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Federal Register / Vol. 86, No. 164 / Friday, August 27, 2021 / Notices A. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
lotter on DSK11XQN23PROD with NOTICES1

1. Purpose The purpose of the proposed rule change is to amend the time period allowed for Participant submission of Responses in the Facilitation and Solicitation auction mechanisms from one 1 second to a time period designated by the Exchange of no less than 100 milliseconds and no more than one 1 second.3
Rule 7270 contains the requirements applicable to the execution of orders in the Facilitation 4 and Solicitation 5
Auction Mechanisms. Currently, under the Facilitation and Solicitation auction mechanisms, when the Exchange receives a designated Agency Order for auction processing, a broadcast message will be sent and Options Participants will be given an opportunity to enter Responses with the prices and sizes at which they would be willing to participate in the execution of the Agency Order. Currently, the time given to Options Participants to enter Responses for Facilitation and Solicitation auctions is one 1 second pursuant to IM72704. The Exchange now proposes to amend IM72704 to state that the time given to Options Participants to enter Responses shall be determined by the Exchange and announced through a Regulatory Circular. The time to enter Responses will be no less than 100 milliseconds and no more than one 1 second. The Exchange notes that substantially similar language exists at other options exchanges with similar auction mechanisms.6
3 While the Exchange intends to decrease the time period allowed for Responses, the proposed rule would also allow the Exchange to increase this time period up to one 1 second, which is the time currently allowed for the submission of Responses.
See IM72704.
4 BOXs Facilitation Auction is a process by which an OFP can attempt to execute a transaction wherein the OFP seeks to facilitate a block-size order it represents as agent Agency Order, and/
or a transaction wherein the OFP solicited interest to execute against an Agency Order. OFPs must be willing to execute the entire size of Agency Orders entered into the Facilitation Auction through the submission of a contra Facilitation Order. See BOX Rule 7270a.
5 BOXs Solicitation Auction is a process by which an OFP can attempt to execute orders of 500
or more contracts it represents as agent the Agency Order against contra orders that it has solicited Solicited Order. Each Agency Order entered into the Solicitation Auction shall be allor-none. See BOX Rule 7270b.
6 See Securities Exchange Act Release Nos. 79352
November 18, 2016, 82 FR 3055 January 10, 2017
Order Approving SRISE201626, a Proposed Rule Change To Modify the Response Times in the Block Mechanism, Facilitation Mechanism,
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The Exchange believes that proposed rule change could provide more customer orders an opportunity for price improvement because it will reduce the market risk for all Participants executing trades in these mechanisms. Participants that submit orders into such mechanisms to initiate an auction Initiating Participants are required to guarantee an execution at the Agency Order price or a better, and are subject to market risk while the order is exposed in the mechanisms to other Participants. While other Participants are subject to market risk, the Initiating Participant is most exposed because the market can move against them during the auction period and they have guaranteed the customer an execution at the Agency Order price or better based on the market prices prior to the commencement of the auction. In todays fast-paced markets, big price changes can occur in 100
milliseconds or less, leaving the Initiating Participants vulnerable to trading losses due to their choice to seek price improvement for their customer.
The Initiating Participant acts in a critical role in the price improvement process and their willingness to guarantee the customer an execution at the Agency Order Price or better is keystone to the customer order gaining the opportunity for price improvement.
Therefore, limiting Initiating Participants market risk by reducing the exposure time in the mechanisms should increase the likelihood that an Initiating Participant would seek price improvement for its customer by entering such orders into one of the mechanisms.
Further, although the Exchange currently plans to reduce the time period allowed for the auction Responses to 100 milliseconds, the Exchange believes that it is appropriate to provide the flexibility to choose a Response period of up to one 1 second as this is consistent with the rules of other options markets.7
The Exchanges Participants operate electronic systems that enable them to react and respond to orders in a meaningful way in fractions of a second.
The Exchange anticipates that its Participants will continue to compete within the proposed auction duration designated by the Exchange. In particular, the Exchange believes the proposed auction Response time will
continue to provide Participants with sufficient time to respond to, compete for, and provide price improvement for orders, and will provide investors and other market participants with more timely executions, and reduce their market risk.
To substantiate that BOX Participants can receive, process, and communicate a response to an auction broadcast within 100 milliseconds, the Exchange surveyed all Participants that responded to a Facilitation or Solicitation auction in the period beginning January 1, 2021
and ending June 30, 2021. The Exchange received responses from all Participants surveyed, and each Participant confirmed that they can receive, process, and communicate a response back to the Exchange within 100
milliseconds.
Accordingly, the Exchange believes that an auction time as low as 100
milliseconds will continue to provide Participants with sufficient time to respond to, compete for, and provide price improvement for orders, and will provide investors and other market participants with more timely executions, and reduce their market risk.
With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it has the necessary systems capacity to handle the potential additional traffic associated with the additional transactions that may occur with the implementation of the proposed reduction in the auction duration to no less than 100
milliseconds. Additionally, the Exchange represents that its systems will be able to sufficiently maintain an audit trail for order and trade information with the reduction in the auction duration.
Upon effectiveness of the proposal, the Exchange will issue an Informational Circular to Participants informing them of the implementation date of the reduction of the auction from one 1 second to the auction time designated by the Exchange to allow Participants the opportunity to perform systems changes. This will give Participants an opportunity to make any necessary modifications to coincide with the implementation date.

Solicited Order Mechanism, and Price Improvement Mechanism; 76301 October 29, 2015, 80 FR 68347
November 4, 2015 SRBX2015032; 77557
April 7, 2016, 81 FR 21935 April 13, 2016 SR
PHLX201640 and 80570 May 1, 2017, 82 FR
28369 June 21, 2017 SRMIAX201716.
7 Id.

The Exchange believes that the proposal is consistent with the requirements of Section 6b of the Act,8
in general, and Section 6b5 of the
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2. Statutory Basis
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