[Federal Register Volume 84, Number 65 (Thursday, April 4, 2019)]
[Notices]
[Pages 13382-13384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06512]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85453; File No. SR-BOX-2019-08]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Allow for 
Replacement Issues To Be Added to the Penny Pilot Program (``Pilot 
Program'') on a Quarterly Basis

March 29, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 22, 2019, BOX Exchange LLC (the ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend BOX Rule 7260 (Penny Pilot Program) 
to allow for replacement issues to be added to the Pilot Program on a 
quarterly basis, without altering the expiration date of the Pilot 
Program, which is June 30, 2019. The text of the proposed rule change 
is available from the principal office of the Exchange, at the 
Commission's Public Reference Room and also on the Exchange's internet 
website at http://boxoptions.com.

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

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

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

1. Purpose
    The Exchange proposes to amend BOX Rule 7260 (Penny Pilot Program) 
to allow for replacement issues to be added to the Pilot Program on a 
quarterly basis, without altering the expiration date of the Pilot 
Program. This is a competitive filing that is based on a proposal 
recently submitted by NYSE American LLC (``NYSEAMER'').\3\
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    \3\ See Securities Exchange Act Release No. 34-85348 (March 18, 
2019) (Order Approving SR-NYSEAMER-2019-05).
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    The Exchange recently filed to extend the Pilot Program until June 
30, 2019 (from December 31, 2018) and also updated the rule text to 
provide that replacement issues may be added to the Pilot on the second 
trading day following January 1, 2019.\4\ The Rule

[[Page 13383]]

authorizes the Exchange to replace any options issues in the Pilot 
Program that have been delisted with the next most actively traded 
multiply listed options classes that are not yet included in the Pilot 
Program, based on trading activity in the previous six months.\5\ The 
Exchange proposes to modify BOX Rule 7260 to allow the Exchange to add 
replacement issues (for Pilot issues that have been delisted) on a 
quarterly basis. The Exchange added replacement issues in January 2019 
and would be eligible to add replacement issues in April, July, and 
October. The Exchange believes this change would allow the Exchange to 
update issues eligible for the Pilot Program (by replacing delisted 
issues) on a quarterly basis (as opposed to semi-annual) and would 
enable further analysis of the Pilot Program and a determination of how 
the Pilot Program should be structured in the future.
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    \4\ See Securities Exchange Act Release No. 34-84869 (December 
19, 2018), 83 FR 66806 (December 27, 2018) (SR-BOX-2018-38). On 
January 3, 2019, the Exchange added new issues to replace delisted 
Pilot Program issues, as announced by Regulatory Circular, available 
here, https://boxoptions.com/assets/RC-2019-01-Penny-Pilot-Issue-Replacements-Update-v2.pdf.
    \5\ See BOX Rule 7260.
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    As is the case today, the Exchange will determine replacement 
issues based on trading activity in the previous six months (the ``six 
month lookback'') but will not use the month immediately preceding the 
addition of a replacement to the Pilot Program. Thus, a replacement 
class to be added on the second trading day following April 1, 2019 
would be identified based on The Option Clearing Corporation's trading 
volume data from September 1, 2018 through February 28, 2019.\6\ The 
Exchange believes the six month lookback is appropriate because this 
time period would help reduce the impact of unusual trading activity as 
a result of unique market events, such as corporate action (i.e., it 
would result in a more reliable measure of average daily trading volume 
than would a shorter period).
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    \6\ The Rule continues to obligate the Exchange to announce the 
replacement issues by Regulatory Circular. See id.
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    This filing does not propose any substantive changes to the Pilot 
Program: All classes currently participating will remain the same and 
all minimum increments will remain unchanged. The Exchange believes the 
benefits to public customers and other market participants who will be 
able to express their true prices to buy and sell options have been 
demonstrated to outweigh the increase in quote traffic. Lastly, in 
order to conform to the proposed Pilot Program, the Exchange proposes 
to remove the specific dates for the lookback period and replace it 
with language referencing the previous six months. This language 
replacement will have no substantive impact on the rule.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Securities Exchange Act of 1934 
(the ``Act''),\7\ in general, and Section 6(b)(5) of the Act,\8\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general to protect investors and the 
public interest. In particular, the Exchange believes the proposal to 
allow the addition of replacement issues to the Pilot Program on a 
quarterly basis would result in a more current list of Pilot-eligible 
issues and would enable further analysis of the Pilot Program, 
including for a determination of how the Pilot Program should be 
structured in the future. Further, the Exchange believes the six month 
lookback is appropriate because this time period would help reduce the 
impact of unusual trading activity as a result of unique market events, 
such as a corporate action (i.e., it would result in a more reliable 
measure of average daily trading volume than would a shorter period). 
Thus, the Exchange believes this proposal would promote just and 
equitable principles of trade, foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchanges notes that it [sic] not making any other substantive 
changes to the Pilot Program, other than modifying the timing for 
replacement issues and therefore the Exchange will continue to 
participate in a program that has been viewed as beneficial to traders, 
investors and public customers and viewed as successful by the other 
options exchanges participating in it.
    The Exchange believes that the Pilot Program would continue to 
promote just and equitable principles of trade by enabling public 
customers and other market participants to express their true prices to 
buy and sell options to the benefit of all market participants.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to a filing submitted by NYSEAMER.\9\ In addition, 
the Exchange believes that allowing the Exchange to add replacement 
issues to the Pilot Program on a quarterly basis would make the list of 
Pilot-eligible issues more current and would enable further analysis of 
the Pilot, including for a determination of how the Pilot Program 
should be structured in the future. In doing so, the proposed rule 
change will also serve to promote regulatory clarity and consistency, 
thereby reducing burdens on the marketplace and facilitating investor 
protection. The Pilot Program is an industry-wide initiative supported 
by all other option exchanges. The Exchange believes that the proposed 
change would allow for continued competition between Exchange market 
participants trading similar products as their counterparts on other 
exchanges, while at the same time allowing the Exchange to continue to 
compete for order flow with other exchanges in option issues trading as 
part of the Pilot Program.
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    \9\ See supra, note 3.
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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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which

[[Page 13384]]

it was filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The change will allow 
the Exchange to add classes to the pilot that are actively traded at 
the start of the second quarter (i.e., in April 2019) and replace those 
that have been delisted and are no longer trading on a more frequent 
basis. This will help ensure that the top 363 most actively traded, 
multiply-listed classes are included in the Pilot, which will enable 
further analysis of the Pilot.\14\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \15\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \15\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2019-08 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-2019-08. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method.
    The Commission will post all comments on the Commission's internet 
website (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 website viewing and printing in the Commission's Public 
Reference Room, on business days between the hours of 10 a.m. and 3 
p.m., located at 100 F Street NE, Washington, DC 20549. 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. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly.
    All submissions should refer to File Number SR-BOX-2019-08 and 
should be submitted on or before April 25, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06512 Filed 4-3-19; 8:45 am]
 BILLING CODE 8011-01-P


