[Federal Register Volume 82, Number 151 (Tuesday, August 8, 2017)]
[Notices]
[Pages 37144-37154]
[FR Doc No: 2017-16638]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81292; File No. SR-BOX-2016-48]

Self-Regulatory Organizations; BOX Options Exchange LLC; Order
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1 and
2, To Adopt Rules for an Open-Outcry Trading Floor

August 2, 2017.

I. Introduction

    On November 16, 2016, BOX Options Exchange LLC (the ``Exchange'' or
``BOX'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt rules for an open-outcry trading floor.
The proposed rule change was published for comment in the Federal
Register on December 05, 2016.\3\ The Commission received three comment
letters on the proposed rule change.\4\ On January 10, 2017, the
Commission extended the time period within which to approve, disapprove
the proposed rule change, or institute proceedings to determine whether
to approve or disapprove the proposed rule change to March 05, 2017.\5\
On February 21, 2017, the Commission received a response letter from
the Exchange, as well as Amendment No. 1 to the proposed rule
change.\6\ On March 1, 2017, the Commission instituted proceedings to
determine whether to approve or disapprove the proposed rule change, as
modified by Amendment No. 1.\7\ In response to the Order Instituting
Proceedings, the Commission received five additional comment
letters.\8\ On May 17, 2017, the Exchange filed Amendment No. 2 to the
proposed rule change, which replaced and superseded the original
filing, as modified by Amendment No.1, in its entirety.\9\ On May 18,
2016, the Commission extended the time period for Commission action on
the proceedings to determine whether to disapprove the proposed rule
change to August 2, 2017.\10\ Amendment No. 2 was published for comment
in the Federal Register on May 23, 2017.\11\ On May 25, 2017, the
Commission received a second response letter from the Exchange.\12\ The
Commission received two comment letters in response to the publication
of Amendment No. 2.\13\ On July 14, 2017, the Commission received a
third response letter from the Exchange.\14\ This order approves the
proposed rule change, as modified by Amendment Nos. 1 and 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79421 (November 29,
2016), 81 FR 87607 (``Notice'').
    \4\ See letters to Brent J. Fields, Secretary, Commission, from
Angelo Evangelou, Deputy General Counsel, The Chicago Board Options
Exchange, Inc. (``CBOE''), dated January 10, 2017 (``CBOE Letter
I''); Steve Crutchfield, Head of Market Structure, CTC Trading
Group, LLC (``CTC Trading''), dated December 31, 2016 (``CTC Letter
I''); and Joan C. Conley, Senior Vice President and Corporate
Secretary, The Nasdaq Stock Market LLC (``Nasdaq''), dated December
22, 2016 (``Nasdaq Letter I'').
    \5\ See Securities Exchange Act Release No. 79768, 82 FR 4956
(January 17, 2017).
    \6\ See letter to Brent J. Fields, Secretary, Commission, from
Lisa J. Fall, President, Exchange, received February 21, 2017 (``BOX
Response Letter I''), and Amendment No. 1, dated February 21, 2017.
    \7\ See Securities Exchange Act Release No. 80134, 82 FR 12864
(March 7, 2017) (``Order Instituting Proceedings'').
    \8\ See letters to Brent J. Fields, Secretary, Commission, from
Angelo Evangelou, Deputy General Counsel, CBOE, dated April 21, 2017
(``CBOE Letter II''); Steve Crutchfield, Head of Market Structure,
CTC Trading, dated April 13, 2017 (``CTC Letter II''); John Kinahan,
CEO, Group One Trading, LP, dated April 11, 2017 (``Group One
Letter''); Elizabeth King, General Counsel and Corporate Secretary,
New York Stock Exchange, dated March 28, 2017 (``NYSE Letter''); and
Joan C. Conley, Senior Vice President and Corporate Secretary,
Nasdaq, dated March 27, 2017 (``Nasdaq Letter II'').
    \9\ See Amendment No. 2, dated May 17, 2017.
    \10\ See Securities Exchange Act Release No. 80719, 82 FR 23935
(May 24, 2017).
    \11\ See Securities Exchange Act Release No. 80720 (May 18,
2017), 82 FR 23657 (``Notice of Amendment No. 2'').
    \12\ See letter to Brent J. Fields, Secretary, Commission, from
Lisa J. Fall, President, Exchange, received May 25, 2017 (``BOX
Response Letter II'').
    \13\ See letters to Brent J. Fields, Secretary, Commission, from
Steve Crutchfield, Head of Market Structure, CTC Trading, dated July
10, 2017 (``CTC Letter III''); and Joan C. Conley, Senior Vice
President and Corporate Secretary, Nasdaq, dated July 6, 2017
(``Nasdaq Letter III'').
    \14\ See letter to Brent J. Fields, Secretary, Commission, from
Lisa J. Fall, President, Exchange, received July 14, 2017 (``BOX
Response Letter III'').
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II. Description of the Proposed Rule Change, as Modified by Amendment
Nos. 1 and 2

    The Exchange proposes to adopt rules that would allow for open-
outcry trading on BOX's physical trading floor, located in Chicago
(``Trading Floor'') as described below.\15\
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    \15\ See proposed BOX Rule 100(a)(67).
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A. BOX Floor Procedure

    The Exchange proposes to allow two categories of market
participants (``Floor Participants'') \16\ to transact business on the
Trading Floor.\17\ One of these categories of market participants

consists of individuals (``Floor Broker'') \18\ who will be registered
as such with the Exchange and who will be permitted to accept and
handle options orders, including representing such orders on the
Trading Floor and entering those orders using the BOX Order Gateway
(``BOG'') \19\ for execution in the Exchange's automated trading system
(the ``Trading Host'').\20\ The second category of market participants
consists of Options Participants of the Exchange located on the Trading
Floor who receive permission from the Exchange to trade in options for
their own account (``Floor Market Makers'').\21\
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    \16\ See proposed BOX Rule 100(a)(26).
    \17\ See proposed BOX Rule 100(a)(67).
    \18\ See proposed BOX Rule 7540.
    \19\ See proposed BOX Rules 100(b)(2) and 7580(e).
    \20\ See BOX Rule 100(a)(66).
    \21\ See proposed BOX Rule 8510(b).
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    Contemporaneously upon receipt of an order and prior to the
announcement of an order in the trading crowd, a Floor Broker wishing
to execute an order will be required to record certain information
about the order in the Floor Broker's order entry mechanism.\22\
Specifically, the Floor Broker will be required to record: (i) The
order type and order receipt time; (ii) the option symbol; (iii) buy,
sell, cross or cancel; (iv) call, put, complex (i.e., spread,
straddle), or contingency order; (v) number of contracts; (vi) limit
price or market order or, in the case of a multi-leg order, net debit
or credit, if applicable; (vii) whether the transaction is to open or
close a position; and (viii) the Options Clearing Corporation clearing
number of the broker-dealer that submitted the order.\23\
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    \22\ See proposed BOX Rule 7580(e).
    \23\ See proposed BOX Rule 7580(e)(1).
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    The Floor Broker will then be required to ascertain that at least
one Floor Market Maker is present in the Crowd Area \24\ and announce
the order to the trading crowd, in a process called open outcry.\25\
During open outcry, Floor Market Makers physically located in the Crowd
Area will be permitted to express interest in trading against the
initiating order.\26\ To do so, a Floor Market Maker will be required
to verbalize that he is ``in'' after a Floor Broker announces an order,
even if a Floor Market Maker had previously provided a valid quote
prior to the Floor Broker's announcement of the order.\27\ A Floor
Market Maker will be considered ``out'' on a bid or offer if he does
not affirmatively respond to the Floor Broker who announces the order,
provided that the Floor Broker will be required to give a Floor
Participant a reasonable amount of time within which to respond.\28\
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    \24\ See proposed BOX Rules 100(a)(67) and 7580(a).
    \25\ See proposed BOX Rules 7600(b) and 7580(e)(2). This will be
required whether the Floor Broker is representing a single-sided
order and is soliciting contra-side interest, or the Floor Broker
has sufficient interest to match against the order already. See
proposed BOX Rule 7580(e)(2).
    \26\ See proposed BOX Rule IM-8510-2(b). It will be considered
conduct inconsistent with just and equitable principles of trade for
any Floor Broker or Floor Market Maker to intentionally disrupt the
open outcry process. See proposed BOX Rule IM-7580-4.
    \27\ A Floor Broker will be permitted to request a market prior
to announcing an order on the Trading Floor (``Market Probe''). When
a Floor Broker announces a Market Probe, any responses from Floor
Participants will be public to all Floor Participants. When a Floor
Broker conducts a Market Probe, he must probe all Floor
Participants. See Notice of Amendment No. 2, supra note 11, at 23662
n.75.
    \28\ See proposed BOX Rule 100(b)(5). A ``reasonable amount of
time'' will be interpreted on a case-by-case basis by an Options
Exchange Official, based on the current market conditions and
trading activity on the Trading Floor. See id.
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    Under the proposal, after an order is announced to the trading
crowd, the Floor Broker will be permitted to submit a Qualified Open
Outcry Order (``QOO Order'') through the BOG to the Trading Host for
execution. QOO Orders are two-sided orders \29\ comprised of an
``initiating side'' (the ``agency order''), which must be filled in its
entirety, and a ``contra-side,'' which must guarantee the full size of
the agency order.\30\ The order announced by the Floor Broker on the
Trading Floor will be considered the agency order. At the time of the
announcement, the Floor Broker may be representing only that agency
order (i.e., a single-sided or unmatched order) on the Trading Floor in
order to seek a contra-side, or the Floor Broker may already have a
contra-side that guarantees the full size of that agency order.\31\ If
the Floor Broker does not have a contra-side and is therefore
soliciting interest from the trading crowd when the initiating side is
announced or to the extent the trading crowd provides a better price,
the contra-side of the QOO Order will be the solicited interest from
the trading crowd; \32\ otherwise, the Floor Broker interest will be
the contra-side of the QOO Order, subject to the allocation procedure
as described below.\33\
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    \29\ A Floor Participant who wishes to place a limit order on
the BOX Book will be required to submit such order electronically.
See proposed BOX Rules IM-7580-1 and IM-8510-8. The BOX Book is
defined as the electronic book of orders on each single option
series maintained by the Trading Host. See BOX Rule 100(a)(10).
    \30\ See proposed BOX Rule 7600(a)(1).
    \31\ See proposed BOX Rule IM-7600-4. If a Floor Broker is
holding two agency orders, he will choose which order will be the
initiating side. See proposed BOX Rule 7580(e)(2).
    \32\ See proposed BOX Rule 7600(a)(1).
    \33\ See id.
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    For a non-complex QOO Order, the execution price must be equal to
or better than the National Best Bid or Offer (``NBBO'').\34\ A Complex
QOO Order may be executed at a price without giving priority to
equivalent bids or offers in the individual series legs on the
initiating side, provided at least one options leg betters the
corresponding bid or offer on the BOX Book by at least one minimum
trading increment.\35\ Under the proposed rules, an Options Exchange
Official \36\ will be required to certify that the Floor Broker
adequately announced the QOO Order to the trading crowd.\37\
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    \34\ See proposed BOX Rule 7600(c).
    \35\ See proposed BOX Rule 7600(c).
    \36\ See proposed BOX Rule 100(b)(6). The QOO Order will not be
deemed executed until it is processed by the Trading Host. See
proposed BOX Rule 7600(c).
    \37\ See proposed BOX Rule 7600(b).
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    Once a QOO Order is submitted through the BOG, it would be
immediately processed by the Trading Host.\38\ The order would be
executed based on market conditions at the time that the order is
received by the Trading Host and in accordance with the Exchange's
rules.\39\ If there is an ongoing auction in the option series when the
QOO Order is received by the Trading Host the QOO Order will be
rejected.\40\
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    \38\ See proposed BOX Rule 100(b)(2). Under the proposal, orders
on the Trading Floor will not route to an away exchange and may not
be considered in the determination of the opening price or
participate in the opening trade. See proposed BOX Rules 7070(d) and
7600(e).
    \39\ See proposed BOX Rule 7600(a). Once a Floor Broker submits
a QOO Order to the BOG, neither the submitting Floor Broker, nor
anyone else, will be allowed to alter the terms of the QOO Order.
See proposed BOX Rule 7600(c).
    \40\ See proposed BOX Rule 7600(a)(5). A Complex QOO Order will
not be rejected if there is an ongoing auction in the options series
of some, but not all, of the components of the Complex QOO Order.
See id.
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    Under the proposal, the highest bid (lowest offer) in the trading
crowd will have priority.\41\ If there are two or more bids (offers)
for the same options contract that represent the highest bid (lowest
offer), priority will be afforded to such bids (offers) in the sequence
in which they are made.\42\ If a Floor Broker's bid or offer is
accepted by more than one Floor Participant, the Floor Broker will be
required to designate the priority order of the Floor Participants
based on when each Floor Participant responds.\43\ Starting with the
Floor Participant with first priority, each Floor Participant will be
entitled to buy or sell as many contracts as the Floor Broker may have
available to trade until the Floor Broker's order has been filled

