Decentralized Linkage
BOX takes part in the Options Order Protection and Locked/Crossed Market Plan (the "Decentralized Linkage Plan") to ensure that Public Customers obtain the best available price for multi-listed option classes. The Decentralized Linkage Plan is available on The Options Clearing Corporation Website. To obtain a copy of this Plan, click here.
The following sections explain how the BOX trading engine software and trading rules implement the Decentralized Plan. Click on the link below to find information for:
BOX Trading Engine NBBO Filter
BOX trading engine software filters incoming orders and order modifications to ensure that Public Customer orders do not trade on BOX at a price inferior to the best price available on the other six options exchanges (NBBO). For a schematic overview of the BOX NBBO filter, click here.
What orders are filtered against NBBO?
All orders on behalf of Public Customer and broker/dealer accounts as well as orders on behalf of the Proprietary account of a BOX Participant are filtered. In addition, the BOX trading engine will reject any request to initiate a Price Improvement Period (PIP) auction process where the initial price is not at or inside NBBO.
However, BOX Market Maker quotes and orders are not filtered against NBBO. It is the responsibility of these non-filtered Participants to ensure that their orders and quotes do not trade on BOX at a price outside of NBBO, unless an exception applies.
| Filtered Orders | Unfiltered Orders |
|---|---|
| Orders on behalf of Public Customers | BOX Market Maker Quotes |
| Orders on behalf of non-BOX Participant broker/dealer accounts | BOX Market Maker Orders |
| BOX Participant Proprietary Orders | |
| PIP Initial Orders |
How does the BOX trading engine obtain NBBO?
The BOX trading engine reads the OPRA broadcast in real-time and compiles an "ex-BOX NBBO", which is the best bid and offer available from the six other options exchanges for each option instrument (series) listed on BOX.
What happens when there is a better price at an away exchange?
When the NBBO best price is better than the best price on the same side of the market on the BOX Book, the inbound filtered order is exposed on the BOX Book as a Limit Order with a price equal to NBBO on the opposite side (e.g., if the order is a sell, it will be exposed as a sell with a limit equal to the NBBO bid). This exposure lasts one second during which time the order is "live" and any BOX Participant may submit an order to trade against it. In this case, trade executions are generated on a FIFO (first come, first served) basis.
If at the end of the one second exposure there is quantity remaining from the original filtered order, the BOX trading engine will verify that there is still a better price than the best BOX price showing in NBBO. If this is no longer the case, the original filtered order is booked on the BOX Book according to its original limit/terms.
If, however, there is still a better price at an away exchange BOX may route such order to away exchange(s) according to the Decentralized Plan in order to avoid a Trade-Through or a locked or crossed market.
Overview of the Decentralized Linkage Plan
The purpose of the Decentralized Plan is to enable the Plan Participants thereto to act jointly in establishing a framework for a non-exclusive method of providing and achieving order protection and addressing Locked and Crossed Markets in Eligible Options Classes. The Decentralized Plan applies many of the Regulation NMS price-protection provisions to the options markets.
Similar to Regulation NMS, the Decentralized Plan requires Plan Participants to, among other things, adopt rules "reasonably designed to prevent Trade-Throughs in Eligible Options Classes", while exempting Intermarket Sweep Orders ("ISOs") from that prohibition and while providing exceptions for certain transactions that track those provided under Regulation NMS, correspond with unique aspects of the options market, or both.
Overview of BOX Third-Party Routing
BOX utilizes certain non-affiliated third-party routing broker-dealers ("Routing Broker(s)") to route options order to one or more Away Exchange(s) when such Away Exchange(s) display the best bid or best offer in accordance with the Decentralized Plan.
The use of the Routing Broker to route orders to one or more Away Exchange(s) will be optional and available only to BOX Options Participants. In the event an Options Participant does not want to use the Routing Broker it must simply designate the order as do not route. Only orders that are specifically designated by Options Participants as eligible for routing will be routed to an Away Exchange ("Eligible Orders"). However, Market-on-Opening Orders, any Improvement Auction orders or any order identified with the condition "Fill and Kill" shall not be eligible for routing. BOX would only route an Eligible Order in order to avoid a Trade-Through or a locked or crossed market, pursuant to the requirements of Chapter XII, Sections 2 and 3 of the BOX Rules and consistent with the Decentralized Plan, when the order has not been executed in its entirety on BOX.
The full or remaining quantity of an Eligible Order will be routed to one or more Away Exchange(s) as Immediate or Cancel ("IOC") limit order(s) priced at the current NBBO. Multiple IOC limit order(s) may be routed to Away Exchanges with the best Protected Bid or Protected Offer until the Eligible Order quantity is fully executed or the limit price is reached. If the Eligible Order is not executed in its entirety at the Away Exchange(s) or its limit price is reached, then it will be returned to BOX and the remainder of the Eligible Order will be treated as a new order.
