[Federal Register Volume 81, Number 233 (Monday, December 5, 2016)]
[Notices]
[Pages 87607-87628]
[FR Doc No: 2016-29042]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79421; File No. SR-BOX-2016-48]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing of Proposed Rule Change To Adopt Rules for an Open-Outcry
Trading Floor

November 29, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on November 16, 2016, BOX Options Exchange LLC (the ``Exchange''
or ``BOX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to adopt rules for an open-outcry trading
floor. The text of the proposed rule change is available from the
principal office of the Exchange, at the Commission's Public Reference
Room and also on the Exchange's Internet Web site at http://boxexchange.com.

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

    In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and statutory basis for,
the proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.

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

1. Purpose
    The Exchange is proposing to adopt rules to allow for open-outcry
trading on a physical trading floor (``Trading Floor''). The Exchange
notes that this is not a novel proposal and that other exchanges
currently offer open-outcry trading in addition to electronic
trading.\3\ The Exchange is proposing a hybrid model similar to these
other exchanges.
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    \3\ NYSE Arca, Inc. (``NYSE Arca''), NASDAQ PHLX LLC (``PHLX''),
Chicago Board Options Exchange, Incorporated (``CBOE''), and NYSE
MKT LLC (``NYSE MKT'').
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General
    The Exchange is proposing various changes to the definition section
of the Rulebook to accommodate the proposed Trading Floor. First, the
Exchange is proposing to define ``Floor Participant'' as Floor Brokers
as defined in Rule 7540 and Floor Market Makers as defined in Rule
8510(b).\4\ The Exchange is proposing to define ``Trading Floor'' or
``Options Floor'' as the physical trading floor of the Exchange located
in Chicago. The Trading Floor shall consist of at least one ``Crowd
Area'' or ``Pit''. A Crowd Area or Pit shall be marked with specific
visible boundaries on the Trading Floor, as determined by the Exchange.
All series for a particular option class will be allocated to the same
Crowd Area. A Floor Broker must open outcry an order in the
corresponding Crowd Area.
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    \4\ See proposed Rule 100(a)(26).
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    The Exchange is proposing to add the definition of ``Presiding
Exchange Officials.'' \5\ Specifically, the President of the Exchange
and his or her designated staff shall 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, and shall establish 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 shall make and enforce such rules
with respect to such employees as it may deem 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.
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    \5\ See proposed Rule 100(b)(1). Proposed Rule 100(b)(1) is
based on PHLX Rule 1000(e).
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    Next, the Exchange is proposing to add a definition for the ``BOX
Order Gateway.'' The BOX Order Gateway (``BOG'') is a component of the
Exchange that is designed to enable Floor Brokers to enter transactions
on the Trading Floor.\6\ The BOG is designed to establish an electronic
audit trail for options orders represented and executed on the Trading
Floor. The audit trail will provide an accurate, time-sequenced record
of electronic and other orders, quotations and transactions on the
Trading Floor, beginning with the receipt of an order by the Exchange,
and further documenting the life of the order. The various features of
the BOG will be described in greater detail below. Additionally, the
Exchange is proposing to clarify that all transactions executed on the
Exchange shall be done either (1) automatically by the Exchange's
trading system pursuant to Rule 7130, or (2) by and among Floor
Participants in the Exchange's options trading crowd; provided that the
order is processed through the BOG.\7\ The Exchange is also proposing
to clarify that bids and offers on the Trading Floor, to be effective,
must be made by public outcry on the Trading Floor and that all bids
and offers shall be general ones and shall not be specified for
acceptance by particular Floor Participants.\8\
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    \6\ See proposed Rule 100(b)(2). Proposed Rule 100(b)(2) is
based on PHLX Rule 1080.06.
    \7\ See proposed Rule 100(b)(3). Proposed Rule 100(b)(3) is
based on PHLX Rule 1000(f). The Exchange notes that PHLX includes
additional methods for executions on PHLX's Trading Floor that BOX
is not including in proposed Rule 100(b)(3). The Exchange does not
believe that these methods are necessary as the Exchange believes
that all executions on the Trading Floor shall be processed through
the BOG to ensure an accurate and complete audit trail.
    \8\ See proposed Rule 100(b)(4). Proposed Rule 100(b)(4) is
based on PHLX Rule 1000(g). The Exchange notes that PHLX includes
information about bidding and offering electronically as well as in
public outcry; however, the Exchange is only proposing to include
information about public outcry. BOX already has rules in place that
govern electronic bidding and offering and therefore there is no
need to mention it in proposed Rule 100(b)(4).
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    The Exchange is also proposing to provide details on how the public
outcry on the Trading Floor will work. Specifically, the Exchange is
proposing that bids and offers must be made in an

audible tone of voice and a Floor Market Maker shall be considered
``out'' on a bid or offer if he does not respond to the Floor Broker
who is announcing the order.\9\ A Floor Market Maker who is bidding and
offering in immediate and rapid succession shall be deemed ``in'' until
he says ``out'' on either bid or offer. Once the members of the trading
crowd have provided a quote on the Trading Floor in response to a
request, it will remain in effect until: (i) A reasonable amount of
time has passed, or (ii) there is a significant change in the price of
the underlying security, or (iii) the market given in response to the
request has been improved. In the case of a dispute, the term
``significant change'' will be interpreted on a case-by-case basis by
an Options Exchange Official based upon the extent of the recent
trading in the option and, in the case of equity and index options, in
the underlying security, and any other relevant factors.
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    \9\ See proposed Rule 100(b)(5). Proposed Rule 100(b)(5) is
based on PHLX Rule 1000(g). The Exchange notes that proposed Rule
100(b)(5) is slightly different to PHLX Rule 1000(g). Specifically,
PHLX Rule 1000(g) considers a member to be ``in'' on a bid or offer
while he remains at the post, unless he shall distinctly and audibly
say ``out.'' The Exchange is requiring the Floor Market Maker to
make an affirmative assertion that he is ``in''. The Exchange
believes that this difference is reasonable and necessary. Requiring
an affirmative response by a Floor Market Maker will allow for a
more efficient process for executing orders on the Trading Floor.
The Exchange is concerned that requiring every Floor Market Maker to
affirmatively be ``out'' on every order before it is executed will
lead to unnecessary delays on the Trading Floor and has the
potential to cause disruptions. The Exchange notes that CBOE Rule
6.74(a) does not consider members of the trading crowd in on the
order; they must respond to the Floor Broker. Additionally, the
Exchange is not including part of PHLX Rule 1000(g) that requires a
member to audibly say ``out'' before the Floor Broker submits the
order for execution and, if the order is not executed, the member
must audibly say ``out'' before each time the Floor Broker resubmits
the order for execution. The Exchange is not including this
provision of PHLX's Rule 1000(g) because, as previously stated, a
Floor Market Maker must provide an affirmative response if they want
to be in on the trade.
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    The Exchange is proposing that all bids or offers made on the
Trading Floor shall be deemed to be for one option contract unless a
specific number of option contracts is expressed in the bid or offer
and that bid or offer for more than one option contract shall be deemed
to be for the amount thereof or a smaller number of options
contracts.\10\ The Exchange is also proposing the following process for
the solicitation of quotations on the Trading Floor.\11\ Specifically,
in response to a Floor Broker's solicitation of a single bid or offer,
Floor Participants may discuss, negotiate, and agree upon the price or
prices at which an order of a size greater than the Exchange's
disseminated size can be executed at that time, or the number of
contracts that could be executed at a given price or prices, subject to
the provisions of the Options Order Protection and Locked/Crossed
Market Plan \12\ and the Exchange's Rules respecting Trade-Throughs.
Notwithstanding the foregoing, a single Floor Participant may voice a
bid or offer independently from, and differently from, the Participants
of a trading crowd.
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    \10\ See proposed Rule 7040(d). Proposed Rule 7040(d) is based
on PHLX Rule 1033(a).
    \11\ See proposed Rule 7040(d)(2).
    \12\ See Securities Exchange Act Release No. 60405 (July 30,
2009), 74 FR 39362 (August 6, 2009).
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    The Exchange is proposing to adopt Rule 7230(f) Limitation of
Liability, which codifies that each Options Participant that physically
conducts business on the Exchange's Trading Floor is required, at its
sole cost, to procure and maintain liability insurance that provides
defense and indemnity coverage for itself, any person associated with
it, and the Exchange for any action or proceeding brought relating to
the conduct of the Options Participant or associated person.\13\ The
insurance shall provide defense and indemnity coverage to the Exchange
for the Exchange's sole, concurrent, or contributory negligence, or
other wrongdoing, relating to or in connection with such claim and the
Exchange shall be expressly named by endorsement as an Additional
Insured under the Insurance. The Exchange's status and rights to
coverage under the insurance shall be the same rights of the named
insured of the insurance, including, without limitation, rights to the
full policy limits; and the limits for the insurance shall be not less
than $1,000,000 without erosion by defense costs, but under no
circumstance shall the Exchange be entitled to less than the full
policy limits of such insurance. The insurance shall state that it is
primary to any insurance maintained by the Exchange. Each Options
Participant annually shall cause a certificate of insurance to be
issued directly to the Exchange demonstrating that insurance compliant
with this proposed Rule has been procured and is maintained. Each
Options Participant also shall furnish a copy of the insurance to the
Exchange for review upon the Exchange's request at any time. This
proposed section (f) is the only section of Rule 7230 specifically
limited to Options Participants physically located on the Exchange's
Trading Floor.
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    \13\ Proposed Rule 7230(f) is based on PHLX Rule 652(c)(2).
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Registration
    In order for a Participant to be admitted to the Trading Floor the
Participant will be required to register with the Exchange.
Additionally, all Floor Participants must be registered as a
Participant \14\ on BOX prior to registering as either a Floor Broker
or Floor Market Maker.
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    \14\ The term ``Participant'' means a firm, or organization that
is registered with the Exchange pursuant to the Rule 2000 Series for
purposes of participating in options trading on BOX as an ``Order
Flow Provider'' or ``Market Maker''. See Rule 100(a)(40).
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    The Exchange is proposing to adopt Rule 2020(h) Trading Floor
Registration, which codifies that each Floor Broker, Floor Market Maker
and registered representative on the Exchange Trading Floor must be
registered as ``Member Exchange'' (``ME'') under ``BOX'' on Form U4. In
addition, each Floor Broker, Floor Market Maker and registered
representative on the Exchange Trading Floor must successfully complete
the appropriate floor trading examination(s), if prescribed by the
Exchange, in addition to requirements imposed by other Exchange
Rules.\15\ The Exchange is also proposing to adopt procedures and a
timeframe for submitting changes of registration status to the
Exchange. Specifically, following the termination of, or the initiation
of a change in the trading status of any such Floor Participant who has
been issued an Exchange access card and a Trading Floor badge, the
appropriate Exchange form must be completed, approved and dated by a
firm principal, officer, or member of the firm with authority to do so,
and submitted to the appropriate Exchange department as soon as
possible, but no later than 9:30 a.m. ET the next business day by the
Options Participant employer. Additionally, the Exchange proposes to
specify that every effort should be made to obtain the person's access
card and Trading Floor badge and to submit these to the appropriate
Exchange department.
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    \15\ See proposed Rule 2020(h). Proposed Rule 2020(h) is based
on PHLX Rule 620(a).
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    The Exchange is also proposing to add Rule 2020(i), which details
Non-Participant and Clerk Registration. Specifically, 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 this Rule 2020 must be registered as ``Floor
Employee'' (``FE'') under BOX on Form U4. Further, the