entirely.\44\ However, if bids or offers are made by more than one
Floor Participant simultaneously, such bids or offers will be deemed to
be on parity and priority will be afforded to them, insofar as
practicable, on an equal basis.\45\ If Floor Participants provide a
collective response to a Floor Broker's request for a market in order
to fill a large order, the order will be allocated pro rata pursuant to
proposed BOX Rule 7610(d)(5).\46\ The Floor Broker will be responsible
for determining the sequence in which bids or offers are vocalized on
the Trading Floor in response to the Floor Broker's bid, offer, or call
for a market.\47\
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    \41\ See proposed BOX Rule 7610(a) and (b).
    \42\ See id.
    \43\ See proposed BOX Rule 7610(d)(2).
    \44\ See id. For Complex QOO Orders, Floor Participants will not
be permitted to give a competing bid or offer for one component of
the order to prevent the Complex QOO Order from being executed. See
proposed BOX Rule IM-7600-1(d).
    \45\ See proposed BOX Rule 7610(d)(4). Each Floor Participant on
parity will receive an equal number of contracts, to the extent
mathematically possible.
    \46\ Specifically, proposed BOX Rule 7610(d)(5) states that if
the size of the trading crowd's market, in the aggregate, is less
than or equal to the size of the order to be filled, the Floor
Participants will each receive a share of the order that is equal to
the size of their respective bids. However, if the size of the
trading crowd's market exceeds the size of the order to be filled,
that order will be allocated on a size pro rata basis, with the
Floor Participants in the trading crowd each receiving, to the
extent practicable, the percentage of the order that is the ratio of
the size of their respective bids or offers to the total size of all
bids or offers.
    \47\ See proposed BOX Rule 7610(d)(1). Any disputes regarding a
Floor Broker's determination of time priority sequence will be
resolved by an Options Exchange Official. See id. An Options
Exchange Official may nullify a transaction or adjust its terms if
the Official determines the transaction to have been in violation of
Exchange's Rules. See id.
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    The following BOX Book interest will have priority over the contra-
side of the QOO Order: (i) Any equal or better priced bids or offers on
the BOX Book that were submitted on behalf of persons who are not
brokers or dealers in securities (``Public Customers''); \48\ (ii) any
non-Public Customer bids or offers on the BOX Book that are ranked
ahead of such equal or better priced Public Customer bids or offers;
and (iii) any non-Public Customer bids or offers on the BOX Book that
are priced better than the proposed execution price.\49\ When
submitting the QOO Order to the BOG, a Floor Broker may, but will not
be required to, provide a ``book sweep size.'' \50\ The book sweep size
is the number of contracts, if any, of the initiating side of the QOO
Order that the Floor Broker is willing to relinquish to orders and
quotes on the BOX Book that have priority pursuant to proposed BOX Rule
7600(c).\51\ If the number of contracts on the BOX Book that have
priority over the contra-side of the QOO Order is greater than the book
sweep size set by the Floor Broker, then the QOO Order will be
rejected.\52\
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    \48\ See BOX Rule 100(a)(51).
    \49\ See proposed BOX Rule 7600(c). For Complex QOO Orders, the
following Complex Order Book interest will have priority: (i) Any
equal or better priced Public Customer Complex bids or offers on the
Complex Order Book or any non-Public Customer Complex bids or offers
on the Complex Order Book that are ranked ahead of such equal or
better priced Public Customer Complex bids or offers; and (ii) any
non-Public Customer bids or offers on the Complex Order Book that
are priced better than the proposed execution price. See id.
    \50\ See proposed BOX Rule 7600(h).
    \51\ See proposed BOX Rule 7600(h). Proposed BOX Rule IM-7600-3
states that it will be considered conduct inconsistent with just and
equitable principles of trade for any Floor Broker to use the book
sweep size for the purpose of violating the Floor Broker's duties
and obligations.
    \52\ See proposed BOX Rule 7600(h).
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    The proposed rule change also describes the allocation process for
QOO Orders.\53\ First, under the proposal, the initiating side of the
QOO Order will match against any bids or offers on the BOX Book that
have priority as outlined above, provided that an adequate book sweep
size is provided by the Floor Broker.\54\ The remaining balance, if
any, will be matched against the contra-side of the QOO Order,
regardless of whether the Floor Broker is ultimately entitled to
receive an allocation.\55\ If the QOO Order is of a certain size, which
size will be determined by the Exchange on an option by option basis
(at a size that may not be less than 500 contracts), the Floor Broker
will be entitled to cross, after all equal or better priced Public
Customer bids or offers on the BOX Book and any non-Public Customer
bids or offers that are ranked ahead of such Public Customer bids or
offers are filled, 40% of the remaining contracts in the order.\56\
Next, Floor Participants that respond with interest when the executing
Floor Broker announces the QOO Order to the trading crowd will be
allocated.\57\ If interest remains, the remaining quantity of the
initiating side of the QOO Order will be allocated to the executing
Floor Broker.\58\ If the QOO Order executes, the executing Floor Broker
will be responsible for providing the correct allocations of the
initiating side of the QOO Order to an Options Exchange Official or his
or her designee, if necessary, who will properly record the order in
the Exchange's system.\59\ Floor Brokers also will be responsible for
handling all orders in accordance with the Exchange's priority and
trade-through rules.\60\
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    \53\ See also Notice of Amendment No. 2, supra note 11, at
23668-74 (providing a detailed description and examples of how
orders will be allocated).
    \54\ See proposed BOX Rule 7600(d)(1) and (2).
    \55\ See proposed BOX Rule 7600(d)(3).
    \56\ See proposed BOX Rule 7600(f). See also proposed BOX Rule
7600(d)(3)(i). In determining whether a Complex QOO Order satisfies
the eligible order size requirement, the Complex QOO Order must
contain one leg which, standing alone, is for the eligible size or
greater. See proposed BOX Rule IM-7600-1(d).
    \57\ See proposed BOX Rule 7600(d)(3)(ii).
    \58\ See proposed BOX Rule 7600(d)(3)(iii).
    \59\ See proposed BOX Rule 7600(d)(4). The executing Floor
Broker must provide the correct allocations to an Options Exchange
Official or his or her designee, in writing, without unreasonable
delay. See id.
    \60\ See proposed BOX Rule 7600. Proposed BOX Rule 8510(h)(4)
provides that it will be considered conduct inconsistent with just
and equitable principles of trade for: (i) A Floor Broker to
allocate orders other than in accordance with the Exchange's
priority rules applicable to floor trades; (ii) a Floor Participant
to enter into any agreement with another Floor Participant
concerning allocation of trades; or (iii) a Floor Participant to
harass, intimidate or coerce another Floor Participant to make or
refrain from making any complaint or appeal.
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    The Floor Participants who established the market will have
priority over all other orders that were not announced in the trading
crowd at the time that the market was established (but not over Public
Customer orders on the BOX Book or any non-Public Customer orders that
have priority over such Public Customer orders on the BOX Book) and
will maintain priority over such orders except for orders that improve
upon the market.\61\
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    \61\ See proposed BOX Rule IM-7600-1(c). It will be the
responsibility of the Floor Participant that established the market
to alert the Floor Broker of the fact that the Floor Participant has
priority when an order is announced. See id.
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B. Additional Floor Broker Obligations

