63982 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Notices 

12See id. 

13The underwriter can select the price bands at 

any time during the Display Only Period or the PreLaunch Period, and may modify them at any time 

prior to the Pre-Launch Period. See id. at n.6. 

14Specifically, the underwriter will select an 

upper price band (i.e., an amount by which the 

actual price may not exceed the Expected Price) and 

a lower price band (i.e., an amount by which the 

actual price may not be lower than the Expected 

Price). The Exchange notes that the underwriter 

may select different price bands above and below 

the Expected Price. See id. 

15See Notice, supra note 3, at 53501. 

16See id. 

17See id. at 53502. 

18See id. 

19See id. Under the proposal, an underwriter may 

select a price band of $0.00 (i.e., no change from 

the Expected Price would be permitted). See id. 

20See Notice, supra note 3, at 53502. The 

Exchange states that it will notify member 

organizations and the public of changes in available 

price band or increments through a notice that is 

widely disseminated at least one week in advance 

of the change. See id. 

21 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

22 15 U.S.C. 78f(b)(5). 

23See supra note 11 and accompanying text. 

24See supra note 16 and accompanying text. 

25 15 U.S.C. 78s(b)(2). 

26 17 CFR 200.30–3(a)(12). 

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). 

NASDAQ system determines that the 

security satisfies a ‘‘price validation 

test,’’ as described below.12

Under the proposal, prior to the 

conclusion of the Pre-Launch Period,13

the underwriter will select price 

bands 14 and, as noted above, the system 

will then compare the Expected Price 

with the actual price calculated by the 

Cross.15 If the actual price calculated by 

the Cross differs from the Expected 

Price by an amount in excess of the 

price band selected by the underwriter, 

the security will not be released for 

trading and the Pre-Launch Period will 

continue.16 Under the proposal, if a 

security does not satisfy the price 

validation test, the underwriter may, but 

is not required to, select different price 

bands before recommencing the process 

to release the security for trading.17

According to the proposal, the 

available price bands the underwriter 

may select for the price validation test 

will include increments and price 

points established by the Exchange, 

which may be modified by the Exchange 

from time to time.18 Under the proposal, 

the initial available price bands will 

range from $0 to $0.50, with increments 

of $0.01.19 Under the proposal, the 

Exchange reserves the right to stipulate 

wider increments (such as $0.05) or 

price bands that include certain price 

points, but exclude others (for example, 

increments of $0.01 up to $0.10, and 

increments of $0.05 thereafter).20

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange.21 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,22 which requires, 

among other things, that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. 

As noted above, the proposal is 

designed to offer an additional 

safeguard against an unexpected 

deviation between the Expected Price 

and the actual price of the Cross by 

providing the underwriter with the 

authority to set price bands based on the 

characteristics of and expectations for 

each IPO. The Exchange represents that 

such price deviations can occur because 

market participants may continue to 

enter and cancel orders during the 

period of up to five seconds between the 

display of the Expected Price to the 

underwriter and the commencement of 

the Cross calculation.23 The 

Commission notes that, if the actual 

price calculated by the Cross differs 

from the Expected Price by an amount 

in excess of the price band selected by 

the underwriter, the security will not be 

released for trading and the Pre-Launch 

Period will continue.24 The Commission 

believes that the proposed rule change 

is designed to protect investors and the 

public interest by limiting unexpected 

volatility in the pricing of an IPO 

security at the conclusion of the PreLaunch Period. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,25 that the 

proposed rule change (SR–NASDAQ– 

2014–081) is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.26

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25435 Filed 10–24–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73397; File No. SR–BOX– 

2014–24] 

Self-Regulatory Organizations; BOX 

Options Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

a Proposed Rule Change To Amend 

the Fee Schedule on the BOX Market 

LLC (‘‘BOX’’) Options Facility 

October 21, 2014. 

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 October 

9, 2014, BOX Options Exchange LLC 

(the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(the ‘‘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. 

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. 

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 

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. 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Notices 63983 

5Non-Auction Transactions are those transactions 

executed on the BOX Book. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to make a 

number of changes to the BOX Fee 

Schedule. 

Select Symbols 

First, the Exchange proposes to 

amend Section I (Exchange Fees) to 

establish a subsection entitled ‘‘Select 

Symbols.’’ The following symbols will 

be considered Select Symbol for 

purposes of the Fee Schedule: 

Penny classes Non-penny classes 

SPY GPRO RAD VHC PANW HRB 

AAPL GTAT MBLY MPEL NUGT QEP 

IWM PCLN CBS SVXY JD OREX 

YHOO FEYE SPLS INVN DG SWKS 

QQQ GOOGL RSX ABBV ESV GLNG 

EEM HYG QIHU UA RAX IRM 

BAC SDRL AVNR LOCO YELP KERX 

VXX VNET OIH CMG ACHN SNSS 

FB GOOG EPI AZN NPSP KNDI 

TWTR HTZ END KORS SPLK GDP 

Non-Auction Transactions in Select 

Symbols 

The Exchange then proposes to 

establish a separate exchange fee 

structure for Non-Auction 

Transactions 5 in these Select Symbols 

that are different from the fees for nonauction transactions in all other 

symbols. Currently, non-auction 

transactions in all securities are subject 

to the fee structure outlined in Section 

I of the BOX Fee Schedule. For every 

non-auction transaction Public 

Customers are assessed a $0.07 fee per 

contract, and Professional Customers 

and Broker Dealers $0.42 per contract. 

