meant to prevent the Exchange from diverting valued resources away 
from its main regulatory responsibilities and being consumed in 
litigation designed to siphon Exchange monies and staff. The Exchange 
notes the proposal to require liability insurance is based on the rules 
of another exchange.\230\
---------------------------------------------------------------------------

    \229\ See proposed Rule 7230(f).
    \230\ See PHLX Rule 652(c)(2).
---------------------------------------------------------------------------

    The Exchange is proposing various rules related to Clerks on the 
Trading Floor \231\ that the Exchange believes are reasonable and 
further the objectives of the Act. Specifically, the proposal relates 
to restrictions and conduct of Clerks on the Trading Floor that are 
designed to maintain order on the Trading Floor. Additionally, the 
proposal will make clear the rights and responsibilities of Clerks on 
the Trading Floor. The Exchange notes the proposed Rule related to 
Clerks on the Trading Floor is based on the rule of another 
exchange.\232\
---------------------------------------------------------------------------

    \231\ See proposed Rule 7630.
    \232\ See PHLX Rule 1090.
---------------------------------------------------------------------------

    The Exchange believes the proposed Rule relating to disputes on the 
Trading Floor will provide clarity and direction for the resolution of 
such disputes.\233\ The proposed Rule will contribute to the 
maintenance of a fair and orderly market by clearly laying out the 
dispute resolution process. Additionally, by first allowing the 
interested Floor Participants an opportunity to settle the 
disagreement, the Exchange is providing a reasonable opportunity for 
the interested parties to reach an equitable agreement. The Exchange 
believes that allowing an Options Exchange Official to settle disputes 
is reasonable and is designed to promote just and equitable principles 
of trade by having an independent third party settle the dispute. The 
Exchange believes that the dispute resolution process is further 
strengthened by allowing Floor Participants the ability to appeal an 
Options Exchange Official's ruling. In addition, the Exchange believes 
that its proposal is consistent with Section 6(b) of the Act \234\ in 
general, and furthers the objective of Section 6(b)(4) of the Act \235\ 
in particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The Exchange believes that 
this proposal is equitable in that the appeal fee would apply to all 
Participants equally. The Exchange believes the appeal fee amount is 
reasonable as a similar fee exists on other option exchange with an 
open outcry trading floor.\236\ The addition of the appeal fee will 
help the Exchange offset costs associated with reviewing contested 
rulings by an Options Exchange Official.
---------------------------------------------------------------------------

    \233\ See proposed Rule 7640.
    \234\ 15 U.S.C. 78f(b).
    \235\ 15 U.S.C. 78f(b)(4).
    \236\ See PHLX Rule 124(d)(iii).
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to exclude Floor Market 
Makers and Floor Brokers who do not conduct business with the public 
from Rule 4180.\237\ Rule 4180 deals with requirements for Participants 
that are approved to transact business with the public; therefore the 
proposed Rule is

[[Page 23681]]

simply clarifying that Rule 4180 will not apply to Floor Market Makers 
and Floor Brokers who do not conduct business with the Public. The 
Exchange notes the proposed Rule is based on the rule of another 
exchange.\238\
---------------------------------------------------------------------------

    \237\ See proposed Rule 4180(g).
    \238\ See PHLX Rule 705(f)(1)(B).
---------------------------------------------------------------------------

    The proposal outlining bids and offers made on the Trading Floor 
and the solicitation of quotations on the Trading Floor \239\ provides 
clarifying information to Floor Participants on how bidding and 
offering on the Trading Floor will work; therefore, the proposal is 
designed to protect investors and the public interest by making the 
proposed operation of the Trading Floor clear in the Exchange's rules. 
The proposal is based on the rules of another exchange.\240\
---------------------------------------------------------------------------

    \239\ See proposed Rule 7040(d).
    \240\ See PHLX Rule 1033(a).
---------------------------------------------------------------------------

