Notice2023-13458
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend BOX Rule 4120 (Transactions of Certain Public Customers) and BOX Rule 100 (Definitions) and Adopt IM-4120-1
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
June 26, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 121 (Monday, June 26, 2023)</title>
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[Federal Register Volume 88, Number 121 (Monday, June 26, 2023)]
[Notices]
[Pages 41437-41439]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-13458]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97772; File No. SR-BOX-2023-02]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend BOX Rule
4120 (Transactions of Certain Public Customers) and BOX Rule 100
(Definitions) and Adopt IM-4120-1
June 20, 2023.
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 5, 2023, BOX Exchange LLC (the ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared primarily by the Exchange. The Exchange filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(6) thereunder,\4\ such that the proposed rule change was
immediately effective upon filing with the Commission. The Commission
is publishing this notice to solicit comments on the proposed rule from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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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 4120 (Transactions of
Certain Public Customers) and BOX Rule 100 (Definitions) and adopt IM-
4120-1. 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 <a href="https://rules.boxexchange.com/rulefilings">https://rules.boxexchange.com/rulefilings</a>.
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 Exchange proposes to amend BOX Rule 4120 (Transactions of
Certain Public Customers) and BOX Rule 100 (Definitions) and adopt IM-
4120-1. The purpose of the proposed rule change is to amend the BOX
Rule that governs interested transactions to, among other things,
clarify that clearing firms are not intended to be included within the
scope of BOX Rule 4120. The Exchange notes that the proposed changes
are similar to the scope of activities covered by existing rules at
other options exchanges.\5\
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\5\ See NYSE Rule 407 and NYSE American Rule 407. The Exchange
believes NYSE and NYSE American similarly do not include clearing
firms within the scope of their rules.
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Rule 4120 and Proposed IM-4120-1
Presently, BOX Rule 4120 prohibits an OFP,\6\ without prior
consent, from executing any transaction in securities or carrying a
position in any security in which: (1) an officer or employee of the
Exchange or any national securities exchange that is a participant of
the Clearing Corporation,\7\ or an officer or employee of a corporation
in which the Exchange, or such other exchange owns the majority of the
capital stock, is directly or indirectly interested; or (2) a partner,
officer, director, principal shareholder or employee of another OFP is
directly or indirectly interested. In such circumstances, the OFP is
required to receive written consent from the Exchange or consent of the
other OFP prior to taking such action.
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\6\ The terms ``Order Flow Provider'' or ``OFP'' mean those
Options Participants representing as agent Customer Orders on BOX
and those non-Market Maker Participants conducting proprietary
trading. See BOX Rule 100(a)(47). The term ``Customer Order'' means
an agency order for the account of either a Public Customer, as
defined herein, or a broker-dealer. See BOX Rule 100(a)(18). The
term ``Market Maker'' means an Options Participant registered with
the Exchange for the purpose of making markets in options contracts
traded on the Exchange and that is vested with the rights and
responsibilities specified in the Rule 8000 Series. All Market
Makers are designated as specialists on the Exchange for all
purposes under the Exchange Act or Rules thereunder. The term
``Public Customer'' means a person that is not a broker or dealer in
securities. See BOX Rule 100(a)(53).
\7\ The term ``Clearing Corporation'' or ``OCC'' means The
Options Clearing Corporation.
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This Rule 4120 is intended to govern conflicts of interest and
regulate interested transactions.\8\ The Rule prohibits OFPs from
engaging in specified interested actions without obtaining prior
written consent from the Exchange or consent of the other OFP prior to
taking such action. For example, under Rule 4120, an OFP may not
execute a transaction in a security in which an employee of the
Exchange is directly interested, without first obtaining written
consent from the Exchange. The Exchange is proposing to amend BOX Rule
4120 to clarify that clearing firms are not intended to be included
within the scope of BOX Rule 4120. Specifically, the Exchange is
proposing to add ``open a securities or commodities account'' and
remove ``in securities or carry a position in any security'' within BOX
Rule 4120(a) to amend the scope of this requirement, which is in line
with the scope and language of other exchanges.\9\ The Exchange
believes that this change removes unintended parties from the scope of
the rule and thus allows for more effective supervision of interested
transactions. At present, due to the broad language within Rule 4120(a)
stating that no OFP shall ``carry a position in any security'' clearing
firms are being captured within the scope of the Rule. The Exchange is
proposing to amend Rule 4120 to remove the language relating to
carrying a position in a security to clarify that clearing firms are
not included in the scope of this Rule due to only carrying a position,
which the Exchange believes is in line with the intent of the rule and
existing practices at other exchanges.\10\
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\8\ BOX Rule 4120 governs direct or indirect conflicts of
interest involving officers or employees of the Exchange or any
national securities exchange that is a participant of the OCC, an
officer or employee of a corporation in which the Exchange, or such
other exchange owns the majority of the capital stock, and partners,
officers, directors, principal shareholders or employees of another
OFP. See BOX Rule 4120.
