[Federal Register Volume 78, Number 184 (Monday, September 23, 2013)]
[Notices]
[Pages 58364-58376]
[FR Doc No: 2013-23008]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70427; File No. SR-BOX-2013-43]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing of Proposed Rule Change To Permit Complex Orders To
Participate in Price Improvement Periods

September 17, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 5, 2013, BOX Options Exchange LLC (the ``Exchange'')
filed with the Securities and Exchange Commission (the ``Commission'')
the proposed rule change as described in Items I, II and III 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 the
Substance of the Proposed Rule Change

    The Exchange proposes to add a new Rule 7245 to permit Complex
Orders to participate in Price Improvement Periods (the ``COPIP'') and
by making certain other conforming and clarifying changes to
accommodate the new COPIP Rule. 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
Web site at http://boxexchange.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and the
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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its rules related to trading of
Complex Orders \3\ on BOX Market LLC (``BOX''), the options trading
facility of the Exchange, to permit Complex Orders to be submitted to a
price improvement period auction mechanism similar to the existing PIP
mechanism for single option series on BOX.\4\ The Exchange believes
this proposed Complex Order Price Improvement Period (``COPIP'') \5\
mechanism will result in more efficient transactions, reduced execution
risk to BOX Options Participants, and greater opportunities for price
improvement through the COPIP. The Exchange believes adoption of the
proposal will result in tighter markets, and ensure that each order
receives the best possible price.
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    \3\ As defined in Rule 7240(a)(5), the term ``Complex Order''
means any order involving the simultaneous purchase and/or sale of
two or more different options series in the same underlying
security, for the same account, in a ratio that is equal to or
greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) and for the purpose of executing a particular investment
strategy.
    \4\ See Rule 7150.
    \5\ As defined in proposed Rule 7245, the term ``COPIP'' means
Complex Order Price Improvement Period.
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    The Exchange believes the proposed COPIP is an improvement over its
current rules regarding Complex Order exposure and execution, and will
benefit all market participants submitting Complex Order to BOX. The
proposed change will require that Complex Orders on BOX will execute
first against interest on the BOX Book where possible, as under the
current rule.\6\
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    \6\ See Rule 7240(b)(3)(i) and proposed Rule 7245(f)(3)(i).
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Existing PIP
    The Exchange proposes to add new BOX Rule 7245 to allow Complex
Orders to be submitted to the COPIP in substantially the same manner as
orders for single options series instruments currently are submitted to
the PIP.
    Currently, Options Participants executing agency orders for single
options series instruments may designate Customer Orders for price

improvement and submission to the PIP. Customer Orders designated for
the PIP (``PIP Orders'') may be submitted to BOX with a matching contra
order (``Primary Improvement Order'') equal to the full size of the PIP
Order. The Primary Improvement Order is on the opposite side of the
market from the PIP Order and at a price equal to or better than that
of the National Best Bid Offer (``NBBO'') at the time of the
commencement of the PIP (the ``PIP Start Price''). BOX begins a PIP by
broadcasting a message to market participants via the Exchange's High
Speed Vendor Feed (``HSVF''). During the PIP, order flow providers
(``OFPs'') and Market Makers (other than the Initiating Participant)
may submit competing orders (``Improvement Orders'') for their own
account and OFPs may also provide access to the PIP for the account of
a Public Customer or for any account except Market Maker. Options
Participants may continually submit competing Improvement Orders during
the PIP and Improvement Orders are disseminated to market participants.
    At the conclusion of a PIP, the PIP Order is matched against the
best prevailing quote(s) or order(s) on BOX (except any pre-PIP
Broadcast proprietary quote or order from the Initiating Participant),
in accordance with price/time priority as set forth in Rule 7130,
whether Improvement Order(s) or Unrelated Order(s) received by BOX, or
Legging Orders generated, during the PIP (excluding Unrelated Orders
that were immediately executed during the interval of the PIP). Such
orders may include agency orders on behalf of Public Customers, market
makers at away exchanges and non-BOX Options Participant broker-
dealers, as well as non-PIP proprietary orders submitted by Options
Participants.
    Unrelated Orders \7\ and Legging Orders \8\ on the same side as the
PIP Order received during the PIP may cause the PIP to terminate early
under certain circumstances.\9\ During a PIP, when an Unrelated Order
is submitted to BOX or a Legging Order is generated on the same side as
the PIP Order that would cause an execution to occur prior to the end
of the PIP, the PIP ends early and the PIP Order is matched as if the
PIP terminated on its regular schedule. Following the execution of the
PIP Order, any remaining Improvement Orders are cancelled and the
Unrelated Order or Legging Order is filtered normally.\10\
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    \7\ As defined in Rule 7150(a), the term ``Unrelated Order''
with respect to a PIP means a non-Improvement Order entered into the
BOX market during a PIP.
    \8\ As defined in Rule 7240(c)(1), the term ``Legging Order''
means a Limit Order on the BOX Book that represents one side of a
Complex Order that is to buy or sell an equal quantity of two
options series resting on the Complex Order Book.
    \9\ See Rule 7150(i).
    \10\ See Rule 7130(b).
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    Unrelated Orders and Legging Orders on the opposite side of the PIP
Order received during the PIP may be immediately executed under certain
circumstances.\11\ During a PIP, when such an Unrelated Order is
submitted to BOX or a Legging Order is generated on the opposite side
of the PIP Order such that it would cause an execution to occur prior
to the end of the PIP, the Unrelated Order or Legging Order is
immediately executed against the PIP Order. Any remaining portion of
the Unrelated Order or Legging Order is filtered normally.\12\ Any
remaining portion of the PIP Order is executed at the conclusion of the
PIP normally.\13\ Following the execution of the PIP Order, any
remaining Improvement Orders are cancelled.
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    \11\ See Rule 7150(j).
    \12\ See Rule 7130(b).
    \13\ See Rule 7150(f)(3).
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Proposed COPIP on Complex Orders
    The Exchange proposes new Rule 7245 that would allow the submission
of Complex Orders to a COPIP mechanism that is substantially similar to
the PIP except as necessary to account for distinctions between regular
orders on the BOX Book and Complex Orders or as otherwise noted
below.\14\ References to Legging Orders do not appear in the proposed
COPIP rules because Legging Orders interact only with the PIP. However,
the proposed COPIP rules do include other provisions for interacting
with interest on the BOX Book. The manner in which interest on the BOX
Book interacts with the COPIP is explained in more detail below.
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    \14\ The Exchange notes that the provisions in proposed Rule
7245 are substantially similar to those in Rule 7150, amended to
reflect their applicability to a COPIP on a Complex Order Strategy
as compared to a PIP on orders for single options series
instruments.
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    The Exchange believes this proposal to permit price improvement
auctions for Complex Orders will increase opportunities for execution
of Complex Orders and interest on the BOX Book. The Exchange believes
the proposed COPIP will provide greater flexibility to Participants
trading Complex Orders on BOX Market LLC, the Exchange's trading
facility (``BOX''). The Exchange further believes the proposed COPIP
will provide additional opportunities for Participants to achieve
better handling of Complex Orders and result in increased opportunities
for execution and better pricing.
General COPIP Provisions
    For purposes of the COPIP, the term ``Improvement Order'' is
defined as a competing Complex Order submitted to BOX by an OFP or
Market Maker during a COPIP; the term ``Unrelated Order'' is defined as
a non-Improvement Order entered on BOX during a COPIP or BOX Book
Interest during a COPIP; and the term ``BOX Book Interest'' is defined
as bids and offers on the BOX Book for the individual legs of a
Strategy.\15\ These definitions are similar to those used in the PIP
rule but, for the COPIP, Unrelated Orders are proposed to include BOX
Book Interest capable of executing against COPIP Orders to permit
COPIPs to interact with the BOX Book. BOX Book Interests are treated as
Unrelated Orders for purposes of the COPIP except where specifically
differentiated in proposed Rule 7245 and discussed below.
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    \15\ See proposed Rule 7245(a).
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    The Exchange proposes that Options Participants may use the COPIP
to execute Complex Orders under certain circumstances subject to the
procedures detailed within proposed Rule 7245. In compliance with these
procedures, price improvement transactions for Customer Orders that are
Complex Orders may be consummated with the Options Participant who
submits the Complex Order, with other Options Participants, Improvement
Orders or Unrelated Orders.\16\
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    \16\ See proposed Rule 7245(b).
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    The Exchange proposes that, when executing Customer Complex Orders
by way of the COPIP, Options Participants must ensure that they comply
with all the procedures set forth in these Rules for such transactions;
that they act with due skill, care and diligence; and that the
interests of their Customers are not prejudiced.\17\ An OFP may not
execute, as principal, an order it represents as agent unless it
complies with the provisions of Rule 7140 or the OFP sends the agency
order to the COPIP process pursuant to the provisions of proposed Rule
7245.\18\ An Options Participant must not use the COPIP process to
create a misleading impression of market activity (i.e., the facilities
may be used only where there is a genuine intention to execute a bona
fide transaction).\19\ These provisions are substantially the same as
the corresponding rules for the PIP.\20\
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    \17\ See proposed Rule 7245(c).
    \18\ See proposed Rule 7245(d).
    \19\ See proposed Rule 7245(e).
    \20\ See Rule 7150(c), (d) and (e).

