[Federal Register Volume 79, Number 219 (Thursday, November 13, 2014)]
[Notices]
[Pages 67520-67526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26811]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73547; File No. SR-BOX-2014-25]


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

November 6, 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 31, 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.
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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 to 
amend the Fee Schedule [sic] 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 
November 1, 2014. 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.

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.
Exchange Fees
Non-Auction Transactions
    First, the Exchange proposes to amend Section I (Exchange Fees) to 
establish a subsection entitled ``Non-Auction Transactions.'' \5\ The 
Exchange then proposes to adopt the current fee structure for Non-
Auction Transactions in Select Symbols for all Non-Auction transactions 
on BOX. With this change the Select Symbols fee structure outlined in 
Section I.C. of the BOX Fee Schedule will be removed.
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    \5\ Non-Auction Transactions are those transactions executed on 
the BOX Book.
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    Currently, Non-Auction Transactions in non-Select Symbols 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 Transactions 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.A. (Non-Auction Transactions), the Exchange 
proposes to adopt a pricing model where the Exchange will assess 
transaction fees and credits dependent upon three factors: (i) The 
account type of the Participant submitting the order; (ii) whether the 
Participant is a liquidity provider or liquidity taker; and (iii) the 
account type of the contra party. Non-Auction Transactions in Penny 
Pilot Classes will also be assessed different fees or credits than Non-
Auction Transactions in Non-Penny 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 for all Non-
Auction Transactions is as follows:

----------------------------------------------------------------------------------------------------------------
                                                        Penny pilot classes           Non-penny pilot classes
                                                 ---------------------------------------------------------------
         Account type             Contra party      Maker  fee/     Taker  fee/     Maker  fee/     Taker  fee/
                                                      credit          credit          credit          credit
----------------------------------------------------------------------------------------------------------------
Public Customer...............  Public Customer.           $0.00           $0.00           $0.00           $0.00
                                Professional              (0.22)          (0.22)          (0.57)          (0.57)
                                 Customer/Broker
                                 Dealer.
                                Market Maker....          (0.22)          (0.22)          (0.57)          (0.57)

[[Page 67521]]

 
Professional Customer or        Public Customer.            0.55            0.59            0.90            0.94
 Broker Dealer.
                                Professional                0.20            0.35            0.30            0.35
                                 Customer/Broker
                                 Dealer.
                                Market Maker....            0.20            0.39            0.30            0.39
Market Maker..................  Public Customer.            0.51            0.55            0.85            0.90
                                Professional                0.00            0.05            0.00            0.10
                                 Customer/Broker
                                 Dealer.
                                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 Class (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 Class (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
    Accordingly, the Exchange proposes to adopt the same tiered volume-
based rebate for Market Makers and Public Customers in Non-Auction 
Transactions that was previously applied to 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 
for that month will receive the same per contract rebate according to 
the ADV achieved by the Market Maker or Public Customer. However, the 
Exchange proposes to specify that Non-Auction Transactions where a 
Public Customer order interacts with another Public Customer order will 
be exempt from the per contract rebate listed below. These transactions 
will still count toward the Public Customer's monthly ADV.
    The new per contract rebate for Market Makers and Public Customers 
in Non-Auction Transactions as set forth in Section I.A.1. of the BOX 
Fee Schedule will be as follows:

------------------------------------------------------------------------
                                                          Per contract
                                                             rebate
------------------------------------------------------------------------
Market Maker Monthly ADV:
    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:
    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
------------------------------------------------------------------------