    A Floor Broker handling an order will be required to use due
diligence to cause the order to be executed at the best price or prices
available to him in accordance with the Rules of the Exchange.\62\ All
orders provided to Floor Brokers will be considered Not Held Orders
\63\ unless otherwise specified by the Floor Broker's client.\64\
However, the proposed rule change would prohibit Floor Brokers from
engaging in certain discretionary transactions.\65\ An Options Floor
Broker

handling a contingency order that is dependent upon the price of the
underlying security will be responsible for satisfying the dependency
requirement on the basis of the last reported price of the underlying
security in the primary market that is generally available on the
Trading Floor at any given time.\66\
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    \62\ See proposed BOX Rule 7570.
    \63\ See proposed BOX Rule 7600(g). A Not Held Order gives a
Floor Broker discretion as to the price or time at which such order
will be executed. See id.
    \64\ See proposed BOX Rule IM-7580-3.
    \65\ See proposed BOX Rules 7590, IM-7590-1 and IM-7590-2.
Proposed BOX Rule 7590 will prohibit Floor Brokers from executing or
causing to be executed any order or orders for which the Floor
Broker is vested with discretion as to: (i) The choice of the class
of options to be bought or sold; (ii) the number of contracts to be
bought or sold; or (iii) whether any such transaction shall be one
of purchase or sale. Proposed BOX Rule IM-7590-1 will prohibit the
holding or acceptance of certain orders that could be interpreted as
allowing the Floor Broker discretion with respect to whether to
purchase or sell options. Proposed BOX Rule IM-7590-2 will prohibit
Floor Brokers from exercising any discretion with respect to the
order of an options market maker registered on any exchange.
    \66\ See proposed BOX Rule 7580(b).
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    Floor Brokers will be required to make reasonable efforts to
ascertain whether each order entrusted to them is for the account of a
Public Customer or a broker-dealer.\67\ For broker-dealer orders, a
Floor Broker must advise the trading crowd of the fact that it is an
order for the account of a broker-dealer prior to open outcry and prior
to submitting the order for execution, as well as note such fact in the
Floor Broker's system.\68\ Additionally, a Floor Broker will be
required to inform the trading crowd when he is representing an order
for a Market Maker and will be required to comply with proposed BOX
Rules IM-8510-6 and IM-8510-9.\69\ For Public Customer orders, a Floor
Broker must disclose all securities that are components of the Public
Customer order which is subject to crossing before requesting bids and
offers for the execution of all components of the order.\70\
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    \67\ See proposed BOX Rule IM-7580-2.
    \68\ See proposed BOX Rule IM-7580-2.
    \69\ See proposed BOX Rule 7580(d). Proposed BOX Rule 8510-6
will allow the Exchange to temporarily limit the number of Floor
Market Makers in the trading crowd who are establishing or
increasing a position when the interests of a fair and orderly
market require such limitation. Proposed BOX Rule 8510-9 will
prohibit a Floor Market Maker from acquiring a ``long'' position by
pairing off with a sell order before the opening, unless all off-
Floor bids at that price are filled.
    \70\ See proposed BOX Rule IM-7600-1(a). A Floor Broker crossing
a Public Customer order with an order that is not a Public Customer
order, when providing for a reasonable opportunity for the trading
crowd to participate in the transaction, will be required to
disclose the Public Customer order that is subject to crossing. See
proposed BOX Rule IM-7600-1(e).
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C. Floor Market Makers

    Proposed BOX Rule 8500(a) will require a Floor Market Maker to
register as a Market Maker with the Exchange, and such registration
could be revoked or suspended at any time. The proposed rules will
require Floor Market Maker transactions to constitute a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market.\71\ Additionally, a Floor Market Maker will be
prohibited from effecting on the Exchange purchases or sales of any
option in which such Floor Market Maker is registered, for any account
in which he or his Options Participant is directly or indirectly
interested, unless such dealings are reasonably necessary to permit
such Floor Market Maker to maintain a fair and orderly market.\72\
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    \71\ See proposed BOX Rule 8510(a).
    \72\ See proposed BOX Rule 8500(c).
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    A Floor Market Maker will have certain affirmative obligations in
classes of options contracts to which the Floor Market Maker is
assigned.\73\ Floor Market Makers will be subject to a Continuous Open
Outcry Quoting Obligation, which will require Floor Market Makers to
provide a two-sided market complying with the quote spread parameter
requirements contained in proposed Rule 8510(d)(1), in response to any
request for a quote by a Floor Broker or Options Exchange Official.\74\
Floor Market Maker quotations must be in a size of at least 10
contracts.\75\ Additionally, Floor Market Makers will be subject to a
maximum option price change, and will not be permitted to bid more than
$1 lower and/or offer more than $1 higher than the last preceding
transaction price for a particular option contract.\76\
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    \73\ See proposed BOX Rule 8510(d). Proposed BOX Rule 8610(e)
describes the obligations of a Floor Market Maker with respect to
classes of options to which the Floor Market Maker is not appointed.
The obligations of a Floor Market Maker with respect to those
classes of options to which he is assigned will take precedence over
his other activities. See proposed BOX Rule IM-8510-1.
    \74\ See proposed BOX Rule 8510(c)(2). Quotations in open outcry
may not be made with $5 bid/ask differentials provided in BOX Rule
8040(a)(7). See proposed BOX Rule 8510(d)(1).
    \75\ See proposed BOX Rule 8510(c)(2).
    \76\ See proposed BOX Rule 8510(d)(2). This standard will not
ordinarily apply if the price per share of the underlying stock or
Exchange-Traded Fund Share has changed by more than $1 since the
last preceding transaction for the particular option contract. See
id.
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    The proposed rule change imposes other limitations on Floor Market
Makers. Specifically, subject to certain exceptions, no Floor Market
Maker will be allowed to initiate an Exchange options transaction while
on the Trading Floor for any account in which he has an interest and
execute as Floor Broker an off-floor order in options on the same
underlying interest during the same trading session, or retain priority
over an off-floor order while establishing or increasing a position for
an account in which he has an interest while on the Trading Floor of
the Exchange.\77\ The proposed rule change also describes what Floor
Market Maker orders will be considered ``on the Floor'' and which Floor
Market Maker orders will be subject to certain restrictions of the
proposed rule change.\78\
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    \77\ See proposed BOX Rule 8510(f) and (g).
    \78\ See proposed BOX Rules IM-8510-3(b), IM-8510-4 and IM-8510-
5.
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D. Options Exchange Officials and Supervision of the Trading Floor

    Under the proposed rule change, the President of the Exchange and
his or her designated staff will be responsible for monitoring: (1)
Dealings of Floor Participants and their associated persons on the
Trading Floor, and of the premises of the Exchange immediately adjacent
thereto; (2) the activities of Floor Participants and their associated
persons, in addition to establishing standards and procedures for the
training and qualification of Floor Participants and their associated
persons active on the Trading Floor; (3) all Trading Floor employees of
Floor Brokers and Floor Market Makers, and will make and enforce such
rules with respect to such employees as may be deemed necessary; (4)
all connections or means of communications with the Trading Floor, and
may require the discontinuance of any such connection or means of
communication when, in the opinion of the President or his or her
designee, it is contrary to the welfare or interest of the Exchange;
(5) the location of equipment and the assignment and use of space on
the Trading Floor; and (6) relations with other options exchanges.\79\
---------------------------------------------------------------------------

    \79\ See proposed BOX Rule 100(b)(1). The Exchange states that
it will submit a separate filing to the Commission to amend the
Exchange's Minor Rule Violation Plan in BOX Rule 12140 to cover
minor rule violations on the Trading Floor. The Exchange represents
that it will not commence operation of the Trading Floor until the
Exchange's Minor Rule Violation Plan has been amended to include
violations which may occur on the Trading Floor.
---------------------------------------------------------------------------

    The proposed rule change provides for the designation of Options
Exchange Officials. Specifically, any Exchange employee or officer may
be designated as an Options Exchange Official and will have the ability
to recommend and enforce rules and regulations relating to trading
access, order, decorum, health, safety and welfare on the Exchange.\80\
An Options Exchange Official will be required to, among other things,
certify that Floor Brokers adequately announce QOO Orders to the
trading crowd,\81\ resolve disputes regarding a Floor Broker's
determination of time priority sequence,\82\ and properly record the
allocation of the initiating side of a QOO Order as provided by a Floor
Broker.\83\ Options Exchange Officials will also be

allowed to temporarily limit the number of Floor Market Makers in the
trading crowd who are establishing or increasing a position when the
interests of a fair and orderly market are served by such
limitation,\84\ as well as call upon a Floor Market Maker to make a
market.\85\
---------------------------------------------------------------------------