Market Makers are assessed a per 

contract fee based upon the Market 

Maker’s Monthly ADV in all 

transactions executed on BOX, as 

calculated at the end of each month. All 

non-auction executions for that month 

are charged the same per contract fee 

according to the ADV achieved by the 

Market Maker, which ranges from $0.13 

to $0.35. 

In proposed Section I.C.1, (NonAuction Transactions in Select 

Symbols), the Exchange proposes to 

adopt a pricing model where the 

Exchange will assess transaction fees 

and credits dependent upon two factors: 

(i) The account type of the Participant 

submitting the order and if the 

Participant is a liquidity provider or 

liquidity taker; and (ii) the account type 

of the contra party and if the contra 

party is a liquidity provider or liquidity 

taker. Transactions in Penny Pilot 

Classes will also be assessed different 

fees or credits than transactions in NonPenny Pilot Classes. 

The Exchange also proposes to specify 

that these transactions will now be 

exempt from the Liquidity Fees and 

Credits outlined in Section II of the BOX 

Fee Schedule. The proposed fee 

structure is as follows: 

Account type Contra party 

Penny pilot classes Non-penny pilot classes 

Maker fee/ 

credit 

Taker fee/ 

credit 

Maker fee/ 

credit 

Taker fee/ 

credit 

Public Customer .................... Public Customer ........................................... $0.00 $0.00 $0.00 $0.00 

Professional Customer/Broker Dealer ......... (0.22) (0.22) (0.57) (0.57) 

Market Maker ............................................... (0.22) (0.22) (0.57) (0.57) 

Professional Customer or 

Broker Dealer.

Public Customer ...........................................

Professional Customer/Broker Dealer .........

0.55 

0.20 

0.59 

0.35 

0.90 

0.30 

0.94 

0.35 

Market Maker ............................................... 0.20 0.39 0.30 0.39 

Market Maker ........................ Public Customer ........................................... 0.51 0.55 0.85 0.90 

Professional Customer/Broker Dealer ......... 0.00 0.05 0.00 0.10 

Market Maker ............................................... 0.10 0.29 0.10 0.29 

For example, if a Public Customer 

submitted an order to the BOX Book in 

a Penny Pilot Select Symbol (making 

liquidity) the Public Customer would be 

credited $0.22 if the order interacted 

with a Market Maker’s order, and the 

Market Maker (taking liquidity) would 

be charged $0.55. To expand on this 

example, if the Market Maker instead 

submitted an order to the BOX Book in 

a Penny Pilot Select Symbol (making 

liquidity) the Market Maker would be 

charged $0.51 if the order interacted 

with a Public Customer’s order and the 

Public Customer (taking liquidity) 

would again be credited $0.22. 

Tiered Volume Rebate for Non-Auction 

Transactions in Select Symbols 

Finally, the Exchange proposes to 

introduce a tiered volume-based rebate 

for Market Makers and Public 

Customers in Non-Auction Transactions 

in Select Symbols. Specifically, Market 

Makers and Public Customers will 

receive a per contract rebate based on 

ADV considering all transactions 

executed on BOX by the Market Maker 

or Public Customer, respectively, as 

calculated at the end of each month. All 

Non-Auction Transactions in Select 

Symbols for that month will receive the 

same per contract rebate according to 

the ADV achieved by the Market Maker 

or Public Customer. The new per 

contract rebate for Market Makers and 

Public Customers in Non-Auction 

Transactions in Select Symbols as set 

forth in Section I.C.2. of the BOX Fee 

Schedule will be as follows: 


tkelley on DSK3SPTVN1PROD with NOTICES
63984 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Notices 

6 15 U.S.C. 78f(b)(4) and (5). 

7See the Miami International Securities 

Exchange, LLC (‘‘MIAX’’) Fee Schedule, specifically 

the Priority Customer Rebate Program. 

8See International Securities Exchange LLC 

(‘‘ISE’’) Schedule of Fees, page 6 (providing reduced 

fee rates for making liquidity in Select Symbols); 

NASDAQ OMX PHLX, (‘‘PHLX’’), Pricing Schedule 

Section I (providing a rebate for adding liquidity in 

SPY); NYSE Arca, Inc (‘‘Arca’’) Fees Schedule, page 

4 (section titled ‘‘Customer Monthly Posting Credit 

Tiers and Qualifications for Executions in Penny 

Pilot Issues.’’ 

9See Securities Exchange Act Release No. 71312 

(January 15, 2014), 79 FR 3649 (January 22, 2014) 

(Notice of Filing and Immediate Effectiveness of a 

Proposed Rule Change To Amend the Fee Schedule 

To Establish Fees for Complex Order Price 

Improvement Period (‘‘COPIP’’) Transactions). 