Auction Transactions
    The Exchange then proposes to amend Section I (Exchange Fees) to 
establish a subsection entitled ``Auction Transactions.'' \6\ The 
Auction Transactions fees for Public Customers, Professional Customers 
and Broker Dealers will remain unchanged. For Market Makers, the 
Exchange proposes to adopt a fee of $0.20 for PIP Orders, COPIP Orders 
and Agency Orders.\7\ Currently 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 PIP, COPIP and Agency Orders 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. The Exchange then proposes to remove 
the Tiered Fee Schedule for Market Makers based upon Monthly Average 
Daily Volume in current Section I.B.
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    \6\ Auction Transactions are those transactions executed through 
the Price Improvement Period (``PIP''), the Complex Order Price 
Improvement Period (``COPIP''), the Solicitation Auction mechanism, 
and the Facilitation Auction mechanism. All COPIP transactions will 
be charged per contract per leg.
    \7\ A PIP Order or COPIP Order is a Customer Order (an agency 
order for the account of either a customer or a broker-dealer) 
designated for the PIP or COPIP, respectively. An Agency Order is a 
block-size order that an Order Flow Provider seeks to facilitate as 
agent through the Facilitation Auction or Solicitation Auction 
mechanism.
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    The new Auction Transactions as set forth in Section I.B. of the 
BOX Fee Schedule will be as follows:

[[Page 67522]]



----------------------------------------------------------------------------------------------------------------
                                                                   Account type
                                 -------------------------------------------------------------------------------
                                                         Professional
                                    Public customer        customer          Broker dealer       Market maker
----------------------------------------------------------------------------------------------------------------
PIP Order, COPIP Order, or        $0.00.............  $0.37.............  $0.37.............  $0.20
 Agency Order.
Improvement Order in PIP or       0.15..............  0.37..............  0.37..............  0.30
 COPIP \8\.
Responses in the Solicitation or  0.15..............  0.37..............  0.37..............  0.30
 Facilitation Auction Mechanisms.
Primary Improvement Order,\9\     Based on ADV, see   Based on ADV, see   Based on ADV, see   Based on ADV, see
 Facilitation Order, or            Section I. B.1.     Section I. B.1.     Section I. B.1.     Section I. B.1.
 Solicitation Order.
----------------------------------------------------------------------------------------------------------------

Liquidity Fees and Credits
    Since all Non-Auction Transactions will now fall under Section I 
[sic] the new fee structure and be exempt from Section II Liquidity 
Fees and Credits, BOX proposes to remove subsection C (Non-Auction 
Transactions) from Section II. With the removal of subsection C, the 
Exchange proposes to move the bullet regarding non-immediately 
marketable orders to Section II.A (PIP and COPIP Transactions). A non-
immediately marketable order that executes against a PIP Order or a 
COPIP Order, therefore becoming an Unrelated Order, will continue to be 
charged as an Improvement Order for purposes of the BOX Fee Schedule.
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    \8\ An Improvement Order is a response to a PIP or COPIP 
auction.
    \9\ A Primary Improvement Order is the matching contra order 
submitted to the PIP or COPIP on the opposite side of an agency 
order.
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    The Exchange then proposes to edit the language in proposed Section 
II.C, formerly Section II.D. (Exempt Transactions) and add the 
following fees for transactions which occur on the opening or re-
opening of trading. For these transactions, which are deemed neither to 
``add'' nor ``remove'' liquidity, the Exchange proposes to assess a 
flat fee per contract of $0.00 for Public Customers, $0.20 for 
Professional Customers and Broker Dealers and $0.12 for Market Makers. 
The Exchange also proposes to clarify that outbound Eligible Orders 
routed to an Away Exchange, as defined in Rule 15000 Series, remain 
subject to the fees outlined in Section IV. Eligible Orders Routed to 
an Away Exchange.
    Finally, the Exchange proposes to remove the ``Select Symbols'' 
language in Section II.C. (Exempt Transactions) that states that Non-
Auction Transactions in Select Symbols will be considered exempt from 
all liquidity fees and credits. With the proposed changes, all Non-
Auction Transactions will be considered exempt.
MNX
    The Exchange also proposes to amend the Fee Schedule to remove the 
reference to the Mini Nasdaq 100 Index (NDX) [sic].
    Because the Exchange has delisted the Mini-NDX[supreg] Index (MNX), 
the Exchange proposes to remove the reference to MNX from the BOX Fee 
Schedule. Currently, Section I (Exchange Fees) of the BOX Fee Schedule 
provides for a surcharge to be applied to options on any index traded 
on BOX; which includes a $0.22 per contract surcharge for options on 
MNX. The Exchange has since delisted options on MNX and they are no 
longer traded on BOX. As such, no related surcharge will apply and the 
Exchange is proposing to remove the reference from the BOX Fee 
Schedule.
Other
    Finally, the Exchange is proposing to make additional non-
substantive changes to the Fee Schedule. Specifically, the Exchange is 
renumbering certain footnotes, headings and internal references to 
accommodate the above proposed changes to the Fee Schedule. The 
Exchange also proposes to move the BOX Volume Rebate from current 
Section I.E of the Fee Schedule to proposed Section I.B (Auction 
Transactions).
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,\10\ 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.
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    \10\ 15 U.S.C. 78f(b)(4) and (5).
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Exchange Fees
Non-Auction Transactions
    The Exchange believes adopting the current fee structure for Non-
Auction Transactions in Select Symbols for all Non-Auction 
Transactions, regardless of symbol, is reasonable, equitable and not 
unfairly discriminatory. Even though the Select Symbol fee structure 
for Non-Auction Transactions was only adopted last month, it was well 
received by Participants and the industry and the Exchange believes it 
is appropriate to now apply it to all Non-Auction Transactions. The 
proposed fee structure is intended to attract order flow to the 
Exchange by offering all market participants incentives to submit their 
Non-Auction orders to the Exchange. The practice of providing 
additional incentives to increase order flow is, and has been, a common 
practice in the options markets.\11\ 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.
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    \11\ See International Securities Exchange LLC (``ISE'') 
Schedule of Fees, Section I. Regular Order Fees and Rebates for 
Standard Options, Non-Select Symbols (page 6); NASDAQ OMX PHLX, 
(``PHLX''), Pricing Schedule Section B, ``Customer Rebate Program''; 
and NYSE Arca, Inc (``Arca'') Options Fees and Charges, ``Customer 
Monthly Posting Credit Tiers and Qualifications for Executions in 
Penny Pilot Issues'' (page 4).
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    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 was recently adopted by the Exchange 
for Non-Auction Transactions