Exchange may require successful completion of an examination, in
addition to requirements imposed by other Exchange Rules.\16\ The
Exchange is also proposing to adopt procedures and a timeframe for
submitting changes of Trading Floor personnel registration status to
the Exchange. Specifically, following the termination of, or the
initiation of a change in the status of any such personnel of a Floor
Participant who has been issued an Exchange access card and a trading
floor badge, the appropriate Exchange form must be completed, approved
and dated by a Floor Participant principal, officer, or member of the
Floor Participant with authority to do so, and submitted to the
appropriate Exchange department as soon as possible, but no later than
9:30 a.m. ET the next business day by the Floor Participant employer.
Additionally, the Exchange proposes to specify that every effort should
be made to obtain the person's access card and Trading Floor badge and
to submit these to the appropriate Exchange department.
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    \16\ See proposed Rule 2020(i). Proposed Rule 2020(i) is based
on PHLX Rule 620(b).
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    The Exchange is proposing Rule 2110, which details the sanctions
for breach of regulations on the Trading Floor. Specifically, the rule
states that an Options Exchange Official or Exchange Staff may exclude
a Floor Participant and any associated person from the Trading Floor
and also impose on Floor Participants and their associated persons
fines for breaches of regulations that relate to administration of
order, decorum, health, safety and welfare on the Exchange or an
Options Exchange Official. Additionally, Exchange Staff may refer the
matter for discipline in accordance with the Rule 12000 series.\17\
Floor Participants and/or their associated persons may be excluded from
the Trading Floor by the Exchange for a period of up to five (5)
business days. Proposed Rule 2110(c) covers the situation when a Floor
Participant is excluded from the Trading Floor for a period of time.
Specifically, if a Floor Participant and/or its associated persons
shall be excluded for a period exceeding forty-eight hours, an
expedited hearing (``Expedited Hearing'') will be held before the
Hearing Panel (``Panel''), as provided in Rule 12060, or a member of
the Panel designated by the Chairman (``Expedited Hearing Officer'')
within forty-eight (48) business hours after the Floor Participant and/
or its associated persons' exclusion from the Trading Floor.\18\ The
Exchange is also proposing to provide clarity on the procedures dealing
with an exclusion from the Trading Floor, including written notice,
availability of counsel, and ruling.
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    \17\ See proposed Rules 2110(a) and (b). Proposed Rule 2110 is
based on PHLX Rule 60. The Exchange notes that PHLX makes reference
to referring disciplinary matters to the Business Conduct Committee,
which the Exchange is not including because BOX does not have a
Business Conduct Committee. Instead, BOX is proposing to refer
certain matters to the Hearing Panel, as provided in Rule 12060.
    \18\ See proposed Rule 2110(c).
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    Lastly, the Exchange sets forth the procedure to be followed in
cases where a pre-set fine of up to $5,000.00 is summarily assessed for
actions related to the Trading Floor and also the procedure to be
followed when a Floor Participant and/or its associated persons are to
be excluded from the Trading Floor.\19\ The proposed procedures for
when a pre-set fine of up to $5,000 is imposed includes the following
information: (1) Notice of fine, (2) time and place of hearing, (3)
record, (4) procedure, (5) finding, (6) forum fee, (7) no right of
appeal, and (8) report to the SEC. The determination that a Floor
Participant shall be excluded from the Trading Floor is final; there
shall be no appeal from such determination. Additionally, a report to
the SEC may be made when a Floor Participant is excluded from the
Trading Floor.
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    \19\ See proposed IM-2110-1 and IM-2110-2.
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    The Exchange is proposing to add Rule 2120, which will allow the
Exchange to enforce compliance with the Order and Decorum Code for the
Trading Floor, as provided in the Exchange's Order and Decorum Policies
which shall be distributed to Floor Participants periodically, pursuant
to Rule 2110. While ordinarily a finding of a violation will result in
the appropriate pre-set fine and/or sanction, an Options Exchange
Official or Exchange Staff may refer the matter to the Panel where it
shall proceed in accordance with the Rule 12000 Series as
applicable.\20\
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    \20\ See proposed Rule 2120(a).
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Broker's Blanket Bonds
    Currently, Rule 4180 Brokers' Blanket Bond provides that every OFP
\21\ approved to transact business with the public and every Clearing
Participant \22\ shall carry Brokers' Blanket Bonds covering officers
and employees of the OFP in such form and in such amounts as the
Exchange may require. The Exchange is now proposing that any Options
Participant that has registered solely to conduct business as a Floor
Market Maker or Floor Broker and does not conduct business with the
public shall be exempt from the provisions of Rule 4180.\23\
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    \21\ The terms ``Order Flow Provider'' or ``OFP'' mean those
Options Participants representing as agent Customer Orders on BOX
and those non-Market Maker Participants conducting proprietary
trading. See Rule 100(a)(45).
    \22\ The term ``Clearing Participant'' means an Options
Participant that is self-clearing or an Options Participant that
clears BOX Transactions for other Options Participants of BOX. See
Rule 100(a)(13).
    \23\ See proposed Rule 4180(g). Proposed Rule 4180(g) is based
on PHLX Rule 705(f)(1)(B).
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Doing Business on BOX
    The majority of the proposed rules governing the activity on the
Trading Floor will be contained in the 7000 series, Doing Business on
BOX, of the Exchange's Rules.
Trading on the Exchange Floor
    Dealings on the Trading Floor will be limited to the hours that the
Exchange is open for transacting business.\24\ Specifically, the
Exchange's normal trading hours for equity options are 9:30 a.m. ET to
4:00 p.m. ET and for options on Exchange-Traded Fund Shares and broad-
based indexes transactions may be effected until 4:15 p.m. ET
Additionally, if a Floor Broker wishes for an order to be considered in
the opening trade, the Floor Broker must submit the order into the BOX
Book \25\ electronically.\26\ The Floor Broker may do so from the
Trading Floor using their terminal; however, the order will not receive
any special or different treatment from any other pre-opening order
submitted from off the Trading Floor. Additionally, a Floor Participant
who wishes to place a Limit Order on the BOX Book must submit such a
Limit Order electronically.\27\
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    \24\ See proposed Rule 7500. Proposed Rule 7500 is based on PHLX
Rule 102.
    \25\ The term ``Central Order Book'' or ``BOX Book'' means the
electronic book of orders on each single option series maintained by
the BOX Trading Host. See Rule 100(a)(10).
    \26\ See proposed Rule 7070(d). Proposed Rule 7070(d) is based
on PHLX Rule 1017(c).
    \27\ See proposed IM-8510-8. Proposed IM-8510-8 is based on PHLX
Rule 1014.18.
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    The Exchange is proposing certain restrictions for dealings on the
Trading Floor. Specifically, that no Options Participant shall, while
on the Trading Floor, make any transactions with any non-Options
Participants in any security admitted to dealing on the Exchange.\28\
Additionally, no employee of a Floor Participant shall be admitted to
the Trading Floor unless that person is registered with and approved by
the Exchange.\29\ The Exchange may in its discretion require the
payment of a fee with respect to each employee so approved, and may at
any time in its

discretion withdraw any approval so given.
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    \28\ See proposed Rule 7510. Proposed Rule 7510 is based on PHLX
Rule 104.
    \29\ See proposed rule 7520. Proposed Rule 7520 is based on PHLX
Rule 443.
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Floor Brokers
    As previously mentioned, the Exchange is proposing two categories
of Participants on the Trading Floor; Floor Brokers and Floor Market
Makers. A Floor Broker is an individual who is registered with the
Exchange for the purpose, wholly on the Trading Floor, of accepting and
handling option orders.\30\ A Floor Broker who wishes to conduct
business on the Trading Floor must be registered as a Participant on
BOX prior to registering as Floor Broker. A Floor Broker may take into
his own account, and subsequently liquidate, any position that results
from an error made while attempting to execute, as Floor Broker, an
order.
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    \30\ See propose Rule 7540. Proposed Rule 7540 is based on PHLX
Rule 1060. In addition to the definition in the PHLX Rule, the
Exchange is proposing that Floor Brokers must register as Options
Participants on BOX prior to registering as a Floor Broker on the
Trading Floor. The Exchange believes that this additional
requirement is reasonable as it will allow the Exchange to
adequately monitor Participants and have uniform registration
requirements for all Participants.
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    Prior to being admitted to the Trading Floor, a Floor Broker shall
file an application in writing with the Exchange staff on such form or
forms as the Exchange may prescribe.\31\ The applications received from
potential Floor Brokers will be reviewed by the Exchange, which shall
consider an applicant's ability as demonstrated by his passing a Floor
Broker's examination, if prescribed by the Exchange, and such other
factors as the Exchange deems appropriate. After reviewing the Floor
Broker's application, the Exchange shall either approve or disapprove
the applicant's registration as a Floor Broker.
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    \31\ See proposed Rule 7550. Proposed Rule 7550 is based on PHLX
Rule 1061.
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Responsibilities of Floor Brokers
    Floor Brokers will have certain responsibilities while conducting
business on the Trading Floor. The proposed rules covering Floor
Brokers' responsibilities are based on the rules of another exchange
\32\ with certain differences due to the design and functionality of
the Exchange's Trading Floor. Specifically, a Floor Broker handling an
order must 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.\33\
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    \32\ See PHLX Rule 1063. The Exchange notes that it is not
including the PHLX requirement that at least one Floor Market Maker
be present at the trading post prior to representing an order for
execution. The Exchange notes that other options exchanges with
floors do not have this requirement.
    \33\ See proposed Rule 7570. Proposed Rule 7570 is based on PHLX
Rule 155.
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    Floor Brokers must make a reasonable effort to ascertain whether
each order entrusted to them is for the account of a Public Customer or
broker-dealer.\34\ If it is determined the order is for the account of
a broker-dealer, the Floor Broker must advise the trading crowd of that
fact while announcing the order via public outcry and make the
appropriate notation in the their order entry mechanism.
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    \34\ See proposed IM-7580-2. Proposed IM-7580-2 is based on PHLX
Rule 1063.02.
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    The Exchange is also proposing rules for how a Floor Broker must
handle contingency orders that are dependent upon the price of the
underlying security and for how a Floor Broker must handle orders he is
representing when they are for the account of a Market Maker.\35\
Specifically, for contingency orders, the Exchange is proposing that
the Floor Broker shall 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. Unless mutually agreed by the
Participants involved, an execution or non-execution that results shall
not be altered by the fact that such reported price is subsequently
found to have been erroneous. For orders from the account of a Market
Maker, the Floor Broker must inform that crowd that he is handling an
order for the account of a Market Maker and comply with proposed IM-
8510-6 and IM-8510-9.\36\ Lastly, the Exchange is proposing that a
Floor Broker shall not be held responsible for the execution of a
single order combining different series of options based on transaction
prices that are established at the opening or close of trading or
during any trading rotation.\37\
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    \35\ See proposed Rules 7580(b) and (d). Proposed Rule 7580(b)
is based on CBOE Rule 6.73(b). The Exchange notes that CBOE's Rule
provides for ``one-cancels-the-other orders,'' which BOX is not
including because the Exchange does not offer these types of orders.
    \36\ See proposed Rule 7580(d). Proposed Rule 7580(d) is based
on PHLX Rule 1063(d). PHLX's Rule provides for additional rules to
which the Floor Broker must comply than what the Exchange is
proposing. Specifically, PHLX Rule 1063(d) cites commentary .10,
.11, .12, and .13 to PHLX Rule 1014; however, the Exchange is only
proposing to copy commentary .11 and .12 to PHLX Rule 1014, see
proposed IM-8510-6 and IM-8510-9. The Exchange is not copying PHLX
1014.10 because it deals with specialist, which the Exchange is not
proposing to have on the Trading Floor. Next, the Exchange is not
copying PHLX Rule 1014.13, which deals with minimum quantity that a
Floor Market Maker must execute in person per quarter, because the
Exchange believes that having an in person requirement is an
unnecessary restriction and does not fit the Exchange's Trading
Floor.
    \37\ See proposed Rule 7580(c).
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    As previously mentioned, in order to create an electronic audit
trail for options orders represented and executed by Floor Brokers on
the Exchange's Trading Floor, the Exchange is proposing the BOG to aid
Floor Brokers with the execution of orders.\38\ As such, the Exchange
is also proposing that a Floor Broker or such Floor Broker's employees
shall, contemporaneously upon receipt of an order and prior to the
representation of such an order in the trading crowd, record all
options orders onto the Floor Broker's order entry mechanism. The
following specific information with respect to orders represented by a
Floor Broker shall be recorded by such Floor Broker or such Floor
Broker's employees: (i) The order type (i.e., Public Customer,
Professional Customer, broker-dealer, Market Maker) 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 (``OCC'') clearing number of the broker-dealer
that submitted the order. Additionally, a Floor Broker must enter
complete identification for all orders entered on behalf of Market
Makers. Any additional information with respect to the order shall be
inputted contemporaneously upon receipt, which may occur after the
representation and execution of the order.
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    \38\ See proposed Rule 7580(e)(1). Proposed Rule 7580(e)(1) is
based on PHLX Rule 1063(e)(i). PHLX's Rule provides for procedures
for submitting orders on the Trading Floor in the event of a
malfunction of PHLX's floor order system, which BOX is not
including. The Exchange will not allow orders on the Trading Floor
in the event that there is a malfunction with the BOG. The Exchange
believes that providing a trade ticket backup would raise numerous
issues with the audit trail. In the event that the BOG goes down,
Participants will still be allowed to submit orders to the Exchange
electronically.
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    All orders entrusted to a Floor Broker will be considered Not Held
Orders, unless otherwise specified by a Floor Broker's client.\39\ A
Not Held Order is an order marked ``not held'', ``take time'', or which
bears any qualifying notation giving discretion as to the price or time
at which such order is to be executed. An order entrusted to a Floor
Broker will be considered a Not Held Order, unless otherwise specified
by a Floor