Floor Brokers
    The Exchange believes that the proposed rules applicable to Floor 
Brokers,\241\ including responsibilities and restrictions, are designed 
to promote just and equitable principles of trade, remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. Specifically, the proposed rules will provide guidance and 
restrictions for Floor Brokers operating on the Trading Floor. The 
proposed registration requirements for Floor Brokers will protect 
investors and the public interest by ensuring that all Floor Brokers 
are registered with the Exchange and that the Exchange approved each 
Floor Broker before they were admitted to the Trading Floor.
---------------------------------------------------------------------------

    \241\ See proposed Rules 7540, 7550, 7570, 7580, and 7590.
---------------------------------------------------------------------------

    The proposed responsibilities for Floor Brokers \242\ are designed 
to further the goals of the Act. Specifically, the requirement that a 
Floor Broker use due diligence in handling an order and the requirement 
to ascertain that at least one Floor Market Maker is present when the 
order is announced on the Trading Floor, are designed to promote just 
and equitable principles of trade, and, in general to protect investors 
and the public interest by providing the opportunity for additional 
interaction and price improvement from any Floor Market Maker. The 
Exchange believes the various restrictions on Floor Brokers are 
reasonable and are in line with those on another exchange with an open-
outcry floor.\243\
---------------------------------------------------------------------------

    \242\ See proposed Rule 7580.
    \243\ See PHLX Rules 155, 1063, and 1065.
---------------------------------------------------------------------------

Executions and Priority
    The proposed rule change is consistent with Section 11(a) of the 
Act and the rules thereunder. The Commission has stated that it 
believes all electronic executions executed against interest on the BOX 
Book are consistent with the requirements of Section 11(a) of the Act.
    Under the proposed rule change, Participants will be prohibited 
from utilizing the Trading Floor to effect any transaction for covered 
accounts. Participants are subject to review with respect to such 
compliance.
    Under the proposed rules, no covered account transactions utilizing 
the Trading Floor may use the G Exemption. Participants may only rely 
upon other exceptions to Section 11(a)(1) of the Act when interacting 
with the Trading Floor or the BOX Book utilizing the Trading 
Floor.\244\ The proposed rule changes would not limit in any way the 
obligation of a BOX Participant, while acting as a Floor Broker or 
otherwise, to comply with Section 11(a) or the rules thereunder.\245\
---------------------------------------------------------------------------

    \244\ For example, other Sec.  11(a)(1) exemptions include, the 
``effect vs. execute'' exemption, the market maker exemption, and 
the error account exemption.
    \245\ A Floor Broker may utilize the Trading Floor to effect a 
transaction for a covered account only pursuant to proposed Rule 
7540 and for purposes of liquidating error positions.
---------------------------------------------------------------------------

    Notwithstanding proposed IM-7600-5, under Rule 11a2-2(T), the so-
called ``effect vs. execute'' rule, a Participant may effect 
transactions on the Trading Floor for its covered accounts by using 
another Participant, acting as a Floor Broker, provided that (i) the 
executing Floor Broker is not an associated person of the initiating 
Participant, (ii) the covered account order must be transmitted from 
off the Trading Floor, (iii) neither the initiating Participant nor any 
associated person of the initiating Participant participates in 
execution of the order after the covered account order has been 
transmitted for execution from off the Trading Floor (referred to below 
as the ``non-participation requirement''); and (iv) if the transaction 
is being effected for an account over which the initiating Participant 
or an associated person of that Participant exercises investment 
discretion, neither the initiating Participant nor any associated 
person may retain any compensation in connection with effecting the 
transaction unless express written consent to such retention has been 
obtained from the person or persons authorized to transact business for 
the managed account in the manner provided in the rule. Thus, a 
Participant (not acting in a market-making capacity) 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).\246\ A Participant, relying on the ``effect 
versus execute'' exemption, could not submit an order for a covered 
account to its ``house'' Floor Broker on the Trading Floor for 
execution. At no time following the submission of an 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.
---------------------------------------------------------------------------