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COPIP Mechanism
    Consistent with the PIP, the Exchange proposes that Options
Participants, both OFPs and Market Makers, (``Initiating
Participants'') executing agency orders may designate Complex Orders
that are marketable Limit Orders, BOX-Top Orders or Market Orders for
price improvement and submission to the COPIP. Complex Orders
designated for the COPIP (``COPIP Orders'') will be submitted to BOX
with a matching contra order (``Primary Improvement Order'') equal to
the full size of the COPIP Order. The Primary Improvement Order will be
on the opposite side of the market than that of the COPIP Order and
represents either: (1) A single price (``Single-Priced Primary
Improvement Order'') that is equal to or better than cNBBO,\21\ cBBO
\22\ and BBO on the Complex Order Book for the Strategy at the time of
the commencement of the COPIP; or (2) an auto-match submission that
will automatically match both the price and size of all competing
orders, including Improvement Orders and Unrelated Orders at any price
level achieved during the COPIP or only up to a limit price (``Max
Improvement Primary Improvement Order''). Either the Single-Priced
Primary Improvement Order or the Max Improvement Primary Improvement
Order will designate the COPIP auction start price (``COPIP Start
Price''), which will be equal to or better than cNBBO, cBBO and BBO on
the Complex Order Book for the Strategy at the time of commencement of
the COPIP. BOX will commence a COPIP by broadcasting a message via the
HSVF (the ``COPIP Broadcast'') that states that a Primary Improvement
Order has been processed; contains information concerning Strategy
identifier, size, COPIP Start Price, and side of market; and states
when the COPIP will conclude.\23\ Unlike the PIP rule, the proposed
Rule 7245 does not refer to quotes because quotes do not exist on
Complex Orders. All market participants are able to receive broadcast
notification of COPIPs and Improvement Orders via the HSVF. As a
result, no Participants will have an information advantage.
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    \21\ As defined in Rule 7240(a)(3), the term ``cNBBO'' means the
best net bid and offer price for a Complex Order Strategy based on
the NBBO for the individual options components of such Strategy.
    \22\ As defined in Rule 7240(a)(1), the term ``cBBO'' means the
best net bid and offer price for a Complex Order Strategy based on
the BBO on the BOX Book for the individual options components of
such Strategy.
    \23\ See proposed Rule 7245(f).
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    As in the PIP, the standard COPIP duration is proposed to be one
hundred milliseconds,\24\ commencing upon the dissemination of the
COPIP Broadcast. At the conclusion of the COPIP, the COPIP Order will
be executed as described below. During a COPIP, OFPs and Market Makers
(except for the Initiating Participant) may submit Improvement Orders
for their own account. OFPs may submit Improvement Orders for the
account of a Public Customer under any type of instruction they wish to
accept. An Improvement Order submitted to the COPIP for the account of
a Public Customer must be identified as a Public Customer Order.
Options Participants who submit Improvement Orders for a COPIP will be
deemed ``COPIP Participants'' for that specific COPIP only, and may
continually submit competing Improvement Orders during that COPIP.
During the COPIP, Improvement Orders will be broadcast via the HSVF but
will not be disseminated through OPRA.\25\ The proposed COPIP rule text
makes clear that the COPIP broadcast is disseminated via the HSVF.
Complex Order information is not broadcast to OPRA.
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    \24\ The Exchange believes that 100 milliseconds is an adequate
duration for the COPIP. The COPIP duration would be the same as the
current duration of the PIP and, therefore, the Exchange believes
the COPIP duration would not create any additional burden for
Participants participating in a COPIP. The Exchange believes
customers are capable of responding within the proposed duration and
has not received any complaints regarding the duration of the PIP
since the timer was reduced from one second to 100 milliseconds on
February 13, 2012. The Exchange has had discussions with several BOX
Participants, each of which has indicated that 100 milliseconds is
more than adequate to process COPIP Orders. Similarly, CBOE recently
reduced certain of its response times to as little as 20
milliseconds (See, e.g., CBOE Regulatory Circular RG13-094, dated
June 27, 2013 and effective August 1, 2013).
    \25\ See proposed Rule 7245(f)(1).
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    Consistent with the PIP, an Initiating Participant in a COPIP is
not permitted to cancel or to modify the size of its Single-Priced
Primary Improvement Order or the COPIP Order at any time during a
COPIP, and may modify only the price of its Single-Priced Primary
Improvement Order by improving it. The subsequent price modifications
to a Single-Priced Primary Improvement Order are treated as new
Improvement Orders for the sake of establishing priority in the COPIP
process. The Initiating Participant is not permitted to cancel or
modify the Max Improvement Primary Improvement Order, including the
COPIP Start Price, the designated limit price or the size. Just as in a
PIP, Options Participants that submit Improvement Orders in a COPIP
may: (i) Submit competing Improvement Order(s) for any size up to the
size of the COPIP Order; (ii) submit competing Improvement Order(s) for
any price equal to or better than the COPIP Start Price; (iii) improve
the price of their Improvement Order(s) at any point during the COPIP;
and (iv) decrease the size of their Improvement Order(s) only by
improving the price of that Complex Order. Improvement Orders may be
submitted in one-cent increments.\26\
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    \26\ See proposed Rule 7245(f)(2).
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    At the conclusion of a COPIP, just as with a PIP,\27\ the COPIP
Order is proposed to execute against the best prevailing order(s) on
BOX (except any pre-COPIP Broadcast proprietary order from the
Initiating Participant), in accordance with price/time priority,
whether Improvement Order(s) or Unrelated Order(s) received by BOX
during the COPIP (excluding all Unrelated Orders that were immediately
executed during the interval of the COPIP). Such Unrelated Orders may
include agency orders on behalf of Public Customers, market makers at
away exchanges and non-BOX Options Participant broker-dealers, as well
as non-COPIP proprietary orders submitted by Options Participants. Any
portion of an Improvement Order left unfilled will be cancelled.\28\
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    \27\ See Rule 7150(f)(3).
    \28\ See proposed Rule 7245(f)(3).
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    Notwithstanding the foregoing execution rules for a COPIP, BOX Book
Interest is proposed to execute in priority over Complex Orders at the
same price \29\ so as to preserve the already established execution
priority of interest on the BOX Book over Complex Orders.\30\
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    \29\ See proposed Rule 7245(f)(3)(i).
    \30\ The execution priority of interest on the BOX Book over
Complex Orders is consistent with existing Rules 7240(b)(3)(i).
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Example 1: Execution of COPIP Order With BOX Book Interest Priority

    For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.