Broker's client.\40\ Additionally, the Exchange is proposing that it
shall 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.\41\
---------------------------------------------------------------------------

    \39\ See proposed IM-7580-3. Proposed IM-7580-3 is based on CBOE
Rule 6.73.06.
    \40\ See proposed Rule 7600(g). Proposed Rule 7600(g) is based
on CBOE Rule 6.53(g).
    \41\ See proposed IM-7580-4.
---------------------------------------------------------------------------

    The Exchange is proposing that all transactions occurring on the
Trading Floor must be processed through the BOG as provided in proposed
Rule 7600 and must be two-sided orders, including multi-leg orders.\42\
Once an order is received by the BOG it is immediately sent to the
Trading Host for execution.\43\ In the event of a malfunction in the
BOG or any other related Trading Floor systems, orders will not be
allowed to execute on the Trading Floor. When a Floor Broker submits an
order for execution through the BOG, the order will be executed based
on market conditions and in accordance with Exchange rules.\44\ All
orders executed on the Trading Floor must be represented to the trading
crowd prior to the order being submitted to the BOG for execution. BOG
execution functionality will assist the Floor Broker in clearing the
BOX Book, consistent with Exchange priority rules, as described in
proposed Rule 7600(c). Orders on the Trading Floor will not route to an
away exchange. Floor Brokers are responsible for handling all orders in
accordance with Exchange priority and Trade-Through rules.
---------------------------------------------------------------------------

    \42\ See proposed Rule 7580(e)(2).
    \43\ The term ``Trading Host'' means the automated trading
system used by BOX for the trading of options contracts. See Rule
100(a)66.
    \44\ See proposed Rule 7580(e)(2). Proposed Rule 7580(e)(2) is
based on PHLX Rule 1063(e)(iv). The Exchange notes that the BOG does
not include all the same functionality as PHLX; the BOG will not
attempt to execute an order multiple times if at first it cannot be
executed. The Exchange also notes that Complex Orders are limited to
four (4) legs on BOX.
---------------------------------------------------------------------------

    The Exchange is proposing rules with respect to Floor Brokers and
discretionary transactions.\45\ Specifically, no Floor Broker shall
execute or cause to be executed any order on the Exchange with respect
to which such 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. However, these proposed rules shall
not apply to any discretionary transactions executed by a Floor Market
Maker for an account in which he has an interest. Additionally, no
Floor Broker shall hold a Not Held Market Order to buy and a Not Held
Market Order to sell the same series of options for the same account or
for accounts of the same beneficial owner.\46\ Also, no Floor Broker
shall leg a combination order for a Market Maker or accept opening or
discretionary orders for a Market Maker who is associated with the same
Options Participant as such Floor Broker or who is associated with
another Options Participant which is affiliated with the same Options
Participant as such Floor Broker. A Floor Broker may not exercise any
discretion with respect to the order of a Market Maker or the order of
an options market marker registered on another exchange.\47\
---------------------------------------------------------------------------

    \45\ See proposed Rule 7590. Proposed Rule 7590 is based on PHLX
Rule 1065.
    \46\ See proposed IM-7590-1.
    \47\ See proposed IM-7590-2.
---------------------------------------------------------------------------

    Floor Brokers may use any communication device on the Trading Floor
and in any Crowd Area to receive orders, provided that audit trail and
record retention requirements of the Exchange are met.\48\ However, no
person in a Crowd Area or on the Trading Floor may use any
communication device for the purpose of recording activities on the
Trading Floor or maintaining an open line of continuous communication
whereby a non-associated person not located in the Crowd Area may
continuously monitor the activities in the Crowd Area. The ability for
Floor Brokers to receive orders while in the Crowd Area is based on the
rules of another exchange.\49\
---------------------------------------------------------------------------

    \48\ See proposed Rule 7660(i).
    \49\ See CBOE Rule 6.23(c).
---------------------------------------------------------------------------

    The Exchange is not including certain PHLX rules related to Floor
Broker duties to allocate, match and time stamp trades executed in open
outcry and to submit the matched trade tickets to the exchange.\50\ BOX
does not believe that these rules are necessary because all orders on
the Trading Floor are only executed when they are received by the BOG,
which will allow the Exchange to capture the required audit trail
information.
---------------------------------------------------------------------------

    \50\ See PHLX Rule 1014(g)(vi).
---------------------------------------------------------------------------

Qualified Open Outcry Orders--Floor Crossing
    As previously mentioned, all orders on the Trading Floor must be
two-sided and submitted for execution through the BOG. As such, BOX is
proposing to introduce a new order type to facilitate transactions on
the Trading Floor. Specifically, the Exchange is proposing to adopt a
Qualified Open Outcry (``QOO'') Order type.\51\ The proposed QOO Order
will only be allowed on the Trading Floor and only Floor Brokers may
use the QOO Order. QOO Orders may be multi-leg orders, including
Complex Orders, as defined in Rule 7240(a)(5) \52\ and tied to hedge
orders as defined in proposed IM-7600-2. Such hedging position is
comprised of a position designated as eligible for a tied hedge
transaction as determined by the Exchange and may include the same
underlying stock applicable to the option order, a security future
overlying the same stock applicable to the option order or, in
reference to an index or Exchange-Traded Fund Shares (``ETF''), a
related instrument. A ``related instrument'' means, in reference to an
index option, securities comprising ten percent or more of the
component securities in the index or a futures contract on any
economically equivalent index applicable to the option order. A
``related instrument'' means, in reference to an ETF option, a futures
contract on any economically equivalent index applicable to the ETF
underlying the option order. Also, such hedging position is offered, at
the execution price received by the Floor Broker introducing the
option, to any in-crowd Floor Participant who has established parity or
priority for the related options. The QOO Order must be entered as a
two-sided order when it is submitted to the Exchange for execution
through the BOG. There will be an initiating side and a contra-side to
the QOO Order. The initiating side is the side of the QOO Order that
must be filled in its entirety. The contra-side must guarantee the full
size of the initiating side of the QOO Order and the Floor Broker may
provide a book sweep size for the contra-side of the QOO Order as
provided in proposed Rule 7600(h). Lastly, a QOO Order will be rejected
if there is an ongoing auction on the option series when the QOO Order
is received by the Exchange.\53\ 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.
---------------------------------------------------------------------------

    \51\ See proposed Rule 7600.
    \52\ The term ``Complex Order'' means any order involving the
simultaneous purchase and/or sale of two or more different options
series in the same underlying security, for the same account, in a
ratio that is equal to or greater than one-to-three (.333) and less
than or equal to three-to-one (3.00) and for the purpose of
executing a particular investment strategy.
    \53\ See proposed Rule 7600(a)(5).
---------------------------------------------------------------------------

    The Exchange is proposing that the execution price of the QOO Order
must be equal to or better than the NBBO.\54\ Additionally, the QOO
Order (1) may not trade through any equal or better priced Public
Customer bids or offers on the BOX Book or 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 (2) may not
trade through any non-Public Customer bids or offers on the BOX Book
that are priced better than the proposed execution price. The Exchange
notes this proposed rule is based on the rules of NYSE Arca.\55\
---------------------------------------------------------------------------

    \54\ See proposed Rule 7600(c).
    \55\ See NYSE Arca Rules 6.47 and 6.75. The Exchange notes that
it is providing an additional provision that NYSE Arca does not have
in its Rule. Specifically, the Exchange is providing for a book
sweep size as provided in proposed Rule 7600(h).
---------------------------------------------------------------------------

    The Floor Broker must submit the QOO Order through the BOG. The
Exchange is proposing that the QOO Order is not deemed executed until
the QOO Order is received and processed by the Trading Host. Once the
Floor Broker submits the QOO Order to the BOG there will be no
opportunity for the submitting Floor Broker to alter the terms of the
QOO Order.\56\
---------------------------------------------------------------------------

    \56\ The Exchange notes that the processing of an incoming QOO
Order by the Exchange is instantaneous.
---------------------------------------------------------------------------

    The Exchange is additionally proposing that when a Floor Broker
executes a Complex QOO Order, the priority and rules for Complex Orders
contained in Rule 7240(b)(2) and (3) will continue to apply, except
that the Floor Broker may disable the Complex Order Filter under Rule
7240(b)(3)(iii). For Complex QOO Orders, the Complex QOO Orders (1) may
not trade through any equal or better priced Public Customer Complex
Orders on the Complex Order Book \57\ or any non-Public Customer
Complex Orders on the Complex Order Book that are ranked ahead of such
equal or better priced Public Customer Complex Orders, and (2) may not
trade through any non-Public Customer Orders on the Complex Order Book
that are priced better than the proposed execution price.
---------------------------------------------------------------------------