    \80\ See proposed BOX Rule 100(b)(6).
    \81\ See proposed BOX Rule 7600(b).
    \82\ See proposed BOX Rule 7610(d)(1).
    \83\ See proposed BOX Rule 7600(d)(4).
    \84\ See proposed BOX Rule IM-8510-6.
    \85\ See proposed BOX Rule 8510(d). See also proposed BOX Rule
7610(d)(3).
---------------------------------------------------------------------------

    In addition, disputes occurring on and relating to the Trading
Floor, if not settled by agreement between the interested Floor
Participants, will be settled by an Options Exchange Official.\86\
Options Exchange Officials will have the authority to direct the
execution of an order, adjust the transaction terms or Participants to
an executed order, or nullify a transaction if the Options Exchange
Official determines the transaction to have been in violation of
Exchange Rules.\87\ All Options Exchange Official rulings are effective
immediately and failure to comply with such a ruling may result in an
additional violation.\88\ All Options Exchange Official rulings are
reviewable by the Chief Regulatory Officer or his or her designee, and
the proposed rule change provides procedures regarding review of
rulings by Options Exchange Officials.\89\
---------------------------------------------------------------------------

    \86\ See proposed BOX Rule 7640(a). The Exchange will be
permitted to determine that an Options Exchange Official is
ineligible to participate in a particular ruling where it appears
such Options Exchange Official has a conflict of interest. See
proposed BOX Rule IM-7640-1.
    \87\ See proposed BOX Rule 7640(b).
    \88\ See proposed BOX Rule 7640(c).
    \89\ See proposed BOX Rule 7640(e).
---------------------------------------------------------------------------

E. Clerks

    The Exchange will permit Clerks--defined as any registered on-floor
persons employed by or associated with a Floor Broker or Floor Market
Maker and who are not eligible to effect transactions on the Trading
Floor as a Floor Market Maker or Floor Broker--on the Trading
Floor.\90\ Proposed Rule 7630 sets forth identification requirements,
registration requirements, and provisions relating to conduct on the
Trading Floor with respect to Clerks.\91\ A Floor Broker Clerk will be
permitted to enter an order under the direction of a Floor Broker by
way of any order handling device.\92\ A Floor Market Maker Clerk will
be permitted to communicate verbal market information (i.e., bid,
offer, and size) in response to requests for such information, provided
that such information is communicated under the direct supervision of
his or her Floor Market Maker employer, and such bids and offers are
binding as if made by the Floor Market Maker employer.\93\ All Trading
Floor personnel, including clerks, interns, stock execution clerks and
any other associated persons, of a Floor Participant not required to
register pursuant to proposed Rule 2020(h) must be registered as a
``Floor Employee'' under ``BOX'' on Form U4.\94\
---------------------------------------------------------------------------

    \90\ See proposed BOX Rule 7630(a).
    \91\ See proposed BOX Rule 7630. Among other things, proposed
BOX Rule 7630 will require Clerks to display prominently at all time
badge(s) supplied to them by the Exchange while on the Trading Floor
and specifies that Clerks will be primarily located at a workstation
assigned to his employer unless the Clerk is (i) entering or leaving
the Trading Floor; (ii) transmitting, correcting, or checking the
status of an order or reporting or correcting an executed trade; or
(iii) supervising other Clerks. See id.
    \92\ See proposed BOX Rule 7630(e).
    \93\ See proposed BOX Rule 7630(f)(2).
    \94\ See proposed BOX Rule 2020(i).
---------------------------------------------------------------------------

F. Communications and Equipment

    The Exchange proposes BOX Rule 7660 to govern communications and
equipment on the Trading Floor, including registration requirements,
restrictions on use, capacity and functionality, recordkeeping
requirements and exchange liability. Among other things, the proposed
rule will allow Floor Market Makers to use their own cellular and
cordless phones to place calls to any person at any location (whether
on or off the Trading Floor) and allow Floor Brokers to use any
communication device on the Trading Floor and in the Crowd Area to
receive orders, provided that the Exchange's audit trail and record
retention requirements are satisfied.\95\ In addition, the Exchange
represents that it has established a Communications Devices policy and
violations of this policy may result in disciplinary action by the
Exchange.\96\ Proposed BOX Rule 7660 and any relevant Exchange policy
are intended to apply to all communication and other electronic devices
on the Trading Floor, including, but not limited to, wireless, wired,
tethered, voice, and data.\97\
---------------------------------------------------------------------------

    \95\ See proposed BOX Rule 7660(h) and (i).
    \96\ See proposed BOX Rule IM-7660-1.
    \97\ See proposed BOX Rule IM-7660-2.
---------------------------------------------------------------------------

G. Other Changes

    The Exchange's proposal includes several other provisions relating
to the proposed Trading Floor, including Trading Floor hours; \98\
Trading Floor admittance; \99\ the term ``on the Floor,'' which means
the Trading Floor, the rooms, lobbies and other premises immediately
adjacent thereto made available by the Exchange for use by Floor
Participants generally; other rooms, lobbies and premises made
available by the Exchange primarily for use by Floor Participants; and
the telephone and other facilities in any such place;'' \100\ and the
location of Floor Participants on the Trading Floor.\101\ The proposal
also includes provisions relating generally to Floor Participants,
including the registration of Floor Participants; \102\ excepting Floor
Participants who do not conduct business with the public from brokers'
blanket bond requirements; \103\ requiring Floor Participants to
procure and maintain liability insurance; \104\ generally prohibiting
trading for joint accounts without the prior approval of the exchange;
\105\ prohibiting Floor Participants from relying on an exemption under
Section 11(a)(1)(G) of the Act; \106\ and procedures governing the
resolution of uncompared trades between Floor Participants.\107\ To
accommodate new definitions relevant to the proposed Trading Floor, the
Exchange is also renumbering certain subparts of Rule 100, Definitions,
and making corresponding changes to update cross-references to such
definitions where appropriate.\108\
---------------------------------------------------------------------------

    \98\ See proposed BOX Rule 7500.
    \99\ See proposed BOX Rules 7510 and 7520.
    \100\ See proposed BOX Rule IM-8510-3(a).
    \101\ See proposed BOX Rule IM-8510-7.
    \102\ See BOX Rule 2020(h).
    \103\ See proposed BOX Rule 4180(g).
    \104\ See proposed BOX Rule 7230(f).
    \105\ See proposed BOX Rule 7650.
    \106\ See proposed BOX Rule IM-7600-5.
    \107\ See proposed BOX Rule 8530(a).
    \108\ See, e.g., proposed BOX Rules 100, 7130, 7150, 7245.
---------------------------------------------------------------------------

H. Trading Floor Data

    The Exchange represents that it will provide the Commission with
data related to activity on the Trading Floor.\109\ Specifically, the
Exchange will provide information regarding size, participation, price
improvement by spread and trade type, effective spread, Floor Market
Maker participation, and BOX Book participation.\110\ Firm-specific
information will be provided to the Commission on a confidential basis
each quarter and non-firm specific information will be made available
to the public quarterly on the Exchange's Web site.\111\
---------------------------------------------------------------------------

    \109\ See Notice of Amendment No. 2, supra note 11, at 23679.
    \110\ See id.
    \111\ See id.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review and consideration of the comments received,
the Commission finds that the proposed rule change, as modified by
Amendment Nos. 1 and 2, is consistent with the

requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\112\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment Nos. 1 and 2, is consistent with Sections 6(b)(1) and 6(b)(5)
of the Act.\113\ Section 6(b)(1) of the Act \114\ requires an exchange
to be so organized and have the capacity to be able to carry out the
purposes of the Act and to comply, and to enforce compliance by its
members and persons associated with its members, with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
exchange. Section 6(b)(5) of the Act \115\ requires, among other
things, that the rules of a national securities exchange be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and 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; and not be designed to
permit unfair discrimination between customers, issuers, brokers or
dealers.
---------------------------------------------------------------------------

    \112\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \113\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(5).
    \114\ 15 U.S.C. 78f(b)(1).
    \115\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As previously noted, the Commission received three comment letters
on the initial proposed rule change, and one response letter from
BOX.\116\ Subsequently, the Commission received five comment letters on
the Order Instituting Proceedings and the proposed rule change as
modified by Amendment No. 1, as well as a second response letter from
BOX. Of these five comment letters, two urged disapproval of the
proposed rule change,\117\ while the remaining three requested clarity
or more specificity on various aspects of the proposal.\118\ Finally,
in response to the publication of Amendment No. 2, two prior commenters
submitted additional letters and BOX submitted an additional response
letter.\119\ One of these commenters raised concerns with several
aspects of the proposal for which it requested further
consideration,\120\ while the other commenter urged disapproval of the
proposed rule change, as amended.\121\
---------------------------------------------------------------------------

    \116\ These comments, as well as BOX's initial response, are
described in detail in the Order Instituting Proceedings. See Order
Instituting Proceedings, supra note 7.
    \117\ See CBOE Letter II and CTC Letter II, supra note 8.
    \118\ See Group One Letter, Nasdaq Letter II, and NYSE Letter,
supra note 8.
    \119\ See Nasdaq Letter III and CTC Letter III, supra note 13
and BOX Response Letter III, supra note 14.
    \120\ See Nasdaq Letter III, supra note 13.
    \121\ See CTC Letter III, supra note 13.
---------------------------------------------------------------------------