    A BOX Participant then initiates a COPIP Order to sell 30 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order to
buy 30 at $2.01. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01

COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, the BOX Book for each of A and B changes to generate
BOX Book Interest to buy 20 A+B at $2.01. The orders for Strategy A+B
at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 20 at $2.01

    The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 20 at $2.01
Primary Improvement Order to buy 10 at $2.01

    Note: The BOX Book Interest to buy 20 A+B at $2.01 is fully
executed in first priority. The Primary Improvement Order is allocated
the remaining 10 Strategies.
* * * * *
    Further, no Complex Order for a non-market maker broker-dealer
account of an Options Participant will be executed before all Public
Customer Complex Order(s), whether Improvement Order(s) or non-
Improvement Order(s), and all non-BOX Options Participant broker-dealer
Complex Order(s) at the same price have been filled; provided however,
that all Complex Orders on the Complex Order Book prior to the COPIP
Broadcast, excluding any proprietary order(s) from the Initiating
Participant, will be filled in time priority before any other Complex
Order at the same price.\31\ These proposed rule features adapt the
existing PIP mechanism for COPIP auctions while preserving the
established execution priority rules for Complex Orders.
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    \31\ See proposed Rule 7245(f)(3)(ii).
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COPIP Trade Allocation Priority
    Subject to the execution priority of BOX Book Interests described
above, the Initiating Participant is proposed to retain certain
priority and trade allocation privileges upon conclusion of a
COPIP.\32\ The priority and trade allocation privileges retained by
Initiating Participants in a proposed COPIP are substantially similar
to those currently afforded Initiating Participants in a PIP \33\
except as noted below. These privileges are described in more detail
below.
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    \32\ See proposed Rule 7245(f)(3)(iii) and 7245(g).
    \33\ See Rule 7150(g)
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    In instances in which a Single-Priced Primary Improvement Order, as
modified (if at all), is matched by or matches any Complex Order(s) or
BOX Book Interest at any price level, the Initiating Participant would
retain priority for up to forty percent (40%) of the original size of
the COPIP Order, notwithstanding the time priority of the Primary
Improvement Order or Complex Order(s). However, if only one Complex
Order or BOX Book Interest matches or is better than the Initiating
Participant's Single-Priced Primary Improvement Order, then the
Initiating Participant may retain priority for up to fifty percent
(50%) of the original size of the COPIP Order. The Initiating
Participant will receive additional allocation only after all other
Complex Orders have been filled at that price level.\34\ For purposes
of calculating the Initiating Participant's priority allocation, BOX
Book Interests are proposed to be included as competing orders in a
COPIP.
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    \34\ See proposed Rule 7245(g)(1).
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Example 2: Primary Improvement Order Priority

Example 2(a)

    For example, suppose the orders for Strategy A+B at the end of a
COPIP are as follows:

Orders for Strategy A+B:

Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
cNBBO is $2.00 bid, $2.10 offered

    In this case, there is only one competing Improvement Order and,
therefore, the Primary Improvement Order receives an allocation of 50%
of the original size of the COPIP Order.
    The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

Primary Improvement Order to buy 15 at $2.04
Improvement Order to buy 15 at $2.04

Example 2(b)

    Alternatively, suppose the orders for Strategy A+B at the end of a
COPIP are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.04
COPIP Order to sell 30
BOX Book Interest to buy 20 at $2.04
cNBBO is $2.00 bid, $2.10 offered

    The BOX Book Interest has execution priority over Complex Orders,
including the Primary Improvement Order, at the same price.
    The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 20 at $2.04
Primary Improvement Order to buy 10 at $2.04

    Note: The BOX Book Interest to buy 20 A+B at $2.04 is fully
executed in first priority. The Primary Improvement Order is allocated
the remaining 10 Strategies.

Example 2(c)

    Alternatively, suppose the orders for Strategy A+B at the end of a
COPIP are as follows:

Orders for Strategy A+B:

Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 10 at $2.04
cNBBO is $2.00 bid, $2.10 offered

    Because the BOX Book Interest is considered to be a separate order
for the determination of the 40/50% Initiating Participant priority for
the Primary Improvement Order, the Primary Improvement Order retains
execution priority for only 40% of the COPIP Order.
    The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 10 at $2.04
Primary Improvement Order to buy 12 at $2.04
Improvement Order to buy 8 at $2.04

    Note: The BOX Book Interest to buy 10 A+B at $2.04 is fully
executed in first priority. The Primary Improvement Order is allocated
12 Strategies (40% of the COPIP Order) and the remaining 8 Strategies
are allocated to the Improvement Order.

Example 2(d)

    Alternatively, suppose the orders for Strategy A+B at the end of a
COPIP are as follows:

Orders for Strategy A+B:

Improvement Order to buy 20 at $2.04

COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 20 at $2.04
cNBBO is $2.00 bid, $2.10 offered

    Because the BOX Book Interest is considered to be a separate order
for the determination of the 40/50% Initiating Participant priority for
the Primary Improvement Order, the Primary Improvement Order retains
execution priority for only 40% of the COPIP Order.
    The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 20 at $2.04
Primary Improvement Order to buy 10 at $2.04

    Note: The BOX Book Interest to buy 20 A+B at $2.04 is fully
executed in first priority. The Primary Improvement Order would be
entitled to be allocated 12 Strategies (40% of the COPIP Order).
However, instead, the Primary Improvement Order is allocated the
remaining 10 Strategies and the Improvement Order does not receive any
allocation.
* * * * *
    In instances in which a Max Improvement Primary Improvement Order
is submitted by the Initiating Participant, the Initiating Participant
would be allocated its full size at each price level, except where
restricted by the designated limit price and subject to the limitations
discussed in the next following paragraph below, until a price level is
reached where the balance of the COPIP Order can be fully executed.
Only at such price level would the Initiating Participant retain
priority for up to forty percent (40%) of the remaining size of the
COPIP Order. However, if only one competing Complex Order or BOX Book
Interest matches the Initiating Participant at the final price level,
then the Initiating Participant may retain priority for up to fifty
percent (50%) of the remaining size of the COPIP Order.\35\ As with
Single-Priced Primary Improvement Orders discussed above, for purposes
of calculating the Initiating Participant's priority allocation, BOX
Book Interests are proposed to be included as competing orders in a
COPIP.
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    \35\ See proposed Rule 7245(g)(2).
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Example 3: Execution of COPIP Order at Multiple Price Levels With Max
Improvement Primary Improvement Order

    For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order to
buy 100 at $2.01. The Participant's Max Improvement Price is 2.03. The
orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, two competing Improvement Orders are received: one
Improvement Order to buy 30 A+B at $2.04 and one Improvement Order to
buy 50 A+B at $2.03. The Primary Improvement Order improves to $2.03.
Also, the BOX Book Interest changes to 40 A+B at $2.03. The orders for
Strategy A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
Improvement Order to buy 50 at $2.03

    The allocation of Strategies for execution with the COPIP Order to
sell 100 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 100 A+B:

Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 30 at $2.03

    Note: While the Primary Improvement Order had a right to buy 40
Strategies at $2.03 (40% of original COPIP quantity of 100), the
Initiating Participant is allocated only 30 Strategies because the BOX
Book Interest has priority for its full amount at that price level.
* * * * *
    As in a PIP, the Primary Improvement Order is proposed to follow,
in time priority, all Complex Orders on the Complex Order Book prior to
the COPIP Broadcast that are equal to the Single Priced Primary
Improvement Order price; or the execution price of a Max Improvement
Primary Improvement Order that results in the balance of the COPIP
Order being fully executed, except any proprietary order(s) from the
Initiating Participant. Such proprietary order(s) would not be executed
against the COPIP Order during or at the conclusion of the COPIP.\36\
As mentioned above, quotes are included in the PIP rules \37\ but are
not part of the proposed COPIP rules because quotes are not provided on
Complex Orders.
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    \36\ See proposed Rule 7245(g)(3).
    \37\ See Rule 7150(g)(3).
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    The Primary Improvement Order is proposed to yield priority to
certain competing Complex Orders, including the priority of the
Initiating Participant described above, in substantially the same
circumstances as the PIP \38\ as follows.
---------------------------------------------------------------------------

    \38\ See Rule 7150(g)(4).
---------------------------------------------------------------------------

    When a Single-Priced or Max Improvement Primary Improvement Order
for the proprietary account of an OFP is matched by or matches any
competing Public Customer Complex Order(s), whether Improvement
Order(s), Unrelated Order(s) or any non-BOX Options Participant broker-
dealer Complex Order(s) at any price level, it will yield priority to
them.\39\
---------------------------------------------------------------------------

    \39\ See proposed Rule 7245(g)(4)(i).
---------------------------------------------------------------------------

Example 4: Initiating Participant Yields to Public Customer Order

    For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant that is a broker-dealer then initiates a COPIP
Order to sell 30 A+B. The COPIP Order is opposite the Participant
broker-dealer's Primary Improvement Order, for its own account, to buy
30 at $2.01. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, a competing Improvement Order on behalf of a Public
Customer is received to buy 20