    \57\ The term ``Complex Order Book'' means the electronic book
of Complex Orders maintained by the BOX Trading Host. See Rule
7240(a)(6).
---------------------------------------------------------------------------

    As mentioned above, the Exchange is also proposing to amend the
current rules related to Complex Orders on the Exchange in order to
incorporate the trading of Complex Orders on the Trading Floor.
Currently, incoming Complex Orders to the Exchange are filtered to
ensure that each leg of a Complex Order will be executed at a price
that is equal to or better than the NBBO and BOX BBO.\58\ The Exchange
is now proposing that Floor Brokers may disable, on an order by order
basis, the NBBO aspect of this protection for Complex Orders executed
on the Trading Floor. The Exchange notes that other options exchanges
do not require the legs of a Complex Order be executed at a price that
is equal to or better than the NBBO and exchange BBO.\59\
---------------------------------------------------------------------------

    \58\ See Rule 7240(b)(3)(iii).
    \59\ See ISE Rule 722(b)(3).
---------------------------------------------------------------------------

    All QOO Orders must be represented to the trading crowd prior to
the QOO Order being submitted to the BOG for execution.\60\ This
negotiation and agreement that occurs in the trading crowd does not
result in a final trade, but rather a ``meeting of the minds'' that is
then submitted through the BOG for execution. The submitting Floor
Broker must announce the order to the trading crowd and give Floor
Participants a reasonable opportunity to respond to the QOO Order. An
Options Exchange Official will certify that the Floor Broker adequately
represented the QOO Order to the trading crowd.\61\
---------------------------------------------------------------------------

    \60\ See proposed Rule 7600(b). Proposed Rule 7600(b) is based
on NYSE Arca Rule 6.47(a)(1).
    \61\ The Options Exchange Official will have a terminal that
will allow them to certify that the Floor Broker adequately
represented the QOO Order to the trading crowd.
---------------------------------------------------------------------------

    The Exchange believes that by having the QOO Order execute when it
is received by the BOG, the Exchange is providing a system that will
prevent executions that appear to be at prices that are worse than the
NBBO due to the fact that on traditional open-outcry floors the time
that the execution is printed may be substantially after the time an
execution actually occurred on the trading floor. The Exchange believes
that having the QOO Order execute when it is submitted to the BOG will
minimize trade-through violations and provide an accurate and
sequential audit trail. The Exchange notes that this is the same way
executions on PHLX occur.\62\
---------------------------------------------------------------------------

    \62\ See PHLX Rule 1063(e)(iv).
---------------------------------------------------------------------------

    The Exchange is proposing that the initiating side of the QOO Order
will first execute against any bids or offers that have priority
pursuant to proposed Rule 7600(c), provided that an adequate book sweep
size pursuant to proposed Rule 7600(h) was provided by the Floor
Broker, and then the remaining balance will be executed through the
Trading Host against the contra-side of the QOO Order.\63\ The
executing Floor Broker will be responsible for ensuring that any Floor
Participant that responded with interest during the Market Probe
outlined in 7600(b) receives their allocation. The Exchange is also
proposing that the QOO Order will not route to an away exchange,
however, the QOO Order will not trade through any away exchange
displaying a better price than the proposed execution price for the QOO
Order on the Trading Floor.\64\
---------------------------------------------------------------------------

    \63\ See proposed Rule 7600(d).
    \64\ See proposed Rule 7600(e).
---------------------------------------------------------------------------

    The Exchange is proposing to provide a book sweep size on the
Trading Floor to help Floor Brokers execute orders when there are bids
or offers on the BOX Book that have priority over the QOO Order.\65\
Specifically, a Floor Broker may, but is not required to, provide a
book sweep size for the contra-side of the QOO Order. The book sweep
size is the number of contracts, if any, of the contra-side of the QOO
Order that the Floor Broker is willing to relinquish to interest on the
BOX Book that has priority pursuant to proposed Rule 7600(c).
Specifically, any equal or better priced Public Customer bids or offers
on the BOX Book or 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 any non-Public Customer bids or offers on
the BOX Book that are priced better than the proposed execution price.
If the number of contracts on the BOX Book that have priority over the
contra-side order is greater than the book sweep size, then the QOO
Order will be rejected by the BOG. If the number of contracts on the
BOX Book that have priority over the contra-side order is less than or
equal to the book sweep size, then the QOO Order will be allowed to
execute by the BOG. In such case, the initiating side will execute
against interest on the BOX Book with priority and then the remaining
quantity will execute against the contra-side order. The Exchange
believes that this proposed feature will aid Floor Brokers in having
more of their executions accepted by the system and will benefit the
market as a whole by providing a tool to assist Floor Brokers in
executing orders when there is priority interest on the BOX Book.
Additionally, the book sweep size will provide increased opportunity
for orders on the BOX Book to be executed. The Exchange notes, however,
that it shall 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.\66\
---------------------------------------------------------------------------

    \65\ See proposed Rule 7600(h).
    \66\ See proposed IM-7600-3.
---------------------------------------------------------------------------

    The Exchange notes that another exchange provides functionality to
help Floor Brokers clear the electronic book.\67\ PHLX's system has
functionality

that will return the order to the Floor Broker if, after attempting to
execute the order multiple times, the order cannot be executed. The
Exchange believes this is similar to the proposed book sweep size that
may result in a Floor Broker's order not executing once it is
submitted.\68\
---------------------------------------------------------------------------

    \67\ PHLX's Floor Broker Management System (``FBMS'') provides
execution functionality that will assist the Floor Broker in
clearing the exchange book, consistent with exchange priority rules.
See PHLX Rule 1063(e)(iv). Additionally, if a Floor Broker on PHLX
enters a two-sided order through the FBMS, and there is interest on
the PHLX electronic book at a price that would prevent the Floor
Broker's order from executing, the FBMS will provide the Floor
Broker with the quantity of contracts on the electronic book that
have priority and need to be satisfied before the Floor Broker's
order can execute at the agreed upon price. If the Floor Broker
wishes to still execute his order, he can cause a portion of the
floor based order to trade against this priority interest on the
electronic book, thereby clearing the interest and permitting the
remainder of the Floor Broker's order to trade at the desired price.
The PHLX FBMS functionality is optional, and a Floor Broker can
decide not to trade against the electronic book and therefore not
execute his two-sided order at the particular price. See Securities
Exchange Act Release No. 68960 (February 20, 2013), 78 FR 13132
(February 26, 2013) (SR- Phlx-2013-09).
    \68\ The Exchange notes that the proposed functionality of the
BOG on BOX will not attempt to execute an order multiple times.
Instead, if, due to the book sweep size provided by the Floor
Broker, the order cannot be executed by the BOG immediately, it will
be rejected back to the Floor Broker. The similarity is in the fact
that in both situations an order will not execute on the Trading
Floor and will be rejected back to the Floor Broker. The Exchange
believes that this difference between the Exchange and PHLX will
incentivize Floor Brokers on BOX to provide an adequate book sweep
size if they want the order to immediately execute.
---------------------------------------------------------------------------

    The following are examples of how the QOO Order will operate on the
Trading Floor.
Example #1--Execution of a QOO Order
    The following example is designed to illustrate a QOO Order
executing.

 NBBO (excluding BOX) 3.00-3.13
 NBBO (including BOX) 3.09-3.13
 QOO Order for 100 at 3.10 (initiating side is sell)
 Book sweep size = 0.

                                                    BOX Book
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
MM1............................             150            3.09            3.15              10  MM2.
BD1............................              15            3.08            3.16              10  MM3.
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is accepted because the price of the QOO Order
($3.10) is better than the NBBO (including BOX) on both the initiating
side ($3.13) and the contra-side ($3.09).
Example #2--Capping of the Book Sweep Size
    The following example illustrates how the Exchange will handle a
QOO Order that is submitted with a book sweep size that is greater than
the size of the QOO Order.

 NBBO (excluding BOX) 3.00-3.13
 NBBO (including BOX) 3.09-3.13
 QOO Order for 100 at 3.10 (initiating side is sell)
 Book sweep size = 200 (will be capped at the size of the QOO
Order (100)).

                                                    BOX Book
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
MM1............................             150            3.09            3.15              10  MM2.
BD1............................              15            3.08            3.16              10  MM3.
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is accepted because the price of the QOO Order
($3.10) is better than the NBBO (including BOX) on both the initiating
side ($3.13) and the contra-side ($3.09).
Example #3--Rejecting a QOO Order Based on the NBBO
    The following example illustrates how the Exchange will handle a
QOO Order that is priced outside of the NBBO.

 NBBO (excluding BOX) 3.08-3.20
 NBBO (including BOX) 3.09-3.15
 QOO Order for 100 at 3.17 (initiating side is sell)
 Book sweep size = 100.

                                                    BOX Book
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
MM1............................              50            3.09            3.15              10  MM2.
BD1............................              20            3.08            3.16              10  MM3.
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is rejected because the price of the QOO Order
(3.17) is worse than the NBBO (including BOX) (3.15) on the initiating
side of the QOO Order.
Example #4--Executing of a QOO Order Utilizing the Book Sweep Size
    The following example illustrates a QOO Order that utilizes the
book sweep size and therefore executes against interest on the BOX
Book.

 NBBO (excluding BOX) 3.07-3.20
 NBBO (including BOX) 3.09-3.15
 QOO Order for 100 at 3.09 (initiating side is sell)
 Book sweep size = 100.

                                                    BOX Book
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
PC1............................              50            3.09            3.15              10  MM2.
PC2............................              50            3.08            3.16              10  MM3.
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is accepted, as the contra-side is willing to
relinquish the full quantity of the initiating side. The initiating
order will trade 50 contracts against PC1 at 3.09, and then the
remaining 50 contracts will trade at 3.09 against the contra-side.
Example #5--Insufficient Book Sweep Quantity
    The following example is designed to illustrate the situation where
an executing Floor Broker did not provide an adequate book sweep size
to have the QOO Order execute immediately when it was submitted to the
BOG.

 NBBO 3.09-3.15
 QOO Order for 100 at 3.09 (initiating side is sell)
 Book sweep size = 40.

                                                    BOX Book
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
PC1............................              50            3.09            3.15              10  MM2.
PC2............................              50            3.08            3.16              10  MM3.
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is rejected, as the contra-side is not willing to
relinquish adequate quantity of the initiating side. Specifically, the
book sweep size of 40 is not sufficient to satisfy PC1's 50 contracts
which have priority. Upon rejection, the Floor Broker may: (i) Increase
the book sweep size and resubmit the order; or (ii) not trade the order
on BOX.
Example #6--Trading Through an Away Exchange
    The following example is designed to illustrate how the BOG will
handle a QOO Order that is submitted at a price that would trade-
through an away exchange.

 NBBO 3.09-3.13
 QOO Order for 100 at 3.14 (initiating side is buy)
 Book sweep size = 100.

                                                    BOX Book
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
MM1............................              50            3.09            3.15              10  MM2.
BD1............................              20            3.08            3.16              10  MM3.
----------------------------------------------------------------------------------------------------------------

    Result: QOO Order is rejected because the price of the QOO Order
(3.14) is worse than the NBBO (3.13) on the contra-side of the QOO
Order. The QOO Order is rejected even though the price of the QOO is
better than the interest on the BOX Book on the initiating side (3.09)
and the contra-side (3.15). A QOO Order will not route to an away
exchange, however, the QOO will not trade through any away exchange
displaying a better price.
Example #7--Complex QOO Order on the Trading Floor
    The following is an example of an execution of a Complex QOO Order
on the Trading Floor.

