[Federal Register Volume 86, Number 123 (Wednesday, June 30, 2021)]
[Notices]
[Pages 34813-34815]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13915]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92255; File No. SR-BOX-2021-16]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend BOX Rule 
7300 (Preferenced Orders)

June 24, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 11, 2021, BOX Exchange LLC (``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 change 
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 7300 (Preferenced Orders). 
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 BOX Rule 7300 
to provide greater clarification about the Exchange's current 
allocation process for Preferenced Orders. Specifically, the Exchange 
proposes to add Rule 7300(c)(4) (Remaining Preferred Market Maker 
Interest) to more accurately describe the Preferenced Order allocation 
methodology. The Exchange notes that the allocation as described by the 
proposed rule text is consistent with the Exchange's current allocation 
methodology.
    As background, a Preferenced Order is any order (single leg or 
complex) submitted by a Participant to the Exchange for which a 
specific Market Maker is designated (a ``Preferred Market Maker'') to 
receive execution priority, with respect to a portion of the 
Preferenced Order.\3\ Except as described in further detail below, 
Preferenced Orders are treated the same as other orders submitted to 
the Exchange and executed in price/time priority according to the 
existing matching algorithm on the Exchange.\4\ For each price level at 
which all order quantities on the BOX Book are fully executable against 
a Preferenced Order on a single options series, all such orders at that 
price will be filled and the balance of the Preferenced Order, if any, 
will be executed, to the extent possible, against orders at the next 
best price level.\5\ However, at the final price level, where the 
remaining quantity of the Preferenced Order is insufficient to match 
the total quantity of orders on the BOX Book, the allocation algorithm 
for orders executable against the remaining quantity of the Preferenced 
Order will differ from the regular price/time priority algorithm by 
allocating executions in the following order: (1) To Public Customers, 
(2) a preferred percentage to the Preferred Market Maker (subject to 
certain conditions explained in Rule 7300), (3) to all remaining quotes 
and orders on single option series and (4) to any Legging Order.\6\
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    \3\ See BOX Rule 7300(a).
    \4\ See BOX Rule 7300(b).
    \5\ See BOX Rule 7300(c).
    \6\ See id. A Legging Order is a Limit Order on the BOX Book 
that represents one side of a Complex Order that is to buy or sell 
an equal quantity of two options series resting on the Complex Order 
Book.
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    The Exchange's proposal seeks to further clarify the allocation 
process.\7\ The current rule text does not specify what happens to the 
Preferred Market Maker's remaining quote quantity that exceeds the size 
of their preferred percentage allocation pursuant to 7300(c)(2). The 
Exchange notes although such an allocation rarely occurs, the Exchange 
believes this proposal will improve market participant's understanding 
of the BOX trading system and will continue to conform with the 
Exchange's existing rules to treat Legging Orders last in priority. 
Therefore, the Exchange is proposing additional rule text detailing 
that if after the allocation of all orders and quotes in 7300(c)(1) 
through (3), there still remains an unallocated quantity of the 
Preferenced Order, the remaining quantity of the Preferenced Order will 
be allocated to any Preferred Market Maker quote size exceeding the 
preferred allocation percentage in 7300(c)(2). Additionally, if at the 
end of the proposed Remaining Preferred Market Maker Interest 
allocation, any interest remains, the balance of the Preferenced Order 
will be allocated to Legging Orders, thereby maintaining their existing 
designation as last in priority.
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    \7\ The Exchange notes, no system changes to existing 
functionality are being made pursuant to this proposal. Rather, this 
proposal is designed to reduce any potential investor confusion.
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    Lastly, the Exchange proposes a technical amendment to Rule 
7300(c)(2) to include the word ``Preferred'' in order to more 
accurately describe the allocation to the Preferred Market Marker.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\8\ in general, and Section 
6(b)(5) of the Act,\9\ 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to amend Rule 7300 is consistent with the 
Act because it adds more context to the Exchange's current Rulebook and 
coincides with the Exchange's original proposal to give Legging Orders 
last priority under Rule 7300. Specifically, when the Exchange first 
adopted Rule 7300 (Preferenced Order Rule) the Exchange explained that 
Legging Orders would be given last priority which preserved the 
established priority of Legging Orders since they had last priority 
under the then existing allocation algorithm.\10\ The Exchange

[[Page 34814]]

