Notice2024-06329
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Provide Enhancements to Current Risk Protections
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
March 26, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 59 (Tuesday, March 26, 2024)</title>
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[Federal Register Volume 89, Number 59 (Tuesday, March 26, 2024)]
[Notices]
[Pages 21026-21032]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-06329]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99793; File No. SR-BOX-2024-08]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Provide
Enhancements to Current Risk Protections
March 20, 2024.
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 March 14, 2024, BOX Exchange LLC (the ``Exchange'') filed with the
Securities and Exchange Commission (the ``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 provide enhancements to current risk
protections. 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 purpose of the proposed rule change is to amend BOX Rules 7330
(Activity-Based Protections), 7340 (Global Counter), and 8130
(Automatic Quote Cancellation) to use a ``look back'' time interval for
certain risk protections, to correct a non-substantive typographical
error, and to make non-substantive clarifying changes. The Exchange
notes that the proposed change to risk protections is similar to risk
protection functionalities available at other exchanges.\3\
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\3\ See NYSE Arca Inc. (``NYSE Arca'') Rule 6.40-O and NYSE
American LLC (``NYSE American'') Rule 928NY and Miami International
Securities Exchange, LLC (``MIAX Options'') Rules 519A and 612.
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Background
Currently, BOX Rules 7330 and 7340 provide trade and trigger
counters. The current counters are incremented so long as the time
between the current trade and the previous trade does not exceed the
``Time Interval,'' which is defined as the highest value between the
Exchange default and Participant-provided value.\4\ BOX Rule 8130
operates in a similar fashion but applies to Market Maker
quotations.\5\
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\4\ See BOX Rules 7330(a)(2) and (b)(2) (Time Interval) and
7340(a) (Global Time Interval). 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. See BOX Rule 100(a)(41).
\5\ The Exchange notes that Rules 7330 and 7340 apply to all
Participants, while Rule 8130 applies only to Market Makers.
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Under current Rule 7330(a), the Traded Order Protection feature
[[Page 21027]]
maintains a counting program for each Participant. The system maintains
traded order counters for: (1) maximum number of trades from orders,\6\
(2) maximum traded order volume,\7\ (3) maximum traded order value,\8\
(4) delta maximum order traded volume,\9\ and (5) delta maximum order
traded value.\10\ Participants can provide limits for these five
counters and for the Time Interval.\11\ The Exchange notes that Traded
Order Protection is enabled when Participants contact the BOX Market
Operations Center (``MOC'') \12\ and provide values for the counters.
The Exchange may also enable this feature and provide default values
for the parameters.\13\
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\6\ The maximum number of trades from orders counter will keep
track of total trades in a class.
\7\ The maximum traded order volume counter is designed to count
the total volume traded in a class.
\8\ The maximum traded order value counter is the absolute
dollar value of contracts bought and sold in a class.
\9\ The delta maximum order volume is the absolute value of the
net position in a class between (i) calls purchased and puts sold,
and (ii) calls sold and puts purchased.
\10\ The delta maximum order value is the absolute value of the
net position in a class between (i) calls purchased and sold, (ii)
puts and calls purchased; (iii) puts purchased and sold; or (iv)
puts and calls sold.
\11\ The ``Time Interval'' is the highest value between the
Exchange default and Participant-provided value.
\12\ The term ``Market Operations Center'' or ``MOC'' means the
BOX Market Operations Center, which provides market support for
Options Participants during the trading day. See BOX Rule
100(a)(32).
\13\ The Exchange's trading system is designed with certain
limits that are applicable to the activities covered under the
Exchange's Activity-Based Protections and essentially act as
defaults. Outside of the system design, the Exchange has generally
elected to not provide more restrictive thresholds because the
Exchange believes that Participants are best suited to understand
appropriate activity levels based on their individual needs and
behavior.
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Under Rule 7330(b), the Trade Activity Protection feature maintains
traded activity counters for: (1) maximum number of trades,\14\ (2)
maximum traded volume,\15\ (3) maximum traded value,\16\ (4) delta
maximum traded volume,\17\ and (5) delta maximum traded value.\18\
Participants can provide values for these five counters and for the
Time Interval.\19\ The Exchange notes that Trade Activity Protection is
enabled when Participants contact the MOC and provide values for the
counters. The Exchange may also enable this feature and provide default
values for the parameters.\20\
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\14\ The maximum number of trades counter will keep track of
total trades involving orders and/or quotes in all classes.
