[Federal Register Volume 85, Number 100 (Friday, May 22, 2020)]
[Notices]
[Pages 31265-31267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11039]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88892; File No. SR-BOX-2020-12]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend BOX Rule 
7270 (Block Trades) To Add an Automatic Matching Feature to the 
Facilitation Auction Mechanism

May 18, 2020.
    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 May 7, 2020, 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.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend BOX Rule 7270 (Block Trades) to add 
an automatic matching feature to the Facilitation Auction mechanism. 
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 purpose of the proposed rule change is to amend Rule 7270 to 
add an automatic matching feature to the Facilitation Auction 
mechanism.
    Currently, BOX's Facilitation Auction mechanism allows members to 
enter two-sided orders for execution with the possibility of the Agency 
Order receiving price improvement.\3\ In this mechanism, an Agency 
Order is submitted to BOX by the Facilitating Participant with a 
matching guaranteed contra-side order (``Facilitation Order'') equal to 
the full size of the Agency Order. The agency side of this two-sided 
order is then exposed to market participants during a one-second 
auction to give them an opportunity to compete so that they may 
participate in the execution of the Agency Order.
---------------------------------------------------------------------------

    \3\ See BOX Rule 7270(a) (Facilitation Auction mechanism).
---------------------------------------------------------------------------

    The Exchange now proposes to adopt auto-match functionality to the 
Facilitation Auction mechanism. Upon entry of an order into the 
Facilitation Mechanism, the Facilitating Participant can elect to 
automatically match the price and size of orders, quotes and responses 
received during the exposure period up to a specified limit price or 
without specifying a limit price (``auto-match''). In this case, the 
Facilitating Participant will be allocated its full size at each price 
point, or at each price point within its limit price if a limit is 
specified, until a price point is reached where the balance of the 
order can be fully executed. At such price point, the Facilitating 
Participant shall be allocated at least forty percent (40%) of the 
original size of the facilitation order, but only after Public Customer 
interest

[[Page 31266]]

at such price point. Thereafter, all other orders, Responses, and 
quotes at the facilitation price will participate in the execution of 
the Agency Order based upon price/time priority. Further, the Exchange 
proposes that an election to automatically match better prices cannot 
be cancelled or altered during the exposure period.
    Under the proposal, if a Facilitating Participant elects to use the 
auto-match feature, the Facilitation Order will be allocated its full 
size at each price level where there are competing quotes or orders, up 
to the auto-match limit if one is specified, until a price level is 
reached where the balance of the Agency Order can be fully executed. At 
such price level, the Facilitation order will be allocated the greater 
of one contract or 40% of the size of the Agency Order after Public 
Customers. The following examples illustrate how the proposed auto-
match feature will operate in the Facilitation Auction mechanism.
    Assume the NBBO is $10.60 bid and $10.70 offered. An Agency Order 
to sell 50 contracts at $10.65 is entered into the Facilitation 
Mechanism by the Facilitating Participant with a Facilitation Order 
that has an auto-match limit of $10.70:
     If one Response is received for 20 contracts to buy at 
$10.70, the Agency Order will execute against 40 contracts at $10.70 
(20 against the Response and 20 against the Facilitation Order) and 10 
contracts at $10.65 (against the Facilitation Order).
    In the same scenario above, with multiple Responses, the 
Facilitating Participant will be allocated its full size at each price 
point, or at each price point within its limit price if a limit is 
specified, until a price point is reached where the balance of the 
order can be fully executed. At such price point, the facilitating 
Participant shall be allocated at least forty percent (40%) of the 
original size of the facilitation order, but only after Public Customer 
interest at such price point.\4\
---------------------------------------------------------------------------

    \4\ See Proposed Rule 7270(a)(4).
---------------------------------------------------------------------------