Market maker monthly ADV Per contract 

rebate 

100,001 contracts and greater ....................................... ($0.15) 

60,001 contracts to 100,000 

contracts ............................ (0.10) 

35,001 contracts to 60,000 

contracts ............................ (0.07) 

10,001 contracts to 35,000 

contracts ............................ (0.03) 

1 contract to 10,000 contracts ................................. 0.00 

Public customer monthly 

ADV 

Per contract 

rebate 

35,001 contracts and greater ($0.10) 

15,001 contracts to 35,000 

contracts ............................ (0.06) 

5,001 contracts to 15,000 

contracts ............................ (0.03) 

1 contract to 5,000 contracts 0.00 

Liquidity Fees and Credits 

BOX proposes to simplify the 

categories for Liquidity Fees and Credits 

in PIP and COPIP Transactions. 

Currently the Exchange separates these 

into two categories: Symbols with a 

Minimum Price Variation of 1 cent 

(Penny Pilot classes where trade price is 

less than $3.00, and all series in QQQ, 

SPY & IWM), and symbols with a 

Minimum Price Variation of greater than 

1 cent (All Non-Penny Pilot classes and 

Penny Pilot classes where trade price is 

equal to or greater than $3.00, excluding 

QQQ, SPY & IWM). The Exchange 

proposes to remove these and simply 

separate these fees and credits into 

Penny Pilot Classes and Non-Penny 

Pilot Classes: 

PIP and COPIP transactions Fee for adding liquidity 

(all account types) 

Credit for removing 

liquidity 

(all account types) 

Penny Pilot Classes ................................................................................................................. $0.35 ($0.35) 

Non-Penny Pilot Classes ......................................................................................................... 0.75 (0.75) 

This proposed change will mean that 

the liquidity fees and credits for auction 

transactions in Penny Pilot classes 

where the trade price is equal to or 

greater than $3.00 will now be charged 

a $0.35 fee for adding liquidity (instead 

of $0.75) or receive a $0.35 credit for 

removing liquidity (instead of a $0.75 

credit). These are the only classes 

impacted by this proposed change. 

Additionally, the Exchange proposes 

to specify in Section II.C. (Exempt 

Transactions) that Non-Auction 

Transactions in Select Symbols will be 

considered exempt from all liquidity 

fees and credits. 

Jumbo SPY Options 

The Exchange also proposes to 

remove all references to Jumbo SPY 

from the Fee Schedule. Jumbo SPY 

Options were moved to closing only in 

June 2014 and any future transactions in 

Jumbo SPY Options before the final 

expiration in January 2015 will be 

assessed the applicable standard 

contract fee for purposes of the Fee 

Schedule. 

Finally, the Exchange is proposing to 

make additional non-substantive 

changes to the Fee Schedule. 

Specifically, the Exchange is 

renumbering certain footnotes to 

accommodate the proposed changes 

above to the Fee Schedule. 

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,6 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. 

The proposed changes will allow the 

Exchange to be competitive with other 

exchanges and to apply fees and credits 

in a manner that is equitable among all 

BOX Participants. Further, the Exchange 

operates within a highly competitive 

market in which market participants can 

readily direct order flow to any other 

competing exchange if they determine 

fees at a particular exchange to be 

excessive. 

Select Symbols 

The Exchange believes establishing 

separate fee and credits for the Select 

Symbols is reasonable. The symbols 

chosen were the top ten most active 

Penny Pilot Symbols and top fifty most 

active Non-Penny Pilot Symbols 

(excluding flex options) based on OCC 

volume across all exchanges for the 

previous month. Further, at least one 

other exchange currently uses a fee 

structure with Select Symbols based on 

the volume of the symbols.7 The 

Exchange chose these high volume 

symbols to encourage Participants to 

direct greater non-auction trade volume 

to the Exchange. Increased volume will 

provide greater liquidity, which will 

benefit all market participants on the 

Exchange. Further, the Exchange 

believes it is equitable and not unfairly 

discriminatory to establish these Select 

Symbols, as all Participants have the 

ability to submit orders in Select 

Symbols to the Exchange. 

Non-Auction Transactions in Select 

Symbols 

The Exchange believes establishing a 

different fee structure for Non-Auction 

transactions in Select Symbols is 

reasonable, equitable and not unfairly 

discriminatory. The proposed fee 

structure is intended to attract order 

flow to the Exchange by offering all 

market participants incentives to submit 

their orders in these symbols to the 

Exchange. The practice of providing 

additional incentives to increase order 

flow in high volume symbols is, and has 

been, a common practice in the options 

markets.8 Further, the Exchange 

believes it is appropriate to provide 

incentives for market participants, 

which will result in greater liquidity 

and ultimately benefit all Participants 

trading on the Exchange. 

The Exchange also believes it is 

equitable, reasonable and not unfairly 

discriminatory to assess fees and credits 

according to the account type of the 

Participant originating the order and the 

contra party. This proposed fee 

structure is similar to the model 

adopted by the Exchange for Complex 

Orders Fees 9 and has been accepted by 

both the Commission and the 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Notices 63985 

10This type of structure was also adopted by 

NYSE Arca in 2012. See Securities Release No. 

