[Federal Register Volume 83, Number 243 (Wednesday, December 19, 2018)]
[Notices]
[Pages 65192-65194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27411]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84814; File No. SR-BOX-2018-36]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee 
Schedule on the BOX Options Market LLC (``BOX'') Facility To Establish 
Separate Fees and Credits on PIP and COPIP Transactions for SPY Options

December 13, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 30, 2018, BOX Exchange LLC (the ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Exchange filed the 
proposed rule change pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ 
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to amend the Fee Schedule on 
the BOX Market LLC (``BOX'') options facility. While changes to the fee 
schedule pursuant to this proposal will be effective upon filing, the 
changes will become operative on December 1, 2018. 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 website 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 Exchange 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 Exchange 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 proposes to amend Section I.B, PIP and COPIP 
Transactions and Section III, Liquidity Fees and Credits of the BOX Fee 
Schedule. Specifically, the Exchange proposes to establish separate 
fees and credits on PIP and COPIP Transactions for options overlying 
the Standard and Poor's Depositary Receipts Trust (``SPY'').\5\
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    \5\ Options overlying Standard and Poor's Depositary Receipts/
SPDRs (``SPY'') are based on the SPDR exchange-traded fund 
(``ETF''), which is designed to track the performance of the S&P 500 
Index.
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    First, the Exchange proposes to establish PIP and COPIP Transaction 
\6\ fees for options overlying SPY. Specifically, the Exchange proposes 
a $0.05 fee for Professional Customers, Broker Dealers and Market 
Makers for SPY PIP or COPIP Orders. Public Customers will not be 
charged for SPY PIP or COPIP Orders. The Exchange notes that the 
proposed SPY fees are identical to the current PIP and COPIP Order 
fees. For SPY Improvement Orders, the Exchange proposes a $0.05 fee for 
all account types. For SPY Primary Improvement Orders, the Exchange 
proposes to establish a flat per contract execution fee of $0.02.
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    \6\ Transactions executed through Price Improvement Period 
(``PIP'') and the Complex Order Price Improvement Period (``COPIP'') 
auction mechanisms. All COPIP transactions will be charged per 
contract per leg.
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    The Exchange notes that all SPY transactions executed through the 
PIP and COPIP auction mechanisms will be included in the calculation of 
Customer Volume in Multiply Listed Options Classes for purposes of the 
Primary Improvement Order tiered execution fee and BOX Volume Rebate in 
Section I.B of the BOX Fee Schedule. However, the tiered execution fee 
and rebates defined in Section I.B will not apply to executions in SPY. 
The Exchange believes that the proposed fees discussed above are 
reasonable as they are similar to another options exchange.\7\
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    \7\ See Nasdaq Phlx LLC (``Phlx'') Pricing Schedule Section 3, 
Part C. Phlx assesses a $0.05 per contract fee for all PIXL 
Initiating Orders in SPY (PIXL is Phlx's price improvement mechanism 
similar to BOX's PIP mechanism). Further, Phlx assesses a $0.38 per 
contract fee to non-Customers when their PIXL Order is contra to an 
Initiating Order; unless the PIXL Order is a Public Customer, in 
which case the fee is $0.00 per contract. Next, the Exchange 
believes the $0.02 per contract Primary Improvement Order fee for 
SPY executions is reasonable when compared to Phlx's fees for 
similar transactions. The Exchange also notes the proposed SPY PIP 
and COPIP Order Fees are identical to the PIP and COPIP Order Fees 
that currently apply to all options. The Exchange is simply carving 
out a separate section for all SPY PIP and COPIP transactions.
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    Lastly, the Exchange proposes to establish liquidity fees and 
credits for SPY executions in the PIP or COPIP auction mechanisms. 
Currently, in Section III.A of the Fee Schedule, a Public Customer PIP 
or COPIP Order receives a ``removal'' credit while the corresponding 
Primary Improvement Order and any Improvement Order are charged an 
``add'' fee. The Exchange proposes a $0.45 fee for all SPY PIP and 
COPIP transactions that add liquidity and a $0.45 credit for all SPY 
COPIP and PIP transactions that remove liquidity.