\9\ See supra note 3.
\10\ Id.
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[[Page 41438]]
The proposed amended language within BOX Rule 4120(a) would
provide, ``No OFP shall open a securities or commodities account or
execute any transaction in which: (1) an officer or employee of the
Exchange or any national securities exchange that is a participant of
the Clearing Corporation, or an officer or employee of a corporation in
which the Exchange, or such other exchange owns the majority of the
capital stock, is directly or indirectly interested, without the prior
written consent of the Exchange; or (2) a partner, officer, director,
principal shareholder or employee of another OFP is directly or
indirectly interested, without the consent of such other OFP.'' Rule
4120 also requires that where the required consent has been granted,
duplicate reports of the transaction and position shall promptly be
sent to the Exchange or OFP, as the case may be. Additionally, the
Exchange is proposing to adopt language to provide that the Exchange
may, upon written request, and where good cause is shown, waive any
requirements of Rule 4120. The Exchange notes that this proposed waiver
language is identical to language found within NYSE American Rule 407
and NYSE Rule 407.\11\ The Exchange believes that the adoption of this
provision will provide the Exchange with greater flexibility, to allow
for more effective and efficient supervision of the interested
transactions that are governed by Rule 4120.
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\11\ Id.
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The Exchange is also proposing to adopt IM-4120-1. Proposed IM-
4120-1 would provide that the term ``securities or commodities
accounts'' as used in Rule 4120 shall include, but not be limited to,
limited or general partnership interests in investment partnerships. As
part of the proposed changes detailed above, the Exchange is adopting
language within Rule 4120(a) to provide that no OFP shall ``open a
securities or commodities account.'' The Exchange believes that
adopting IM-4120-1, which provides that for the purposes of Rule 4120,
securities or commodities accounts also include limited or general
partnership interests in investment partnerships, will reduce the
potential for investor confusion regarding what is included within the
scope of the Rule. Additionally, proposed IM-4120-1 would require OFPs
to develop and maintain written procedures for reviewing such accounts
and transactions and assure that their associated persons are not
improperly recommending or marketing such securities or products to
others through Participants \12\ or Participant organizations. At
present, Rule 4120 is silent on the requirements for how an OFP must
ensure compliance with this Rule. The Exchange is now proposing to
adopt language codifying the requirement for OFPs to develop and
maintain written procedures for reviewing these transactions and
accounts. The Exchange believes that OFPs already maintain such written
procedures in practice and is looking to codify the requirement for
clarity. The Exchange is adopting IM-4120-1 to provide more clarity on
what is covered under the term ``securities or commodities accounts,''
and the obligation for OFPs to develop related written procedures.
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\12\ The term ``Participant'' means a firm, or organization that
is registered with the Exchange pursuant to the Rule 2000 Series for
purposes of participating in trading on a facility of the Exchange
and includes an ``Options Participant'' and ``BSTX Participant.''
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The Exchange believes that proposed IM-4120-1, which provides
greater clarity on the requirements of Rule 4120, will allow for more
effective regulatory compliance. The Exchange also notes that proposed
IM-4120-1 is substantively identical to an existing rule at NYSE
American and NYSE.\13\
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\13\ See NYSE American Rule 407, Supplementary Material .11 and
NYSE Rule 407, Supplementary Material .11.
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Technical Amendments
In addition to the proposed amendments, the Exchange is proposing
to amend Rule 100(a)(16) to update the cross references to the rules of
the OCC within the definition of the term ``covered short position.''