\15\ The maximum traded volume counter is designed to count the
total volume traded involving orders and/or quotes in all classes.
\16\ The maximum traded value counter is the absolute dollar
value of contracts bought and sold in all classes from trades
involving orders and/or quotes.
\17\ The delta maximum volume is the absolute value of the net
position in all classes between (i) calls purchased and puts sold,
and (ii) calls sold and puts purchased, for trades involving orders
and/or quotes.
\18\ The delta maximum value is the absolute value of the net
position in all classes between (i) calls purchased and sold, (ii)
puts and calls purchased; (iii) puts purchased and sold; or (iv)
puts and calls sold, for trades involving orders and/or quotes.
\19\ When both the Exchange and a Participant provide values
(other than zero) for the parameters, the most restrictive (i.e.,
the smallest value for the five Traded Order Protection counters and
the highest value for the Time Interval) will be used by the system
when determining if a counter has been triggered.
\20\ See supra note 13.
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Additionally, BOX Rule 7340 details the Global Counter
functionality which counts the number of triggering events i.e. when
any of the above counters exceeds the maximum permissible value, across
BOX's protection mechanisms per Participant ID. Specifically, the
system will count the number of triggering events from the Traded Order
Protection under Rule 7330(a), Trade Activity Protection under Rule
7330(b) (collectively, Activity-Based Protections), and Automatic Quote
Cancellation under Rule 8130.\21\ The Exchange notes that Global
Counter is enabled when Participants contact the MOC and provide a
value for the Global Counter. The Exchange may also enable this feature
and provide default values for the parameters.\22\
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\21\ The Exchange notes if multiple counters within the same
category of protection are triggered by the same trade, the Global
Counter will only be incremented by one. If, however, multiple
counters from different categories of protection are triggered by
the same trade, the Global Counter will be incremented by one for
each category of protection, regardless of the number of counters
within the same category of protection that were triggered. For
example, if the maximum traded order volume counter for the Traded
Order Protections and the maximum traded volume for the Trade
Activity Protection are triggered by the same trade, then the Global
Counter will only be incremented by one.
\22\ See supra note 13.
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Lastly, BOX Rule 8130 (Automatic Quote Cancellation) provides a
trade counter applicable to trades against Market Maker quotations
which resets if the time interval between a trade and its previous
trade surpasses the specified time period \23\ The triggering
parameters \24\ are for when a Market Maker, during a specified time
period: (1) trades a specified number of contracts in the aggregate
across all series of an options class; (2) trades a specified absolute
dollar value of contracts bought and sold in a class; (3) trades a
specified number of contracts in a class of the net between (i) calls
purchased plus puts sold, and (ii) calls sold and puts purchased; (4)
trades a specified absolute dollar value of the net position in a class
between (i) calls purchased and sold, (ii) puts and calls purchased;
(iii) puts purchased and sold; or (iv) puts and calls sold; or (5)
trades a percentage of the Market Maker's quotes in a class.\25\ The
Exchange notes that Market Makers shall enable Automatic Quote
Cancellation by establishing values for at least one triggering
parameter and sending an enabling message to the system. The Exchange
may also provide default values for some or all of the parameters.\26\
The Exchange notes further that the Market Maker obligations in Rule
8050 (Market Maker Quotations) remain applicable to Market Maker
quotations.\27\
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\23\ The Automatic Quote Cancellation trade counters will also
reset when the Participant provides an update to the value of one of
the parameters or the triggering of any of the time related
counters. See BOX Rule 8130(c). The Exchange notes that similar
functionality is not available for Activity-Based Protections and
Global Counter. Specifically, Activity-Based Protections and Global
Counter will be reset upon the triggering of any of the counters in
Rule 7330 or if the Global Counter has reached or exceeded the
limit, respectively.
\24\ The Exchange notes that Rule 8130 also refers to the
triggering parameters as time related counters and parameters. See
BOX Rule 8130.