A+B at $2.02. The Primary Improvement Order matches this price. The
orders for Strategy A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.02
COPIP Order to sell 30
Public Customer Improvement Order to buy 20 at $2.02
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Ordinarily, the trade allocation at the end of the COPIP (all at
$2.02) would be 15 Strategies (50%) to the Primary Improvement Order
and the remaining 15 Strategies to the Improvement Order. However, in
this example, the Primary Improvement Order must yield allocation to
the Improvement Order because the Primary Improvement Order is for the
account of a broker-dealer and the competing Improvement Order is for
the account of a Public Customer.
    The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

Public Customer Improvement Order to buy 20 at $2.02
Primary Improvement Order to buy 10 at $2.02

    Note: If the Public Customer Improvement Order had been for 30
Strategies, the Public Customer Improvement Order would have received
the entire trade allocation.
* * * * *
    When an unmodified Single-Priced Primary Improvement Order for the
account of a Market Maker is matched by any competing Public Customer
Complex Order(s), whether Improvement Order(s), Unrelated Order(s) or
any non-BOX Options Participant broker-dealer Complex Order(s) at the
initial COPIP price level, it will yield priority to them.\40\
---------------------------------------------------------------------------

    \40\ See proposed Rule 7245(g)(4)(ii).
---------------------------------------------------------------------------

Example 5: Initiating Market Maker Yields to Public Customer Order at
Single Price Level

    For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant that is a Market Maker then initiates a COPIP
Order to sell 30 A+B. The COPIP Order is opposite the Participant
Market Maker's Primary Improvement Order, for its own account, to buy
30 at $2.01. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, a competing Improvement Order on behalf of a Public
Customer is received to buy 20 A+B at $2.01. The orders for Strategy
A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B (with buy orders displayed in time priority):

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
Public Customer Improvement Order to buy 20 at $2.01
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10

    Ordinarily, the trade allocation at the end of the COPIP (all at
$2.01) would be 15 Strategies (50%) to the Primary Improvement Order
and the remaining 15 Strategies to the Improvement Order. However, as
the execution price of the COPIP Order is at the unmodified original
COPIP start price of $2.01, the Primary Improvement Order must yield
allocation to the Improvement Order because the Primary Improvement
Order was initiated by a Market Maker and the competing Improvement
Order is for the account of a Public Customer.
    The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

Public Customer Improvement Order to buy 20 at $2.01
Primary Improvement Order to buy 10 at $2.01

    Note: If the Public Customer Improvement Order had been for 30
Strategies, the Public Customer Improvement Order would have received
the entire trade allocation.
* * * * *
    When a Max Improvement or a modified Single-Priced Primary
Improvement Order for the account of a Market Maker matches any
competing Public Customer Complex Order(s), whether Improvement
Order(s), Unrelated Order(s) or any non-BOX Options Participant broker-
dealer Complex Order(s) at subsequent price levels, it will yield
priority to them.\41\
---------------------------------------------------------------------------

    \41\ See proposed Rule 7245(g)(4)(iii).
---------------------------------------------------------------------------

Example 6: Initiating Market Maker Yields to Public Customer at Any
Price Level

    For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant that is a Market Maker then initiates a COPIP
Order to sell 30 A+B. The COPIP Order is opposite the Participant
Market Maker's Primary Improvement Order, for its own account, to buy
30 at $2.01. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, a competing Improvement Order on behalf of a Public
Customer is received to buy 20 A+B at $2.02. The Primary Improvement
Order matches this price. The orders for Strategy A+B at the end of the
COPIP then are as follows:

Orders for Strategy A+B (with buy orders displayed in time priority):

Public Customer Improvement Order to buy 20 at $2.02
Primary Improvement Order to buy 30 at $2.02
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00

    Ordinarily, the trade allocation at the end of the COPIP (all at
$2.02) would be 15 Strategies (50%) to the Primary Improvement Order
and the remaining 15 Strategies to the Improvement Order. However, as
the Improvement Order for the account of a Public Customer has time
priority over the Primary Improvement Order submitted by a Market Maker
at this price, the Primary Improvement Order must yield allocation to
the Improvement Order.
    The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

Public Customer Improvement Order to buy 20 at $2.02
Primary Improvement Order to buy 10 at $2.02

    Note: If the Public Customer Improvement Order had been for 30
Strategies, the Public Customer Improvement Order would have received
the entire trade allocation.
* * * * *
    Consistent with the PIP, when the Primary Improvement Order
receives a trade allocation as discussed above, it is proposed to be
entitled to a trade allocation of at least one (1) Strategy.\42\ This
assures meaningful execution priority for Primary Improvement Orders.
---------------------------------------------------------------------------

    \42\ See proposed Rule 7245(g)(5).
---------------------------------------------------------------------------

    At its option, the Initiating Participant may designate a lower
(but not higher) minimum priority and trade allocation privilege
percentage upon the conclusion of the COPIP auction than it is
otherwise entitled to. When starting a COPIP, the Initiating
Participant may submit to BOX the Primary Improvement Order with a
designation of the total amount of the COPIP Order it is willing to
``surrender'' to the other COPIP Participants (``COPIP Surrender
Quantity''). Under no circumstances will the Initiating Participant
receive an allocation percentage preference of more than 50% with one
competing order, including counting BOX Book Interest as a competing
order, or 40% with multiple competing orders, including counting BOX
Book Interest as a competing order.\43\
---------------------------------------------------------------------------

    \43\ See proposed Rule 7245(g)(6)(i).
---------------------------------------------------------------------------

    Upon the conclusion of the COPIP auction, when the Exchange's
Trading Host determines the priority and trade allocation amounts for
the Initiating Participant as described above, the Trading Host will
automatically adjust the trade allocations to the other COPIP
Participants up to the COPIP Surrender Quantity. The Primary
Improvement Order will be allocated the remaining size of the COPIP
Order above the COPIP Surrender Quantity, if any, as described above.
If the aggregate size of other COPIP Participants' contra Complex
Orders is not equal to or greater than the COPIP Surrender Quantity,
then the remaining COPIP Surrender Quantity will be left unfilled and
the Primary Improvement Order will be allocated the remaining size of
the COPIP Order described above.\44\
---------------------------------------------------------------------------

    \44\ See proposed Rule 7245(g)(6)(ii).
---------------------------------------------------------------------------

Example 7: COPIP Surrender Quantity

    For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.

    A BOX Participant then initiates a COPIP Order to sell 30 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The Participant indicates a surrender quantity of 30 Strategies. The
orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 30 at $2.01
COPIP Order to sell 30
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, a competing Improvement Order is received to buy 20
A+B at $2.04. The Primary Improvement Order matches this price. Also,
the BOX Book Interest changes to 10 A+B at $2.04. The orders for
Strategy A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 20 at $2.04
COPIP Order to sell 30
Primary Improvement Order to buy 30 at $2.04
BOX Book Interest to buy 10 at $2.04

    The allocation of Strategies for execution with the COPIP Order to
sell 30 A+B at the end of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 10 at $2.04
Improvement Order to buy 20 at $2.04

    Note: While the Primary Improvement Order had a right to 12
Strategies at $2.04 (40% of original COPIP quantity of 30), the
Initiating Participant indicated a surrender quantity of 30, which
means the Initiating Participant was willing to yield the entire
quantity to competing Improvement Orders. As a result, the competing
Improvement Order at $2.04 is filled in its entirety and the Primary
Improvement Order receives no trade allocation.
    However, if the Primary Improvement Order had indicated a surrender
quantity of 22 Strategies, allocation of Strategies for execution with
the COPIP Order to sell 30 A+B at the end of the COPIP would be as
follows:

Allocation for Execution of COPIP Order to Sell 30 A+B:

BOX Book Interest to buy 10 at $2.04
Primary Improvement Order to buy 8 at $2.04
Improvement Order to buy 12 at $2.04
* * * * *
    Unlike a PIP, the COPIP is not proposed to include Customer COPIP
Orders (``CPOs''). In a PIP, certain orders on the BOX Book on single
option series trade in minimum increments greater than one cent while a
PIP Order on the same series can operate in one cent increments. A CPO
allows a Public Customer to submit an order on a single option series,
through an OFP, specifying one price for entry on the BOX Book (in the
applicable minimum increment for that series) and a different price for
interaction with a PIP (in one cent increments).\45\ Since all Complex
Orders already trade in one cent increments, as would the COPIP, no
benefit would be gained by proposing CPOs for the COPIP. Public
Customers may submit Complex Orders to the Exchange and Improvement
Orders to interact with a COPIP.
---------------------------------------------------------------------------