A. BOX Floor Participation

1. Floor Market Maker Presence Requirement
    Four commenters expressed concern that BOX's initial proposal would
allow a Floor Broker to execute trades on the Trading Floor when no
Floor Market Makers are present.\122\ One commenter argued that options
exchange trading floors grew from crowded equities or futures floors
and therefore were certain to have robust and active market maker
populations.\123\ The commenter further stated that the lack of rules
to ensure robust market maker participation on the proposed Trading
Floor would provide a way for internalizers to avoid exposure to market
makers who might otherwise provide price improvement, which is contrary
to investor protection and the public interest.\124\ One commenter
stated that allowing orders to be crossed without meaningful exposure
to other market participants deprives floor orders of the opportunity
for exposure to a bona fide open-outcry auction process.\125\ Another
commenter suggested that orders should be exposed to any Floor
Participant that is eligible to interact as part of the crossing
transaction.\126\ Another commenter argued that any proposed new
options trading floor should be required to electronically expose all
orders originating on the trading floor to qualified market
participants off the trading floor before such orders would be
permitted to execute.\127\
---------------------------------------------------------------------------

    \122\ See CTC Letters I & II, CBOE Letter II, Group One Letter,
and Nasdaq Letter II, supra notes 4 and 8.
    \123\ See CTC Letter I, supra note 4, at 4.
    \124\ See id. at 4-5. See also Group One Letter and NYSE Letter,
supra note 8.
    \125\ See Group One Letter, supra note 8, at 2.
    \126\ See NYSE Letter, supra note 8, at 2.
    \127\ See CTC Letter I, supra note 4, at 3-4.
---------------------------------------------------------------------------

    One commenter suggested that prior to the commencement of trading,
BOX should be required to demonstrate that the Trading Floor is
sufficiently populated with market participants, particularly Floor
Market Makers, to ensure that a reasonable amount of liquidity
exists.\128\ This commenter further noted that a well-populated trading
floor is important for fostering price competition.\129\
---------------------------------------------------------------------------

    \128\ See Nasdaq Letter III, supra note 13, at 3.
    \129\ See id. at 2.
---------------------------------------------------------------------------

    In response to concerns about the potential for trades to be
executed in the absence of a Floor Market Maker on the Trading Floor,
BOX submitted Amendment No. 2 to require a Floor Broker to ascertain
that at least one Floor Market Maker is present in the trading crowd
prior to announcing an order to the trading crowd.\130\ In addition, in
response to concerns regarding a potential lack of order exposure to
other Floor Participants, BOX stated that proposed Rules 7580(e)(2) and
7600(b) require all orders from the Trading Floor to be exposed to the
trading crowd prior to execution in the Trading Host and to require a
Floor Broker to give Floor Participants a reasonable amount of time to
respond once an order is announced to the trading crowd.\131\ BOX
further stated that the proposal has always required orders to be
exposed to the trading crowd prior to execution.\132\ In addition, BOX
stated that it plans to launch its trading operations on the Trading
Floor as soon as the requisite number of Floor Market Makers and Floor
Brokers are registered and able to participate on the Trading
Floor.\133\
---------------------------------------------------------------------------

    \130\ See BOX Response Letter II, supra note 12, at 3. See also
Notice of Amendment No. 2, supra note 11, at 23663.
    \131\ See BOX Response Letter II, supra note 12, at 2-3.
    \132\ See id.
    \133\ See BOX Response Letter III, supra note 14, at 2.
---------------------------------------------------------------------------

    The Commission notes that the Exchange amended its proposal to
require a Floor Broker to ascertain that at least one Floor Market
Maker be present in the Crowd Area prior to announcing an order to the
trading crowd. The Commission believes that this requirement--along
with the BOX's other amendments to the proposal, such as the changes to
the crowd area presence requirement and the Floor Market Maker quoting
requirement, described below--are designed to increase the
opportunities for another Floor Participant to compete to interact with
the orders on the Trading Floor.\134\
---------------------------------------------------------------------------

    \134\ See proposed BOX Rule 7580(a).
---------------------------------------------------------------------------

2. Crowd Area Presence Requirement
    Four commenters raised concerns with the proposed requirement in
BOX's initial proposed rule change that a Floor Market Maker must be
physically located in a specific Crowd Area to be deemed participating
in the Crowd.\135\

Two commenters expressed concern regarding the proposed rule change's
description and application of physical boundary requirements.\136\ One
commenter suggested that this aspect of the proposed rule change would
limit potential opportunities for market maker price improvement.\137\
Another commenter suggested that the proposal to allow a Floor Market
Maker to participate in a crowd only if he or she is physically located
in a specific Crowd Area ``at the time the order is represented in the
crowd'' is designed to discourage Floor Market Makers from providing
liquidity.\138\ The commenter suggested that the Exchange could instead
open a Trading Floor comprised of a single Crowd Area with rules
permitting all Floor Market Makers to trade all issues as a means to
help ensure opportunities for price improvement.\139\ Another commenter
stated that, without knowledge of the order, it will be impossible for
market makers to position themselves in advance in the appropriate pit,
and therefore, multiple crowd areas will limit the ability of Floor
Market Makers to participate, potentially threatening the best
execution of customer orders.\140\
---------------------------------------------------------------------------

    \135\ See CBOE Letters I & II, CTC Letters I & II, Group One
Letter, and NYSE Letter, supra notes 4 and 8.
    \136\ See CBOE Letter I and CTC Letter I, supra note 4.
    \137\ See CBOE Letter I, supra note 4, at 2, n.2.
    \138\ See CTC Letter I, supra note 4, at 6.
    \139\ See id.
    \140\ See Group One Letter, supra note 8, at 2.
---------------------------------------------------------------------------

    In response to these concerns, BOX submitted Amendment No. 2 to
provide that the Trading Floor will be comprised of a single Crowd
Area.\141\ BOX further noted that all options classes will be located
in that Crowd Area, and Floor Brokers must expose orders via open
outcry in the Crowd Area.\142\
---------------------------------------------------------------------------

    \141\ See BOX Response Letter II, supra note 12, at 2.
    \142\ See id.
---------------------------------------------------------------------------

    The Commission believes that providing all Floor Market Makers the
opportunity to respond to all orders on the Trading Floor is designed
to increase the potential for competition for an order, which may
increase the quality of order executions on BOX.\143\
---------------------------------------------------------------------------

    \143\ See proposed BOX Rule 100(b)(5).
---------------------------------------------------------------------------

3. Market Makers Must Opt-In To Participate
    Four commenters expressed concern about the aspect of the proposal
that requires market makers to affirmatively opt-in to participate in a
floor trade.\144\ One commenter opposed the concept of assuming a
market maker to be ``out'' by default and expressed their preference
that BOX be required to allow Floor Market Makers to respond to a Floor
Broker's request for a quote before a cross is executed.\145\ Another
commenter stated its belief that the proposed default ``out'' is
unnecessary so long as the proposed rules support ample opportunities
for Floor Market Maker participation.\146\ Another commenter requested
clarification as to what would constitute participation for Floor
Market Makers,\147\ while a different commenter suggested that a Floor
Market Maker's failure to bid or offer in ``immediate and rapid
succession'' could be treated the same way as the Floor Market Maker
not responding at all--with the result that the Floor Market Maker will
be considered ``out'' on the trade.\148\
---------------------------------------------------------------------------

    \144\ See CTC Letter II, Group One Letter, Nasdaq Letter II, and
NYSE Letter, supra note 8.
    \145\ See CTC Letter II, supra note 8, at 6.
    \146\ See Group One Letter, supra note 8, at 3.
    \147\ See Nasdaq Letter II, supra note 8, at 3.
    \148\ See NYSE Letter, supra note 8, at 2.
---------------------------------------------------------------------------

    In response, BOX submitted Amendment No. 2 to provide that a Floor
Broker will be required to give Floor Participants a reasonable amount
of time to respond once the Floor Broker announces an order to the
trading crowd.\149\ BOX also clarified that after a Floor Broker
announces an order, a Floor Participant must verbalize that he is
``in'' even if the Floor Participant has already provided a valid quote
prior to the announcement of the order by the Floor Broker.\150\
---------------------------------------------------------------------------

    \149\ See Notice of Amendment No. 2, supra note 11, at 23659.
See also proposed BOX Rule 100(b)(5).
    \150\ See Notice of Amendment No. 2, supra note 11, at 23660. In
addition, the Exchange noted that at least one other options
exchange with an options floor also requires members of its trading
crowd to respond to participate in a floor crossing transaction. See
CBOE Rule 6.74(a). See also NYSE Arca Rule 6.47(a); and NYSE
American LLC Rule 934NY.
---------------------------------------------------------------------------

    The Commission believes the proposal should ensure that Floor
Participants may respond to orders announced in the trading crowd. In
addition, the Commission notes that Amendment No. 2 will require an
Options Exchange Official to certify that a Floor Broker adequately
announced a QOO Order to the trading crowd.\151\
---------------------------------------------------------------------------

    \151\ See proposed BOX Rule 7600(b).
---------------------------------------------------------------------------

4. Floor Market Maker Quoting Requirement
    Five commenters expressed concern with the proposed requirement in
BOX's initial proposed rule change that Floor Market Makers would have
to quote electronically in all classes offered on the proposed Trading
Floor.\152\ One commenter stated that the imposition of an electronic
quoting requirement could limit potential market maker price
improvement.\153\ This commenter further argued that the quoting
requirement creates a barrier to entry that they believe will limit
market-maker participation on the Trading Floor.\154\ Another commenter
suggested that the proposed requirement appears to impose a costly and
unprofitable burden on would-be market makers, which will discourage
them from participating on the Trading Floor and which in turn will
create a trading floor which is devoid of opportunities for meaningful
order exposure and price improvement.\155\ This commenter further
argued that the proposed rule change will discourage competitive market
maker participation on the proposed Trading Floor.\156\ In response to
commenters' concerns, in Amendment No. 2, BOX eliminated the
requirement to quote electronically in the classes that the Floor
Market Maker quotes on the Trading Floor.\157\
---------------------------------------------------------------------------

    \152\ See CBOE Letters I & II, CTC Letters I & II, Group One
Letter, Nasdaq Letters I & II, and NYSE Letter, supra notes 4 and 8.
    \153\ See CBOE Letter I, supra note 4, at 2 n.2.
    \154\ See CBOE Letter II, supra note 8, at 2.
    \155\ See CTC Letter I, supra note 4, at 5. See also CTC Letter
III, supra note 13, at 2.
    \156\ See CTC Letter I, supra note 4, at 5.
    \157\ See Notice of Amendment No. 2, supra note 11, at 23658.
See also BOX Response Letter II, supra note 12, at 2.
---------------------------------------------------------------------------

    The Commission believes that BOX's proposal to require a Floor
Market Maker to provide a two-sided market that complies with certain
delineated quote spread parameters in response to any request for quote
by a Floor Broker or Options Exchange Official, is consistent with the
Act.