68405 (December 11, 2012), 77 FR 74719 (December 

17, 2012) (SR–NYSEArca–2012–137). 

11Many U.S. Options Exchanges do not 

differentiate their fees between auction and nonauction transactions. However, the general range for 

Market Maker fees is between $0.10 and $0.89. See 

NASDAQ OMX BX (‘‘BX’’) Options Pricing, Chapter 

XV, Sec. 2; BX charges both BX Options Market 

Makers and Non-Customer/Non-BX Options Market 

Makers a fee of $0.46 to remove liquidity in Penny 

Pilot Options and a fee of $0.89 to remove liquidity 

in Non-Penny Pilot Options, a fee to add liquidity 

in Penny Pilot Options of $0.40 to BX Options 

Market Makers and $0.45 to Non-Customer/Non-BX 

Options Market Makers, and a fee to add liquidity 

in Non-Penny Pilot Options of $0.50 to BX Options 

Market Makers (or $0.85 when interacting with 

Customer) and $0.88 for Non-Customer/Non-BX 

Continued 

industry.10 The result of this structure is 

that a Participant does not know the fee 

it will be charged when submitting a 

Complex Order. Therefore, the 

Participant must recognize that it could 

be charged the highest applicable fee on 

the Exchange’s schedule, which may, 

instead, be lowered or changed to a 

credit depending upon how its Complex 

Order interacts. This structure has been 

favorably received by the industry and 

the Exchange is proposing to apply a 

similar structure to Non-Auction 

transactions in Select Symbols. After 

adopting this type of structure for nonauction transactions in Select Symbols a 

Public Customer submitting an order in 

a Select Symbol on the BOX Book will 

recognize that it will not pay a fee for 

these transactions, and that depending 

on with whom the order executes, the 

Public Customer may receive an 

additional benefit for submitting the 

order. Likewise, a Professional 

Customer or Broker Dealer submitting 

an order in a Select Symbol will 

recognize that it will not be charged 

more than $0.59 in penny pilot issues 

and $0.94 in non-penny pilot issues. 

The same is true for Market Makers, 

who will recognize that their maximum 

charge when submitting an order in a 

Select Symbol will be $0.55 in penny 

pilot issues and $0.90 in non-penny 

pilot issues. 

The Exchange believes that the 

proposed fees and credits for Public 

Customers in non-auction transactions 

in Select Symbols are reasonable. Under 

the proposed fee structure Public 

Customers will either pay a Make fee of 

$0.00 or receive a Make/Take credit of 

$0.22 for penny pilot classes and $0.57 

for non-penny pilot classes. These 

potential fees and credits are reasonable 

and will at all times be less than the 

current $0.07 Exchange Fee that Public 

Customers pay in non-auction 

transactions. 

The Exchange believes providing a 

credit or charging no fee to Public 

Customers for all Non-Auction 

Transactions in Select Symbols is 

equitable and not unfairly 

discriminatory. The securities markets 

generally, and BOX in particular, have 

historically aimed to improve markets 

for investors and develop various 

features within the market structure for 

public customer benefit. Accordingly, 

the Exchange believes that charging no 

fee or providing a credit for Public 

Customers is appropriate and not 

unfairly discriminatory. Public 

Customers are less sophisticated than 

other Participants and the credit will 

help to attract a high level of Public 

Customer order flow to the BOX Book 

and create liquidity, which the 

Exchange believes will ultimately 

benefit all Participants trading on BOX. 

Finally, the Exchange believes it is 

reasonable, equitable and not unfairly 

discriminatory to give Public Customers 

a credit when their orders in Select 

Symbols execute against a non-Public 

Customer and, accordingly, charge nonPublic Customers a higher fee when 

their orders in Select Symbols execute 

against a Public Customer. As stated 

above, the Exchange aims to improve 

markets by developing features for the 

benefit of its public customers. Similar 

to the payment for order flow and other 

pricing models that have been adopted 

by the Exchange and other exchanges to 

attract Public Customer order flow, the 

Exchange increases fees to non-Public 

Customers in order to provide 

incentives for Public Customers. The 

Exchange believes that providing 

incentives for non-auction select symbol 

transactions by Public Customers is 

reasonable and, ultimately, will benefit 

all Participants trading on the Exchange 

by attracting Public Customer order 

flow. 

The Exchange believes that charging 

Professional Customers and Broker 

Dealers higher fees than Public 

Customers for non-auction transactions 

in Select Symbols is equitable and nonunfairly discriminatory. Professional 

Customers, while Public Customers by 

virtue of not being Broker Dealers, 

generally engage in trading activity 

more similar to Broker Dealer 

proprietary trading accounts (submitting 

more than 390 standard orders per day 

on average). The Exchange believes the 

higher level of trading activity from 

these Participants will draw a greater 

amount of BOX system resources than 

that of non-professional, Public 

Customers. Because this higher level of 

trading activity will result in greater 

ongoing operational costs, the Exchange 

aims to recover its costs by assessing 

Professional Customers and Broker 

Dealers higher fees for transactions. 