    \246\ Orders for covered accounts that rely on the ``effect 
versus execute'' exemption will be transmitted from a remote 
location directly to the Trading Floor by electronic means.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rules applicable to 
executions and priority \247\ are designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general to protect investors and the public interest. As explained 
above, executions from the Trading Floor will be consistent with 
options trade-through and priority rules and the Exchange's systems are 
designed to help ensure that an execution from the Trading Floor cannot 
occur in violation of those rules. Specifically, when a QOO Order is 
submitted to the Trading Host for execution, the Exchange's system will 
evaluate the current market conditions to ensure that the execution 
price is equal to or better than the NBBO. It is the Exchange's 
understanding that traditionally on trading floors when a Floor Broker 
executed an order in the trading crowd verbally, that order was deemed 
executed; when the Floor Broker then entered the execution price 
electronically to complete the processing of the trade, including trade 
reporting to the tape, markets can change such that the execution price 
was outside the NBBO or violated the priority of orders now resting on 
the electronic book of the exchange. By having the QOO Order execute 
when it is received by the Trading Host, the Exchange is providing a 
system that will prevent executions that appear to be at prices that 
are worse than the NBBO due to the time they are reported. 
Specifically, the Exchange's system will automatically enforce BOX Book

[[Page 23682]]

priority \248\ and trade-through provisions.
---------------------------------------------------------------------------

    \247\ See proposed Rules 7600 and 7610.
    \248\ Floor Brokers are responsible for complying with priority 
among Floor Participants on the Trading Floor.
---------------------------------------------------------------------------

    The Exchange further believes that protecting non-Public Customer 
interest on the BOX Book that is ranked ahead of Public Customer 
interest is consistent with just and equitable principles of trade 
because it maintains the Exchange's existing price/time priority rules 
by protecting interest that has time priority over Public Customer 
interest that has priority. The Exchange also notes that this proposed 
priority interaction with the BOX Book is the same as NYSE Arca.\249\ 
Additionally, the Exchange's proposed interaction with orders on the 
BOX Book actually provides additional opportunities for orders on the 
BOX Book to interact with trades on the Trading Floor as compared to 
other exchanges with open-outcry floors. Specifically, other exchanges 
with open-outcry floors only require floor trades to yield priority to 
Public Customer Orders on the electronic book.\250\
---------------------------------------------------------------------------

    \249\ See NYSE Arca Rules 6.47 and 6.75.
    \250\ See PHLX Rule 1014.05(c), CBOE Rule 6.45(a), and NYSE MKT 
Rule 963NY(a).
---------------------------------------------------------------------------

    The Exchange believes that the proposal to provide a Floor Broker 
with a guarantee for certain orders initiating from the Trading Floor 
\251\ is reasonable and is consistent with the Act. Specifically, the 
proposal will reward Floor Brokers who bring large orders to the 
Exchange by guaranteeing them the ability to cross a certain 
percentage. The Exchange notes that another options exchange provides a 
guarantee on their trading floor.\252\ Additionally, the Exchange 
currently provides a guarantee with respect to auction transactions 
executed on the Exchange.\253\
---------------------------------------------------------------------------

    \251\ See proposed Rule 7600(f).
    \252\ See PHLX Rule 1064.02.
    \253\ See Rule 7150 Price Improvement Period.
---------------------------------------------------------------------------

    The Exchange believes that the proposed priority provisions for 
Complex QOO Orders are reasonable because they align the Exchange's 
Rules with the rules of other exchanges with open-outcry floors.\254\ 
Specifically, the Exchange will allow Complex QOO Orders from the 
Trading Floor to execute without giving priority to equivalent bids 
(offers) in the individual series legs on the initiating side, provided 
at least one options leg betters the corresponding bid or offer on the 
BOX Book by at least one minimum trading increment as set forth in Rule 
7240(b)(1).\255\ BOX believes this is consistent with the Act because 
it is providing at least one leg with an improved price compared to 
bids or offers on the BOX Book. Additionally, the Exchange notes that 
these Complex Orders executed on trading floors can be large and 
complex and the proposed treatment of Complex Orders on the Trading 
Floor will increase the ability for Floor Brokers to execute these 
complex trades to the benefit of market participants. The Exchange 
believes that allowing Floor Brokers to disable the NBBO aspect of the 
Complex Order Filter when executing a Complex QOO Order is reasonable 
because other exchanges do not have NBBO protection for complex 
orders.\256\
---------------------------------------------------------------------------