B. Single-Sided Floor Orders

    Two commenters raised concerns about the inability of Floor
Participants to represent single-sided orders on the proposed BOX
Floor.\158\ One commenter noted that some language in Amendment No. 1
``welcomes'' Floor Brokers to bring unmatched orders to the Trading
Floor, while other language stated that ``orders on the floor must be
two-sided orders,'' which the commenter found to be contradictory and
confusing.\159\ In response, the Exchange submitted Amendment No. 2 to
specifically state that Floor Brokers will be permitted to bring an
unmatched order to the Trading Floor in order to seek a contra-side,
and then enter the order into the BOX system using the QOO order
type.\160\
---------------------------------------------------------------------------

    \158\ See CBOE Letter I and CTC Letters I & II, supra notes 4
and 8.
    \159\ See CTC Letter II, supra note 8, at 8.
    \160\ See proposed BOX Rules 7580(e)(2), 7600(b), IM-7600-4. See
also BOX Response Letter I, supra note 6, at 4.
---------------------------------------------------------------------------

    Specifically, the Exchange noted that, as was true in its initial
proposed rule

change, Floor Brokers will be permitted to bring single-sided orders to
the Trading Floor in order to find contra-side liquidity.\161\ The
Commission notes that the Exchange's proposed rules state that Floor
Brokers will have the ability to represent single-sided orders on the
Trading Floor, will be permitted to solicit bids and offers from Floor
Market Makers to provide a contra-side order, and set forth rules
governing the handling and execution of single-sided orders originating
on the Trading Floor.
---------------------------------------------------------------------------

    \161\ See Notice of Amendment No. 2, supra note 11, at 23660.
---------------------------------------------------------------------------

C. Trade-Through and Priority Rules

    One commenter stated that the proposed rule change is unclear
regarding how the proposed BOG would systematically prevent violations
of priority and trade-through requirements.\162\ This commenter further
stated that it is unclear whether exposure in the trading crowd is
required and whether the market against which trades are validated
differs depending on the method of execution.\163\ Specifically, the
commenter claimed that the proposed rule change does not sufficiently
describe the timing and process for validating trades.\164\ In
addition, this commenter stated that the proposed rule change does not
discuss the specific manner in which surveillance reviews transactions
for violations of Exchange rules or the manner in which the BOG or the
Exchange enforces compliance for on-floor transactions.\165\
---------------------------------------------------------------------------

    \162\ See Nasdaq Letter I, supra note 4, at 2. See also Nasdaq
Letter II, supra note 8, at 3-4.
    \163\ See Nasdaq Letter I, supra note 4, at 2.
    \164\ See id.
    \165\ See id. at 3.
---------------------------------------------------------------------------

    In response to the commenter's concern that the proposed rule
change is unclear about whether the BOG would systematically prevent
violations of priority and trade-through requirements, BOX stated that
the method by which trades are received and processed by the Trading
Host serves as a safeguard to prevent violations of the priority and
trade-through requirements.\166\ BOX also noted that the execution does
not occur when there is verbal agreement in the trading crowd, but
rather when the executing Floor Broker sends the order from the Trading
Floor to the Trading Host for execution.\167\ BOX further stated that
it structured the proposal to prevent trade-through violations and
protect priority interest on the BOX Book.\168\
---------------------------------------------------------------------------

    \166\ See BOX Response Letter I, supra note 6, at 1-2. See also
BOX Response Letter II, supra note 12, at 3 (stating that since the
execution does not occur until the order is processed by the Trading
Host, the system will enforce compliance with trade-through,
priority, and other rules).
    \167\ See BOX Response Letter II, supra note 12, at 3.
    \168\ See BOX Response Letter I, supra note 6, at 2.
---------------------------------------------------------------------------

    In response to the commenter's suggestion that the proposed rule
change does not adequately discuss surveillance, BOX stated that it
currently has surveillance procedures in place to monitor compliance
with the Exchange's rules and that these procedures will be used to
monitor transactions originating from the Trading Floor.\169\
---------------------------------------------------------------------------

    \169\ See id.
---------------------------------------------------------------------------

    In response to BOX's assurances regarding its proposed surveillance
procedures, the commenter stated that it is unclear whether BOX would
have real-time surveillance coverage on the trading floor in addition
to other types of surveillance coverage.\170\ The commenter suggested
that real-time surveillance is necessary to monitor the unique aspects
of member floor trading, such as negotiating open-outcry trades,
handling floor disputes, and maintaining the ability to manually
intervene in the floor environment.\171\
---------------------------------------------------------------------------

    \170\ See Nasdaq Letter III, supra note 13, at 1-2.
    \171\ See id.
---------------------------------------------------------------------------

    In response, BOX stated that it will have both a real-time
surveillance presence on the trading floor and other surveillance
coverage.\172\ BOX further noted that proposed Rule 7600(b) will
require an Options Exchange Official to certify that a Floor Broker
adequately announced a QOO Order to the trading crowd and stated that
such certification is only possible if the Official is physically
present on the Trading Floor.\173\ Finally, BOX reiterated that because
all orders from the Trading Floor will be processed by the Trading
Host, the Exchange also will electronically monitor all orders from the
Trading Floor in the same manner as it does with electronic
orders.\174\
---------------------------------------------------------------------------

    \172\ See BOX Response Letter III, supra note 14, at 2.
    \173\ See id.
    \174\ See id.
---------------------------------------------------------------------------

    The Commission notes that the Exchange represents that the Trading
Host will establish an electronic audit trail for options orders
represented and executed by Floor Brokers, that according to the
Exchange, will provide an accurate time-sequenced record of all orders
from the Trading Floor, beginning with the receipt of an order by the
Exchange and documenting all stages of the order.\175\ The Commission
believes that the proposed systematization of all orders submitted to
the Trading Floor is designed to provide a more complete audit trail
and allow the Exchange to better monitor compliance with applicable
Commission regulations and Exchange Rules.\176\ In addition, the
Commission notes that the proposal requires all QOO Orders to be
submitted through the BOG to be immediately processed by the Trading
Host.\177\ The Commission further notes that orders are not deemed
executed until they are processed by the Trading Host. The Commission
believes that the automation provided by the BOG and the Trading Host
may benefit the Exchange, its members and users, and other market
participants by, for example, producing more accurate and timely trade
reports and should ensure compliance with trade-through and priority
rules. For example, the Trading Host will automatically prohibit a QOO
Order from executing if such execution would trade-through a better
priced order on the BOX Book (and the Floor Broker does not provide an
adequate book sweep size) or on another market.\178\ In addition,
processing and executing all QOO Orders by the Trading Host could
provide a more accurate timestamp for audit trail and recordkeeping
purposes than a manual alternative.\179\ The Commission believes that
the functionality provided by the BOG and the Trading Host is
reasonably designed to assist Floor Participants in complying with
applicable Commission rules and regulations, and with the Exchange's
Rules.
---------------------------------------------------------------------------

    \175\ See Notice of Amendment No. 2, supra note 11, at 23661.
    \176\ See proposed BOX Rule 7580(e)(1).
    \177\ See proposed BOX Rule 100(b)(2).
    \178\ See proposed BOX Rule 7600.
    \179\ The Commission notes that the proposed rule change does
not permit trades to occur on the Trading Floor if there is a
malfunction with the Trading Host or related Trading Floor systems
such as the BOG. See proposed BOX Rule 7580(e)(1).
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D. Book Sweep

    Three commenters expressed concern about the proposed ``book sweep
size'' mechanism.\180\ One commenter suggested that the book sweep size
would be a feature that prevents executions of orders on the BOX
Book.\181\ The commenter further stated that the book sweep mechanism
could prevent orders from executing in circumstances where there are
orders on the BOX Book that could fill the order, possibly at a better
price, and thus the mechanism potentially compromises its participants'
compliance with best-execution obligations and unfairly discriminates
against investors with

executable orders resting in the BOX Book.\182\ Another commenter
suggested that the book sweep size functionality could allow Floor
Brokers to ensure the internalization of orders by not designating a
book sweep size.\183\
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    \180\ See CBOE Letter II, CTC Letters I, II, & III, and NYSE
Letter, supra notes 4, 8 and 13.
    \181\ See CTC Letter I, supra note 4, at 7. See also CTC Letter
III, note 13, at 3.
    \182\ See CTC Letter I, supra note 4, at 7-8. See also CTC
Letter III, note 13, at 3.
    \183\ See CBOE Letter II, supra note 8, at 2.
---------------------------------------------------------------------------