The Exchange also believes it is 

equitable and not unfairly 

discriminatory for BOX Market Makers 

to be assessed lower fees than 

Professional Customers and Broker 

Dealers for non-auction transactions in 

Select Symbols because of the 

significant contributions to overall 

market quality that Market Makers 

provide. Specifically, Market Makers 

can provide higher volumes of liquidity, 

and lowering their fees will help attract 

a higher level of Market Maker order 

flow to the BOX Book and create 

liquidity, which the Exchange believes 

will ultimately benefit all Participants 

trading on BOX. As such, the Exchange 

believes it is appropriate that Market 

Makers be charged lower transaction 

fees than Professional Customers and 

Broker Dealers for non-auction 

transactions in Select Symbols. 

The Exchange believes that the 

proposed fees and credits for all other 

Participants in non-auction transactions 

in Select Symbols are reasonable. Under 

the proposed fee structure a Professional 

Customer or Broker Dealer making 

liquidity and interacting with a nonPublic Customer will either be charged 

a fee of $0.20 for Penny Pilot Classes, or 

$0.30 for Non-Penny Pilot Classes. If the 

Professional Customer or Broker Dealer 

is instead taking liquidity in either 

Penny Pilot or Non-Penny Pilot Classes, 

it will be charged $0.35 if it interacts 

with a Professional Customer or Broker 

Dealer, and $0.39 if it interacts with a 

Market Maker. The Exchange believes 

the fees listed above are reasonable as 

they are lower than the current $0.42 

Exchange Fee charged to Broker Dealers 

and Professional Customers in nonauction transactions. 

Similarly, in the proposed fee 

structure a Market Maker making 

liquidity in both Penny Pilot and NonPenny Pilot Classes will either be 

charged a fee of $0.00 for interacting 

with a Professional Customer or Broker 

Dealer, or $0.10 for interacting with 

another Market Maker. If the Market 

Maker is instead taking liquidity, it will 

be charged $0.05 (for Penny Pilot 

Classes) and $0.10 (for Non-Penny Pilot 

Classes) if it interacts with a 

Professional Customer or Broker Dealer. 

If a Market Maker is taking liquidity and 

interacts with another Market Maker 

will be charged $0.29 in all situations. 

The Exchange believes the fees listed 

above are reasonable as they are in most 

situations lower than the current $0.13 

to $0.35 Exchange Fee range for Market 

Makers under the BOX Fee Schedule, 

and are in line with what is currently 

charged by the industry.11


tkelley on DSK3SPTVN1PROD with NOTICES
63986 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Notices 

Options Market Makers. See NYSE Arca Options 

(‘‘Arca’’) Fees and Charges page 3; Arca charges 

NYSE Arca Market Makers $0.16 for manual 

executions, $0.49 to take liquidity in Penny Pilot 

Issues, and $0.87 to take liquidity in Non Penny 

Pilot Issues. See International Securities Exchange 

(‘‘ISE’’) Schedule of Fees, Section I; ISE charges 

Market Makers $0.10 for making liquidity in select 

symbols and $0.42 for taking liquidity in select 

symbols. 

12 Id. Professional Customer and Broker Dealers 

are also charged anywhere from $0.10 to $0.89 

within the option exchange fee schedules 

referenced above. 

13The ‘‘Make/Take’’ model is currently used by 

the International Securities Exchange LLC. [sic] 

(‘‘ISE’) and NASDAQ OMX PHLX LLC. [sic] 

(‘‘PHLX’’). 

14See Section B of the Phlx Pricing Schedule 

entitled ‘‘Customer Rebate Program’’ and CBOE’s 

Volume Incentive Program (VIP). CBOE’s Volume 

Incentive Program (‘‘VIP’’) pays certain tiered 

rebates to Trading Permit Holders for electronically 

executed multiply-listed option orders which 

include AIM orders. Note that these exchanges base 

these rebate programs on the percentage of total 

national Public Customer volume traded on their 

respective exchanges, which the Exchange is not 

proposing to do. 

The Exchange believes it is 

reasonable, equitable and not unfairly 

discriminatory for Professional 

Customers, Broker Dealers and Market 

Makers to be charged higher fees for 

both making and taking liquidity when 

interacting with Public Customers. In 

the proposed fee structure a Professional 

Customer or Broker Dealer interacting 

with a Public Customer will be charged 

a $0.55 maker fee or $0.59 taker fee for 

Penny Pilot Classes and a $0.90 maker 

fee or $0.94 taker fee for non-Penny 

Pilot Classes. Similarly a Market Marker 

interacting with a Public Customer will 

be charged a $0.51 maker fee or $0.55 

taker fee for Penny Pilot Classes and a 

$0.85 maker fee or $0.90 taker fee for 

non-Penny Pilot Classes. While these 

fees are higher than what these 

Participants are currently charged for 

non-auction transactions, the Exchange 

believes they are reasonable as they are 

in line when compared [sic] similar fees 

in the options industry.12 Further, as 

stated above the Exchange believes 

charging a higher fee for interactions 

with a Public Customer is equitable and 

not unfairly discriminatory because it 

allows the Exchange to incentivize 

Public Customer order flow by offering 

credits to Public Customers transacting 

in Select Symbols. The Exchange 

believes that providing incentives for 

non-auction select symbol transactions 

by Public Customers will benefit all 

Participants trading on the Exchange by 

attracting this Public Customer order 

flow. 

