Description of Price Improvement Period (PIP)

For information regarding actual price improvement trades including daily totals and average price improvement, click here.

Customer orders designated for Price Improvement ("PIP Orders") are submitted to the BOX market with a "Contra" order, the Primary Improvement Order. The Primary Improvement Order is on the opposite side of the market from the PIP Order and must provide a bid higher or equal to (offer lower or equal to) than that posted on the current BOX market for the instrument and greater than or equal to the bid (less than or equal to the offer) of the National Best Bid Offer (NBBO).

The Primary Improvement Order cannot be cancelled by the initiating Participant once accepted for processing by the BOX trading engine. During the PIP, the Participant may only modify his contra price in favor of the customer.

BOX Market Makers

A Price Improvement Order is broadcast to BOX Participants as a special order type which sets off a Price Improvement Period (PIP). BOX Market Makers may introduce Improvement Orders to compete with the Primary Improvement Order. An Improvement Order is not obliged to be for the entire quantity of the PIP Order.

Public Customers and BOX Professional Orders

Public customer orders and professional orders on behalf of BOX Participants may also submit Improvement Orders. Non-Market Maker Participants may also introduce Improvement Orders to improve the eventual Customer execution price.

Price Incrementing

During the PIP the Improvement Orders (that is, the orders submitted by the original Participant who initiated the PIP, the BOX Market Makers and the professional and public customer orders as described in the previous paragraph) may be incremented at price intervals of one cent ($0.01).

Restrictions on Modifications and Cancellations

Market Makers, public customers and professional orders competing using the PIP Improvement Order format may increase their quantity or improve their price at any point during the PIP; they may reduce their quantity only when they improve the price and may not cancel their Improvement Order once they join the PIP auction. Under no circumstances may they disimprove the price on the PIP Order.

Unrelated Orders (e.g., orders booked during the PIP at standard five and ten cent increments) are not restricted as to modification or cancellation during the PIP.

The time at which a PIP will end and the orders are matched is provided to BOX Participants as part of the information broadcast that announces the initiation of a PIP.

In certain cases, a PIP may be terminated prior to the completion of the normal duration period. Examples of this are provided in the demonstration of the PIP on this site. In general, a PIP is terminated prematurely in the case where it is in the customer order's interest to do so to maintain priority or due to new orders in the BOX Book which are unrelated to the PIP, but can provide the PIP Order with a better execution price than that available from the Improvement Orders.

At the conclusion of the PIP, Improvement Orders and any Unrelated Orders are matched with the PIP Order on a price/time priority basis with a few exceptions noted below. No Participant has a "step up and match" or "look-back" right.

There are however exceptions to the time priority matching rule for Public Customers (there are never any exceptions to price priority on BOX).

40% Guarantee to PIP Initiator

When the initiator's "Primary Improvement Order's" final price (since he may also improve his original price in response to Improvement Orders) is equal to a price at which the PIP Order is going to match, the OFP is assured of at least 40% of the quantity even when other participants may have time priority over him at that price.

Exceptions to 40% Priority to PIP Initiator When "Professional"

However, when the PIP initiator is a professional account of a BOX Participant, this forty percent execution may only be allocated after all orders at the same price on behalf of public customers, unaffiliated "away" market makers, and unaffiliated "away" professionals have been filled.

Exceptions to 40% Priority to PIP Initiator When "BOX Market Maker"

If the PIP initiator is a BOX Market Maker and the PIP execution price has not been improved since its initial submission, or when the BOX Market Maker does not have time priority over a public customer order, the BOX Market Maker must cede any execution due to this forty percent priority to the public customer orders at the same price.

Market Maker Prime Priority at PIP Matching

In some cases, there will be a BOX Market Maker with time priority over other competing Improvement Orders participating in a given PIP. When a BOX Market Maker is posting a price equal to or better than NBBO in the BOX Book at the instant that a PIP is initiated and that Market Maker also has time priority in the BOX Book ahead of any other BOX Market Maker order or quote, that Market Maker will be designated Market Maker "Prime" (MMP) for the PIP.

If the MMP participates in the PIP and at the end of the process he has posted an order which is executable against the PIP Order, his order will have priority over those of all other Participants, except the OFP, for up to one-third of the quantity available for execution at that price limit (after the execution of the OFP's 40%, where applicable).

Public Customer Order Priority at PIP Matching

At a given PIP matching price, all orders on behalf of public customers must be filled prior to any trade allocation to orders on behalf of professional accounts submitted by BOX Participants (whether the Primary Improvement Order, a competing order, or an Unrelated Order) as outlined above.

BOX Market Makers may be required to cede any trade executions to public customers at the same price at the end of the PIP, but only when the BOX Market Maker trade allocation was due to his being the initiator of the PIP (see above). The BOX Market Maker who initiated a PIP and has time priority over a public customer order at the end of a PIP is not required to cede to a public customer order except when no improvement occurred. When an Improvement Order of a BOX Market Maker (i.e., a Primary Improvement Order) has time priority over a public customer order, the Market Maker does not have to cede priority.

Unaffiliated "Away" Market Maker and "Away" Professional Priority in PIP Matching

Orders on behalf of BOX professional accounts must cede priority to unaffiliated "away" professional and market maker orders at the same price at the end of a PIP.

While the descriptive text above speaks in general terms typically of an OFP initiating a PIP on which one side is a public customer order and the other side is the OFP's proprietary account ("professional"), the process is actually more flexible. For example, both sides of the PIP could be for public customers or both sides could be professional orders. Similarly, a PIP may be initiated by a BOX Market Maker (rather than an OFP as in the previous discussion above).

There is a patent pending regarding the PIP.