    In response to the commenters' concerns regarding the book sweep
size aspect of the proposal, BOX stated that the book sweep size is a
voluntary tool that will aid Floor Brokers in satisfying duties owed to
their customers, such as best execution.\184\ For example, according to
BOX, when a Floor Broker needs an order to be executed immediately, the
broker could opt either to provide a book sweep size equal to the
entire size of the order, which provides liquidity to the BOX Book, or
to provide an execution price that is better than the current best
price on BOX, which presents an opportunity for potential price
improvement.\185\ BOX also noted that it believes functionality similar
to the book sweep size mechanism is available on at least one other
trading floor, so the book sweep size aspect of its proposal is not
unique.\186\ BOX further stated that any Floor Broker that uses the
book sweep size for the purpose of violating his or her duties and
obligations will be considered to have engaged in conduct inconsistent
with just and equitable principles of trade.\187\
---------------------------------------------------------------------------

    \184\ See BOX Response Letter I, supra note 6, at 3-4. See also
BOX Response Letter II, supra note 12, at 3-4; BOX Response Letter
III, supra note 14, at 3.
    \185\ See BOX Response Letter I, supra note 6, at 4.
    \186\ See id. See also BOX Response Letter II, supra note 12, at
4; BOX Response Letter III, supra note 14, at 3. BOX states that it
believes the proposed book sweep size mechanism is comparable to the
PHLX Floor Broker Management System.
    \187\ See BOX Response Letter II, supra note 8, at 4.
---------------------------------------------------------------------------

    The Commission believes that the book sweep size functionality
should provide Floor Brokers with an efficient mechanism to
automatically execute orders (provided they designate a sufficient book
sweep size) without having to send a separate order to clear orders on
the BOX Book that have priority.
    The Commission reminds broker-dealers that they have a legal duty
to seek to obtain best execution of customer orders.\188\ A broker-
dealer's duty of best execution derives from common law agency
principles and fiduciary obligations, and is incorporated in SRO rules
and, through judicial and Commission decisions, the antifraud
provisions of the federal securities laws.\189\ The duty of best
execution requires broker-dealers to periodically assess the quality of
competing markets to assure that order flow is directed to the markets
providing the most beneficial terms for their customer orders.\190\
Broker-dealers must examine their procedures for seeking to obtain best
execution in light of market and technology changes and modify those
practices if necessary to enable their customers to obtain the best
reasonably available prices.\191\ In doing so, broker-dealers must take
into account price improvement opportunities, and whether different
markets may be more suitable for different types of orders or
particular securities.\192\
---------------------------------------------------------------------------

    \188\ See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner &
Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir.), cert. denied, 525
U.S. 811 (1998); Certain Market Making Activities on Nasdaq,
Securities Exchange Act Release No. 40900 (Jan. 11, 1999) (settled
case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); In re
Arleen Hughes, 27 SEC 629, 636 (1948), aff'd sub nom. Hughes v. SEC,
174 F.2d 969 (D.C. Cir. 1949)). See also Order Execution
Obligations, Securities Exchange Act Release No. 37619A (Sept. 6,
1996), 61 FR 48290 (Sept. 12, 1996) (``Order Handling Rules
Release'').
    \189\ Order Handling Rules Release, supra note 188, at 48322.
See also Newton, 135 F.3d at 270. Failure to satisfy the duty of
best execution can constitute fraud because a broker-dealer, in
agreeing to execute a customer's order, makes an implied
representation that it will execute it in a manner that maximizes
the customer's economic gain in the transaction. See Newton, 135
F.3d at 273 (``[T]he basis for the duty of best execution is the
mutual understanding that the client is engaging in the trade--and
retaining the services of the broker as his agent--solely for the
purpose of maximizing his own economic benefit, and that the broker
receives her compensation because she assists the client in reaching
that goal.''); In re Marc N. Geman, Securities Exchange Act Release
No. 43963 (Feb. 14, 2001) (citing Newton, but concluding that
respondent fulfilled his duty of best execution). See also Payment
for Order Flow, Securities Exchange Act Release No. 34902 (Oct. 27,
1994), 59 FR 55006, 55009 (Nov. 2, 1994) (``Payment for Order Flow
Final Rules''). If the broker-dealer intends not to act in a manner
that maximizes the customer's benefit when he accepts the order and
does not disclose this to the customer, the broker-dealer's implied
representation is false. See Newton, 135 F.3d at 273-274.
    \190\ Order Handling Rules Release, supra note 188, at 48322-33
(``In conducting the requisite evaluation of its internal order
handling procedures, a broker-dealer must regularly and rigorously
examine execution quality likely to be obtained from different
markets or market makers trading a security.''). See also Newton,
135 F.3d at 271; Market 2000: An Examination of Current Equity
Market Developments, at V-4 (SEC Division of Market Regulation
January 1994) (``Without specific instructions from a customer,
however, a broker-dealer should periodically assess the quality of
competing markets to ensure that its order flow is directed to
markets providing the most advantageous terms for the customer's
order.''); Payment for Order Flow Final Rules, supra note 189, at
55009.
    \191\ Order Handling Rules, supra note 188 at 48323.
    \192\ See id.
---------------------------------------------------------------------------

E. Compliance With Section 11(a) of the Act

    One commenter expressed concern that BOX may not have adequately
explained how options participants would comply with Section 11(a)(1)
of the Act when effecting transactions through the BOG.\193\ More
specifically, this commenter noted that BOX did not explain how a BOX
member that is the counterparty to a QOO Order would comply with
Section 11(a) of the Act.\194\ In response, BOX amended its proposal to
help ensure compliance with Section 11(a)(1) of the Act.\195\
---------------------------------------------------------------------------

    \193\ See NYSE Letter, supra note 8, at 5-6.
    \194\ See id.
    \195\ See BOX Response Letter II, supra note 12, at 4.
---------------------------------------------------------------------------

    Section 11(a)(1) of the Act \196\ prohibits a member of a national
securities exchange from effecting transactions on that exchange for
its own account, the account of an associated person, or an account
over which it or its associated person exercises investment discretion
(collectively, ``covered accounts''), unless an exception applies.
Sections 11(a)(1)(A)-(I) of the Act \197\ and the rules thereunder
provide certain exemptions from this general prohibition, including the
exemption set forth in Rule 11a2-2(T) under the Act.\198\ The Exchange
represents that its proposed rule change is consistent with Section
11(a) of the Act and the rules thereunder.\199\ The Exchange also
states that the proposed rule change would not limit in any way the
obligation of a Participant to comply with Section 11(a) of the Act or
the rules thereunder.\200\
---------------------------------------------------------------------------

    \196\ 15 U.S.C. 78k(a)(1).
    \197\ 15 U.S.C. 78k(a)(1)(A)-(I).
    \198\ 17 CFR 240.11a2-2(T).
    \199\ See Notice of Amendment No. 2, supra note 11, at 23681.
    \200\ See id.
---------------------------------------------------------------------------

    The Commission notes that the Exchange proposes to adopt IM-7600-5,
which states that a Participant shall not utilize the Trading Floor to
effect any transaction for a covered account by relying on an exemption
under Section 11(a)(1)(G) of the Act (``G Exemption'').\201\ As the
Exchange notes,

because no covered account transactions utilizing the Trading Floor may
rely on the G Exemption, Participants utilizing the Trading Floor to
effect transactions for covered accounts may only rely upon other
exemptions to the Section 11(a)(1) prohibition.\202\
---------------------------------------------------------------------------

    \201\ 15 U.S.C. 78k(a)(1)(G). Section 11(a)(1)(G) of the Act
provides an exemption from the general prohibition in Section
11(a)(1) of the Act for any transaction for a member's own account,
provided that: (i) Such member is primarily engaged in the business
of underwriting and distributing securities issued by other persons,
selling securities to customers, and acting as broker, or any one or
more of such activities, and whose gross income normally is derived
principally from such business and related activities; and (ii) such
transaction is effected in compliance with rules of the Commission
which, as a minimum, assure that the transaction is not inconsistent
with the maintenance of fair and orderly markets and yields
priority, parity, and precedence in execution to orders for the
account of persons who are not members or associated with members of
the exchange. See also 17 CFR 240.11a1-1(T) (setting forth
requirements for relying on the G Exemption).
    \202\ See Notice of Amendment No. 2, supra note 11, at 23681.
Section 11(a) of the Act and the rules thereunder provide other
exemptions to the Section 11(a)(1) prohibition, including, for
example, the ``effect versus execute'' exemption (as discussed
below), the exemption for transactions by a dealer acting in the
capacity of a market maker, and the exemption for transactions to
offset a transaction made in error.
---------------------------------------------------------------------------

    In addition to statutory exemptions, Rule 11a2-2(T) under the
Act,\203\ known as the ``effect versus execute'' rule, provides
exchange members with an exemption from the Section 11(a)(1)
prohibition. Rule 11a2-2(T) permits an exchange member, subject to
certain conditions, to effect transactions for covered accounts by
arranging for an unaffiliated member to execute transactions on the
exchange. To comply with Rule 11a2-2(T)'s conditions, a member: (i)
Must transmit the order from off the exchange floor; (ii) may not
participate in the execution of the transaction once the order has been
transmitted to the member performing the execution; \204\ (iii) may not
be affiliated with the executing member; and (iv) with respect to an
account over which the member or an associated person has investment
discretion, neither the member nor an associated person may retain any
compensation in connection with effecting the transaction except as
provided in the Rule. For the reasons set forth below, the Commission
believes that Participants utilizing the Trading Floor may comply with
the conditions of Rule 11a2-2(T) under the Act.\205\
---------------------------------------------------------------------------