The Exchange believes it is 

reasonable, equitable and not unfairly 

discriminatory for Professional 

Customers, Broker Dealers and Market 

Makers to be charged a higher fee for 

orders removing liquidity when 

compared to the fee they receive for 

orders that add liquidity. Charging a 

lower fee for orders that add liquidity 

will promote liquidity on the Exchange 

and ultimately benefit all participants 

on BOX. Further, the concept of 

incentivizing orders that add liquidity 

over orders that remove liquidity is 

commonly accepted within the industry 

as part of the ‘‘Make/Take’’ liquidity 

model.13

Further, the Exchange believes it is 

equitable and not unfairly 

discriminatory to charge the 

Professional Customer or Broker Dealer 

more for taking liquidity against a 

Market Maker than they are charged for 

taking liquidity against other 

Professional Customers or Broker 

Dealers. As stated above, the Exchange 

proposes to provide certain incentives 

to Market Makers because of the high 

volumes of liquidity they can provide, 

and increasing fees for Professional 

Customers and Broker Dealers taking 

liquidity will allow the Exchange to 

offer these incentives, ultimately 

benefiting all Participants trading on 

BOX. 

Finally, the Exchange also believes it 

is reasonable to charge Professional 

Customers, Broker Dealers, and Market 

Makers less for certain executions in 

penny pilot issues compared to nonpenny pilot issues because these classes 

are typically more actively traded; 

assessing lower fees will further 

incentivize order flow in Penny Pilot 

issues on the Exchange, ultimately 

benefiting all Participants trading on 

BOX. Additionally, the Exchange 

believes it is reasonable to give a greater 

credit to Public Customers for nonauction Select Symbol executions in 

non-penny pilot issues as compared to 

penny pilot issues. These classes have 

wider spreads and are less actively 

traded; and giving a larger credit will 

further incentivize Public Customers to 

trade in these classes, ultimately 

benefitting all Participants trading on 

BOX. 

The Exchange believes that the 

proposed Select Symbol non-auction 

transactions fee structure will keep the 

Exchange competitive with other 

exchanges and will be applied in an 

equitable manner among all BOX 

Participants. The Exchange believes the 

proposed fee structure is reasonable and 

competitive with fee structures in place 

on other exchanges. Further, the 

Exchange believes that the competitive 

marketplace impacts the fees proposed 

for BOX. 

Tiered Volume Rebate for Non-Auction 

Transactions in Select Symbols 

BOX believes it is reasonable, 

equitable and not unfairly 

discriminatory to introduce tiered 

volume based rebates for Market Makers 

and Public Customers in non-auction 

transactions in Select Symbols. Other 

exchanges employ similar incentive 

programs,14 and the Exchange believes 

that its proposed volume thresholds and 

rebates are reasonable and competitive 

when compared to incentive structures 

at other exchanges. 

Additionally, the Exchange believes 

that the proposed volume thresholds are 

reasonable because they will incentivize 

Public Customers and Market Makers to 

direct order flow to the Exchange to 

obtain the benefit of the rebate, which 

will in turn benefit all market 

participants by increasing liquidity on 

the Exchange. The Exchange believes 

that its proposed volume threshold and 

rebate is competitive when compared to 

rebate structures at other exchanges. 

The Exchange also believes it is 

equitable and not unfairly 

discriminatory to only adopt these 

structures for Public Customers and 

Market Makers. The proposed volume 

credits are intended to further 

encourage Public Customer and Market 

Maker order flow to the Exchange in 

these high volume symbols. Increased 

Public Customer and Market Maker 

volume will provide greater liquidity, 

which benefits all market participants 

on the Exchange. The practice of 

incentivizing increased Public Customer 

order flow is common in the options 

markets. Further, Market Makers also 

provide significant contributions to 

overall market quality. Specifically, 

Market Makers can provide high 

volumes of liquidity, and potentially 

lowering their transaction fees in Select 

Symbols will help attract a higher level 

of Market Maker order flow and create 

liquidity, which the Exchange believes 

will ultimately benefit all Participants 

trading on BOX. 

Liquidity Fees and Credits 

The Exchange believes it reasonable, 

equitable and non-discriminatory to 

simplify the Liquidity Fees and Credits 

for Auction Transactions by removing 

the Minimum Price Variation 

distinction to separate the applicable 

fees and credits by Penny Pilot Classes 

and Non-Penny Pilot Classes. The 

current categories separate the fees and 

credits into transactions where (1) the 

Minimum Price Variation of $0.01 

(Penny Pilot Classes where the trade 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Notices 63987 

15 15 U.S.C. 78s(b)(3)(A)(ii). 