[[Page 67523]]

in Select Symbols \12\ and is similar to the model adopted by the 
Exchange for Complex Orders Fees \13\ and has been accepted by both the 
Commission and the industry.\14\ The result of this structure is that a 
Participant does not know the fee it will be charged when submitting 
certain orders. 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 the 
order interacts. This structure has been favorably received by the 
industry and BOX Participants; therefore the Exchange is proposing to 
apply the same structure to all Non-Auction Transactions. After 
adopting this type of structure for Non-Auction Transactions, a Public 
Customer submitting an order on the BOX Book will recognize that it 
will not pay a fee for these transactions and that depending upon 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 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 a Non-Auction order will be 
$0.55 in Penny Pilot issues and $0.90 in Non-Penny Pilot issues.
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    \12\ See Securities Exchange Act Release No. 73397 (October 21, 
2014), 79 FR 63982 (October 27, 2014) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change to Amend the Fee 
Schedule on the BOX Market LLC Options Facility).
    \13\ See 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).
    \14\ This 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).
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    The Exchange believes that the proposed fees and credits for Public 
Customers in Non-Auction Transactions are reasonable. Under the 
proposed fee structure Public Customers will either pay a Maker fee of 
$0.00 or receive a Maker/Taker 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 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 execute against a non-Public Customer and, accordingly, charge 
non-Public Customers a higher fee when their orders 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 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 is equitable and not unfairly 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 that 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 
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.
    The Exchange believes that the proposed fees and credits for all 
other Participants in Non-Auction Transactions are reasonable. Under 
the proposed fee structure, a Professional Customer or Broker Dealer 
making liquidity and interacting with a Professional Customer, Broker 
Dealer or Market Marker 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 Non-Auction 
Transactions.
    Similarly, in the proposed fee structure a Market Maker making 
liquidity in both Penny Pilot and Non-Penny 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 they 
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.\15\
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    \15\ Many U.S. Options Exchanges do not differentiate their fees 
between auction and non-auction 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 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.