    \203\ 17 CFR 240.11a2-2(T).
    \204\ This prohibition also applies to associated persons of the
initiating member. The member may, however, participate in clearing
and settling the transaction.
    \205\ The Commission has previously found that the all-
electronic transactions effected through the Trading Host are
consistent with the requirements of Section 11(a) of the Act and
Rule 11a2-2(T) thereunder. See, e.g., Securities Exchange Act
Release Nos. 72848 (August 14, 2014), 79 FR 49361 (August 20, 2014)
(SR-BOX-2014-16) (order approving the Exchange's proposal to adopt
new trade allocation algorithms for matching trades at the
conclusion of the PIP and the COPIP); and 66871 (April 27, 2012), 77
FR 26323 (May 3, 2012) (order granting the Exchange's application
for registration as a national securities exchange). As part of the
current proposal, the Exchange represents that the Trading Host will
enforce trade-through and priority rules in the same manner for QOO
orders as the Trading Host does for all other orders on the
Exchange. See Notice of Amendment No. 2, supra note 11, at 23659.
---------------------------------------------------------------------------

    Rule 11a2-2(T)'s first requirement is that orders for covered
accounts be transmitted from off the exchange floor. The Commission has
found that the off-floor transmission requirement is met if a covered
account order is transmitted from a remote location directly to an
exchange's floor by electronic means.\206\ The Exchange states that
Floor Brokers will receive matched or unmatched orders either via
telephone, or electronically to the Floor Broker's order entry
mechanism.\207\ Moreover, the Exchange states that a Participant could
submit an order for a covered account from off the Trading Floor to an
unaffiliated Floor Broker for representation on the Trading Floor and
use the ``effect versus execute'' exemption (assuming the other
conditions of the rule are satisfied).\208\ The Commission notes that a
Participant that submits an order for a covered account that utilizes
the Trading Floor, and who wishes to rely on the ``effect versus
execute'' exemption, must submit the order from off the Trading Floor.
---------------------------------------------------------------------------

    \206\ See, e.g., Securities Exchange Act Release Nos. 15533
(January 29, 1979), 44 FR 6084 (January 31, 1979); and 14563 (March
14, 1978), 43 FR 11542 (March 17, 1978) (``1978 Release'').
    \207\ See Notice of Amendment No. 2, supra note 11, at 23666.
    \208\ See id. at 23681.
---------------------------------------------------------------------------

    Second, Rule 11a2-2(T) requires that neither the initiating member
nor an associated person of the initiating member participate in the
execution of the transaction at any time after the order for the
transaction has been transmitted. The Exchange represents that at no
time following the submission of an order utilizing the Trading Floor
will the submitting Participant or any associated person of such
Participant acquire control or influence over the result or timing of
the order's execution.\209\ In addition, the Exchange states that once
a Floor Broker submits a QOO order to the BOG for execution, neither
the Floor Broker nor anyone else may alter the terms of the order.\210\
Moreover, when a Floor Broker submits a QOO Order for execution, the
order will be executed in accordance with Exchange rules and based on
market conditions of when the order is received by the Trading
Host.\211\ Accordingly, based on the Exchange's representations, the
Commission believes that a Participant and its associated persons would
not participate in the execution of an order submitted for execution
utilizing the Trading Floor.
---------------------------------------------------------------------------

    \209\ See id. The Commission notes that a Participant may cancel
or modify the order, or modify the instructions for executing the
order. The Commission has stated that the non-participation
requirement is satisfied under such circumstances so long as the
modifications or cancellations are also transmitted from off the
floor. See 1978 Release, supra note 206, at 11547 (stating that the
``non-participation requirement does not prevent initiating members
from canceling of modifying orders (or the instructions pursuant to
which the initiating member wishes orders to be executed) after the
orders have been transmitted to the executing member, provided that
any such instructions are also transmitted from off the floor'').
    \210\ See proposed Rule 7600(c) and Notice of Amendment No. 2,
supra note 11, at 23666.
    \211\ See proposed Rule 7600(a) and Notice of Amendment No. 2,
supra note 11, at 23665.
---------------------------------------------------------------------------

    Third, Rule 11a2-2(T) requires that the order be executed by an
exchange member that is not associated with the member initiating the
order. According to the Exchange, to rely on the exemption in Rule
11a2-2(T), a Participant could submit an order for a covered account
from off the Trading Floor to an unaffiliated Floor Broker.\212\ The
Exchange also states that a Participant relying on Rule 11a2-2(T) could
not submit an order for a covered account to its ``house'' Floor Broker
on the Trading Floor for execution.\213\ The Commission notes that if a
Participant sends its order from off the floor to an affiliated
Participant that is on the floor, who then directs the order into the
Trading Host for execution, the off-floor Participant may not rely on
the exemption in Rule 11a2-2(T).
---------------------------------------------------------------------------

    \212\ See Notice of Amendment No. 2, supra note 11, at 23681.
    \213\ See id.
---------------------------------------------------------------------------

    Fourth, in the case of a transaction effected for an account with
respect to which the initiating member or an associated person thereof
exercises investment discretion, neither the initiating member nor any
associated person may retain any compensation in connection with
effecting the transaction, unless the person authorized to transact
business for the account has expressly provided otherwise by written
contract referring to Section 11(a) of the Act and Rule 11a2-2(T)
thereunder.\214\ The

Commission notes that Participants and their associated persons trading
for covered accounts over which they exercise investment discretion
must comply with this condition in order to rely on the rule's
exemption.
---------------------------------------------------------------------------

    \214\ In addition, Rule 11a2-2(T)(d) requires that, if a member
or associated person is authorized by written contract to retain
compensation in connection with effecting transactions for covered
accounts over which the member or associated person thereof
exercises investment discretion, the member or associated person
must furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member or any associated person
thereof in connection with effecting transactions for the account
during the period covered by the statement. See 17 CFR 240.11a2-
2(T)(d). See also 1978 Release, supra note 206, at 11548 (stating
that ``[t]he contractual and disclosure requirements are designed to
assure that accounts electing to permit transaction-related
compensation do so only after deciding that such arrangements are
suitable to their interests'').
---------------------------------------------------------------------------

F. Options Market Structure: Price Improvement, Fragmentation and
Trading Floor Data

    Three commenters expressed concern that the proposed rule change
would negatively impact opportunities for orders to receive price
improvement.\215\ Specifically, one commenter stated that the proposed
rule change is designed to minimize opportunities for market maker and
public customer trading interest to interact with, and provide price
improvement to, orders being crossed on the BOX floor.\216\ This
commenter asserts that the proposed rule change is designed to offer a
frictionless crossing mechanism, which can be utilized to the detriment
of customers.\217\
---------------------------------------------------------------------------

    \215\ See CBOE Letters I & II, CTC Letters I & II, and Nasdaq
Letter II, supra notes 4, 8 and 13.
    \216\ See CBOE Letter I, supra note 4, at 1-2.
    \217\ See id. at 2.
---------------------------------------------------------------------------

    Two commenters expressed concern that the proposed rule change
would increase fragmentation in the options trading market. One
commenter stated that the proposed BOX floor would add an additional
trading venue that firms, who have finite resources, would be required
to staff and which would further fragment liquidity without offering
anything unique or beneficial to customers.\218\ Another commenter
stated that opening a new trading floor will exacerbate the practice of
``venue shopping,'' and noted that the number of market making firms is
limited, and that market making firms lack the resources necessary to
staff an escalating number of physical trading floors with dedicated
personnel.\219\
---------------------------------------------------------------------------

    \218\ See CBOE Response Letter I, supra note 4, at 1.
    \219\ See CTC Letter I, supra note 4, at 3.
---------------------------------------------------------------------------

    In response, BOX argues that concerns about the general success of
options trading floors are beyond the scope of its proposal.\220\ BOX
further asserts that raising concerns about options trading floors
either lacks merit or is an attempt to delay the approval of its
proposal.\221\ In addition, BOX commits to provide the Commission with
data related to activity on the Trading Floor, specifically information
regarding size, participation, price improvement by spread and trade
type, effective spread, Floor Market Maker participation, and BOX Book
participation.\222\ This information could be used to evaluate, among
other things, the levels of participation and amount of price
improvement on the Trading Floor. Finally, BOX indicated that it
believes a new trading floor will be good for the markets by providing
increased competition which may lead to improvements in the market,
which will inure to the benefit of all market participants.\223\
---------------------------------------------------------------------------

    \220\ See BOX Response Letter I, supra note 6, at 4.
    \221\ See id.
    \222\ See Notice of Amendment No. 2, supra note 11, at 23679.
    \223\ See BOX Response Letter III, supra note 14, at 3-4.
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change is consistent
with the Act. Under the proposed rule change, the Exchange will
establish an ``open outcry'' trading floor where orders will be sent to
Floor Brokers who will represent those orders in an agency capacity,
and who will be required to announce such orders to a trading crowd
composed of Floor Market Makers prior to any execution. In this regard,
the Commission notes that the Exchange made modifications to the
initial proposal that are designed to remove or reduce the potential
impediments to order interaction on the BOX Floor and which are
designed to increase opportunities for price improvement. The
Commission also notes that the data the Exchange has committed to
provide may assist the Commission in assessing the level of
participation in crossing transactions by market makers and other
market participants, aside from the firm that initiated the cross, and
to better review whether existing exchange rules appropriately allow
for robust and beneficial competition on the options trading floors.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\224\ that the proposed rule change (SR-BOX-2016-48), as modified
by Amendment Nos. 1 and 2, be, hereby is, approved.
---------------------------------------------------------------------------

    \224\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\225\
---------------------------------------------------------------------------

    \225\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16638 Filed 8-7-17; 8:45 am]
 BILLING CODE 8011-01-P