Notice2021-16884
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
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 9, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 150 (Monday, August 9, 2021)</title>
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[Federal Register Volume 86, Number 150 (Monday, August 9, 2021)]
[Notices]
[Pages 43573-43576]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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the proposed rule change, which replaced and superseded the proposed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: <a href="https://www.sec.gov/comments/sr-box-2021-07/srbox202107-9086236-246706.pdf">https://www.sec.gov/comments/sr-box-2021-07/srbox202107-9086236-246706.pdf</a>.
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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:
<bullet> 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;''
<bullet> 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
<bullet> 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
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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
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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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#becccbd2db93ddd1d3d3dbd0cacdfecddbdd90d9d1c8"><span class="__cf_email__" data-cfemail="f785829b92da94989a9a92998384b7849294d9909881">[email protected]</span></a>. Please include
File Number SR-BOX-2021-07 on the subject line.
Paper Comments
<bullet> 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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,
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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
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