 Complex QOO Order for 100 of A+B at 2.01 (initiating side is
buy)
 Floor Broker has disabled the away NBBO filter for the Complex
QOO Order
 Book sweep size = 100
 NBBO for Complex Order \69\ A+B is 3.06 - 3.20
---------------------------------------------------------------------------

    \69\ The NBBO for Complex Orders is based on the NBBO for the
individual options components of such Complex Order.
---------------------------------------------------------------------------

     BOX BBO for Complex Order \70\ A+B is 2.00 - 3.20.
---------------------------------------------------------------------------

    \70\ The BOX BBO for Complex Orders is the best net bid and
offer price based on the best bid and offer on the BOX Book for the
individual options components of the Complex Order.

                                         BOX Book For Complex Order A+B
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------

                                --------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

                                              BOX Book Instrument A
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
PC1............................              10            1.00            1.10              10  PC2.
                                 ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

                                              BOX Book Instrument B
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
BD1............................              10            1.00            2.10              10  BD2.
                                 ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    Result: Complex QOO Order is accepted because the price of the
Complex QOO Order (2.01) is better than the BOX BBO on the initiating
side (2.00) and the contra-side (3.20). Additionally, since the NBBO
filter has been disabled by the Floor Broker, the Complex QOO Order
will ignore the NBBO for Complex Order A+B (3.06 - 3.20). Even when the
Complex QOO Order ignores the away NBBO, it must still respect interest
on BOX.
Example #8--Complex QOO Order Rejected Due to the Book Sweep Size
    The following is an example of a Complex QOO Order that is rejected
by the BOG because the Floor Broker did not provide an adequate book
sweep size to satisfy the resting interest on the Complex Order Book.

     Complex QOO Order for 100 of A+B at 3.07 (initiating side
is sell)
     Book sweep size = 25
     NBBO for Complex Order A+B is 3.06 - 3.20.

                                         BOX Book for Complex Order A+B
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
MM1............................              50            3.10  ..............  ..............
                                 ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

                                              BOX Book Instrument A
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
PC1............................              10            1.06            1.10              10  PC2.
                                 ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

                                              BOX Book Instrument B
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
BD1............................             100            2.00            2.10             100  BD2.
                                 ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    Result: Complex QOO Order is rejected because the book sweep size
is not adequate to satisfy the resting A+B Complex Orders on the
Complex Order Book at 3.10 (50). If, however, the book sweep size was
for at least 50 A+B, the Complex QOO Order would execute by having 50
A+B execute against the resting Complex Orders on the Complex Order
Book at 3.10. The remaining 50 A+B would execute against the contra-
side order at 3.07.
Example #9--Complex QOO Order Executing Against BOX Book Interest
    The following example is designed to illustrate the situation where
the Complex QOO Order executes against Implied Orders \71\ and resting
Complex Orders on the Complex Order Book.
---------------------------------------------------------------------------

    \71\ An ``Implied Order'' is a Complex Order at the cNBBO,
derived from the orders at the BBO on the BOX Book for each
component leg of a Strategy, provided each component leg is at a
price equal to NBBO for that series. See Rule 7240(d)(1).
---------------------------------------------------------------------------

 Complex QOO Order for 100 of A+B at 3.04 (initiating side is
sell)
 Book sweep size = 100
 NBBO (with BOX) for Complex Order A+B is 3.06 - 3.20
 NBBO (without BOX) for Complex Order A+B is 3.04 - 3.20.

                                         BOX Book For Complex Order A+B
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
MM1............................              60            3.06  ..............  ..............
                                 ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

                                              BOX Book Instrument A
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
PC1............................              10            1.06            1.10              10  PC2.
MM2............................              90            1.05  ..............
----------------------------------------------------------------------------------------------------------------

                                              BOX Book Instrument B
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
BD1............................             100            2.00            2.10             100  BD2.
----------------------------------------------------------------------------------------------------------------

    Result: Complex QOO Order is accepted because the contra-side is
willing to relinquish the full quantity of the initiating side. The
initiating side will execute against resting orders of the individual
legs and resting A+B Complex Orders. Specifically, 10 A+B of the
initiating side will execute against an Implied Order at 3.06 (leg A at
1.06 and leg B at 2.00), 60 A+B will execute at 3.06 against resting
A+B Complex Order and 30 A+B against an Implied Order at 3.05 (leg A at
1.05 and leg B at 2.00).
Example #10--Complex QOO Order Executing Against BOX Book Interest With
Remaining Interest
    The following example illustrates how the Exchange will handle a
Complex QOO Order that executes against BOX Book interest first but
leaves interest on the BOX Book.

 Complex QOO Order for 100 of A+B at 3.04 (initiating side is
sell)
 Book sweep size = 100
 NBBO (with BOX) for Complex Order A+B is 3.06 - 3.20
 NBBO (without BOX) for Complex Order A+B is 3.04 - 3.20.

                                         BOX Book For Complex Order A+B
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
                                 ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

                                              BOX Book Instrument A
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
PC1............................              10            1.06            1.10              10  PC2.
                                 ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

                                              BOX Book Instrument B
----------------------------------------------------------------------------------------------------------------
            Account                 Quantity           Buy            Sell          Quantity         Account
----------------------------------------------------------------------------------------------------------------
PC3............................              20            2.00            2.10             100  BD2.
                                 ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    Result: Complex QOO Order is accepted. The initiating side will
execute against resting orders of the individual legs and then against
the contra-side. Specifically, 10 A+B of the initiating side will
execute against an Implied Order at 3.06 (leg A at 1.06 and leg B at
2.00), and 90 will execute against the contra-side at 3.04. The
unexecuted interest on the BOX Book remains after the executing of the
Complex QOO Order.
Guarantee
    The Exchange is proposing to allow for a participation guarantee
for certain orders executed by Floor Brokers on the Trading Floor.\72\
Specifically, when a Floor Broker holds an option order of the eligible
order size or greater, the Floor Broker is entitled to cross a certain
percentage of the original order with other orders that the Floor
Broker is holding. The Exchange may determine, on an option by option
basis, the eligible size for an order on the Trading Floor to be
subject to this guarantee; however, the eligible order size may not be
less than 500 contracts.\73\ In determining whether an order satisfies
the eligible order size requirement, any multi-part or spread order
must contain one leg alone which is for the eligible order size or
greater. The percentage of the order which a Floor Broker is 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, is
40% of the remaining contracts in the order. However, nothing in this
proposed Rule is intended to prohibit a Floor Broker from trading more
than their percentage entitlement if the other Participants of the
trading crowd do not choose to trade the remaining portion of the
order.
---------------------------------------------------------------------------

    \72\ See proposed Rule 7600(f). Proposed Rule 7600(f) is based
on PHLX Rule 1064.02. The Exchange notes that there are certain
differences from the PHLX rule due to the fact that the Exchange
will not have specialists on the Trading Floor and the Exchange has
different rules than PHLX when it comes to orders on the Trading
Floor executing against interest on the electronic book.
    \73\ Any changes to the eligible order size shall be
communicated to Participants via circular.
---------------------------------------------------------------------------

Additional Requirements
    The Exchange is proposing additional requirements for Floor
Participants while present on the Trading Floor.\74\

First, BOX is proposing that a Floor Broker must disclose all
securities that are components of the Public Customer Order before
requesting bids and offers for the execution of all components of the
order. Next, the Exchange is proposing rules pertaining to treatment of
quotes provided by Floor Participants. Specifically, a quote provided
by a Floor Participant will remain in effect until: (1) A reasonable
amount of time has passed; or (2) there is a significant change in the
price of the underlying security; \75\ or (3) the market given in
response to the request has been improved.\76\ BOX is proposing that
the Floor Participant who established the market will, at the given
price, have priority over all other orders that were not represented in
the trading crowd at the time that the market was established. The
Exchange is proposing that Floor Participants may not prevent a spread,
straddle, stock-option, or combination cross from being completed by
giving a competing bid or offer for one component of such order.
Lastly, the Exchange is proposing that if a Floor Broker is crossing a
Public Customer Order with an order that is not a Public Customer
Order, when providing an opportunity for the trading crowd to
participate in the transaction, shall disclose that Public Customer
Order that is subject to crossing.
---------------------------------------------------------------------------

    \74\ See proposed IM-7600-1. Proposed IM-7600-1 is based on PHLX
Rule 1064.02. The Exchange notes that there are certain differences
from the PHLX rule in order to account for the fact that BOX will
not have specialists on the Trading Floor.
    \75\ In the case of a dispute, the term ``significant change''
will be interpreted on a case-by-case basis by an Options Exchange
Official based upon the extent of the recent trading in the option
and in the underlying security, and any other relevant factors.
    \76\ See proposed IM-7600-1(b).
---------------------------------------------------------------------------

Tied Hedge
    BOX is proposing the adoption of rules that will allow for tied
hedge transactions. Tied hedge transactions are transactions that
involve an option transaction and a hedging transaction occurring on a
non-option market, as described in greater detail below.\77\
Specifically, the Exchange is proposing that nothing prohibits a Floor
Broker from buying or selling a stock, security futures, or futures
position following receipt of an option order, including a Complex
Order, provided that, prior to announcing such order to the trading
crowd certain conditions are met. The option order must be in a class
designated as eligible for tied hedge transactions as determined by the
Exchange and is within the designated tied hedge eligibility size
parameters, which parameters shall be determined by the Exchange and
may not be smaller than 500 contracts per order. Additionally, there
shall be no aggregation of multiple orders to satisfy the size
parameter, and for Complex Orders involved in a tied hedge transaction
at least one leg must meet the minimum size requirement. The Floor
Broker must create an electronic record that it is engaged in a tied
hedge transaction in a form and manner prescribed by the Exchange. The
hedging position is comprised of a position designated as eligible for
a tied hedge transaction as determined by the Exchange and may include
the same underlying stock applicable to the option order, a security
future overlying the same stock applicable to the option order or, in
reference to an index or Exchange-Traded Fund Shares (``ETF''), a
related instrument.\78\ Additionally, the hedging position must be
brought without undue delay to the trading crowd and announced
concurrently with the option order; offered to the trading crowd in its
entirety; and offered, at the execution price received by the Floor
Broker introducing the option, to any in-crowd Floor Participant who
has established parity or priority for the related options. The hedging
position must not exceed the option order on a delta basis to be
eligible for treatment as a tied hedge order.
---------------------------------------------------------------------------

    \77\ See proposed IM-7600-2. Proposed IM-7600-2 is based on NYSE
Arca Rule 6.47.01.
    \78\ A ``related instrument'' means, in reference to an index
option, securities comprising ten percent or more of the component
securities in the index or a futures contract on any economically
equivalent index applicable to the option order. A ``related
instrument'' means, in reference to an ETF option, a futures
contract on any economically equivalent index applicable to the ETF
underlying the option order.
---------------------------------------------------------------------------