\25\ See BOX Rule 8130(b). Market Makers are required to enable
the Automatic Quote Cancellation feature for the Market Maker's
appointed options classes and shall provide values for at least one
of the triggering parameters. Id. The Exchange may also provide
default values for some or all of the parameters; however, any
Participant-provided value will override any Exchange defaults. See
BOX Rule 8130(a).
\26\ See supra note 13.
\27\ See, e.g., BOX Rules 8050(c), (d) and (e).
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The actions taken when the Activity-Based Protections, Global
Counter, and Automatic Quote Cancellation are triggered vary. Beginning
with Activity-Based Protections, when the Traded Order Protection
counter (Rule 7330(a)) is triggered because it exceeds the maximum
permissible value,\28\ all orders for that Participant ID in options on
that class are cancelled unless such cancelation is not permitted under
other rules.\29\ When the Trade Activity
[[Page 21028]]
Protection counter (Rule 7330(b)) is triggered because it exceeds the
maximum permissible value, all orders and quotes for that Participant
ID in all classes are cancelled unless such cancelation is not
permitted under other rules. When the Global Counter (Rule 7340) is
triggered because it has reached or exceeded the limit for the Global
Counter, the system will cancel all orders and/or quotes belonging to
that Participant.\30\ Lastly, when the Automatic Quote Cancellation
(Rule 8130) is triggered because the parameters provided by the Market
Maker or the Exchange are met, it will cause the Trading Host \31\ to
cancel the Market Marker's quotes in the specified classes.\32\
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\28\ When both the Exchange and a Participant provide values
(other than zero) for the parameters, the most restrictive (i.e.,
the smallest value for the five Traded Order Protection counters and
the highest value for the Time Interval) will be used by the system
when determining if a counter has been triggered.
\29\ For a counter triggered for the incoming order side, action
is taken following the trade that breached the limit. For a counter
triggered for the resting order side, action is taken following the
complete processing of the incoming order. If a cancelation is not
permitted under other BOX Rules, the orders for that Participant ID
will remain. For example, under BOX Rule 8050(d), Market Maker bids
and offers are firm for the number of contracts specified in the bid
or offer.
\30\ The Exchange notes that a Participant may also elect for
the system to lock-out the Participant ID when the Global Counter is
triggered or if the Exchange default requires a lock-out.
\31\ The term ``Trading Host'' means the automated trading
system used by BOX for the trading of options contracts. See BOX
Rule 100(a)(69).
\32\ See BOX Rule 8130(a). The Exchange notes that under BOX
Rule 8050(d), Market Maker bids and offers are firm for the number
of contracts specified in the bid or offer.
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The Exchange notes the trading system will execute any marketable
orders or quotes that are executable and received prior to the time any
counting program or triggering parameter is triggered up to the size of
the Participant's order or quote, even if such execution results in
executions in excess of the Participant's applicable triggering value
with respect to any parameter. Specifically, an order or quote on the
BOX Book \33\ is firm and may be executed up to the Participant or
Market Maker's full size, regardless of whether such an execution
results in executions in excess of the Participant or Market Maker's
limits. Immediately after an order or quote in excess of the
Participant or Market Maker's limits is executed, Activity-Based
Protections or Automatic Quote Cancellation will be triggered and the
actions described above will be taken.
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\33\ The term ``BOX Book'' means the electronic book of orders
on each single option series maintained by the BOX Trading Host. See
BOX Rule 100(a)(10).
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Time Interval
The Exchange notes that the current operation of ``Time Interval''
in Rule 7330 (Activity-Based Protections), ``Global Time Interval'' in
Rule 7340 (Global Counter), and the ``time period'' in Rule 8130
(Automatic Quote Cancellation) is the same. The ``Time Interval,''
``Global Time Interval,'' and ``time period'' will hereinafter be
collectively referred to as the ``Time Periods''.
Under the system's current operation, when a Participant's order
and/or quote is executed or incurs a triggering event, in the case of
Global Counter, the system will compare the time of the most recent
trade or triggering event to the time of the previous trade or
triggering event. If the difference between the time of the current
trade and the time of the previous trade from the same Participant
identification number (``Participant ID'') in the same class is greater
than the Time Periods, then the counters will be reset before adding
the current trade to them. If, however, the difference between the time
of the current trade and the time of the previous trade from the same
Participant ID in the same class is less than or equal to the Time
Periods, then the counters will be incremented for the current trade
without resetting them first.