    \254\ See NYSE Arca Rule 6.75(g).
    \255\ See proposed Rule 7600(c).
    \256\ See ISE Rule 722(b)(3).
---------------------------------------------------------------------------

    The Exchange believes that the Trading Host, including the BOG as a 
component of the Trading Host,\257\ will further the objectives and 
goals of the Act. Specifically, the ability of the Trading Host to 
provide an electronic audit trail will help prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, and remove impediments to and perfect the mechanisms of a 
free and open market and a national market system. All transactions on 
the Trading Floor must be submitted through the BOG for processing by 
the Trading Host, which will allow the Exchange to provide a complete 
and accurate audit trail and minimize the occurrences of disputes and 
regulatory violations. The Trading Host is designed to prohibit trade-
through violations by preventing an execution at a price worse than the 
NBBO.
---------------------------------------------------------------------------

    \257\ See proposed Rule 100(b)(2).
---------------------------------------------------------------------------

    The Exchange believes requiring that all transactions on the 
Trading Floor must be executed by the Trading Host will increase the 
speed and efficiency in which Floor Brokers handle orders, thereby 
making the Exchange's market more efficient, to the benefit of the 
investing public and consistent with promoting just and equitable 
principles of trade.
    The Exchange believes that the proposal to adopt a new order type 
\258\ for all executions originating on the Trading Floor is consistent 
with the Act. Specifically, as mentioned above, the new order type will 
help Floor Brokers initiating orders on the Trading Floor. The various 
elements of the QOO Order are designed to aid Floor Brokers in their 
duties on the Trading Floor. For example, by having the QOO Order 
execute when it is processed by the Trading Host, the Exchange is 
providing an accurate timestamp of when the order was executed. 
Additionally, the QOO Order is designed to ensure that all orders 
submitted by Floor Brokers are systematized before they are announced 
to the trading crowd.\259\ The Exchange believes that the features of 
the QOO Order are designed to promote just and equitable principles of 
trade, to remove impediments to and protect the mechanism of a free and 
open market and a national market system, and, in general to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \258\ See proposed Rule 7600.
    \259\ In order to execute a QOO Order from the Trading Floor, it 
must be sent from a Floor Broker's system to the BOG. This requires 
that the Floor Broker adequately systemized the QOO Order. The 
Exchange also notes that Floor Brokers will be subject to regulatory 
oversight by the Exchange to review whether Floor Brokers are 
properly systematizing orders.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rules governing order 
allocation \260\ are reasonable and consistent with the Act. 
Specifically, the proposed rules relating to the allocation of orders 
align the Exchange's Rules with the rules of another options exchange 
with an open outcry trading floor.\261\ The Exchange believes the 
proposed rule change is designed to protect investors and the public 
interest by providing clarity and detail with regard to the allocation 
process on the Trading Floor. Additionally, the Exchange believes the 
proposed procedures a Floor Broker must follow when allocating an order 
are designed to promote just and equitable principles of trade by 
ensuring that priority on the Exchange is enforced.
---------------------------------------------------------------------------

    \260\ See proposed Rule 7600(d).
    \261\ See NYSE Arca Rules 6.47 and 6.75.
---------------------------------------------------------------------------