    \45\ See Rule 7150(h).
---------------------------------------------------------------------------

Immediate Execution Prior to the End of a COPIP
    Executions prior to the regular ending time of a COPIP are handled
substantially the same as in a PIP,\46\ with necessary changes to
account for differences between Complex Orders and orders on single
series options instruments. Legging Orders do not apply in a COPIP and
BOX Book Interests are included as Unrelated Orders in a COPIP.
---------------------------------------------------------------------------

    \46\ See Rule 7150(i) and (j).
---------------------------------------------------------------------------

    In cases where an Unrelated Order is submitted to BOX on the same
side as the COPIP Order such that it would cause an execution to occur
prior to the end of the COPIP, the COPIP will be deemed concluded and
the COPIP Order will be matched as described above.\47\ BOX Book
Interest will be fully executed at each price level prior to any other
executions. Specifically, the submission to BOX of a BOX-Top Complex
Order or Market Complex Order on the same side as a COPIP Order will
prematurely terminate the COPIP when, at the time of the submission of
such orders, the best Complex Order or BOX Book Interest is equal to or
better than the cNBBO on the opposite side of the COPIP Order. The
submission to BOX of executable BOX Book Interest or an executable
Limit Complex Order on the same side as a

COPIP Order will prematurely terminate the COPIP if, (i) at the time of
submission of the Limit Complex Order, the Limit Complex Order price is
equal to or better than cNBBO, and BBO on the Complex Order Book or
cBBO is equal to or better than the cNBBO, on the opposite side of the
market or (ii) at the time of submission of the BOX Book Interest, the
BOX Book Interest is executable against the Complex Order Book.
Following the conclusion of the COPIP, any remaining Improvement Orders
are cancelled, any remaining non-Improvement Orders are filtered
pursuant to Rule 7240(b)(3)(iii) and any remaining BOX Book Interest is
filtered pursuant to Rule 7130(b).\48\
---------------------------------------------------------------------------

    \47\ Execution rules are set forth in proposed Rule 7245(f)(3).
    \48\ See proposed Rule 7245(h).
---------------------------------------------------------------------------

Example 8: Early Termination of COPIP Due to Unrelated Order on Same
Side as COPIP Order

Example 8(a)

    For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered.

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    During the COPIP, two competing Improvement Orders are received:
One Improvement Order to buy 30 A+B at $2.05 and one Improvement Order
to buy 50 A+B at $2.03. The Primary Improvement Order has improved to
$2.03. Also, the BOX Book Interest changes to 40 A+B at $2.03. The
orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.05
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
BOX Book Interest to sell 10 at $2.10
Improvement Order to buy 50 at $2.03
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, the BOX Book Interest changes to
sell 5 A+B at $2.05. Because the BOX Book Interest could execute
against the Improvement Order to buy 30 A+B at $2.05, the COPIP instead
terminates early and executes.
    The allocation of Strategies for execution with the COPIP Order to
sell 100 A+B upon the early termination of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 100 A+B:

Improvement Order to buy 30 at $2.05
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 30 at $2.03

    The BOX Book Interest to sell 5 A+B at $2.05 caused the COPIP to
terminate early \49\ and cannot execute because it is on the same side
as the COPIP Order and, after early termination and execution of the
COPIP, no executable buy-side interest at that price exists. As a
result, the BOX Book Interest is entered on the Complex Order Book as
an Implied Order. The Complex Order Book for Strategy A+B then is as
follows:
---------------------------------------------------------------------------

    \49\ The Exchange proposes that an Unrelated Order on the same
side as the COPIP Order would cause the COPIP auction to terminate
early. Because the COPIP auction already was in progress before the
Unrelated Order arrived on BOX, the Exchange proposes that the COPIP
order be executed first. The Exchange notes that this proposed
process is the same as the process in the PIP. See Rule 7150(i).
---------------------------------------------------------------------------

Complex Order Book for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
Implied Order to sell 5 at $2.05
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.05 offered.

Example 8(b):

    Alternatively, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00 BOX
Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    During the COPIP, the BOX Book Interest changes to buy 20 A+B at
$2.02. The Primary Improvement Order has improved to $2.02. The orders
for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.02
COPIP Order to sell 100
BOX Book Interest to buy 20 at $2.02
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, two competing Improvement Orders
are received: One Improvement Order to buy 10 A+B at $2.05 and one
Improvement Order to buy 15 A+B at $2.03. Also, the BOX Book Interest
changes to buy 40 A+B at $2.03. The orders for Strategy A+B then are as
follows:

Orders for Strategy A+B:

Improvement Order to buy 10 at $2.05
COPIP Order to sell 100
Improvement Order to buy 15 at $2.03
BOX Book Interest to sell 10 at $2.10
BOX Book Interest to buy 40 at $2.03
Primary Improvement Order to buy 100 at $2.02
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, the BOX Book Interest changes to
sell 5 A+B at $2.05. Because the BOX Book Interest to sell 5 A+B at
$2.05 could execute against the Improvement Order to buy 10 A+B at
$2.05, the COPIP instead terminates early and executes.
    The allocation of Strategies for execution with the COPIP Order to
sell 100 A+B at the early termination of the COPIP is as follows:

Allocation for Execution of COPIP Order to Sell 100 A+B:

Improvement Order to buy 10 at $2.05
BOX Book Interest to buy 40 at $2.03
(at this point, the next best available BOX Book Interest is to buy 20
at $2.02)
Improvement Order to buy 15 at $2.03
BOX Book Interest to buy 20 at $2.02
(at this point, the next best available BOX Book Interest is to buy 10
at $2.00)
Primary Improvement Order to buy 15 at $2.02

    The BOX Book Interest to sell 5 A+B at $2.05 caused the COPIP to
terminate early \50\ and cannot execute because it is on the same side
as the COPIP Order and, after early termination and

execution of the COPIP, no executable buy-side interest at that price
exists. As a result, the BOX Book Interest is entered on the Complex
Order Book as an Implied Order. The Complex Order Book for Strategy A+B
then is as follows:
---------------------------------------------------------------------------

    \50\ The Exchange proposes that an Unrelated Order on the same
side as the COPIP Order would cause the COPIP auction to terminate
early. Because the COPIP auction already was in progress before the
Unrelated Order arrived on BOX, the Exchange proposes that the COPIP
order be executed first. The Exchange notes that this proposed
process is the same as the process in the PIP. See Rule 7150(i).
---------------------------------------------------------------------------

Complex Order Book for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
BOX Book Interest to sell 5 at $2.05
Complex Order to buy 20 at $2.00
cNBBO is $2.00 bid, $2.05 offered.
* * * * *
    In cases where an Unrelated Order that is a non-Improvement Order
is submitted to BOX on the opposite side of the COPIP order, such that
it would cause an execution to occur prior to the end of the COPIP, the
non-Improvement Order will be immediately executed against the COPIP
Order up to the lesser of the size of the COPIP Order or the size of
the non-Improvement Order, at a price equal to either: (i) At least one
penny better than the cBBO, if the cBBO on the opposite side of the
market from the non-Improvement Order is equal to or better than the
cNBBO at the time of execution; or (ii) the cNBBO. Specifically, a BOX-
Top Complex Order or a Market Complex Order on the opposite side of a
COPIP Order will immediately execute against the COPIP Order when, at
the time of the submission of such Complex Order, the best Improvement
Order does not cross the cNBBO on the same side of the market as the
COPIP Order. The submission to BOX of an executable Limit Complex Order
on the opposite side of a COPIP Order will immediately execute against
a COPIP Order when the Limit Complex Order price is equal to or crosses
any of the cNBBO, cBBO or BBO on the Complex Order Book for the
Strategy.\51\ In cases where an Unrelated Order that is a BOX Book
Interest exists on the opposite side of the COPIP order, such that it
would cause an execution to occur prior to the end of the COPIP, the
BOX Book Interest will immediately be executed against the COPIP Order
up to the lesser of the size of the COPIP Order or the size of the BOX
Book Interest, at a price equal to the BOX Book Interest price.\52\ The
remainder of the Unrelated Order, if any, will be filtered according to
the existing Complex Order filter rules.\53\ The remainder of the COPIP
Order, if any, will be executed at the conclusion of the COPIP as
described above.\54\ Following the conclusion of the COPIP, any
remaining Improvement Orders are cancelled.\55\
---------------------------------------------------------------------------