Using the Trade Activity Protection (Rule 7330(a)) as an example,
assume the Time Interval is 2 seconds and the maximum number of trades
is 3. If an order in ABC executes at 10:31:02 and a second order in ABC
executes at 10:31:03, then the maximum number of trades counter would
be incremented by 1 for the first trade and 1 for the second trade.
Now, if a third order in ABC executes at 10:31:04, the system would
increment the maximum number of trades counter by 1 and maximum number
of trades would be triggered. Conversely, if an order in ABC executes
at 10:31:02 and a second order in ABC executes at 10:31:03 and a third
order in ABC executes at 10:31:06, then the counter would be reset,
incremented for the current trade, and would not trigger the maximum
number of trades protection. The trade received at 10:31:06 is compared
to the previous trade at 10:31:03. There is a 3 second difference which
is greater than the 2 second Time Interval, thus the system takes no
action and resets the trade counter.
Proposal
In response to Participants' requests, the Exchange now proposes to
change the application of the Time Periods. Specifically, the Exchange
proposes BOX Rule 7330(a)(2) (Traded Order Protection) to provide:
A counting program will be maintained for each Options
Participant identification number (``Participant ID'') and each
counter in paragraph (a)(1) above. When an order-based trade occurs,
the counting program will look back over a specified Time Interval
where the ``Time Interval'' is the highest value between the
Exchange default and Participant-provided value. The counting
program includes the most current trade involving an order along
with all other order-based trades that occurred within the Time
Interval.
Proposed BOX Rule 7330(b)(2) (Trade Activity Protection) will
provide:
A counting program will be maintained for each Options
Participant identification number (``Participant ID'') and each
counter in paragraph (b)(1) above. When an order-based or quote-
based trade occurs, the counting program will look back over a
specified Time Interval where the ``Time Interval'' is the highest
value between the Exchange default and Participant-provided value.
The counting program includes the most current trade along with all
other order-based and quote-based trades that occurred within the
Time Interval.
Proposed BOX Rule 7340(a) (Global Counter) will provide:
A counting program will be maintained and, when a triggering
event occurs, the counting program will look back over a specified
Global Time Interval where the ``Global Time Interval'' is the
highest value between the Exchange default and Participant-provided
value. The counting program includes the most current triggering
event along with all other triggering events that occurred within
the Global Time Interval.
The Exchange also proposes to amend BOX Rule 8130(c) (Automatic
Quote Cancellation) to remove language indicating that the counters
will reset when the time interval between a trade and its previous
trade surpasses the time period. The Exchange notes the other
conditions that reset counters which will remain unchanged.\34\
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\34\ The counters will be reset when the Participant provides an
update to the value of one of the parameters or upon the triggering
of any of the time related counters. See proposed Rule 8130(c).
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Under this proposal, the duration of each look-back time period
will be equal to the Time Periods such that when a trade occurs, that
trade is counted along with all other trades that occurred within the
look-back time period. Trades that occurred before the look-back time
period will not be counted. Trades within each look-back time period,
including the most current trade, will increment counters and if such
counters equal or exceed configured limits, the counter will be
triggered.\35\ Again, using Trade Activity Protection as an example,
assume the Time Interval is 2 seconds and the maximum number of trades
is 3. If an order in ABC executes at 10:31:02 and a second order in ABC
executes at 10:31:03, then the maximum number of trades counter would
equal 2 which is less than the limit of 3 and no action is
[[Page 21029]]
taken. When a third order in ABC executes at 10:31:05, the trade
counter would be triggered under the current functionality, but no
action would be taken under the proposed functionality. Under the
current functionality, the difference between 10:31:05 and 10:31:03 is
2 seconds and the Time Interval is 2 seconds, so trade counters would
not be reset, the trade counter would be incremented from 2 to 3 which
equals the limit of 3 and triggers the counter. Under the proposed
functionality, the look-back time period is 2 seconds which would be
between 10:31:03 and 10:31:05 and, because 2 trades have occurred
during this look-back time period and the limit is 3, no action is
taken. The Exchange notes that if a third order in ABC executed at
10:31:04 instead of 10:31:05, then the trade counter would trigger
under both the current and the proposed functionality.