The OCC has amended their Rule 610 since BOX adopted Rule 100(a)(16),
so the Exchange is proposing to update the OCC cross references within
BOX Rule 100(a)(16). The Exchange is proposing to update the cross
reference to OCC Rule 610(f) to 610(A) and 610(B) and the cross
reference to OCC Rule 610(g) to 610(C).\14\ The Exchange is not
proposing to make any substantive changes to Rule 100(a)(16).
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\14\ See OCC Rules 610A (Member Specific Deposits), 610B (Third-
Party Specific Deposits), and 610C (Escrow Deposits).
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2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Securities Exchange Act of 1934
(the ``Act''),\15\ in general, and Section 6(b)(5) of the Act,\16\ 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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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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Rule 4120 and Proposed IM-4120-1
Together, the proposed amendment of Rule 4120 and the proposed
adoption of IM-4120-1 are intended to amend the BOX Rule governing
conflicts of interest by updating and adopting rules that regulate
interested transactions.\17\ Specifically, the proposed changes are
intended to clarify that clearing firms are not intended to be included
within the scope of BOX Rule 4120. The Exchange believes that the
proposed rule change may reduce potential investor or market
participant confusion over which BOX Participants are covered under
scope of BOX Rule 4120. As such, the proposed rule change would foster
cooperation and coordination with persons engaged in facilitating
transactions in securities and would remove impediments to and perfect
the mechanism of a free and open market and a national market system.
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\17\ See supra notes 3 and 11.
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The Exchange also believes that the proposed rule change may result
in more efficient regulatory compliance, as the proposed updates are
similar in relevant part to existing rules at NYSE American and
NYSE.\18\ As such, the Exchange believes that the proposed rule change
is in the public interest and therefore, is consistent with the Act.
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\18\ Id.
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Technical Changes
In addition, the Exchange believes that the proposed non-
substantive clarifying changes described above to update the OCC cross
references within BOX Rule 100(a)(16) would add clarity to the
Exchange's rules. The Exchange believes that adding such clarity would
also be consistent with the public interest and the protection of
investors because investors will not be harmed and in fact would
benefit from increased clarity, thereby reducing potential confusion.
In addition, the Exchange believes that amending the OCC cross
references to accurately reflect the updated section numbers within the
OCC Rulebook would promote fairness and consistency in the marketplace
by providing investors with access to the appropriate citations as
detailed within the Rules of the OCC. The proposed
[[Page 41439]]
change is not intended to make any substantive change to the definition
of ``covered short position'' within the BOX Rulebook.
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. In this regard and as indicated
above, the Exchange notes that the rule change is being proposed to
clarify that clearing firms are not intended to be included within the
scope of BOX Rule 4120. The Exchange notes that, the proposed updates
are similar in relevant part to existing rules at NYSE American and
NYSE.\19\ The proposed rule change does not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\19\ See supra notes 3 and 11.
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The proposed rule change is not designed to address any competitive
issues but rather to clarify that clearing firms are not intended to be
included within the scope of BOX Rule 4120. The Exchange's proposal to
amend BOX Rule 4120 does not impose an undue burden on competition as
all Participants that conduct business with the public would be subject
to the proposed rules.
The proposed rule change is not designed to address any competitive
issues but rather seeks to clarify that clearing firms are not intended
to be included within the scope of BOX Rule 4120. The Exchange's
proposal to adopt proposed IM-4120-1 does not impose an undue burden on
competition as all Participants that conduct business with the public
would be subject to the proposed rules.
Technical Amendments
The Exchange's proposal to amend BOX Rule 100(a)(16) to update the
cross references to the rules of the OCC within the definition of the
term ``covered short position'' is a non-substantive amendment.
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
(a) This proposed rule change is filed pursuant to paragraph (A) of
section 19(b)(3) of the Exchange Act \20\ and Rule 19b-4(f)(6)
thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6).
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(b) This proposed rule change does not significantly affect the
protection of investors or the public interest, does not impose any
significant burden on competition, and, by its terms, does not 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.
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
<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#f88a8d949dd59b9795959d968c8bb88b9d9bd69f978e"><span class="__cf_email__" data-cfemail="80f2f5ece5ade3efedede5eef4f3c0f3e5e3aee7eff6">[email protected]</span></a>. Please include
File Number SR-BOX-2023-02 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 Number SR-BOX-2023-02. 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 (<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, 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-2023-02 and
should be submitted on or before July 17, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-13458 Filed 6-23-23; 8:45 am]
BILLING CODE 8011-01-P
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