    \51\ See proposed Rule 7245(i)(1).
    \52\ See proposed Rule 7245(i)(2).
    \53\ See Rule 7240(b)(3)(iii) for existing Complex Order filter
rules.
    \54\ Execution rules are set forth in proposed Rule 7245(f)(3).
    \55\ See proposed Rule 7245(i)(3).
---------------------------------------------------------------------------

Example 9: Immediate Execution of Unrelated Order Opposite COPIP Order

Example 9(a):

    For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
Exposed \56\ Complex Order to sell 10 at $2.08
---------------------------------------------------------------------------

    \56\ An ``exposed'' Complex Order is a Complex Order that is in
the process of being exposed to Participants pursuant to Rule
7240(b)(3)(iii) prior to being entered on the Complex Order Book.
Pursuant to Rule 7240(c), Legging Orders are not generated from
Complex Orders during the exposure period.
---------------------------------------------------------------------------

Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
cNBBO is $2.00 bid, $2.10 offered

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at $2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10

    During the COPIP, two competing Improvement Orders are received:
One Improvement Order to buy 30 A+B at $2.04 and one Improvement Order
to buy 50 A+B at $2.03. The Primary Improvement Order to buy 100 A+B
has improved to $2.03. Also, the BOX Book Interest changes to buy 40
A+B at $2.03. The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, the BOX Book Interest changes to
buy 8 A+B at $2.08. Because this BOX Book Interest is executable
against the exposed Complex Order to sell 10 at $2.08, the BOX Book
Interest to buy 8 A+B immediately executes against the COPIP Order to
sell 10 and the COPIP continues.
    The orders for Strategy A+B at the end of the COPIP then are as
follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 92
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 32 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Note: If the BOX Book had changed to reflect BOX Book Interest to
buy a quantity of 100 A+B at $2.04, the BOX Book Interest would have
immediately executed against the COPIP Order in full and the COPIP
would have terminated.

Example 9(b):

    For example, suppose the Complex Order Book for Strategy A+B is
initially as follows:

Orders for Strategy A+B:

BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at $2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10
cNBBO is $2.00 bid, $2.10 offered.

    A BOX Participant then initiates a COPIP Order to sell 100 A+B. The
COPIP Order is opposite the Participant's Primary Improvement Order.
The orders for Strategy A+B then are as follows:

Orders for Strategy A+B:

Primary Improvement Order to buy 100 at $2.01
COPIP Order to sell 100
BOX Book Interest to buy 10 at $2.00
Exposed Complex Order to sell 10 at $2.08
Complex Order to buy 20 at $2.00
BOX Book Interest to sell 10 at $2.10

    During the COPIP, two competing Improvement Orders are received:
One Improvement Order to buy 30 A+B at $2.04 and one Improvement Order
to buy 50 A+B at $2.03. The Primary Improvement Order has improved to
$2.03. Also, the BOX Book Interest changes to buy 40 A+B at $2.03. The
orders for Strategy A+B at the end of the COPIP then are as follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 100
Primary Improvement Order to buy 100 at $2.03

BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Subsequently, during the COPIP, a Complex Order to buy 8 A+B at
$2.08 is received. Because the Complex Order is executable against the
exposed Complex Order to sell 10 A+B at $2.08, the Complex Order to buy
8 A+B at $2.08 immediately executes against the COPIP Order at $2.07
and the COPIP then continues.\57\
---------------------------------------------------------------------------

    \57\ This operation is consistent with the existing PIP auction
mechanism (see Rule 7150(j)) and execution at $2.07 is consistent
with Rule 7240(b)(2).
---------------------------------------------------------------------------

    The orders for Strategy A+B at the end of the COPIP then are as
follows:

Orders for Strategy A+B:

Improvement Order to buy 30 at $2.04
COPIP Order to sell 92
Primary Improvement Order to buy 100 at $2.03
BOX Book Interest to buy 40 at $2.03
Exposed Complex Order to sell 10 at $2.08
Improvement Order to buy 50 at $2.03
BOX Book Interest to sell 10 at $2.10
Complex Order to buy 20 at $2.00

    Note: If the BOX Book had changed to reflect BOX Book Interest to
buy a quantity of 100 A+B at $2.04, the BOX Book Interest would have
immediately executed against the COPIP Order in full and the COPIP
would have terminated.
* * * * *
Improvement Orders
    Improvement Orders on a COPIP are treated substantially the same as
the Exchange's existing PIP \58\ with necessary changes to account for
differences between Complex Orders and orders on single series options
instruments. Improvement Orders must be submitted in increments no
smaller than one penny. Improvement Orders will be broadcast via the
HSVF, but will not be disseminated to OPRA.\59\
---------------------------------------------------------------------------

    \58\ See Rule 7150(k).
    \59\ See proposed Rule 7245(j).
---------------------------------------------------------------------------

    Generally, Improvement Orders may not be executed unless the price
is equal to or better than the cNBBO at the commencement of the COPIP.
An exception to this rule occurs where an Exchange Official determines
that quotes from one or more particular markets in one or more classes
of options are not reliable, the Exchange Official may direct the
senior person in charge of the BOX MOC to exclude the unreliable quotes
from the Improvement Period determination of the cNBBO for Complex
Order Strategies of which such option class(es) are a component. The
Exchange Official may determine quotes in one or more particular
options classes in a market are not reliable only in the following
circumstances: (i) Quotes Not Firm: A market's quotes in a particular
options class are not firm based upon direct communication to the
Exchange from the market or the dissemination through OPRA of a message
indicating that disseminated quotes are not firm; (ii) Confirmed Quote
Problems: A market has directly communicated to the Exchange or
otherwise confirmed that the market is experiencing systems or other
problems affecting the reliability of its disseminated quotes. An
exception to the general rule also occurs where the away options
exchange posting orders on a single option series comprising the cNBBO
is conducting a trading rotation in that options class.\60\
---------------------------------------------------------------------------

    \60\ See proposed Rule 7245(k).
---------------------------------------------------------------------------

    As in the PIP,\61\ the Exchange's Trading Host will not accept
Improvement Orders that lock or cross the Complex Order Book on the
same side of the market as the COPIP Order.\62\
---------------------------------------------------------------------------

    \61\ See IM-7150-4.
    \62\ See proposed IM-7245-4.
---------------------------------------------------------------------------

COPIP Trading Conduct
    As with the PIP,\63\ the Exchange proposes to prohibit conduct
inconsistent with just and equitable principles of trade related to a
COPIP. It is proposed that it be considered conduct inconsistent with
just and equitable principles of trade for any Initiating Participant
to engage in a pattern of conduct where the Initiating Participant
submits Primary Improvement Orders into the COPIP process for two
Strategies or less for the purpose of manipulating the COPIP process in
order to gain a higher allocation percentage than the Initiating
Participant would have otherwise received in accordance with the
proposed allocation procedures. It is proposed that it be considered
conduct inconsistent with just and equitable principles of trade for
any Participant to submit a non-Improvement Order, or an order that
results in the generation of an Unrelated Order, to BOX for the purpose
of disrupting or manipulating the COPIP process.\64\
---------------------------------------------------------------------------

    \63\ See IM-7150-2.
    \64\ See proposed IM-7245-2.
---------------------------------------------------------------------------

Overlapping Auctions
    The Exchange proposes to prohibit multiple auctions of the same
type, which is substantially the same as in its PIP rules.\65\ A COPIP
will not run simultaneously with another COPIP in the same Complex
Order Strategy, nor will COPIPs interact, queue or overlap in any
manner. Any request to initiate a COPIP while a COPIP is already in
progress in the same Strategy will be rejected.\66\
---------------------------------------------------------------------------

    \65\ See IM-7150-3.
    \66\ See proposed IM-7245-3.
---------------------------------------------------------------------------