[[Page 65193]]

    Further, under the BOX Fee schedule, when Non-Public Customer PIP 
or COPIP orders do not trade with its Primary Improvement Order, the 
Primary Improvement Order receives a ``removal'' credit and any 
corresponding Improvement Order responses are charged an ``add'' fee. 
For these types of executions the Exchange proposes a $0.45 fee for all 
SPY PIP and COPIP transactions that add liquidity and a $0.45 credit 
for all SPY PIP and COPIP transactions that remove liquidity. The 
Exchange notes that the proposed fees and credits are similar to fees 
at another options exchange.\8\ Lastly, the Exchange notes that it is 
updating the footnotes throughout the Fee Schedule to accommodate the 
addition of new footnotes related to the changes discussed above.
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    \8\ See Phlx Pricing Schedule, Section 3, Part A. The Exchange 
notes that Phlx offers rebates ranging from $0.15 to $0.35 to 
Specialists and Market Makers for adding liquidity in SPY. Further, 
Phlx assesses a $0.48 fee for Market Makers, Broker Dealers and 
Professionals and a $0.45 fee for Public Customers for removing 
liquidity in SPY. As discussed herein, the Exchange proposes to 
assess fees for adding liquidity in SPY and offer credits for 
removing liquidity in SPY. The Exchange believes this is reasonable 
as the proposed change mirrors the structure of the liquidity fees 
and credits currently in place in the BOX Fee Schedule for PIP and 
COPIP transactions.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act, in general, and Section 
6(b)(4) and 6(b)(5)of the Act,\9\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among BOX Participants and other persons using its facilities 
and does not unfairly discriminate between customers, issuers, brokers 
or dealers.
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    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposal to adopt new pricing for PIP and COPIP SPY 
executions is reasonable, equitable, and not unfairly discriminatory 
because pricing by symbol is a common practice on many U.S. options 
exchanges as a means to incentivize order flow to be sent to an 
exchange for execution in the most actively traded options classes.\10\ 
The Exchange notes that another options exchange has a similar pricing 
structure for SPY in their respective price improvement mechanism.\11\
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    \10\ The Exchange is proposing to decrease the fees for SPY 
Improvement Orders, which are responses in the PIP and COPIP 
mechanisms, to $0.05 for all types of Participants; as well as 
assess a flat $0.02 fee for SPY Primary Improvement Orders. The 
Exchange believes these decreased fees are reasonable and will 
result in increased SPY order flow to BOX's auction mechanisms.
    \11\ See supra note 7.
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    The Exchange believes that the proposed fees for SPY PIP and COPIP 
Orders are reasonable, equitable and not unfairly discriminatory. As 
noted above, these fees are identical to the current PIP and COPIP 
Order fees assessed on the Exchange.
    The Exchange believes that the proposed SPY Improvement Order fees 
are equitable and not unfairly discriminatory as the decreased fees 
will encourage market participants to take advantage of the new pricing 
structure and respond to more SPY PIP and COPIP Orders. The Exchange 
believes it is reasonable to assess lower fees to transact SPY 
Improvement Orders (compared to Penny and Non-Penny Improvement Orders) 
because the Exchange seeks to incentivize market participants to 
transact a greater number of SPY option transactions in the PIP or 
COPIP mechanisms.
    The Exchange's proposal to assess a flat fee for SPY Primary 
Improvement Orders is reasonable, equitable and not unfairly 
discriminatory. Specifically, the Exchange is proposing a flat $0.02 
per contract fee which is the same as the highest volume tier for all 
other Primary Improvement Orders.\12\ The Exchange believes that the 
proposed fee will encourage Participants to submit Primary Improvement 
Orders to the Exchange, thus increasing order flow to BOX's auction 
mechanisms and benefitting all market participants.
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    \12\ The Exchange notes that under the volume base tiered fee 
structure for Primary Improvement Orders, a majority of BOX 
Participants reach the highest tier and are assessed the $0.02 fee 
for their Primary Improvement Orders. Further, Improvement Orders 
are assessed $0.12 for Professional Customers and Broker Dealers and 
Market Makers and $0.15 for Public Customers. Under this proposal, 
