[Federal Register Volume 86, Number 150 (Monday, August 9, 2021)]
[Notices]
[Pages 43573-43576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16884]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92555; File No. SR-BOX-2021-07]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Adopt BOX Rule 
7670 To Establish a Virtual Trading Floor on BOX

August 3, 2021.

I. Introduction

    On April 16, 2021, BOX Exchange LLC (``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 establish a 
virtual trading floor on the Exchange. The proposed rule change was 
published for comment in the Federal Register on May 5, 2021.\3\ On 
June 16, 2021, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to either approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to disapprove the proposed 
rule change.\5\ On July 20, 2021, the Exchange filed Amendment No. 1 to 
the proposed rule change, which replaced and superseded the proposed 
rule change.\6\ This order approves the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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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. 91714 (April 29, 
2021), 86 FR 24119.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92192, 86 FR 32989 
(June 23, 2021). The Commission designated August 3, 2021, as the 
date by which it should approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.
    \6\ In Amendment No. 1, the Exchange: (1) Amends the proposed 
rule text to specify that Floor Brokers would be required to enter 
their orders into the electronic blotter at the same time they open 
outcry the order to the Virtual Trading Crowd (as defined below); 
(2) makes revisions and technical corrections to the proposed rule 
text for consistency and to more clearly reflect the description of 
the proposed rule change; (3) makes technical corrections and 
revisions to the description of the proposed rule change for 
readability and consistency; and (4) provides additional detail to 
certain aspects of the description of the proposed rule change. 
Amendment No. 1 is available on the Commission's website at: https://www.sec.gov/comments/sr-box-2021-07/srbox202107-9086236-246706.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1 \7\
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    \7\ All defined terms not defined herein are defined in the BOX 
Rules.
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    On March 20, 2020, the Exchange closed its physical Trading Floor 
located in Chicago, Illinois, as a result of precautions taken with 
respect to COVID-19, and operated in an all-electronic configuration 
until May 4, 2020, when the Exchange reopened its physical Trading 
Floor.\8\ According to the Exchange, due to the uncertainty regarding 
the ongoing pandemic, it proposes to adopt Rule 7670, which would 
permit the Exchange to conduct open outcry trading virtually. 
Specifically, proposed Rule 7670(a)(1) would allow the Exchange to 
activate an audio and video communication program to serve as a 
``Virtual Trading Floor'' during regular trading hours in the event the 
physical Trading Floor becomes inoperable.\9\
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    \8\ See Amendment No. 1, supra note 6, at 3-4.
    \9\ According to the Exchange, if the physical Trading Floor 
becomes inoperable and the Exchange does not make a Virtual Trading 
Floor available, the Exchange will continue to operate in an 
electronic-only environment; open outcry trading will not be 
available while the physical Trading Floor facility is inoperable. 
See proposed Rule 7670(a).
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    According to the proposal, the Exchange would create a ``Virtual 
Trading Pit'' where each Participant authorized to access the Virtual 
Trading Floor and enters the Virtual Trading Pit will be visible, and 
may speak, to all other Participants in the Virtual Trading Pit.\10\ 
Any Floor Market Maker authorized to act on the physical Trading Floor 
will receive access to the Virtual Trading Pit on the Virtual Trading 
Floor and will have an appointment to trade all classes.\11\ The 
Exchange believes that its proposal will allow the same communication 
capabilities Participants generally have on the physical Trading Floor 
so that they may conduct open outcry trading on the Virtual Trading 
Floor in the same manner as they do on the physical Trading Floor.\12\
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    \10\ See Amendment No. 1, supra note 6, at 6.
    \11\ See id. at 8.
    \12\ See id. at 6.
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    All rules related to open outcry trading will apply to open outcry 
trading on the Virtual Trading Floor in the same manner as they apply 
on the physical Trading Floor, except that proposed Rule 7670(a)(1)(A)-
(G) will also apply to trading on the Virtual Trading Floor as follows.
    Proposed Rule 7670(a)(1)(A) lists certain terms in the Rules 
related to open outcry trading on the physical Trading Floor that will 
be deemed to refer to corresponding terms related to open outcry 
trading on the Virtual Trading Floor. Specifically:
     References in the Rules to the ``Floor,'' ``Trading 
Floor,'' and ``Exchange Floor'' (and any other terms with the same 
meaning) will be deemed to refer to the ``Virtual Trading Floor;''
     References in the Rules to the ``Pit'' and the ``Crowd 
Area'' (and any other terms with the same meaning) will be deemed to 
refer to the ``Virtual Trading Pit'' or the ``Virtual Trading Crowd;'' 
and
     The term ``In-crowd Floor Participant'' will be deemed to 
mean a Floor Market Maker or a Floor Brooker representing an order in 
the Virtual Trading Pit on the Virtual Trading Floor.
    Pursuant to proposed Rule 7670(a)(1)(B), access to the Virtual 
Trading Floor will be limited to Floor Participants, Clerks, Exchange 
employees, and any other persons the Exchange authorizes admission to 
the Virtual Trading Floor.\13\ The Exchange will provide access to the 
Virtual Trading Floor to Participants the Exchange already has approved 
to perform a Trading Floor function (including Floor Brokers and Floor 
Market Makers).\14\ According to the proposed Rule, each authorized 
individual will receive one log-in to the Virtual Trading Floor, and 
the Exchange will track which individuals participate on the Virtual 
Trading Floor, including when they log-in and log-out.\15\ The Exchange 
represents that access to the Virtual Trading Floor will be

