Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rules…

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rules in Order To Implement the Upcoming Change to Friday Expiration Processing and Eventual Transition to Friday Expiration for All Monthly Expiration Contracts

September 24, 2013.

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 September 19, 2013, BOX Options Exchange LLC ("BOX" or "Exchange") 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 Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

FOOTNOTE 1 15 U.S.C. 78s(b)(1). END FOOTNOTE

FOOTNOTE 2 17 CFR 240.19b-4. END FOOTNOTE

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to amend the Exchange rules in order to implement the upcoming change to Friday expiration processing and eventual transition to Friday expiration for all monthly expiration contracts. 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 basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.

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

1. Purpose

The Exchange proposes to amend certain rules in order to implement the upcoming change to Friday expiration processing and eventual transition to Friday expiration for all monthly expiration contracts. Specifically, this proposal is based on a recent filing by The Options Clearing Corporation ("OCC") and is designed to conform the Exchange's rules to the changes implemented by the OCC. /3/ The Exchange believes that the industry must remain consistent in expiration dates, and, thus, is proposing to update its rules to remain consistent with those of OCC. The Exchange understands that other exchanges have and will be filing similar rules to effect this industry-wide initiative. Additionally, these changes are based on a proposal recently submitted by NYSE Arca, Inc. ("NYSE Arca"). /4/

FOOTNOTE 3 See Securities Exchange Act Release No. 69772 (June 17, 2013), 78 FR 37645 (June 21, 2013)(Order approving SR-OCC-2013-04). END FOOTNOTE

FOOTNOTE 4 See Securities Exchange Act Release No. 70372 (September 11, 2013)(Notice of Filing and Immediate Effectiveness of SR-NYSEARCA-2013-88). END FOOTNOTE

OCC Proposal

Most option contracts ("standard expiration contracts") currently expire at the "expiration time" (11:59 p.m. Eastern Time) on the Saturday following the third Friday of the specified expiration month (the "expiration date"). /5/ As a result of the OCC's rule change, the expiration date for monthly expiration contracts would be changed to the third Friday of the expiration month. The expiration time would continue to be 11:59 p.m. ET on the expiration date. The expiration date change would apply only to monthly expiration contracts expiring after February 1, 2015, and, in this regard, the Exchange does not propose to change the expiration date for any outstanding option contract.

FOOTNOTE 5 See, e.g., the definition of "expiration time" in Article I of the OCC By-Laws. END FOOTNOTE

The change will apply only to series of option contracts opened for trading after the effective date of the OCC rule change and having expiration dates later than February 1, 2015. Option contracts having non-standard expiration dates ("non-standard expiration contracts") will be unaffected by this proposed rule change, except that flexibly structured ("FLEX") options having expiration dates later than February 1, 2015 cannot expire on a Saturday unless they are specified by OCC as grandfathered.

In order to provide a smooth transition to the proposed Friday expiration, the Exchange, together with other option exchanges and the OCC, began moving the expiration exercise procedures to Friday for all monthly expiration contracts on June 21, 2013, even though the contracts will continue to expire on Saturday. After February 1, 2015, virtually all monthly expiration contracts would actually expire on Friday. The only monthly expiration contracts that would expire on a Saturday after February 1, 2015 would be certain options that were listed prior to the effectiveness of the OCC's proposal, and a limited number of options that may be listed prior to necessary systems changes of the Exchange and the other options exchanges, which were completed in August 2013. The Exchange, along with other option exchanges, has agreed that, once these systems changes are made, it will not list any additional options with Saturday expiration dates falling after February 1, 2015.

Background

Saturday was established as the monthly expiration date for OCC-cleared options primarily in order to allow sufficient time for processing of option exercises, including correction of errors, while the markets were closed and positions remained fixed. However, improvements in technology and long experience have rendered Saturday expiration processing inefficient. Indeed, many non-monthly expiration contracts are currently traded with business day expiration dates. These include FLEX options and quarterly, monthly, and weekly options. Expiration exercise processing for these non-monthly expiration contracts occurs on a more compressed timeframe and with somewhat different procedures than Saturday expiration processing for monthly expiration contracts.

It has been a long-term goal of OCC and its clearing members to move the expiration process for all monthly expiration contracts from Saturday to Friday night. Eliminating Saturday expirations will allow OCC to streamline the expiration process for all monthly expiration contracts and increase operational efficiencies for OCC and its clearing members. Furthermore, it will compress the operational timeframe for processing the options expirations such that clearing members will be required to reconcile options trades on the trade date, which will enhance intra-day risk management of cleared trades by the clearing member and promote real-time trade date reconciliation and position balancing by clearing members.

Industry groups, clearing members and the option exchanges have been active participants in planning for the transition to the Friday expiration. In March 2012, OCC began to discuss moving monthly expiration contracts to Friday expiration dates with industry groups, including two Securities Industry and Financial Markets Association ("SIFMA") committees, the Operations and Technology Steering Committee and the Options Committee, and at two major industry conferences, the SIFMA Operations Conference and the . OCC also discussed the project with the Intermarket Surveillance Group and at an OCC Operations Roundtable. In each case, the initiative received broad support.

Friday expiration processing is also consistent with the long-standing rules and procedures of the options exchanges and the Financial Industry Regulatory Authority ("FINRA"), which generally provide that exercise decisions with respect to expiring monthly expiration contracts must be made by, and exercise instructions may not be accepted from customers after, 5:30 p.m. ET on the business day preceding expiration (usually Friday). /6/ Brokerage firms may set earlier cutoff times for customers submitting exercise notices. Clearing members of OCC are permitted to submit exercise instructions after the cutoff time ("supplementary exercises") only in case of errors or other unusual situations, and may be subject to fines or disciplinary actions. /7/ The Exchange believes that the extended period between cutoff time and expiration of options is no longer necessary given modern technology.

FOOTNOTE 6 See, e.g., FINRA Rule 2360(b)(23)(A)(iii), which provides that "[o]ption holders have until 5:30 p.m. Eastern Time (`ET') on the business day immediately prior to the expiration date to make a final exercise decision to exercise or not exercise an expiring option. Members may not accept exercise instructions for customer or noncustomer accounts after 5:30 p.m. ET." END FOOTNOTE

FOOTNOTE 7 See OCC Rule 805(g). END FOOTNOTE

Transition Period

Based on significant dialogue between the Exchange, other option exchanges, the OCC and its clearing members regarding the move to Friday expiration, the Exchange believes that the adoption of Friday expiration for monthly expiration contracts is best accomplished through an appropriate transition period, during which processing activity for all options, whether expiring on Friday or Saturday, has moved to Friday, followed by a change in the expiration day for new series of options. In May 2012, it was determined that Friday, June 21, 2013, would be an appropriate date on which to move expiration processing from Saturday to Friday night.

--This is a summary of a Federal Register article originally published on the page number listed below--

Citation: "78 FR 59998"

Document Number: "Release No. 34-70488; File No. SR-BOX-2013-45"

Federal Register Page Number: "59998"

"Notices"