    The Exchange is further proposing that all tied hedge transactions
(regardless of whether the option order is a simple or Complex Order)
are treated the same as Complex Orders for purposes of the Exchange's
open outcry allocation and reporting procedures. Tied hedge
transactions are subject to the existing NBBO Trade-Through
requirements for options and stock, as applicable, and may qualify for
various exceptions; however, when the option order is a simple order,
the execution of the option leg of a tied hedge transaction does not
qualify for the NBBO Trade-Through exception for a Complex Trade
(defined in proposed Rule 7610(e)). Floor Participants that participate
in the option transaction must also participate in the hedging position
and may not prevent the option transaction from occurring by giving a
competing bid or offer for one component of such order. In the event
the conditions in the non-options market prevent the execution of the
non-option leg(s) at the agreed prices, the trade representing the
options leg(s) may be cancelled. BOX is proposing that prior to
entering tied hedge orders on behalf of Public Customers, the Floor
Broker must deliver to the Public Customer a written notification
informing the Public Customer that his order may be executed using the
Exchange's tied hedge procedures. The proposed rule dealing with tied
hedge orders is based on the rules of another options exchange.\79\
---------------------------------------------------------------------------

    \79\ See NYSE Arca Rule 6.47.01.
---------------------------------------------------------------------------

Priority in the Trading Crowd
    The Exchange is proposing rules for determining priority of bids
and offers on the Trading Floor.\80\ Specifically, the highest (lowest)
bid (offer) shall have priority, when two or more bids (offers)
represent the highest (lowest) price, priority shall be afforded to
such bids (offers) in the sequence in which they were made. If,
however, the bids (offers) of two or more Floor Participants are made
simultaneously, or if it is impossible to determine clearly the order
of time in which they are made, such bids (offers) will be deemed to be
on parity and priority will be afforded to them, insofar as
practicable, on an equal basis. BOX is proposing that the Floor Broker
will be responsible for determining the sequence in which bids or
offers are vocalized on the Trading Floor from Floor Participants in
response to the Floor Broker's bid, offer, or call for a market. Any
disputes

regarding a Floor Broker's determination of time priority sequence will
be resolved by the Options Exchange Official. An Options Exchange
Official may nullify a transaction or adjust its terms if they
determine the transaction to have been in violation of Exchange Rules.
---------------------------------------------------------------------------

    \80\ See proposed Rule 7610. Proposed Rule 7610 is based on NYSE
Arca Rule 6.75. The Exchange notes that it is not including certain
sections of the NYSE Arca rule that apply to Lead Market Maker
guarantee participation because the Exchange will not have Lead
Market Makers on the Trading Floor. Specifically, a Lead Market
Maker on NYSE Arca that establishes first priority during the
vocalization process is entitled to buy or sell as many contracts as
the Floor Broker may have available to trade. Additionally, on NYSE
Arca, if the Lead Market Maker establishes some other priority other
than first, the Lead Market Maker is entitled to buy or sell the
number of contracts equal to the Lead Market Maker's guaranteed
participation level. The Exchange is also omitting sections of the
NYSE Arca rule that cover manual executions on the trading floor
because the Exchange is requiring that all orders on the Trading
Floor will not execute until they are submitted to the BOG. Lastly,
the Exchange is not including provisions of NYSE Arca's rule that
apply to stock-option orders because the Exchange does not offer
this type of order. Additionally, the Exchange is not including the
same level of detail as NYSE Arca does when referring to the actions
that an Options Exchange Official can take when there is a dispute
regarding a Floor Broker's determination of time priority on the
Trading Floor. The Exchange believes that by allowing an Options
Exchange Official the ability to nullify a transaction or adjust its
terms when the transaction violated the Exchange's Rules will
provide the Exchange with the ability to better monitor and enforce
the Exchange's Rules on the Trading Floor.
---------------------------------------------------------------------------

    The Exchange is proposing that the Floor Participant with first
priority is entitled to buy or sell as many contracts as the Floor
Broker may have available to trade. If there are any contracts
remaining, the Floor Participant with second priority will be entitled
to buy or sell as many contracts as there are remaining in the Floor
Broker's order, and so on, until the Floor Broker's order has been
filled entirely. An Options Exchange Official has the same
responsibilities as a Floor Broker when the Options Exchange Official
calls for a market.
    The Exchange's proposed rules will also cover the situation where a
Floor Broker requests a market in order to fill a large order and the
Floor Participants provide a collective response.\81\ In such
situation, if the size of the response, 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 or offers. If, however, the size of the response
exceeds the size of the order to be filled, that order will be
allocated on a size pro rata basis. Specifically, in such
circumstances, the size of the order to be allocated is multiplied by
the size of an individual Floor Participant's quote divided by the
aggregate size of all Floor Participants' quotes. For example, assume
there are 200 contracts to be allocated, Floor Market Maker #1 is
bidding for 100, Floor Market Maker #2 is bidding for 200 and Floor
Market Maker #3 is bidding for 500. Under the ``size pro rata''
allocation formula, Floor Market Maker #1 will be allocated 25
contracts (200 x 100 / 800); Floor Market Maker #2 will be allocated 50
contracts (200 x 200 / 800); and Floor Market Maker #3 will be
allocated 125 contracts (200 x 500 / 800).
---------------------------------------------------------------------------

    \81\ See proposed Rule 7610(d)(5).
---------------------------------------------------------------------------

Split Price Transactions
    The Exchange is proposing rules for split price transactions
occurring on the Trading Floor.\82\ Specifically, if a Floor
Participant purchases (sells) one or more option contracts of a
particular series at a particular price or prices, the Floor
Participant must, at the next lower (higher) price at which another
Floor Participant bids (offers), have priority in purchasing (selling)
up to the equivalent number of option contracts of the same series that
the Floor Participant purchased (sold) at the higher (lower) price or
prices, provided that the Floor Participant's bid (offer) is made
promptly and continuously and that the purchase (sale) so effected
represents the opposite side of a transaction with the same order or
offer (bid) as the earlier purchase or purchases (sale or sales). The
Exchange notes that this proposed Rule 7610(f) only applies to
transactions effected on the Trading Floor. Further, the priority
afforded by this proposed Rule 7610(f) is effective only insofar as it
does not conflict with Public Customer Orders represented in the BOX
Book. Such orders have precedence over Floor Participants' orders at a
particular price; Public Customer Orders in the BOX Book also have
precedence over Floor Participants' orders that are not superior in
price by at least one minimum trading increment.
---------------------------------------------------------------------------

    \82\ See proposed Rule 7610(f).
---------------------------------------------------------------------------

    Additionally, if a Floor Participant purchases (sells) 50 or more
option contracts of a particular series at a particular price or
prices, the Floor Participant shall, at the next lower (higher) price
have priority in purchasing (selling) up to the equivalent number of
option contracts of the same series that the Floor Participant
purchased (sold) at the higher (lower) price or prices, but only if the
Floor Participant bid (offer) is made promptly and the purchase (sale)
so effected represents the opposite side of the transaction with the
same order or offer (bid) as the earlier purchase or purchases (sale or
sales). The Exchange may increase the minimum qualifying order size
above 100 contracts for split price priority for all products.
Announcements regarding changes to the minimum qualifying order size
shall be made via Circular. If the bids or offers of two or more Floor
Participants are both entitled to priority in accordance with
paragraphs (1) and (2) of proposed Rule 7610(f), it shall be afforded
them, insofar as practicable, on an equal basis.
    The Exchange is also proposing to add clarifying language with
respect to split price priority that provides that Floor Participants
who bid (offer) on behalf of a non-Market Maker Participant must ensure
that the non-Market Maker Participant qualifies for an exemption from
Section 11(a)(1) of the Exchange Act or that the transaction satisfies
the requirements of Exchange Act Rule 11a2-2(T), otherwise the Floor
Participant must yield priority to orders for the accounts of non-
Participants. The Exchange notes that the proposed rule providing for
split price priority is similar to the rule of another exchange.\83\
---------------------------------------------------------------------------

    \83\ See NYSE Arca Rule 6.75(h).
---------------------------------------------------------------------------

Orders Executed Manually
    The Exchange is proposing Rule 7620 Orders Executed Manually to
make clear how priority on the Trading Floor will be established based
on account type.\84\ As mentioned above, Public Customer Orders on the
BOX Book, along with any bids and offers of non-Public Customers ranked
ahead of such Public Customer Orders on the BOX Book, have first
priority. Multiple Public Customer and non-Public Customer Orders at
the same price are ranked based on time priority. Bids and offers of
Floor Participants in the trading crowd have second priority. These
bids and offers include those made by Floor Market Makers and Floor
Brokers (on behalf of orders they are representing). Bids and offers of
non-Public Customers on the BOX Book ranked behind any Public Customer
Orders at the same price have third priority. Such bids and offers of
non-Public Customers will be executed on time priority. The Exchange is
also proposing language related to Section 11(a)(1)(G) of the Exchange
Act. Specifically, Floor Brokers relying on Section 11(a)(1)(G) of the
Exchange Act and Rule 11a1-1(T) thereunder (``G exemption rule'') as an
exemption must also yield priority to any equal-priced non-member bids
or offers on the BOX Book.
---------------------------------------------------------------------------

    \84\ Proposed Rule 7620 is based on NYSE Arca Rule 6.76(d).
---------------------------------------------------------------------------

Clerks
    The Exchange is proposing to adopt Rule 7630 Clerks, which provides
requirements for Clerks on the Trading Floor.\85\ The proposal defines
``Clerk'' as any registered on-floor person employed by or associated
with a Floor Broker or Floor Market Maker and is not eligible to effect
transactions on the Trading Floor as a Floor Market Maker or Floor
Broker. The proposed rule codifies that Clerks must display the
badge(s) supplied by the Exchange while on the Trading Floor. Further,
Proposed Rule 7630(c) codifies that a Clerk shall be primarily located
at a workstation assigned to their employer or assigned to their
employer's clearing firm unless such Clerk is (1) entering or leaving
the Trading Floor, (2) transmitting, correcting or checking the status
of an order or reporting or correcting an executed trade or (3)
supervising other Clerks if he is identified as a supervisor

on the registration form submitted to the Exchange's Membership
Department.
---------------------------------------------------------------------------

    \85\ Proposed Rule 7630 is based on PHLX Rule 1090.
---------------------------------------------------------------------------

    The Exchange is also proposing Rule 7630(d), which details the
registration requirements for a Floor Broker who employs a Clerk that
performs any function other than a solely clerical or ministerial
function. On the Trading Floor, a Clerk may enter an order under the
direction of a Floor Broker by way of any order handling entry
device.\86\ Proposed Rule 7630(f) defines a Floor Market Maker Clerk as
any on-floor Clerk employed by or associated with a Floor Market Maker,
and details the registration requirements and conduct on the Trading
Floor for Floor Market Maker Clerks. A Floor Market Maker Clerk is
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. A Floor Market Maker Clerk may
consummate electronic transactions under the express direction of his
or her Floor Market Maker employer by matching bids and offers. Such
bids and offers and transactions effected under the supervision of a
Floor Market Maker are binding as if made by the Floor Market Maker
employer.
---------------------------------------------------------------------------

    \86\ See proposed Rule 7630(e).
---------------------------------------------------------------------------

Disputes on the Trading Floor
    The Exchange is proposing to adopt Rule 7640 to codify the process
for resolution of trading disputes on Trading Floor.\87\ Specifically,
disputes occurring on and relating to the Trading Floor, if not settled
by agreement between the Floor Participants interested, shall be
settled by an Options Exchange Official.
---------------------------------------------------------------------------

