[Federal Register Volume 84, Number 232 (Tuesday, December 3, 2019)]
[Notices]
[Pages 66253-66255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26159]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87637; File No. SR-BOX-2019-33]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Add IM-7620-1
(Sub-Penny Cabinet) To Allow Transactions To Take Place at a Price That
is Below $1 per Option Contract
November 27, 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 November 13, 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 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 add IM-7620-1 (Sub-Penny Cabinet) to allow
transactions to take place at a price that is below $1 per option
contract. 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 add Rule IM-7620-1
(Sub-Penny Cabinet) to allow transactions to take place at a price that
is below $1 per option contract. An ``accommodation'' or ``cabinet''
trade refers to trades in listed options on the Exchange that are
worthless or not actively traded. Cabinet trading is conducted in
accordance with the Exchange Rule 7620 which sets forth the terms and
conditions for engaging in cabinet trades. Currently, a cabinet order
is defined as a closing limit order at a price of $1 per option
contract for the account of a customer or Floor Market Maker. In
certain cases opening orders \3\ may be matched with a cabinet
order.\4\ Only Floor brokers may represent cabinet orders on the BOX
Trading Floor. Cabinet transactions occur via open outcry at a cabinet
price of $1 per option contract in any options series open for trading
in the Exchange. Once the cabinet order has been either crossed or
matched, the Floor Broker must submit the designated cabinet form as
soon as possible but no later than the close of business that trading
day. Cabinet order transactions are reported as late trades on the
Exchange.\5\
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\3\ The Exchange notes an ``opening order'' is a contra-side
opening order in response to a Customer who submits a closing order
to clear their position.
\4\ See BOX Rule 7620(c), (d), and (e).
\5\ The Exchange notes there have been no issues in processing
and clearing cabinet trade transactions since Rule 7620 has been
implemented.
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The purpose of this rule change is to add Rule IM-7620-1 to allow
for transactions to take place in open outcry at a price of at least $0
but less than $1 per option contract (``sub-penny cabinet orders'').
These lower priced transactions would be traded pursuant to the same
procedures applicable to $1 cabinet trades, except that (i) bids and
offers for opening transactions would only be permitted to accommodate
closing transactions in order to limit use of the procedure to
liquidations of existing positions, and (ii) the procedures would also
be made available for trading in option classes participating in the
Penny Pilot
[[Page 66254]]
Program.\6\ The Exchange notes that the rule proposal is consistent
with cabinet trading rules of other exchanges, previously approved by
the Commission,\7\ and supports the purpose of cabinet trading by
facilitating liquidations of worthless or inactive positions. The
Exchange believes that allowing sub-penny cabinet orders will better
accommodate the closing of options positions in series that are
worthless or not actively traded, particularly due to market conditions
which may result in a significant number of series being out-of-the-
money. For example, a market participant might have a long position in
a call series with a strike price of $100 and the underlying stock
might now be trading at $30. In such a case, there might not otherwise
be a market for that person to close-out its position even at the $1
cabinet price (e.g., the series might be quoted no bid).
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\6\ The $1 cabinet trading procedures are not available in Penny
Pilot Program classes because in those classes an option series can
trade in a standard increment as low as $0.01 per share (or $1.00
per option contract with a 100 share multiplier). Because this
proposal would allow trading below $0.01 per share (or $1.00 per
option contract with a 100 share multiplier), the procedures would
be made available for all classes, including those classes
participating in the Penny Pilot Program.
\7\ See, e.g., NYSE Arca Options Commentary .01 to Rule 6.80-O;
and NASDAQ Phlx Options 8, Sec. 33(d).
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As with other cabinet trades, all transactions for less than $1
must be reported to the Exchange no later than the close of business
each day. The Exchange represents that there would be no operational
issues in processing and clearing sub-penny cabinet trades. The
Exchange does not believe that the Options Clearing Corporation
(``OCC'') will have any operational issues with processing sub-penny
cabinet trades, as they will be reported to and submitted by the
Exchange like all other cabinet trades. Additionally, the Exchange
notes that because sub-penny cabinets will be reported and processed
like all other cabinet trades, market participants will not be impacted
nor have to take on any additional reporting or processing burden.
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 sub-penny cabinet trades
will promote just and equitable principles of trade, remove impediments
to and perfect the mechanism of a free and open market, by allowing all
market participants to submit and execute accommodation transactions at
a price that is below $1 per option contract. Specifically, the rule
proposal will offer market participants additional opportunities to
trade away unwanted worthless option positions priced even lower than
current cabinet trades. The Exchange believes this will help remove
impediments to and better provides a free and open market because it
facilitates the closing of options positions that are worthless or not
actively traded. Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) \10\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers, because all market
participants may avail themselves of sub-penny cabinet orders.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
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The proposed rule does not propose to implement new or unique
functionality that has not been previously filed with the Commission,
found to be consistent with the Act, or is not available on other
exchanges. The proposed change facilitates transactions in securities
by ensuring that the rule covers cabinet trades in all series, not only
those with a price of $1 per option contract. The Exchange also
believes that the proposed change will protect investors because there
would be no operational issues in processing and clearing sub-penny
cabinet trades because sub-penny cabinet trades would be reported to
the Exchange and submitted to the OCC like current cabinet trades.
Additionally, because sub-penny cabinets will be reported and processed
like all other cabinet trades, market participants will not be impacted
nor have to take on any additional reporting or processing burden. As
such, BOX believes the proposed rule change protects investors, and is
therefore, consistent with the Act.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
liquidation trades promote competition and afford market participants
the opportunity to close out their worthless options positions. The
Exchange does not believe the proposed rule change will impose any
burden on intramarket competition because the proposed sub-penny
cabinet orders will be available to all market participants to execute
in the same manner as they execute cabinet orders currently. The
Exchange also does not believe that the proposed rule change will
impose any burden on intermarket competition. As discussed above, the
basis for the proposed rule change regarding sub-penny cabinets are the
rules of other options exchanges, which have already been found
consistent with the Act and approved by the Commission.\11\ In addition
to this, other exchanges have substantially similar rules regarding
sub-penny cabinet trading.\12\
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\11\ See supra note 7.
\12\ See id.
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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 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 \13\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 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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A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has
requested that the Commission waive the 30-day operative delay. The
Exchange notes
[[Page 66255]]
that sub-penny cabinet orders are already allowed on other exchanges
and that waiver of the operative delay would permit the Exchange to
compete for sub-penny cabinet order flow. As the proposal raises no
novel 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 waives the 30-day operative delay
and designates the proposed rule change operative upon filing.\17\
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ For purposes only of waiving the 30-day operative delay,
the Commission also 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 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 [email protected]. Please include
File Number SR-BOX-2019-33 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-2019-33. 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-2019-33 and should be submitted on
or before December 24, 2019.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26159 Filed 12-2-19; 8:45 am]
BILLING CODE 8011-01-P