     If Response 1 is for 20 contracts to buy at $10.70 and 
Response 2 and Response 3 are for 5 contracts (each respectively) to 
buy at $10.65 (Response 2 is a Broker Dealer and Response 3 is a Market 
Maker), the Agency Order will execute against 40 contracts at $10.70 
(20 against Response 1 and 20 contracts against the Facilitation Order) 
and 10 contracts at $10.65 against the Facilitation Order.
     If Response 1 is for 20 contracts to buy at $10.70 and 
Response 2 and Response 3 are for 5 contracts (each respectively) to 
buy at $10.65 (Response 2 is a Public Customer and Response 3 is a 
Broker Dealer), the Agency Order will execute against: 40 Contracts at 
$10.70 (20 contracts against Response 1 and 20 contracts against the 
Facilitation Order), 5 contracts at $10.65 against Response 2 (Public 
Customer Response), and then the remaining 5 contracts at $10.65 
against the Facilitation Order.
    Under the current rules, the Agency Order in the examples would 
sell 20 contracts at $10.70 and the remaining contracts at $10.65. 
Thus, the proposed auto-match feature will benefit the Agency Order 
because it sells an additional 20 contracts at the better price.
    The Exchange notes that the Facilitation Auction mechanism allows 
for broad participation in its competitive auctions by all types of 
market participants (e.g., Public Customers, Broker-Dealers, and Market 
Makers). All market participants are able to receive the auction 
broadcast and may respond by submitting competing interest (i.e., 
responses, orders and quotes). All Agency Orders entered into the 
mechanisms will continue to be broadly exposed in the auction before 
the Facilitating Participant can execute against the Agency Order via 
the auto-match feature.
    The Exchange notes that when the Facilitating Participant selects 
the auto-match feature prior to the start of an auction, the available 
liquidity at improved prices is increased and competitive final pricing 
is out of the Facilitating Participant's control. The Exchange believes 
that the proposal will increase competition in the auctions, will 
provide more options contracts with price improvement and incent market 
participants to initiate more auctions with the auto-match feature. 
Increases in the number of auctions initiated on the Exchange using the 
Facilitation Auction mechanism will directly correlate with an increase 
in the number of Agency Orders that are provided with the opportunity 
to receive price improvement over the NBBO.
    The Exchange also notes that this auto-match feature has been 
implemented by another options exchange with respect to their 
facilitation auction mechanism.\5\
---------------------------------------------------------------------------

    \5\ See Nasdaq ISE (``ISE'') Rule Options 3, Section 11(b)(C). 
The Exchange notes a minor difference between the proposed rule 
discussed herein and ISE's rule. ISE's rule states that ``. . . 
thereafter, all other orders, Responses, and quotes at the price 
point will participate in the execution of the facilitation order 
based upon the percentage of the total number of contracts available 
at the facilitation price that is represented by the size of the 
order, Response or quote.'' The Exchange notes that ISE is a pro-
rata allocation exchange which is reflected by the rule text 
discussed above. Further, BOX is a price/time priority exchange. As 
such, the Exchange believes it is appropriate to reflect the use of 
price/time priority, not pro-rata, in the proposed change.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\6\ in general, and Section 
6(b)(5) of the Act,\7\ in particular, that an exchange have rules that 
are designed to promote just and equitable principles of trade, and to 
remove impediments to and perfect the mechanism for 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 
that the proposal will result in additional liquidity available at 
improved prices with competitive final pricing out of the Facilitating 
Participant's control, thus increasing competition in the Facilitation 
auctions and providing more options contracts with price improvement. 
As a result of the increased opportunity for price improvement, the 
Exchange believes that market participants will be incented to initiate 
more Facilitation auctions. Increases in the number of auctions will 
directly correlate with an increase in the number of customer orders 
that are provided with the opportunity to receive price improvement 
over the NBBO. Further, the Exchange notes that similar functionality 
currently exists at another options exchange in the industry.\8\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ See supra note 5.
---------------------------------------------------------------------------

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

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. The proposed functionality, which is similar to functionality 
offered on another exchange, is voluntary and the Exchange therefore 
does not believe that providing this functionality will have any 
significant impact on competition. Further, the Exchange believes that 
the proposed change is evidence of the competitive environment in the 
options industry where exchanges must continually improve their 
offerings to maintain competitive standing. As such, the Exchange does 
not believe that the proposed rule change will impose any burden on 
competition not necessary or

[[Page 31267]]

appropriate in furtherance of the purposes of the Act.

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

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

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

    Because the foregoing 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 for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \11\ permits the Commission to 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. The Commission notes that waiver of the 
operative delay would allow the Exchange to provide the auto-match 
functionality immediately available to Participants. The Commission 
also notes that the proposed rule change is substantially similar to 
functionality on another options exchange.\12\ For these reasons, the 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission waives the 30-day operative delay and 
designates the proposed rule change operative upon filing.\13\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ See supra note 5.
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BOX-2020-12 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-2020-12. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet 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, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. 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-2020-12, and should be submitted on 
or before June 12, 2020.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11039 Filed 5-21-20; 8:45 am]
 BILLING CODE 8011-01-P