    \87\ Proposed Rule 7640 is based on PHLX Rule 124. The Exchange
notes that there are certain differences from the PHLX rule because
the Exchange desires to have consistency with its existing rules
related to reviewing an Exchange ruling.
---------------------------------------------------------------------------

    The Exchange is proposing that an Options Exchange Official shall
institute the course of action deemed to be most fair to all parties
under the circumstances at the time when issuing decisions for the
resolution of trading disputes. An Options Official may direct the
execution of an order on the Trading Floor or adjust the transaction
terms or Participants to an executed order on the Trading Floor, and
may also nullify a transaction if the transaction is determined to have
been in violation of Exchange Rules. Options transactions that are the
result of an Obvious Error or Catastrophic Error shall be subject to
the provisions and procedures set forth in Rule 7170. The proposed rule
also states that all rulings rendered by an Options Exchange Official
are effective immediately and must be complied with promptly; failure
to do so may result in an additional violation. Furthermore, failure to
promptly comply with other Options Exchange Official rulings issued
pursuant to the Exchange's Order and Decorum Policies (Rule 2120) or
violation of any additional Trading Floor policies and not concerning a
trading dispute may result in an additional violation.
    Proposed Rule 7640(d) states that Options Exchange Official rulings
issued pursuant to the Order and Decorum Code are reviewable pursuant
to IM-2110-1. All other Options Exchange Official rulings are
reviewable pursuant to paragraph (e) of proposed Rule 7640. Proposed
Rule 7640(e) states that all Options Exchange Official rulings are
reviewable by the CRO or his or her designee, and sets forth the
process for such review. Regulatory staff must be advised within 15
minutes of an Options Exchange Official's ruling that a party to such
ruling has determined to appeal from such ruling to the CRO or his or
her designee. The Exchange may establish the procedures for the
submission of a request for a review of an Options Exchange Official
ruling. Options Exchange Official rulings (including those concerning
the nullification or adjustment of transactions) may be sustained,
overturned, or modified by the CRO or his or her designee. In making a
determination, the CRO or his or her designee may consider facts and
circumstances not available to the ruling Options Exchange Official, as
well as action taken by the parties in reliance on the Options Exchange
Official's ruling (e.g., cover, hedge, and related trading activity).
Further, all decisions made by the CRO or his or her designee in
connection with initial rulings on requests for relief and with the
review of an Options Exchange Official ruling pursuant to this proposed
Rule 7640(e) shall be documented in writing and maintained by the
Exchange in accordance with the record keeping requirements set forth
in the Securities Exchange Act of 1934, as amended, and the rules
thereunder. A Floor Participant seeking review of an Options Exchange
Official ruling shall be assessed a fee of $250.00 for each Options
Exchange Official ruling to be reviewed that is sustained and not
overturned or modified by the CRO or his or her designee.\88\ All
decisions of the CRO or his or her designee shall be final and may not
be appealed to the Exchange's Board of Directors. Additionally, all
decisions of the CRO or his or her designee are effective immediately
and must be complied with promptly. Failure to promptly comply with a
decision of Exchange may result in an additional violation.
---------------------------------------------------------------------------

    \88\ In addition, in instances where the Exchange, on behalf of
an Options Participant, requests a review by another options
exchange, the Exchange will pass any resulting charges through to
the relevant Options Participant.
---------------------------------------------------------------------------

    Lastly, as discussed in proposed IM-7640-1, the Exchange may
determine that an Options Exchange Official is ineligible to
participate in a particular ruling where it appears that such Options
Exchange Official has a conflict of interest. The Exchange also sets
forth when a conflict of interest exists, and allows that Exchange
staff may consider other circumstances, on a case-by-case basis, in
determining the eligibility or ineligibility of a particular Options
Exchange Official to participate in a particular ruling due to a
conflict of interest.\89\
---------------------------------------------------------------------------

    \89\ See proposed IM-7640-1.
---------------------------------------------------------------------------

Trading for Joint Account
    The Exchange is proposing Rule 7650, which will govern Trading for
Joint Accounts.\90\ Specifically, it stipulates that while on the
Trading Floor, no Options Participant shall initiate the purchase or
sale on the Exchange of any security for any account in which he, his
Options Participant organization or a participant therein, is directly
or indirectly interested with any person other than such Options
Participant or participant therein. The Exchange further clarifies that
these provisions shall not apply to any purchase or sale by any Options
Participant for any joint account maintained solely for effecting bona
fide domestic or foreign arbitrage transactions.
---------------------------------------------------------------------------

    \90\ Proposed Rule 7650 is based on PHLX Rule 772.
---------------------------------------------------------------------------

Communications and Equipment
    The Exchange is proposing Rule 7660 Communications and Equipment,
which deals with communication and equipment on the Trading Floor.
Specifically, the proposed rule details which communication devices are
prohibited; provides the Exchange with the ability to remove any
communication device that is in violation; sets forth the registration
requirement and process; specifies the capacity and functionality of
communication devices; outlines the communication devices allowed to
Floor Market Makers, Floor Brokers, and Clerks; requires the
maintenance of telephone records, and excludes the

Exchange from liability due to conflicts between communication devices
or due to electronic interference. Additionally, the Exchange will
establish a communication device policy and violations of such policy
may result in disciplinary action by the Exchange.\91\ Proposed IM-
7660-2 clarifies that proposed Rule 7660 and any relevant Exchange
policy are intended to apply to all communication and other electronic
devices on the Floor of the Exchange, including, but not limited to,
wireless, wired, tethered, voice, and data. The Exchange notes that the
proposed rules applicable to communication and equipment on the Trading
Floor are based on the rules of another exchange.\92\ Lastly, Proposed
IM-7660-3 provides the Exchange with the ability to limit or revoke the
use of any communication device on the Trading Floor whenever the
Exchange determines that use of such communication device: (1)
Interferes with the normal operation of the Exchange's own systems or
facilities or with the Exchange's regulatory duties, (2) is
inconsistent with the public interest, the protection of investors or
just and equitable principles of trade, or (3) interferes with the
obligations of a Floor Participant to fulfill its duties under, or is
used to facilitate any violation of, the Act or rules thereunder, or
Exchange rules. The Exchange notes that proposed IM-7660-3 is based on
the rules of another exchange.\93\
---------------------------------------------------------------------------

    \91\ See proposed IM-7660-1.
    \92\ See PHLX Rule 606. The Exchange notes that it is not
copying PHLX Rule 606(b)(2)(i), which prohibits any member from
establishing communication devices on the floor. The Exchange
believes that this provision is not necessary and would be contrary
to the Exchange's proposed Trading Floor design. Specifically, the
Exchange will not be providing communication devices for Floor
Participants; Floor Participants will be responsible for providing
their own communication devices. Therefore, the inclusion of this
provision would directly conflict with the Exchange's plan.
Additionally, proposed Rule 7660(g) contains a provision not
included in PHLX's rule that requires wireless telephone and other
communication devices on the Options Floor to comply with applicable
floor policies. The Exchange believes this provision is important as
to make clear the restrictions and requirements applicable to
communication devices on the Trading Floor.
    \93\ See CBOE Rule 6.23(b). The Exchange notes that although
other provisions of proposed Rule 7660 are based on PHLX, PHLX does
not allow Floor Brokers to receive orders while in the trading
crowd; therefore, the Exchange is proposing to follow CBOE, which
allows Floor Brokers to receive orders in the trading crowd.
---------------------------------------------------------------------------

Floor Market Makers
    The Exchange is proposing Rule 8500 Floor Market Maker, which
details the rules surrounding Floor Market Makers, including
registration as a Market Maker and suspension and termination of a
Floor Market Maker.\94\ Specifically, with regard to suspension or
termination, the registration of any Options Participant as a Floor
Market Maker may be suspended or terminated by the Exchange upon a
determination that such Options Participant has failed to properly
perform as a Floor Market Maker.
---------------------------------------------------------------------------

    \94\ See proposed Rules 8500(a) and (b). Proposed Rules 8500(a)
and (b) are based on PHLX Rule 1020. There are certain differences
with PHLX's rule due to the fact that PHLX has additional categories
of Participants that the Exchange does not.
---------------------------------------------------------------------------

    Proposed Rule 8500 codifies that a Floor Market Maker shall only
quote in classes on the Trading Floor for which the Market Maker is
already quoting electronically. Therefore, a Floor Market Maker must
already be registered as a Market Maker on BOX prior to becoming a
Floor Market Maker. The Exchange proposes that a Floor Market Maker
shall not effect 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.\95\
---------------------------------------------------------------------------

    \95\ See proposed Rule 8500(c).
---------------------------------------------------------------------------

    Also, the Exchange proposes certain expectations of Floor Market
Makers. Specifically, proposed Rule 8500(d) details that it is
ordinarily expected that a Floor Market Maker will engage, to a
reasonable degree under the existing circumstances, in dealings for his
own account in options when lack of price continuity or lack of depth
in the options market or temporary disparity between supply and demand
in the options market exists or is reasonably to be anticipated. The
Exchange is proposing that transactions effected on the Exchange by a
Floor Market Maker for his own account, and in the options in which he
is registered, are to constitute a course of dealings reasonably
calculated to contribute to the maintenance of price continuity with
reasonable depth, and to the minimizing of the effects of temporary
disparity between supply and demand, immediate or reasonably to be
anticipated. Transactions in such options not part of such a course of
dealings are not to be effected by a Floor Market Maker for his own
account.\96\
---------------------------------------------------------------------------

    \96\ See proposed Rule 8500(d).
---------------------------------------------------------------------------

    The Exchange is proposing Rule 8510 which will govern the
obligations and restrictions applicable to Floor Market Makers.\97\
Generally, transactions of a Floor Market Maker should constitute a
course of dealings reasonably calculated to contribute to the
maintenance of a fair and orderly market, and those Participants should
not enter into transactions or make bids or offers that are
inconsistent with such a course of dealings.\98\ Additionally, the
Exchange is proposing to define a Floor Market Maker as an Options
Participant on the Exchange located on the Trading Floor who has
received permission from the Exchange to trade in options for his own
account.\99\
---------------------------------------------------------------------------

    \97\ Proposed Rule 8510 is based on PHLX Rule 1014. PHLX Rule
1014 includes numerous sections that the Exchange is not including
in proposed Rule 8510. The majority of the sections that the
Exchange is omitting are not relevant to BOX. Specifically, they
involve rules related to Participant categories that the Exchange
does not and will not have on BOX. These include Streaming Quote
Trader, which is a Registered Option Trader who has received
permission from PHLX to submit electronic quotes only while they are
present on the floor, and specialists. Additionally, the Exchange is
not copying PHLX Rule 1014.06, which covers information barriers,
because the Exchange already has rules covering misuse of material
information. See Securities Exchange Act Release No. 75916
(September 14, 2015), 80 FR 56503 (September 18, 2015) (SR-BOX-2015-
31). The Exchange is not copying PHLX Rules 1014.13 and 1014.14
because the PHLX Rules deal with types of activities and members
that will not be present on BOX's Trading Floor. As previously
mentioned, PHLX Rule 1014.13 requires an in person minimum that the
Exchange does not believe is necessary on the Trading Floor.
Additionally, PHLX Rule 1014.14 does not apply to BOX because all
Floor Market Makers are required to quote electronically in all
classes they quote on the Trading Floor.
    \98\ See proposed Rule 8510(a).
    \99\ See proposed Rule 8510(b).
---------------------------------------------------------------------------