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\35\ The Exchange notes that when counters are triggered, the
actions taken vary for each risk protection. See BOX Rules
7330(a)(3), (b)(3), and 8130(a).
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The Exchange notes that the use of look-back time periods for risk
protections is not novel as other exchanges' rules provide for similar
functionality. Specifically, NYSE Arca, Inc. (``NYSE Arca'') and NYSE
American LLC (``NYSE American'') provide that their Risk Limitation
Mechanism calculates for quotes and orders: the number of trades
executed by the OTP Holder \36\ in a particular options class; the
volume of contracts traded by the OTP Holder in a particular options
class; or the aggregate percentage of the Market Maker's quoted size or
OTP Holder's order size(s) executed in a particular options class. To
determine whether the mechanism is triggered (i.e., the risk setting
breached), NYSE Arca maintains separate counters that are incremented
every time a trade is executed. A breach of the mechanism occurs if the
number of increments to the counter, within a time period specified by
NYSE Arca, exceeds the threshold set by the OTP Holder.\37\ The timer
elapses at the conclusion of the time period specified by NYSE Arca,
unless a breach occurs sooner than the timer expiration. Both NYSE Arca
and NYSE American modified this functionality in April of 2020 such
that the time period is rolling (as opposed to static) and is activated
each time a trade counter is incremented such that they ``look back''
at other trades that occurred within the time period to see if a breach
has occurred.\38\ The Exchange believes that while the application and
specifics of these protections differ from those on the Exchange, the
overarching concepts are similar.\39\
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\36\ Market Makers are included in the definition of OTP Holders
and therefore, unless NYSE Arca is discussing the quoting activity
of Market Makers, NYSE Arca does not distinguish Market Makers from
OTP Holders when discussing the risk limitation mechanisms. See NYSE
Arca Rule 1.1 (defining OTP Holder as ``a natural person, in good
standing, who has been issued an OTP, or has been named as a
Nominee'' that is ``a registered broker or dealer pursuant to
Section 15 of the Securities Exchange Act of 1934, or a nominee or
an associated person of a registered broker or dealer that has been
approved by the Exchange to conduct business on the Exchange's
Trading Facilities''). See also NYSE Arca Rule 6.32-O(a) (defining a
Market Maker as an individual ``registered with the Exchange for the
purpose of making transactions as a dealer-specialist on the Floor
of the Exchange or for the purpose of submitting quotes
electronically and making transactions as a dealer-specialist
through the NYSE Arca OX electronic trading system'').
\37\ See NYSE Arca Rule 6.40-O and NYSE American Rule 928NY.
\38\ See Securities Exchange Act Release No. 88755 (April 27,
2020), 85 FR 25493 (May 1, 2020) (SR-NYSEArca-2020-36) and
Securities Exchange Act Release No. 88757 (April 27, 2020), 86 FR
25482 (May 1, 2020) (SR-NYSEAMER-2020-33).
\39\ BOX notes that its functionality differs slightly from NYSE
Arca and NYSE American. For example: (1) NYSE Arca and NYSE American
counters consist of a Transaction-Based Risk Limit, Volume-Based
Risk Limit, and Percentage-Based Risk Limit; (2) NYSE Arca offers
Notification Only, Block Only, and Cancel and Block Automated Breach
Actions; and (3) a Transaction-Based Risk Limit, Volume-Based Risk
Limit, and Percentage-Based Risk Limit breach actions on NYSE Arca
and NYSE American will be applied to orders and quotes in the
affected class of options. See NYSE Arca Rule 6.40-O and NYSE
American Rule 928NY. The Exchange believes that while application of
these concepts may differ, the concepts are the same. Specifically,
the Exchange proposes to set a look-back time period and count
triggering events within a specified time period similar to the
current functionality at NYSE Arca and NYSE American.