    The Exchange believes that the book sweep size in proposed Rule 
7600(h) is consistent with Section 6(b)(5) of the Act.\262\ In 
particular, the book sweep size promotes just and equitable principles 
of trade, removes impediments to and perfects the mechanism of a free 
and open market and a national market system and, in general protects 
investors and the public interest by increasing the interaction of the 
Trading Floor with the BOX Book, which will be beneficial to all market 
participants. Specifically, the Exchange believes that the book sweep 
functionality will enhance execution efficiency and regulatory 
oversight on the Trading Floor by making certain that a Floor Broker's 
order will first trade with all available Public Customer interest on 
the BOX Book and any non-Public Customer interest ranked ahead of such 
Public Customer interest at the execution price. The Exchange believes 
that without the book sweep size, the Exchange Act's goal of creating 
an

[[Page 23683]]

efficient market system will not be supported, as a Floor Broker may 
attempt to execute an order without first exhausting priority interest. 
Instead, the proposed book sweep size removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system by providing an alternative that will increase the opportunity 
for orders on the Trading Floor to interact with interest on the BOX 
Book, which in turn has the potential to increase liquidity for all 
orders on the BOX Book. The Exchange notes that this approach is not 
entirely novel; as mentioned above, PHLX's FBMS contains a 
functionality that will help a Floor Broker clear PHLX's electronic 
book so a floor based order can execute.\263\ Specifically, if a Floor 
Broker on PHLX enters a two-sided order through the FBMS, and there is 
interest on the PHLX electronic book at a price that would prevent the 
Floor Broker's order from executing, the FBMS will provide the Floor 
Broker with the quantity of contracts on the electronic book that have 
priority and need to be satisfied before the Floor Broker's order can 
execute at the agreed upon price.\264\ If the Floor Broker wishes to 
still execute his order, he can cause a portion of the floor based 
order to trade against this priority interest on the electronic book, 
thereby clearing the interest and permitting the remainder of the Floor 
Broker's order to trade at the desired price. The PHLX FBMS 
functionality is optional, and a Floor Broker can decide not to trade 
against the electronic book and therefore not execute his two-sided 
order at the particular price. The Exchange believes that the Trading 
Floor book sweep size improves upon PHLX's FBMS functionality by either 
immediately executing or rejecting the order depending on the book 
sweep size provided and the level of priority interest on the BOX Book. 
The Exchange believes the immediate execute or reject feature will 
allow for more execution certainty and incentivize Floor Brokers on BOX 
to provide an adequate book sweep size if they want the order to be 
eligible for execution. The Exchange does not believe that the 
immediate execution or rejection will disadvantage Floor Brokers on BOX 
compared to PHLX because it will provide certainty to Floor Brokers. 
The Exchange believes that the proposed book sweep size will protect 
investors and the public interest generally by establishing more 
execution oversight. Specifically, the Exchange believes that the book 
sweep size will allow BOX to electronically link in a single audit 
trail the Floor Broker execution and any execution with interest on the 
BOX Book.
---------------------------------------------------------------------------

    \262\ 15 U.S.C. 78(f)(b)(5).
    \263\ See PHLX Rule 1063(e)(iv).
    \264\ See Securities Exchange Act Release No. 68960 (February 
20, 2013), 78 FR 13132 (February 26, 2013) (SR- Phlx-2013-09) at 
13134.
---------------------------------------------------------------------------

    The Exchange believes that the proposal outlining the resolution of 
uncompared trades \265\ will provide clarity and direction for Floor 
Participants when a disagreement arises from an uncompared Exchange 
options transaction that cannot be resolved by mutual agreement. The 
Exchange believes this proposal is designed to protect investors and 
public interest by making the proposed resolution of uncompared trades 
clear in the Exchange's rules. Further, the proposal is based on the 
rules of another exchange.\266\
---------------------------------------------------------------------------

    \265\ See proposed Rule 8530.
    \266\ See PHLX Rule 1039.
---------------------------------------------------------------------------