    Upon adoption of the proposal, the Exchange will operate price
improvement auctions in both single options series and Complex Orders.
The Exchange proposes that BOX will accept, however, orders designated
for the PIP on a single option series where a COPIP on a Complex Order
Strategy that includes such series may be in progress. BOX will also
accept Complex Orders designated for the COPIP where a PIP on either of
the component series may be in progress.\67\ Order execution at the
conclusion of such PIPs will occur as described in the PIP rules \68\
and Complex Order execution at the conclusion of such COPIPs will occur
as set forth in the proposed Rule 7245.\69\
---------------------------------------------------------------------------

    \67\ Exchange rules governing events occurring during permitted,
simultaneous auctions are clear. Processes on the BOX system are
sequential, which prevents any two orders (including PIP Orders and
COPIP Orders) from having the same time stamp. Each order is
processed in accordance with Exchange rules without race conditions.
    \68\ PIP execution rules are set forth in Rule 7150.
    \69\ See proposed IM-7245-3.
---------------------------------------------------------------------------

COPIP Pilot Program
    The Exchange proposes a COPIP Pilot Program during the initial
period of the COPIP's operation. During the COPIP pilot period, the
Exchange proposes to provide certain information, periodically as
required by the Commission, to provide supporting evidence that, among
other things, there is meaningful competition for all size COPIP
orders, that there is significant price improvement for all orders
executed through the COPIP and that an active and liquid market is
functioning on BOX outside of the COPIP mechanism. Any data submitted
to the Commission by the Exchange will be provided on a confidential
basis.\70\ The Pilot Period is proposed to expire on July 18, 2014 and
will be substantially similar to the pilot period currently in place
with respect to the existing PIP.\71\
---------------------------------------------------------------------------

    \70\ See proposed IM-7245-1.
    \71\ See IM-7150-1.
---------------------------------------------------------------------------

    To aid the Commission in its evaluation of the COPIP Pilot Program,
the Exchange proposes to provide the following information each month:
(1) The number of orders of 50 Strategies or greater entered into the
COPIP; (2) the percentage of all orders of 50 Strategies or greater
submitted to the Exchange that are entered into the COPIP; (3) the
spread, at the time a Complex Order of

50 Strategies or greater is submitted to the COPIP; (4) the percentage
of COPIP trades executed at cNBBO, plus $.01, plus $.02, plus $.03,
etc.; and (5) the number of COPIP Orders submitted by OFPs when the
spread was at a particular increment (e.g., $.05, $.10, $.15, etc.).
Also, with respect to item 5 above, for each spread increment, the
Exchange proposes to provide the percentage of orders of fewer than 50
Strategies submitted to the COPIP that were traded: (a) By the OFP that
submitted the order to the COPIP; (b) by a BOX Participant other than
the OFP that submitted the order to the COPIP; (c) by a Public
Customer; and (d) as an Unrelated Order. Additionally, for each spread
increment, the Exchange proposes to provide the percentage of orders of
50 Strategies or greater submitted to the COPIP that were traded: (a)
By the OFP that submitted the order to the COPIP; (b) by a BOX
Participant other than the OFP that submitted the order to the COPIP;
(c) by a Public Customer; and (d) as an Unrelated Order.
    The Exchange further proposes to provide, for the first and third
Wednesday of each month: (a) The total number of COPIP auctions on that
date; (b) the number of COPIP auctions where the order submitted to the
COPIP was fewer than 50 Strategies; (c) the number of COPIP auctions
where the order submitted to the COPIP was 50 Strategies or greater;
(d) the number of COPIP auctions where the number of Participants
(excluding the Initiating Participant) was each of zero, one, two,
three, four, etc.
    Finally, during the COPIP pilot period, the Exchange proposes to
provide information each month with respect to situations in which the
COPIP is terminated prematurely or in which a Market Order, Limit
Order, BOX-Top Order or BOX Book Interest immediately execute with a
COPIP Order before the conclusion of the COPIP. The following
information is proposed to be provided: (1) The number of times that a
Market Order, Limit Order, BOX-Top Order or BOX Book Interest on the
same side of the market as the COPIP Order prematurely terminated the
COPIP, and (a) the number of times such orders were entered by the same
(or affiliated) firm that initiated the COPIP that was terminated, and
(b) the number of times such orders were entered by a firm (or an
affiliate of such firm) that participated in the execution of the COPIP
Order; (2) For the orders addressed in each of (1)(a) and (1)(b) above,
the percentage of COPIP premature terminations due to the receipt,
during the COPIP, of a Market Order, Limit Order, BOX-Top Order or BOX
Book Interest on the same side of the market as the COPIP Order; and
the average amount of price improvement provided to the COPIP Order
where the COPIP is prematurely terminated; (3) the number of times that
a Market Order, Limit Order, BOX-Top Order or BOX Book Interest on the
opposite side of the market as the COPIP Order immediately executed
against the COPIP Order, and (a) the number of times such orders were
entered by the same (or affiliated) firm that initiated the COPIP, and
(b) the number of times such orders were entered by a firm (or an
affiliate of such firm) that participated in the execution of the COPIP
Order; (4) for the orders addressed in each of (3)(a) and (3)(b) above,
the percentage of COPIP early executions due to the receipt, during the
COPIP, of a Market Order, Limit Order, BOX-Top Order or BOX Book
Interest on the opposite side of the market as the COPIP Order; and the
average amount of price improvement provided to the COPIP Order where
the COPIP Order is immediately executed; and (5) the average amount of
price improvement provided to the COPIP Order when the COPIP runs for
one hundred milliseconds.
Conforming and Clarifying Changes
    The Exchange proposes to make certain miscellaneous conforming and
clarifying changes to its rules consistent with the adoption of the
proposed COPIP rule. These conforming and clarifying changes are
consistent with the Exchange's treatment of the PIP. Rules 100, 3000,
7070, 7110, 7130, 7140, 7150, and 7240 are proposed to be amended as
described below.
    Rule 3000(b) is proposed to be amended to include COPIPs to be
treated similarly to PIPs for purposes of identifying conduct
inconsistent with just and equitable principles of trade.
    Rule 7070(a) is proposed to be amended to clarify that COPIP
Orders, like PIP Orders, are not accepted by the BOX Trading Host
during the Pre-Opening Phase. Rule 7070(a) is also corrected to reflect
that Fill and Kill orders are not, and have never been, allowed to
participate in the Pre-Opening Phase. Participation in the Pre-Opening
Phase on BOX is entirely voluntary and the inclusion of Fill and Kill
orders could be disruptive to the calculation of the Theoretical
Opening Price, which is described in Rule 7070(b).
    Rule 7110(e)(1)(iii)(D) is proposed to be amended to clarify that,
like PIP Orders, the Session Order duration type is not available for
COPIP Orders.
    Rule 7130(a) is proposed to be amended to clarify that the HSVF,
which is made available at no cost to all market participants, includes
COPIP Order information as set forth in proposed Rule 7245.
    IM-7140-1, IM-7140-2, IM-7140-3 and IM-7140-4 to Rule 7140 are
proposed to be amended to clarify that COPIPs are treated like PIPs for
purposes of Rule 7140 regarding the ability of Options Participants to
act as contra party to their own Customer Orders.
    The proposed amendments to Rule 7150(f) and (k) regarding the PIP
do not change the operation of the Exchange's system but conform to the
proposed COPIP rule and clarify that the PIP Broadcast, including
competing Improvement Orders, are broadcast via the HSVF. Further, IM-
7150-3 to Rule 7150 is proposed to be amended to conform to proposed
IM-7245-3 to Rule 7245 and to clarify that a PIP on a single option
series and a COPIP on a Complex Order Strategy that includes such
series may be conducted simultaneously.
    In order to conform to the new proposed COPIP rules, Rule
7240(b)(4)(iii) is proposed to be amended to remove the existing
prohibition on Complex Orders participating in Price Improvement
Periods and Rule 100(a)(19) is amended to clarify that Directed Orders
are limited to contracts on single option series.
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''),\72\ in general, and Section 6(b)(5) of the Act,\73\ 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.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78f(b).
    \73\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange proposes to add new BOX Rule 7245 to allow Complex
Orders to be submitted to the COPIP in substantially the same manner as
orders for single options series instruments currently are submitted to
the PIP except as necessary to account for

distinctions between regular orders on the BOX Book and Complex
Orders.\74\
---------------------------------------------------------------------------