[[Page 43574]]

substantially similar to access to the physical Trading Floor.\16\
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    \13\ See proposed Rule 7670(a)(1)(B).
    \14\ See Amendment No. 1, supra note 6, at 7-8.
    \15\ See id. at 8-9.
    \16\ See id. at 7. The Exchange states that, currently, 
admission to the physical Trading Floor is limited to Floor 
Participants, Exchange employees, Clerks employed by Floor 
Participants and registered with the Exchange, Exchange visitors 
that receive authorized admission to the Trading Floor pursuant to 
Exchange policy, and any other persons that the Exchange authorizes 
admission to the Trading Floor. See id.
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    Pursuant to proposed Rule 7670(a)(1)(C), Floor Participants may use 
any equipment to access the Virtual Trading Floor and will not need to 
register devices they use while on the Virtual Trading Floor.\17\ 
According to the Exchange, it will identify the Participant 
organization of each Participant in the Virtual Trading Pit, and the 
Exchange will not require Floor Participants and Clerks to display 
badges on the Virtual Trading Floor.\18\ Floor Participants, however, 
will be required to inform the Exchange of the IP address that will be 
used to access the Virtual Trading Floor, which the Exchange states 
will allow it to create a secure network available only to approved IP 
addresses. According to the Exchange, the Exchange will deny any 
outside (and not previously approved) connections from entering the 
Virtual Trading Floor and will secure the virtual trading environment 
and limit access only to Participants approved by the Exchange.\19\ The 
Exchange will disable the ability of Participants to record the Virtual 
Trading Floor through the communication program and states that, 
pursuant to Rule 7660(i), Floor Participants will not be allowed to 
record any activities on the Trading Floor.\20\
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    \17\ See proposed Rule 7670(a)(1)(C). The Exchange represents 
that Rule 7660 (Communications and Equipment) will otherwise apply 
in the same manner to the Virtual Trading Floor as it does to the 
physical Trading Floor (to the extent the context requires). See 
Amendment No. 1, supra note 6, at 9.
    \18\ See proposed Rule 7670(a)(1)(B); Amendment No. 1, supra 
note 6, at 8 n.7.
    \19\ See Amendment No. 1, supra note 6, at 9 n.8.
    \20\ See id. at 13 n.16.
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    Pursuant to proposed Rule 7670(a)(1)(E), the Exchange will require 
Floor Brokers to enter their orders into an electronic blotter at the 
same time the Floor Broker announces an order to the Virtual Trading 
Crowd.\21\ And pursuant to proposed Rule 7670(a)(1)(D), the Exchange 
may determine to require any Floor Market Maker or Floor Broker in the 
Virtual Trading Pit that attempts to trade against an order represented 
for execution to express its bid or offer in a chat available in the 
Virtual Trading Pit.\22\ Chats will be visible to all participants in 
the Virtual Trading Pit and will not be permitted directly between 
individual Participants.\23\ The Exchange states that it would require 
Participants to utilize the chat function if BOX Trading Floor 
Officials determine that increased volume or activity in the Virtual 
Trading Crowd warrants mandatory use of the chat feature to maintain a 
fair and orderly market.\24\ Further, pursuant to proposed Rule 
7670(a)(1)(G), the Exchange will retain records of the chats, 
Participant logs, electronic blotter, and any other records related to 
the Virtual Trading Floor that are subject to the Exchange's record 
retention obligations under the Act.
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    \21\ See proposed Rule 7670(a)(1)(E). The electronic blotter 
will contain a running list of unexecuted orders that have been 
represented by Floor Brokers on the Virtual Trading Floor.
    \22\ See proposed Rule 7670(a)(1)(D). The Exchange states that 
the chat functionality will be available to Virtual Trading Floor 
Participants at all times. See Amendment No. 1, supra note 6, at 11 
n.11.
    \23\ See proposed Rule 7670(a)(1)(D).