16 17 CFR 240.19b–4(f)(2). 

price is less than $3.00, and all series in 

QQQ, SPY, and IWM); and (2) the 

Minimum Price Variation is greater than 

$0.01 (i.e., all non-Penny Pilot Classes, 

and Penny Pilot Classes where the trade 

price is equal to or greater than $3.00, 

excluding QQQ, SPY, and IWM). The 

Exchange believes that changing these 

to Penny Pilot Classes and Non-Penny 

Pilot Classes is reasonable as it will 

reduce investor confusion as to what fee 

or credit is applicable. While 

delineating between classes within 

pricing structures is common at most 

other options exchanges, BOX is the 

only exchange that makes a Minimum 

Price Variation distinction and changing 

this to Penny Pilot vs. Non-Penny Pilot 

will allow investors to more quickly 

determine the applicable fees and 

credits. Further, while the Exchange 

recognizes this proposal will result in 

certain classes being charged or credited 

different liquidity fees and credits 

(Penny Pilot classes where the trade 

price is equal to or greater than $3.00), 

the Exchange believes it is reasonable to 

make this adjustment because within 

these classes there is a fundamental 

difference in the liquidity and quoted 

spreads between options that are quoted 

in penny increments and those that are 

not. Additionally, these classes will in 

actuality receive a lower charge or 

rebate than under the current structure. 

Finally, the Exchange believes that the 

proposed change to the liquidity fees 

and credits for auction transactions is 

equitable and not unfairly 

discriminatory because it is applicable 

to all Participants on an equal basis. 

The Exchange believes that exempting 

Non-Auction Transactions in Select 

Symbols from Section II (Liquidity Fees 

and Credits) is reasonable, equitable and 

not unfairly discriminatory. The 

Exchange’s Liquidity Fees and Credits 

are intended to attract order flow to the 

Exchange by offering incentives to all 

market participants to submit orders to 

the Exchange and the Exchange believes 

that the proposed fee structure will 

provide appropriate incentives to 

encourage Participants to submit NonAuction Transactions in Select Symbols 

to the Exchange. The Exchange believes 

that exempting Non-Auction 

Transactions in Select Symbols from 

liquidity fees and credits is reasonable 

compared to the similar fees and credits 

offered by the other exchanges. The 

Exchange believes exempting NonAuction Transactions in Select Symbols 

from liquidity fees and credits is not 

unfairly discriminatory as the 

exemption from the liquidity fees and 

credits applies equally to all 

Participants on the Exchange. 

Jumbo SPY Options 

The Exchange believes it is reasonable 

to remove all references of Jumbo SPY 

Options from the Fee Schedule and treat 

any future Jumbo SPY Option 

transactions before the final expiration 

in January 2015 as standard contracts 

for purposes of the Fee Schedule. On 

June 20, 2014 the Exchange delisted all 

Jumbo SPY series with no open interest 

and canceled all resting Jumbo SPY 

orders on the BOX Book. No further 

Jumbo SPY Options series will be added 

and the five remaining Jumbo SPY 

Options series with open interest were 

moved to closing only transactions. The 

Exchange believes it is reasonable to 

remove these references from the Fee 

Schedule because doing so will reduce 

investor confusion by clarifying that the 

product will no longer be listed and 

traded on BOX. The Exchange also 

believes it is equitable and not unfairly 

discriminatory to remove all references 

to Jumbo SPY Options as this applies 

equally to all Participants on the 

Exchange. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange believes that the 

proposed new fee structure for Select 

Symbols will neither impose burdens on 

competition among various Exchange 

Participants nor impose any burden on 

competition among exchanges in the 

listed options marketplace, not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

The Exchange believes that adopting 

a different fee structure for Select 

Symbols will not impose a burden on 

competition among various Exchange 

Participants. BOX currently assesses 

distinct standard contract Exchange 

Fees for different account and 

transaction types. The Exchange 

believes that applying a fee structure 

that is determined by whether the order 

removes or adds liquidity, and 

according to the account type of the 

Participant submitting the order and the 

contra party will result in Participants 

being charged appropriately for these 

transactions. Submitting an order is 

entirely voluntary and Participants can 

determine which type of order they 

wish to submit, if any, to the Exchange. 

Further, the Exchange believes that 

this proposal will enhance competition 

between exchanges because it is 

designed to allow the Exchange to better 

compete with other exchanges for order 

flow. 

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 15

and Rule 19b–4(f)(2) thereunder,16

because it establishes or changes a due, 

or fee. 

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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

BOX–2014–24 on the subject line. 

Paper Comments 

• 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–2014–24. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 


tkelley on DSK3SPTVN1PROD with NOTICES
63988 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Notices 

17 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 7217(b). 

2 15 U.S.C. 78s(b). 

3The Board originally proposed in February 2012 

(‘‘Original Proposal’’) and reproposed in May 2013 

(‘‘Reproposal’’) what became the Proposed Rules. 

4See Release No. 34–72643 (July 18, 2014), 79 FR 

43163 (July 24, 2014). 

5 Ibid. 

6See letters to the Commission from Suzanne H. 