    \74\ The Exchange notes that the provisions in proposed Rule
7245 are substantially similar to those in Rule 7150, amended to
reflect their applicability to a COPIP on a Complex Order Strategy
as compared to a PIP on orders for single options series
instruments.
---------------------------------------------------------------------------

    The Exchange believes the proposed COPIP is an improvement over its
current rules regarding Complex Orders, and will benefit all market
participants submitting Complex Order to BOX. The Exchange believes
that this rule filing is reasonable, equitable and not unfairly
discriminatory to customers and Participants because it follows the
fundamental principles of the Exchange's existing PIP mechanism \75\
and the Exchange's existing Complex Order priority rules,\76\ each of
which has previously been approved by the Commission. The Exchange
further believes the proposal is not unfairly discriminatory because
the benefits of the proposed COPIP on BOX, like the PIP, are equally
available to all Participants.
---------------------------------------------------------------------------

    \75\ See Rule 7150.
    \76\ See Rule 7240(b)(3)(i).
---------------------------------------------------------------------------

    The Exchange believes this proposal will increase opportunities for
execution of Complex Orders and orders on the BOX Book. Further, the
Exchange believes the proposed COPIP will provide greater flexibility
to Participants trading Complex Orders on BOX. The Exchange also
believes the proposed COPIP will provide additional opportunities for
Participants to achieve better handling of Complex Orders and result in
increased opportunities for execution and better pricing. These
benefits have been realized for orders on single option series under
its existing PIP mechanism and the same principles are expected to
transfer readily to Complex Orders. As a result, adopting this proposal
to allow a COPIP mechanism will promote just and equitable principles
of trade, foster cooperation and coordination with persons engaged in
facilitating transactions in securities, and remove impediments to and
perfect the mechanism of a free and open market and a national market
system
    For purposes of the COPIP, Unrelated Orders are proposed to include
BOX Book Interest resting on the BOX Book.\77\ The concept of the COPIP
interacting with BOX Book Interest does not apply to PIP and,
therefore, is not directly analogous the existing PIP rules. Quotes and
Legging Orders do not apply to COPIP and, therefore, are not included
in the proposed COPIP rules. These proposed differences from the
previously approved PIP provide clarity in the rules and promote just
and equitable principles of trade.
---------------------------------------------------------------------------

    \77\ See proposed Rule 7245(a).
---------------------------------------------------------------------------

    The proposal requires that Complex Orders on BOX execute first
against leg orders on the BOX Book, as under the current rules
applicable to Complex Order execution. In the proposed COPIP, BOX Book
Interest will execute in priority over Complex Orders at the same price
\78\ so as to preserve the already established and approved execution
priority of interest on the BOX Book over Complex Orders.\79\ These
execution principles allow Complex Orders to interact with the BOX Book
in a fair way and thereby promote just and equitable principles of
trade, foster cooperation and coordination with persons engaged in
facilitating transactions in securities and remove impediments to and
perfect the mechanism of a free and open market and a national market
system.
---------------------------------------------------------------------------

    \78\ See proposed Rule 7245(f)(3)(i).
    \79\ The execution priority of interest on the BOX Book over
Complex Orders is consistent with existing Rule 7240(b)(3)(i).
---------------------------------------------------------------------------

    The proposed COPIP rules differ from the existing PIP rules in
that, for purposes of calculating the Initiating Participant's priority
allocation, BOX Book Interests are proposed to be counted as competing
orders in a COPIP. This treatment is consistent with the existing
regular interaction of Complex Orders with interest on the BOX
Book.\80\ This again preserves the already established and approved
execution priority of interest on the BOX Book over Complex Orders
while also preserving the incentive function of the Initiating
Participant's priority allocation as in the existing PIP rules. This
execution priority is designed to promote just and equitable principles
of trade, to foster cooperation and coordination with persons engaged
in facilitating transactions in securities and to remove impediments to
and perfect the mechanism of a free and open market and a national
market system.
---------------------------------------------------------------------------

    \80\ See proposed Rule 7245(g)(1) and (2).
---------------------------------------------------------------------------

    Upon adoption of the proposal, the Exchange will operate price
improvement auctions in both single options series and Complex Orders.
\81\ As with the PIP, the Exchange will not operate multiple,
simultaneous COPIPs on the same Strategy. However, the Exchange
proposes that BOX will accept orders designated for the PIP on a single
option series where a COPIP on a Complex Order Strategy that includes
such series may be in progress. BOX will also accept Complex Orders
designated for the COPIP where a PIP on either of the component series
may be in progress. Order execution at the conclusion of such PIPs will
occur as described in the PIP rules \82\ and Complex Order execution at
the conclusion of such COPIPs will occur as set forth in the proposed
Rule 7245.\83\ The Exchange believes this simultaneous price
improvement auction functionality will reduce order cancellation and,
thereby remove impediments to, and perfect the mechanism of, a free and
open market and a national market system.
---------------------------------------------------------------------------

    \81\ Exchange rules governing events occurring during permitted,
simultaneous auctions are clear. Processes on the BOX system are
sequential, which prevents any two orders (including PIP Orders and
COPIP Orders) from having the same time stamp. Each order is
processed in accordance with Exchange rules without race conditions.
    \82\ PIP execution rules are set forth in Rule 7150.
    \83\ See proposed IM-7245-3.
---------------------------------------------------------------------------

    The Exchange proposes that, as in the PIP, when executing Customer
Complex Orders by way of the COPIP, Options Participants must ensure
that they comply with all the procedures set forth in these Rules for
such transactions; that they act with due skill, care and diligence;
and that the interests of their Customers are not prejudiced.\84\ An
Options Participant must not use the COPIP process to create a
misleading impression of market activity (i.e., the facilities may be
used only where there is a genuine intention to execute a bona fide
transaction).\85\ These provisions are substantially the same as the
corresponding rules for the PIP \86\ and are important customer
protection features that prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade and protect
investors and the public interest.\87\
---------------------------------------------------------------------------

    \84\ See proposed Rule 7245(c).
    \85\ See proposed Rule 7245(e).
    \86\ See Rule 7150(c), (d) and (e).
    \87\ The proposed COPIP rules are similar to the Exchange's
existing PIP rules. As a result, the Exchange believes an analysis
of Section 11(a) of the Securities Exchange Act of 1934 is not
warranted here.
---------------------------------------------------------------------------

    All market participants are able to receive broadcast notification
of COPIPs and Improvement Orders via the HSVF. As a result, no
Participants will have an information advantage and the proposal serves
to promote just and equitable principles of trade and to remove
impediments to and perfect the mechanism of a free and open market and
a national market system.
    The Exchange proposes to make certain miscellaneous conforming and
clarifying changes to Rules 100, 3000, 7070, 7110, 7130, 7140, 7150,
and 7240 to make them consistent with the adoption of the proposed
COPIP rule. These conforming and clarifying changes are required to
make the COPIP

rules consistent with the Exchange's PIP rules and are necessary to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system.
    For the foregoing reasons, the Exchange believes this proposal is a
reasonable modification to its rules, designed to facilitate increased
interaction of Complex Orders on the Exchange, and to do so in a manner
that ensures a dynamic, real-time trading mechanism that maximizes
opportunities for trade executions for Complex Orders. The Exchange
believes it is appropriate and consistent with the Act to adopt the
proposed rule changes.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe the proposed rule change represents
any undue burden on competition or will impose any burden on
competition among exchanges in the listed options marketplace not
necessary or appropriate in furtherance of the purposes of the Act.
Subject to the priority rules described above, the features of the
proposed rule change will apply equally to all Participants and are
available to all Participants.
    Submitting a Complex Order to the COPIP will be entirely voluntary
and Participants will determine whether they wish to submit COPIP
Orders to the Exchange. The Exchange operates in a highly competitive
marketplace with other competing exchanges and market participants can
readily direct their Complex Order flow to other exchanges if they so
choose.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-BOX-2013-43 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2013-43. 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
Web site (http://www.sec.gov/rules/sro.shtml). Copies of the
submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications relating to the proposed rule change
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for Web site 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 offices of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BOX-2013-43, and should be
submitted on or before October 15, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\88\
---------------------------------------------------------------------------

    \88\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23008 Filed 9-20-13; 8:45 am]
BILLING CODE 8011-01-P