    \24\ See Amendment No. 1, supra note 6, at 9-10. The Exchange 
believes that the chat tool and electronic blotter functionality 
will benefit Virtual Trading Crowd participants due to the 
limitations of communication software (such as limitations on how 
many people may be heard at the same time in the Virtual Trading Pit 
or potential buffering or echoing). See id. at 10-11.
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    Finally, pursuant to proposed Rule 7670(a)(1)(F), the Exchange 
proposes that Floor Market Maker quotes will be considered firm in the 
event the Floor Market Maker is disconnected from the Virtual Trading 
Floor and the parties have a Meeting of the Minds with respect to the 
terms of the transaction.\25\ In the event that a Floor Market Maker is 
disconnected from the Virtual Trading Crowd, a Floor Market Maker quote 
would not be considered firm if the quote was provided and the parties 
did not have a Meeting of the Minds with respect to the terms of the 
transaction.\26\
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    \25\ See proposed Rule 7670(a)(1)(F). According to the 
Exchange's proposal, a ``Meeting of the Minds'' means the contra-
side(s) verbally confirmed participation in the trade.
    \26\ A Floor Market Maker on the physical Trading Floor that 
experiences issues with internet connection, makes an error, or 
otherwise is unaware of recent news in a particular option, would be 
held to a quote verbalized in open outcry. See Amendment No. 1, 
supra note 6, at 12.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act,\27\ and the rules and regulations thereunder 
applicable to a national securities exchange.\28\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\29\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
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    \27\ 15 U.S.C. 78f.
    \28\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \29\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the Exchange proposes to adopt rules to enable 
a Virtual Trading Floor for open outcry trading if the physical Trading 
Floor becomes inoperable. According to the Exchange, this would allow 
the Exchange, when the physical Trading Floor becomes inoperable, to 
more closely replicate open outcry trading virtually than is currently 
feasible in an all-electronic trading environment. For example, 
according to the Exchange, the proposal would help to facilitate the 
execution of larger orders and high-risk and complicated strategies 
that benefit from human interactions.\30\ The proposed rule change 
would provide an environment in which human interactions would be 
available despite the inoperability of the physical Trading Floor. As a 
result, by continuing to provide access to open outcry trading when the 
physical Trading Floor becomes inoperable, the Exchange believes its 
proposal removes impediments to a free and open market and will 
ultimately benefit investors, particularly those executing high-risk 
and complex trading strategies.
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    \30\ See Amendment No. 1, supra note 6, at 16-17.
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    The Exchange states that, although the proposed rule change would 
allow the Exchange to make a Virtual Trading Floor available, the 
Exchange retains the discretion not to activate the Virtual Trading 
Floor if the physical Trading Floor becomes inoperable. In making the 
determination to move to an all-electronic environment, the Exchange 
will evaluate the factor(s) that caused the physical Trading Floor to 
become inoperable to determine if it warrants activating the Virtual 
Trading Floor.\31\
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    \31\ Such factors, may include, but are not limited to, the 
anticipated duration, cause, and nature of the condition, burden on 
Floor Participants, and whether the condition that caused the 
inoperability of the physical Trading Floor is affecting the 
Exchange's operations broadly in a way that makes operating the 
Virtual Trading Floor difficult or impossible. See id. at 5.
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    The Commission finds that the proposed implementation of rules to