Shatto, dated July 23, 2014 (‘‘Shatto Letter’’); Tom 

Quaadman, Vice President, Center for Capital 

Markets Competitiveness, U.S. Chamber of 

Commerce, dated July 28, 2014 (‘‘Chamber Letter’’); 

and Deloitte & Touche LLP, dated August 11, 2014 

(‘‘Deloitte Letter’’). 

7Auditing Standard No. 12 defines a significant 

risk as a ‘‘risk of material misstatement that requires 

special audit consideration.’’ 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (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 Web site 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; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–BOX– 

2014–24, and should be submitted on or 

beforeNovember 17, 2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–25433 Filed 10–24–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73396; File No. PCAOB– 

2014–01] 

Public Company Accounting Oversight 

Board; Order Granting Approval of 

Proposed Rules on Auditing Standard 

No. 18, Related Parties, Amendments 

to Certain PCAOB Auditing Standards 

Regarding Significant Unusual 

Transactions, and Other Amendments 

to PCAOB Auditing Standards 

October 21, 2014. 

I. Introduction 

On July 10, 2014, the Public Company 

Accounting Oversight Board (the 

‘‘Board’’ or the ‘‘PCAOB’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’), pursuant to 

Section 107(b) 1 of the Sarbanes-Oxley 

Act of 2002 (the ‘‘Sarbanes-Oxley Act’’) 

and Section 19(b) 2 of the Securities 

Exchange Act of 1934 (the ‘‘Exchange 

Act’’), proposed rules to adopt Auditing 

Standard No. 18, Related Parties, 

amendments to certain PCAOB auditing 

standards regarding significant unusual 

transactions, and other amendments to 

PCAOB auditing standards, including 

required procedures to obtain an 

understanding of a company’s financial 

relationships and transactions with its 

executive officers (collectively, the 

‘‘Proposed Rules’’).3 The Proposed 

Rules were published for comment in 

the Federal Register on July 24, 2014.4

At the time the notice was issued, the 

Commission designated a longer period 

to act on the Proposed Rules, until 

October 22, 2014.5 The Commission 

received three comment letters in 

response to the notice.6 This order 

approves the Proposed Rules. 

II. Description of the Proposed Rules 

Related party transactions, significant 

unusual transactions, and a company’s 

financial relationships and transactions 

with its executive officers are included 

together in the Proposed Rules because 

the PCAOB believes the auditor’s efforts 

in these areas are, in many ways, 

complementary. For example, the 

auditor’s efforts to identify and evaluate 

a company’s significant unusual 

transactions could identify information 

that indicates that a related party or 

relationship or transaction with a 

related party previously undisclosed to 

the auditor might exist. Likewise, 

obtaining an understanding of a 

company’s financial relationships and 

transactions with its executive officers 

also could identify information that 

indicates that a related party or 

relationship or transaction with a 

related party previously undisclosed to 

the auditor might exist. 

1. Related Parties 

Auditing Standard No. 18 will 

supersede AU section 334, Related 

Parties (‘‘AU sec. 334’’), which 

primarily contains the existing 

requirements for auditing relationships 

and transactions with related parties. 

AU sec. 334 provides guidance and 

examples of procedures for the auditor’s 

consideration in identifying and 

evaluating related party transactions. 

Auditing Standard No. 18 includes 

some auditing concepts and procedures 

from AU sec. 334, but is intended to 

strengthen auditor performance 

requirements for identifying, assessing, 

and responding to the risks of material 

misstatement associated with a 

company’s relationships and 

transactions with its related parties by, 

among other things, requiring the 

auditor to: 

• Perform specific procedures to 

obtain an understanding of the 

company’s relationships and 

transactions with its related parties, 

including obtaining an understanding of 

the nature of the relationships between 

the company and its related parties and 

of the terms and business purposes (or 

the lack thereof) of transactions 

involving related parties. The new 

procedures are required to be performed 

in conjunction with the auditor’s risk 

assessment procedures pursuant to 

Auditing Standard No. 12, Identifying 

and Assessing Risks of Material 

Misstatement. 

• Evaluate whether the company has 

properly identified its related parties 

and relationships and transactions with 

its related parties. In making that 

evaluation, the auditor performs 

procedures to test the accuracy and 

completeness of management’s 

identification, taking into account 

information gathered during the audit. If 

the auditor identifies information that 

indicates that undisclosed relationships 

and transactions with a related party 

might exist, the auditor is required to 

perform procedures necessary to 

determine whether undisclosed 

relationships or transactions with 

related parties in fact exist. 

• Perform specific procedures if the 

auditor determines that a related party 

or relationship or transaction with a 

related party previously undisclosed to 

the auditor exists. 

• Perform specific procedures 

regarding each related party transaction 

that is either required to be disclosed in 

the financial statements or determined 

to be a significant risk.7

• Communicate to the audit 

committee the auditor’s evaluation of 

the company’s identification of, 

accounting for, and disclosure of its 

relationships and transactions with 

related parties, and other significant 

matters arising from the audit regarding 


tkelley on DSK3SPTVN1PROD with NOTICES