    More specifically, the Exchange is proposing two Floor Market Maker
Obligations: (1) Continuous Electronic Quoting Obligation; and (2)
Continuous Open Outcry Quoting Obligation.\100\ With regard to
Continuous Electronic Quoting, Floor Market Makers are obligated to
quote electronically in all classes that the Floor Market Maker quotes
on the Trading Floor.\101\ The second Floor Market Maker Obligation,
Continuous Open Outcry Quoting Obligation, requires Floor Market Makers
to provide a two-sided market on the Trading Floor complying with the
quote spread parameter requirements contained in proposed Rule
8510(d)(1).\102\ As part of the Continuous Open Outcry Quoting
Obligation, such Floor Market Makers shall provide such quotations with
a size of not less than 10 contracts.
---------------------------------------------------------------------------

    \100\ See proposed Rule 8510(c).
    \101\ See proposed Rule 8510(c)(1). The Exchange notes that PHLX
does not include the requirement that the a Floor Market Maker being
quoting electronically in all classes that the Floor Market Maker
quotes on the Trading Floor. The Exchange believes that this
proposed difference will lead to more robust quoting that will
benefit all market participants.
    \102\ See proposed Rule 8510(c)(2).
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    The Exchange also proposes affirmative obligations for Floor Market

Makers in classes of option contracts to which they are assigned.
Specifically, whenever a Floor Market Maker is called upon by an
Options Exchange Official or a Floor Broker to make a market, the Floor
Market Maker is expected to engage, to a reasonable degree under the
existing circumstances, in dealing for his own account when there
exists, or it is reasonably anticipated that there will exist, a lack
of price continuity, a temporary disparity between the supply of and
demand for a particular option contract, or a temporary distortion of
the price relationships between option contracts of the same
class.\103\ Additionally, the Exchange proposes the following
obligations on Floor Market Makers while performing their market making
activities on the Trading Floor: (1) Quote Spread Parameters (Bid/Ask
Differentials) \104\ and (2) Maximum Option Price Change.\105\
Specifically, Floor Market Makers shall provide a bid/ask differential
on the Trading Floor for options on equities and index options by
bidding and/or offering so as to create differences of no more than
$0.25 between the bid and the offer for each option contract for which
the prevailing bid is less than $2; no more than $0.40 where the
prevailing bid is $2 or more but less than $5; no more than $0.50 where
the prevailing bid is $5 or more but less than $10; no more than $0.80
where the prevailing bid is $10 or more but less than $20; and no more
than $1 where the prevailing bid is $20 or more, provided that, in the
case of equity options, the bid/ask differentials stated above shall
not apply to in-the-money series where the market for the underlying
security is wider than the differentials set forth above. For such
series, the bid/ask differentials may be as wide as the quotation for
the underlying security on the primary market, or its decimal
equivalent rounded up to the nearest minimum increment. The Exchange
may establish differences other than the above for one or more series
or classes of options.\106\ Quotations provided in open outcry may not
be made with $5 bid/ask differentials provided in Rule 8040(a)(7) and
instead must comply with the legal bid/ask differential requirements
described in this subparagraph. These proposed obligations for Floor
Market Maker are based on the rules of another exchange.\107\
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    \103\ See proposed Rule 8510(d).
    \104\ See proposed Rule 8510(d)(1).
    \105\ On the Trading Floor, a Floor Market Maker shall not be
bidding more than $1 lower and/or offering no more than $1 higher
than the last preceding transaction price for the particular option
contract. However, this standard shall 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 proposed Rule
8510(d)(2).
    \106\ The Exchange notes that the ability to provide different
quoting requirements is not novel and the Exchange already has this
ability when it comes to electronic quoting requirements. See Rule
8040(a)(7). Additionally, another Exchange allows for the same on
their floor. See PHLX Rule 1014(c)(i)(A)(1)(a).
    \107\ See PHLX Rule 1014(c)(i)(A). The Exchange is not including
all of PHLX rules related to Floor Market Maker quoting obligations.
Specifically, the Exchange is not including PHLX rules applicable to
foreign currency options because BOX does not list for trading
foreign currency options.
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    The Exchange is also proposing restrictions for Floor Market Makers
in classes of option contracts other than those to which they are
appointed. Specifically, with respect to classes in which Floor Marker
Makers are not appointed, Floor Market Makers should not (1)
individually or as a group, intentionally or unintentionally, dominate
the market in option contracts of a particular class; or (2) effect
purchases or sales on the Trading Floor of the Exchange except in a
reasonable and orderly manner; (3) be conspicuous in the general market
or in the market in a particular option.\108\ Further, the Exchange
proposes additional restrictions on Floor Market Makers.\109\
Specifically, except as otherwise provided, no Floor Market Maker shall
(1) initiate a 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 (2) 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.\110\
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    \108\ See proposed Rule 8510(e).
    \109\ See proposed Rule 8510(f).
    \110\ This provision shall not apply to (1) any transaction by a
registered Floor Market Maker in an option in which he is so
registered; or (2) any transaction, other than a transaction for an
account in which a Floor Market Maker has an interest, made with the
prior approval of an Options Exchange Official to permit a member to
contribute to the maintenance of a fair and orderly market in an
option, or any purchase or sale to reverse any such transaction; or
(3) any transaction to offset a transaction made in error. See
proposed Rule 8510(g).
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    Proposed Rule 8510(h) discusses option priority and parity on the
Trading Floor. Specifically, it references proposed Rule 7610, which
directs Floor Participants in the establishment of priority of orders
on the Trading Floor. An account type is either a controlled account or
a Public Customer account.\111\ Option orders of controlled accounts
are required to yield priority to Public Customer Orders when competing
at the same price, as described below. Orders of controlled accounts
are not required to yield priority to other controlled account orders.
Additionally, the Exchange is clarifying that orders of controlled
accounts, other than a Floor Market Maker market making in person, must
be (1) verbally communicated as for a controlled account when placed on
the Trading Floor and when represented to the trading crowd and (2)
recorded as for a controlled account by making the appropriate notation
on the Floor Broker's system. Further, the Exchange is proposing to
clarify that in situations where the allocation of contracts result in
fractional amounts of contracts to be allocated to Floor Participants,
the number of contracts to be allocated shall be rounded in a fair and
equitable manner.
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    \111\ A controlled account includes any account controlled by or
under common control with a broker-dealer. Public Customer accounts
are all other accounts.
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    The Exchange is also clarifying that Floor Participants must follow
just and equitable principles of trade when dealing on the Trading
Floor.\112\ Specifically, it shall be considered conduct inconsistent
with just and equitable principles of trade for a Floor Participant (1)
to allocate orders other than in accordance with the Exchange's
priority rules applicable to floor trades; (2) to enter into any
agreement with another Floor Participant concerning allocation of
trades; or (3) to harass, intimidate or coerce any Floor Participant,
or to make or refrain from making any complaint or appeal.
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    \112\ See proposed Rule 8510(h)(4).
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    The Exchange is proposing substantial Interpretive Material to
supplement the Floor Market Maker Rules.\113\ Specifically, the
Exchange is proposing IM-8510-1, which provides that the obligations of
a Floor Market Maker with respect to those classes of options to which
he is assigned shall take precedence over his other activities. The
Exchange is proposing IM-8510-2, which details non-electronic orders
and states that Floor Market Makers participating in a trading crowd
may, in response to a verbal request for a market by a Floor Broker,
state a bid or offer

that is different than their electronically submitted bid or offer,
provided that such stated bid or offer is not inferior to such
electronically submitted bid or offer, except when such stated bid or
offer is made in response to a Floor Broker's solicitation of a single
bid or offer as set forth in proposed Rule 7040(d)(2).\114\ A Floor
Market Maker shall be deemed to be participating in the crowd if such
Floor Market Maker is, at the time an order is represented in the
crowd, physically located in the specific Crowd Area. A Floor Market
Maker who is physically present in such Crowd Area may engage in
options transactions in assigned issues as a crowd participant,
provided that such Floor Market Maker fulfills the requirements set
forth in proposed Rule 8510. A Floor Market Maker shall be deemed to be
participating in a single Crowd Area. The Exchange is proposing to
define the term ``on the floor'' as meaning the Trading Floor of the
Exchange; 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.\115\ The Exchange is also proposing
that the provisions of this Proposed Rule 8510 do not apply to
transactions initiated by a Floor Market Maker for an account in which
he has an interest unless such transactions are either initiated by a
Floor Market Maker while on the Floor or unless such transactions,
although originated off the Floor, are deemed on-Floor transactions
under the provisions of these Rules.\116\
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    \113\ The proposed Interpretive Material to supplement the Floor
Market Maker Rules is based mostly on commentary to PHLX Rule 1014.
The Exchange notes that it is not copying all of the commentary to
PHLX Rule 1014 as some of the commentary is not applicable because
it involves specialists, which the Exchange does not have or the
commentary is covered by different proposed rules.
    \114\ Proposed IM-8510-2 is based on PHLX Rule 1014.05(c). The
Exchange is not including all of PHLX Rue 1014.05(c). Specifically,
the Exchange is not including provisions of the PHLX Rule related to
specialist because the Exchange does not have specialists and is not
proposing to have specialists. The Exchange is also not including
PHLX provisions related to priority of orders represented on the
floor because the Exchange is copying the floor priority provisions
from NYSE Arca and they are covered by proposed Rule 7600(c)
    \115\ See proposed IM-8510-3(a). Proposed IM-8510-3(a) is based
on PHLX Rule 1014.07.
    \116\ See proposed IM-8510-3(b). Proposed IM-8510-3(b) is based
on PHLX Rule 1014.07.
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    Additionally, the Exchange proposes that an off-Floor order for an
account in which a Participant has an interest is to be treated as an
on-Floor order if it is executed by the Participant who initiated
it.\117\ Proposed IM-8510-4 also includes additional transactions that
will be considered on-Floor transactions, including any transaction for
an account in which a Floor Market Maker has an interest if such
transaction is initiated off the Trading Floor by such Floor Market
Maker after he has been on the Trading Floor during the same day.
Additionally, any transactions for a Participant for an account in
which it has an interest: (1) Which results for an order entered off
the Floor following a conversation relating thereto with a Floor
Participant on the Floor who is a partner of or stockholder in such
Participant; or (2) which results from an order entered off the Floor
following the unsolicited submission from the Floor to the office of a
quotation in a stock or Exchange-Traded Fund Share and the size of the
market by a Participant on the Floor who is a partner of or stockholder
in such Participant; or (3) which results from an order entered off the
Floor which is executed by a Participant on the Floor who is a partner
of or stockholder in such Participant and who had handled the order on
a ``not-held'' basis; \118\ or (4) which results from an order entered
off the Floor which is executed by a Participant on the Floor who is a
partner of or stockholder in such Participant and who has changed the
terms of the order.
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    \117\ See proposed IM-8510-4. Proposed IM-8510-4 is based on
PHLX Rule 1014.08.
    \118\ However, the following are not on-Floor orders and such
restrictions shall not apply to an order: (1) To sell an option for
an account in which the Participant is directly or indirectly
interested if in facilitating the sale of a large block of stock or
Exchange-Traded Fund Shares, the Participant acquired its position