SPY Primary Improvement Orders will be assessed the $0.02 flat fee 
and the SPY Improvement Order will be charged $0.05 (regardless of 
account type), a substantially less differential than what is 
currently assessed today for SPY transactions.
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    Further, the Exchange believes exempting SPY COPIP and PIP Orders 
from the BVR is reasonable, equitable and not unfairly discriminatory. 
The Exchange notes that the BVR is meant to incentivize order flow, 
which the Exchange believes is already achieved by assessing lower fees 
for SPY PIP and COPIP Orders.
    The Exchange believes including SPY transactions in the Customer 
Volume in Multiply Listed Options Classes for purposes of the Primary 
Improvement Order tiered execution fee and BOX Volume Rebate is 
reasonable as it will allow market participants to benefit from SPY PIP 
and COPIP volume in terms of qualifying for these volume based 
thresholds in Section I.B.1 of the Fee Schedule. Lastly, the Exchange 
believes the proposed change is equitable and not unfairly 
discriminatory because the Exchange includes the SPY PIP and COPIP 
transaction volume regardless of account type.
    The Exchange believes that the proposed changes to Section III 
(Liquidity Fees and Credits) are equitable and not unfairly 
discriminatory in that the fees and credits apply to all categories of 
participants and across all account types. The Exchange notes that 
liquidity fees and credits on BOX are meant to offset one another in 
any particular transaction. The liquidity fees and credits do not 
directly result in revenue to BOX, but simply allows BOX to provide 
incentives to Participants to attract order flow. The Exchange also 
believes the proposed liquidity fees and credits for SPY PIP and COPIP 
transactions are reasonable as they mirror the structure of liquidity 
fees and credits currently in place for PIP and COPIP transactions on 
BOX. Further, the Exchange notes that Phlx assesses fees and offers 
rebates for removing or adding liquidity in SPY.\13\
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    \13\ See supra note 8.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
proposed pricing for SPY options in PIP and COPIP transactions promotes 
competition in this highly liquid option. The Exchange does not believe 
that the proposed changes will burden competition by creating a 
disparity between the fees an Initiating Participant in the PIP or 
COPIP auction pays and the fees a competitive responder pays that would 
result in certain Participants being unable to compete with initiators. 
In fact, the Exchange believes that these changes will not impair these 
Participants from adding liquidity and competing in the auction 
mechanisms and will help promote competition by providing incentives 
for market participants to submit SPY PIP or COPIP order flow to BOX 
and thus, create a greater opportunity for customers to receive 
additional price improvement.
    Further, the Exchange believes that the proposed liquidity fees and 
credits for SPY PIP and COPIP transactions will not impose a burden on 
competition. Rather, BOX believes that the changes

[[Page 65194]]

will result in Participants being charged or credited appropriately for 
their PIP and COPIP transactions and is designed to enhance competition 
in Auction transactions on BOX. Submitting an order is entirely 
voluntary and Participants can determine which type of order they wish 
to submit, if any, to the Exchange.
    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing exchanges. In such an environment, the Exchange must 
continually review, and consider adjusting, its fees and credits to 
remain competitive with other exchanges. For the reasons described 
above, the Exchange believes that the proposed rule change reflects 
this competitive environment.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the
    Exchange Act \14\ and Rule 19b-4(f)(2) thereunder,\15\ because it 
establishes or changes a due, or fee.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
would otherwise further the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#ed9f988188c08e8280808883999ead9e888ec38a829b"><span class="__cf_email__" data-cfemail="3240475e571f515d5f5f575c4641724157511c555d44">[email protected]</span></a>. Please include 
File Number SR-BOX-2018-36 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2018-36. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BOX-2018-36, and should be submitted on 
or before January 9, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27411 Filed 12-18-18; 8:45 am]
 BILLING CODE 8011-01-P


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