[[Page 43575]]

permit a Virtual Trading Floor if the physical Trading Floor becomes 
inoperable is consistent with the Act. The Commission believes that the 
proposal is reasonably designed to facilitate open outcry trading when 
circumstances restrict in person human interaction on the physical 
Trading Floor. The Exchange notes that it has conducted meetings with 
Floor Participants in which the Exchange presented the functionality of 
the Virtual Trading Floor and has made the Virtual Trading Floor 
available for testing so that the Exchange will be ready to implement 
the Virtual Trading Floor if necessary. The Exchange further notes that 
it has received positive feedback from Floor Participants regarding the 
Virtual Trading Floor and has committed to continue to make updates as 
necessary and appropriate in response to comments.\32\ As a result, the 
Commission finds that the Virtual Trading Floor is reasonably designed 
to allow continuous access to open outcry trading, which may remove 
impediments to a free and open market and may ultimately benefit 
investors, particularly those facilitating executions of large orders 
and complex trading strategies.
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    \32\ See id. at 15.
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    Additionally, the design of the Virtual Trading Floor to closely 
replicate the physical Trading Floor could help facilitate a more 
seamless rollout of the Virtual Trading Floor to Floor Participants and 
thus help remove impediments to a free and open market if the physical 
Trading Floor becomes unavailable. The Virtual Trading Floor could help 
provide Floor Participants the ability to interact in a substantially 
similar way as they do on the physical Trading Floor. Furthermore, the 
proposed chat functionality and electronic blotter, which are 
functionality not otherwise available on the physical Trading Floor, 
are reasonably designed to create a virtual environment that promotes 
fair and orderly markets by providing Floor Participants with 
additional tools to communicate information to one another to the 
extent necessary given the potential inherent limitations of 
communication software.
    Finally, the Commission finds that the design of the Virtual 
Trading Floor could help prevent fraudulent and manipulative acts and 
practices, and promote just and equitable principles of trade by 
requiring that the current Rules and regulatory requirements apply in 
substantially the same manner as open outcry trading on the physical 
Trading Floor. Specifically, the Exchange represents that all Rules 
related to open outcry trading on the physical Trading Floor will apply 
to open outcry trading on the Virtual Trading Floor.\33\ Floor 
Participants participating in a Virtual Trading Crowd will be subject 
to the same regulatory requirements on the Virtual Trading Floor as 
they are on the physical Trading Floor, including those set forth in 
the Rule Series 3000 and 4000.\34\ Orders represented in the Virtual 
Trading Crowd must be systematized and represented, and transactions 
reported, in the same manner as on the physical Trading Floor.\35\ 
Therefore, according to the Exchange, the audit trail for open outcry 
trading on the Virtual Trading Floor will capture the same information 
that it does for open outcry trading on the physical Trading Floor.\36\ 
Further, according to the Exchange, the Regulatory Division will be 
able to utilize preexisting Trading Floor surveillances to surveil for 
the activity occurring on the Virtual Trading Floor, and Regulatory 
Staff will always be present on the Virtual Trading Floor.\37\ 
Moreover, the Exchange represents that it will retain records of the 
chats, Participant logs, electronic blotter, and any other records 
related to the Virtual Trading Floor consistent with the Exchange's 
record retention obligations under the Act.\38\
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    \33\ See id. at 6.
    \34\ See id. at 14.
    \35\ See id.
    \36\ See id.
    \37\ See id. at 14-15.
    \38\ See id. at 12-13.
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IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
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-2021-07 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 No. SR-BOX-2021-07. The file 
numbers 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 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 publicly available. All submissions 
should refer to File No. SR-BOX-2021-07 and should be submitted on or 
before August 30, 2021.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause for approving the proposed rule 
change, as amended by Amendment No. 1, prior to the 30th day after the 
date of publication of notice in the Federal Register. As described 
above, in Amendment No. 1, the Exchange: (1) Amends the proposed rule 
text to specify that Floor Brokers would be required to enter their 
orders into the electronic blotter at the same time they open outcry 
the order to the Virtual Trading Crowd; (2) makes revisions and 
technical corrections to the proposed rule text for consistency and to 
more clearly reflect the description of the proposed rule change; (3) 
makes technical corrections and revisions to the description of the 
proposed rule change for readability and consistency; and (4) provides 
additional detail to certain aspects of the description of the proposed 
rule change.\39\ The Commission believes that the changes made in 
Amendment No. 1 do not raise any material or novel regulatory issues,

[[Page 43576]]

and they provide further clarity to and consistency within the 
proposal. Accordingly, the Commission finds good cause for approving 
the proposed rule change, as amended, on an accelerated basis, pursuant 
to Section 19(b)(2) of the Act.\40\
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    \39\ See Amendment No. 1, supra note 6.
    \40\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\41\ that the proposed rule change, as modified by Amendment No. 1 
(SR-BOX-2021-07), be, and hereby is, approved on an accelerated basis.
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    \41\ Id.
    \42\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16884 Filed 8-6-21; 8:45 am]
BILLING CODE 8011-01-P