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The Exchange notes that Miami International Securities Exchange,
LLC (``MIAX Options'') also maintains a counting program (``counting
program'') for each Member \40\ that will count the number of orders
entered and the number of contracts traded via an order entered by a
Member on MIAX Options within a specified time period that has been
established by the Member (the ``specified time period''). When a
Member's order is entered or when an execution of a Member's order
occurs, MIAX's system will look back over the specified time period to
determine whether the order entered or the execution that occurred
triggers the MIAX Options Risk Protection Monitor.\41\ As such, the
Exchange believes that the trade counter on MIAX Options is similar to
BOX's Activity-Based Protections.\42\
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\40\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
MIAX Options Rule 100.
\41\ See Securities Exchange Act Release No. 74118 (January 22,
2015), 80 FR 4605 (January 28, 2015) (SR-MIAX-2015-03).
\42\ The Exchange notes that MIAX Options offers additional
limits on Allowable Order Rate (the number of orders entered during
the specific time period that has been established by the Member)
and on Allowable Contract Execution Rate (the number of contracts
executed during the specific time period that has been established
by the Member). MIAX's members can also elect for MIAX Options to
take different actions on a trigger: (1) stop accepting new orders
but maintain existing orders; (2) stop accepting new orders and
cancel existing orders; (3) send the Member a notification and take
no further action. Further, MIAX Options' counting program counts
the number of orders entered and the number of contracts traded. The
Exchange believes that while MIAX Options offers additional
functionality, the concepts are similar. Specifically, setting a
look-back time period and counting contracts traded within that time
period.
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The Exchange notes further that MIAX Options maintains a counting
program for each Market Maker that will count the number of contracts
traded by a Market Maker in an appointed option class within a
specified time period (``Aggregate Risk Monitor'').\43\ When the MIAX
Options counting program has determined that a Market Maker has traded
during the specified time period a number of contracts equal to or
above an Allowable Engagement Percentage, for each options class, as
established by the Market Maker,\44\ the Aggregate Risk Monitor will
automatically remove such Market Maker's Standard quotes and Day
eQuotes in all series of that particular option class.\45\ The Exchange
believes that this counting program and Aggregate Risk Monitor is
similar to BOX's Automatic Quote Cancellation.
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\43\ See MIAX Options Rule 612. The Exchange notes that MIAX
Options offers additional functionality such as Reset on Quote
Functionality, Allowable Engagement Percentage, Net Offset, Market
Maker Aggregate Class Protection, and Market Maker Single Side
Protection.
\44\ MIAX Options will establish a default specified time period
and a default Allowable Engagement Percentage (``default settings'')
on behalf of a Market Maker that has not established a specified
time period and/or an Allowable Engagement Percentage. The default
Allowable Engagement Percentage shall not be less than 100%. The
default settings will be determined by the Exchange on an Exchange-
wide basis and announced to Members via Regulatory Circular. See
MIAX Options Rule 612.
\45\ Id. See also MIAX Options Rule 517 (Quote Types Defined).
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In addition to the proposed risk protection changes, above, the
Exchange proposes to change the word ``exceed'' to ``exceeded'' in Rule
7330(a)(3). This is a non-substantive change that corrects a
typographical error and is not intended to change the meaning or
operation of the rule.
Lastly, the Exchange proposes clarifying changes to Rule 7330
(Activity-Based Protections) and Rule 8130 (Automatic Quote
Cancellation). Specifically, Traded Order Protection and Trade Activity
Protection counters
[[Page 21030]]
will be reset upon the triggering of any of the counters in Rule
7330.\46\ Additionally, the trading system will execute any marketable
orders or quotes that are executable and received prior to the time any
counting program or triggering parameter in Rules 7330 and 8130 is
triggered up to the size of the Participant's order or quote, even if
such execution results in executions in excess of the Participant's
applicable triggering value with respect to any parameter.\47\ The
Exchange notes that these are non-substantive changes that seek to
codify current system functionality.
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\46\ See proposed Rule 7330(c). The Exchange notes that Rule
7330 also refers to these counters as traded order counters, traded
activity counters, and parameters. See BOX Rule 7330. The Exchange
notes that Rule 8130 already provides that counters will be reset
upon the triggering of any of the time related counters and Rule
7340 provides that if the Global Counter is triggered because it has
reached or exceeded the limit, the counter is reset.
\47\ See proposed Rules 7330(d) and 8130(d).