Communications and Equipment
    The Exchange believes the proposed Rule involving communications 
and equipment on the Trading Floor \267\ includes reasonable 
restrictions that are consistent with the requirements of the Act. 
Specifically, the proposed Rule will provide the Exchange with the 
ability to monitor equipment on the Trading Floor and therefore provide 
adequate oversight of the Trading Floor. Additionally, the proposal 
will allow the Exchange to limit use of a communication device when 
such device interferes with normal operation of the Exchange's own 
systems or facilities or with the Exchange's regulatory duties, is 
inconsistent with the public interest, the protection of investors or 
just and equitable principles of trade, or interferes with the 
obligations of a Participant to fulfill its duties under, or is used to 
facilitate any violation of the Act or rules thereunder, or Exchange 
rules. Additionally, the Exchange notes that the proposal is consistent 
with rules of other exchanges.\268\
---------------------------------------------------------------------------

    \267\ See proposed Rule 7660.
    \268\ See PHLX Rule 606 and CBOE Rule 6.23.
---------------------------------------------------------------------------

Market Makers
    The Exchange believes that the proposed Rules applicable to Floor 
Market Makers \269\ are reasonable and 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. The Exchange also 
believes the proposed changes enhance the Exchange's ability to fairly 
and efficiently regulate its Floor Market Makers by utilizing a 
consistent rule set of obligations and restrictions. The Exchange 
believes the proposed changes reflect similar Market Maker obligations 
and restrictions already in place on BOX's electronic exchange.\270\ 
The proposed changes simply align the existent obligations and 
restrictions of Market Makers with the use of a trading floor with 
certain exceptions. Specifically, instead of providing $5 bid/ask 
differentials as provided in Rule 8040(a)(7), the Exchange is proposing 
stricter bid/ask differentials. The Exchange believes that the proposed 
bid/ask differentials for Floor Market Makers are reasonable and will 
protect investors and the public interest by providing the opportunity 
for better execution prices on the Trading Floor when a Floor Market 
Maker is involved. Additionally, the Exchange believes that the 
proposed changes fall in line with similar trading floor rules at other 
exchanges.\271\
---------------------------------------------------------------------------

    \269\ See proposed Rules 8500 and 8510.
    \270\ See BOX Rules 8000, 8030, 8040, and 8050.
    \271\ See PHLX Rules 1020 and 1014.
---------------------------------------------------------------------------

    The Exchange believes that the proposed continuous open outcry 
quoting requirement for Floor Market Makers in proposed Rule 8510(c)(2) 
is consistent with Section 6(b)(5) of the Act. In particular, the 
continuous quoting requirement is designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general to protect the investors and the public interest. 
Specifically, the Exchange believes that the continuous open outcry 
quoting requirement for Market Makers will benefit investors, the 
national market system, Participants, and the Exchange by ensuring that 
Floor Market Makers provide liquidity to the Trading Floor to the 
benefit of market participants. Lastly, the Exchange believes that the 
proposed rule is non-discriminatory as it will apply to all Floor 
Market Makers.

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

    The Exchange does not believe that the proposed rule changes 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 open-outcry floors. The Exchange believes 
that the proposed rules will allow the Exchange to compete with these 
other exchanges. Additionally, while the proposed rule changes would 
permit BOX to operate a Trading Floor, the Exchange is not

[[Page 23684]]

requiring that Participants register and have a presence on the Trading 
Floor. Therefore, the proposed rule changes do not impose a burden on 
intra-market competition.
    Overall, the proposal is pro-competitive for several reasons. In 
particular, by helping Floor Brokers at the Exchange compete for 
executions against floor brokers at other exchanges, it also helps them 
to be more efficient and provide a better audit trail of their 
executions on the Trading Floor. This, in turn, helps the Exchange 
compete against other exchanges in a deeply competitive landscape. The 
Exchange believes its proposed unique features for open-outcry trading 
will provide value to Floor Participants, which in turn, will help the 
Exchange compete.\272\
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    \272\ Unique features include proposed Rules 7600(h) and 
100(b)(5).
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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. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 2, 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-2016-48 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-2016-48. 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 Number SR-BOX-2016-48 and should be 
submitted on or before June 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\273\
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    \273\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10588 Filed 5-22-17; 8:45 am]
 BILLING CODE 8011-01-P