notes this is still true today.\11\ When the Exchange originally 
adopted Legging Orders it noted that Legging Orders would only execute 
after all other executable interest on the BOX Book at the same price 
was executed in full, and therefore would not negatively impact the 
regular market.\12\ The Exchange notes the current proposal continues 
to uphold this priority scheme by ensuring all interest on the BOX Book 
executes before Legging Orders.
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    \10\ See Securities Exchange Release No. 34-74210 (February 5, 
2015), 80 FR 7663 (February 11, 2015) (SR-BOX-2014-28) (Commission 
Order Approving BOX Rule 7300).
    \11\ See BOX Rule 7240(c)(3) (A Legging Order is executed only 
after all other executable orders and quotes at the same price are 
executed in full).
    \12\ See Securities Exchange Release No. 34-69419 (April 19, 
2013), 78 FR 24449 (April 25, 2013) (SR-BOX-2013-01) (Commission 
Order Approving BOX Rule Change Relating to Complex Orders).
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    In addition, the Exchange believes the proposal brings greater 
clarity to its rules and helps foster coordination with persons engaged 
in facilitating transactions in securities because the proposal 
codifies how part of the trading system currently functions. The 
Exchange's proposal, which more clearly explains how the system 
allocates Preferenced Orders, protects investors and the public 
interest because it adds specificity to the rules with respect to 
current system functionality. Specifically, the proposed change will 
further clarify the current rule to more specifically describe the 
order in which the system handles Preferenced Order allocation on BOX. 
The additional detail makes it clear that after the allocation of all 
orders and quotes in 7300(c)(1) through (3), there remains any 
unallocated quantity of the Preferenced Order, that remaining quantity 
will be allocated to any Preferred Market Maker quote size exceeding 
the preferred allocation percentage. The Exchange believes adding 
additional language detailing what happens to the remaining quantity of 
Preferred Market Maker quotes promotes transparency and reduces 
ambiguity within the Exchange's Rules which ultimately benefits and 
protects investors. As noted above, this is not a change to how the 
Preferenced Order allocation currently operates, but merely a 
clarification of the allocation process.
    Furthermore, the Exchange notes the current proposal to treat 
Legging Orders last in priority is in line with another priority 
allocation scheme within its Rulebook.\13\ Specifically, under BOX 
Price Improvement Period (``PIP'') Rule 7150, Legging Orders are 
subject to the same priority. BOX Rule 7150 provides that only after 
all other orders and quotes have been allocated, if there remains any 
unallocated quantity of a PIP Order, then an allocation to Legging 
Orders will be made.\14\ Therefore, the Exchange believes the current 
proposal provides consistency within its rulebook, reduces the 
potential for investor confusion, and meets investor expectations of 
treating Legging Orders last in priority for trade allocations. 
Additionally, the Exchange notes at least one other exchange also 
designates Legging Orders for last priority and explicitly holds that 
Legging Orders are last in priority for one of its execution 
algorithms.\15\ Specifically, similar to the Exchange's current Legging 
Orders Rule 7240(c), Nasdaq ISE, LLC (``ISE'') Options 3, Section 
7(k)(2) maintains that legging orders are executed only after all other 
executable orders (including any non-displayed size) and quotes at the 
same price are executed in full. Further, under ISE's Size Pro-Rata 
Execution Algorithm, ISE holds that only after all other remaining 
interest has been fully executed will Legging Orders be allocated.\16\ 
Therefore, the Exchange believes the proposal further aligns its 
rulebook with at least one other exchange within the industry and 
thereby fosters cooperation and coordination with persons engaged in 
facilitating transactions in securities.
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    \13\ See BOX Rule 7150(g)(7) (Exchange's Price Improvement 
Period auction allocates Legging Orders last in priority).
    \14\ See id.
    \15\ See ISE Rulebook Options 3, Section 7(k)(2) and Options 3, 
Section 10(c)(1)(E), respectively.
    \16\ ISE Rulebook Options 3, Section 10(c)(1)(E).
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    The Exchange believes its current proposal is in line with the 
original intent behind the allocation methodology for BOX Rule 7300 and 
conforms to the Exchange's established priority of giving Legging 
Orders last priority. The Exchange continues to believe that providing 
priority for single option orders or quotes over Legging Orders is 
reasonable as it preserves the established priority of single option 
orders when executing with Complex Orders. In addition, the Exchange 
notes that the Exchange's Legging Order rule explicitly states ``[a] 
Legging Order is executed only after all other executable orders and 
quotes at the same price are executed in full.'' \17\ Therefore, the 
Exchange believes the proposal contributes to harmonizing the 
Exchange's Rulebook and will help avoid investor confusion when 
executing orders on the Exchange.
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    \17\ See BOX Rule 7240(c)(3) (Legging Orders).
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    Lastly, the proposed non-substantive addition of the word 
``Preferred'' in Rule 7300(c)(2) is a more precise description which 
better articulates the current allocation process. The Exchange 
believes this technical amendment will improve the rules readability, 
promote consistent terminology in the rule and thereby further protect 
investors and the public interest because it makes the rule easier for 
Participants to comprehend.

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. As indicated above, no system 
changes to existing functionality/priority are being made pursuant to 
this proposal; rather, this proposal is designed to reduce any 
potential investor confusion as to the allocation methodology for 
Preferenced Orders presently available on the Exchange. Therefore, the 
proposed changes are designed to enhance clarity and consistency in the 
Exchange's Rulebook. Furthermore, the Exchange believes the proposed 
rule change will not impose any unnecessary burden on competition 
because it coincides with the Exchange's existing rules and allocation 
methodologies by treating Legging Orders last in priority.
    As such, 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.

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 after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.

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[[Page 34815]]

    A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally 
does not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \21\ 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 so that the proposed 
rule change may become operative immediately upon filing. The Exchange 
states that waiver of the operative delay would be consistent with the 
protection of investors and the public interest because it would enable 
the Exchange to clarify its rule text without delay while continuing to 
maintain the Exchange's existing rules designating Legging Orders for 
last priority. For this reason, and because the proposed rule change 
does not raise any novel regulatory issues, the Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change as operative upon filing.\22\
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ 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).
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    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 change 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-2021-16 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-2021-16. 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 official business days between the hours of 10:00 
a.m. and 3:00 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-
2021-16 and should be submitted on or before July 21, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13915 Filed 6-29-21; 8:45 am]
BILLING CODE 8011-01-P