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The Exchange notes that it will announce an implementation date for
the proposed changes to its Participants by Regulatory Notice.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\48\ in general, and Section
6(b)(5) of the Act,\49\ 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, by enhancing the risk protections available to
Participants. The proposed rule change promotes policy goals of the
Commission which has encouraged execution venues, exchange and non-
exchange alike, to enhance risk protection tools and other mechanisms
to decrease risk and increase stability.
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\48\ 15 U.S.C. 78f(b).
\49\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change will assist
with the maintenance of a fair and orderly market, remove impediments
to and perfect the mechanism of a free and open market by modifying the
Time Periods to be more predictable in terms of which trades or events
will trigger Activity-Based Protections, the Global Counter, or
Automatic Quote Cancellation on BOX. Specifically, trades that occurred
during the look-back time period will be counted and trades that
occurred prior to the look-back time period will not be counted. As a
result, Participants will be better able to track and monitor when
their activity is likely to trigger an Activity-Based protection, the
Global Counter, or Automatic Quote Cancellation. Further, the proposed
change, which allows for a count after each transaction on a rolling
``look back'' basis, would provide a more finely tuned tracking method
for Participants related to each transaction within a specified time
period. The Exchange believes that providing a definite ``look back''
time period, in addition to the current risk protections available on
BOX, will enable Participants to better control their trading activity
and to better manage their trading risk.
The Exchange notes that Market Makers are required to continuously
quote in assigned options, and quoting across many series in an option
or multiple options creates the possibility of executions that can
create large, unintended principal positions that could expose Market
Makers to unnecessary risk. The Exchange believes that providing Market
Makers with more precise risk protections mitigates their exposure to
excessive risk which may improve their ability to provide liquid
markets to the benefit of all investors. Ultimately, the Exchange
believes that the proposal serves to perfect the mechanism of a free
and open market and a national market system, and, in general protects
investors and the public interest by improving Market Makers' ability
to manage their risk. The Exchange notes that similar functionality
currently exists at other exchanges.\50\
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\50\ See supra note 3.
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The Exchange notes that the Market Maker obligations in Rule 8050
(Market Maker Quotations) remain applicable to Market Maker
quotations.\51\ Specifically, a Market Maker that enters a bid (offer)
in a class in which such Market Maker is appointed on BOX must enter an
offer (bid) within the spread allowable under Rule 8040; \52\ Market
Maker bids and offers are firm for all orders under this Rule and Rule
602 of Regulation NMS under the Exchange Act (``Rule 602'') for the
number of contracts specified in the bid or offer provided that such
bid or offer must have an initial size of at least one; \53\ and a
Market Maker must enter quotations for the options classes to which it
is appointed, on a daily basis, during regular market hours, make
markets, and enter into any resulting transactions consistent with the
applicable quoting requirements, such that on a daily basis a Market
Maker must post valid quotes at least sixty percent (60%) of the time
that the classes are open for trading.\54\
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\51\ See, e.g., BOX Rules 8050(c), (d) and (e).
\52\ See BOX Rule 8050(c)(1).
\53\ See BOX Rules 8050(b) and (d)(1).
\54\ See BOX Rule 8050(e). The Exchange notes that these
obligations will apply to all of the Market Maker's appointed
classes collectively, rather than on a class-by-class basis.
Further, if a technical failure or limitation of the BOX Trading
Host prevents a Market Maker from maintaining, or prevents a Market
Maker from communicating to BOX, timely and accurate electronic
quotes in an appointed class, the duration of such failure shall not
be considered in determining whether the Market Maker has satisfied
the 60% quoting obligation with respect to that particular options
class. An Exchange Official may consider other exceptions to this
continuous electronic quote obligation based on demonstrated legal
or regulatory requirements or other mitigating circumstances.
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In addition to the proposed risk protection changes, above, the
Exchange proposes to change the word ``exceed'' to ``exceeded'' in Rule
7330(a)(3). The Exchange believes that this change will remove
impediments to and perfect the mechanism of a free and open market by
correcting as typographical error that may inhibit a clear reading of
the Rules. This change is non-substantive and is not intended to change
the meaning of the Rule or its operation.
Lastly, the Exchange believes that the clarifying change to Rule
7330 (Activity-Based Protections) to specify that Traded Order
Protection and Traded Activity Protection counters will be reset upon
the triggering of any of the counters in Rule 7330 is consistent with
the Act. The Exchange believes further that additional clarifying
changes to Rules 7330 and 8130 providing that the trading system will
execute any marketable orders or quotes that are executable and
received prior to the time any counting program or triggering parameter
in Rules 7330 or 8130 is triggered up to the size of the Participant's
order or quote, even if such execution results in executions in excess
of the Participant's applicable triggering value with respect to any
parameter are consistent with the Act. Specifically, the proposed
clarifying rule changes would provide Participants with transparency
regarding the operation of Traded Order Protection, Trade Activity
Protection, and Automatic Quote Cancellation, which removes impediments
to and perfects the mechanism of a free and open market and a national
market system by providing greater certainty with respect to how these
risk protections function. The Exchange notes that these are non-
substantive changes that seek to codify
[[Page 21031]]
current system functionality and do not amend operation of the Rules.
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. The Exchange is proposing an
enhancement that may enable Participants to better control their
trading activity and to better manage their trading risk while
submitting orders and quotes to BOX. The Exchange does not believe that
the proposed enhancements to the existing Activity-Based Protections,
Global Counter, and Automatic Quote Cancellation would impose a burden
on competing options exchanges. Specifically, the Exchange notes that
it operates in a highly competitive market in which market participants
can readily favor competing venues. Additionally, the proposed
enhancements to Activity-Based Protections, Global Counter, and
Automatic Quote Cancellation are similar to functionality currently
available on competing exchanges.\55\ The Exchange believes that the
proposal does not impose any burden on intramarket competition not
necessary or appropriate in furtherance of the purposes of the Act
because all Participants may avail themselves of the applicable risk
controls on BOX. Further, the Exchange notes that the Time Periods are
applied in the same manner for all Participants. Additionally, the
Exchange does not believe that correcting a typographical error imposes
any burden on competition because it is not intended to change the
meaning or operation of the rule. Lastly, the Exchange does not believe
that codifying the functionality that Traded Order Protection and Trade
Activity Protection counters will be reset upon the triggering of any
of the counters in Rule 7330 or the functionality that the trading
system will execute any marketable orders or quotes that are executable
and received prior to the time any counting program or triggering
parameter in Rules 7330 or 8130 is triggered up to the size of the
Participant's order or quote, even if such execution results in
executions in excess of the Participant's applicable triggering value
with respect to any parameter, imposes any burden on competition
because these changes are intended to increase the transparency of
current system functionality.
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\55\ See supra note 3.
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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 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \56\ and Rule
19b-4(f)(6) thereunder.\57\
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\56\ 15 U.S.C. 78s(b)(3)(A)(iii).
\57\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
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) \58\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\59\ the Commission
may 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 proposal
may become operative immediately upon filing.
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\58\ 17 CFR 240.19b-4(f)(6).
\59\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission finds that it is consistent with the protection of
investors and the public interest to waive the 30-day operative delay.
As the Exchange notes, similar functionality currently exists at other
exchanges.\60\ Accordingly, the proposal raises no new or novel issues.
Therefore, the Commission waives the 30-day operative delay and
designates the proposal operative upon filing.\61\
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\60\ See supra note 3.
\61\ 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 under
Section 19(b)(2)(B) \62\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\62\ 15 U.S.C. 78s(b)(2)(B).
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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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#9fedeaf3fab2fcf0f2f2faf1ebecdfecfafcb1f8f0e9"><span class="__cf_email__" data-cfemail="a5d7d0c9c088c6cac8c8c0cbd1d6e5d6c0c68bc2cad3">[email protected]</span></a>. Please include
file number SR-BOX-2024-08 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-2024-08. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information
[[Page 21032]]
that you wish to make available publicly. We may redact in part or
withhold entirely from publication submitted material that is obscene
or subject to copyright protection. All submissions should refer to
file number SR-BOX-2024-08 and should be submitted on or before April
16, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\63\
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\63\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06329 Filed 3-25-24; 8:45 am]
BILLING CODE 8011-01-P
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