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[[Page 67524]]

    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 in Non-Select 
Symbols, the Exchange believes they are reasonable as they are in line 
when compared to similar fees in the options industry.\16\ 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 in Non-
Auction Transactions. The Exchange believes that providing incentives 
for Non-Auction Transactions by Public Customers will benefit all 
Participants trading on the Exchange by attracting this Public Customer 
order flow.
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    \16\ Id. Professional Customer and Broker Dealers are also 
charged anywhere from $0.10 to $0.89 within the option exchange fee 
schedules referenced above.
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    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.\17\
---------------------------------------------------------------------------

    \17\ The ``Make/Take'' model is currently used by the 
International Securities Exchange LLC (``ISE') and NASDAQ OMX PHLX 
LLC (``PHLX'').
---------------------------------------------------------------------------

    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 Non-Penny 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 Non-Auction Transactions in Non-
Penny Pilot issues as compared to Penny Pilot issues. Since these 
classes have wider spreads and are less actively traded, 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 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
    BOX believes it is reasonable, equitable and not unfairly 
discriminatory to introduce tiered volume based rebates for Market 
Makers and Public Customers in all Non-Auction Transactions. Other 
exchanges employ similar incentive programs,\18\ and the Exchange 
believes that its proposed volume thresholds and rebates are reasonable 
and competitive when compared to incentive structures at other 
exchanges.
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    \18\ See 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.
---------------------------------------------------------------------------

    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. Finally, the 
Exchange believes it is reasonable to exempt Non-Auction Transactions 
where a Public Customer order interacts with another Public Customer 
order from the per contract rebate. The Exchange does not believe a 
rebate in this situation is appropriate, as neither Public Customer 
will be paying a fee for the transaction. Further, these transactions 
will still count toward the Public Customer's monthly ADV.
    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 Non-Auction order flow to 
the Exchange. 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 
lowering their Non-Auction Transaction fees will potentially help 
attract a higher level of

[[Page 67525]]

Market Maker order flow and create liquidity, which the Exchange 
believes will ultimately benefit all Participants trading on BOX.
Auction Transactions
    The Exchange believes it reasonable to remove the tiered fee 
structure for Market Makers based upon ADV. The tiered fee structure 
was adopted to incentivize Market Makers to direct order flow to the 
Exchange, which the Exchange believes is now unnecessary with the 
adoption of the new Non-Auction Transactions fee structure as well as 
the Tiered Volume Rebates for Market Makers in Non-Auction 
Transactions. Additionally, in Auction Transactions Market Makers 
remain eligible for the BOX Volume Rebate for all PIP and COPIP Orders 
of 250 and under contracts. The Exchange believes it is reasonable to 
adopt a flat $0.20 per contract fee for Market Makers in PIP Orders, 
COPIP Orders, and Agency Orders. Specifically, the Exchange believes 
the fee strikes the appropriate balance between the $0.13 to $0.35 fees 
that Market Makers are currently charged for these orders and is 
reasonable when compared to similar fees among the industry.\19\ 
Finally, the Exchange believes it is equitable and not unfairly 
discriminatory to charge a Market Maker less for PIP Orders, COPIP 
Orders, and Agency Orders than what is charged to Professional 
Customers and Broker Dealers. Generally, Market Makers have obligations 
on BOX that other Participants do not. They must maintain active two-
sided markets in the classes in which they are appointed and must meet 
certain minimum quoting requirements. Market Makers can also provide 
high volumes of liquidity and assessing lower transaction fee [sic] may 
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.
---------------------------------------------------------------------------

    \19\ See supra, note 15.
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Liquidity Fees and Credits
    The Exchange believes that exempting all Non-Auction Transactions 
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 Non-Auction 
Transactions to the Exchange. The Exchange believes that exempting Non-
Auction Transactions from liquidity fees and credits is reasonable 
compared to the similar fees and credits offered by the other 
exchanges. The Exchange believes exempting Non-Auction Transactions 
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.
    The Exchange believes it is reasonable edit [sic] the Exempt 
Transactions subsection and to assess a flat fee for transactions which 
occur on the opening or re-opening of trading and are deemed neither to 
``add'' nor ``remove'' liquidity. With the proposed fee structure for 
Non-Auction Transactions, which assess fees and credits dependent upon 
whether the Participant is a liquidity provider or liquidity taker, 
transactions on the opening or re-opening will not being [sic] charged 
an Exchange fee. For example, under the proposed Non-Auction fee 
structure a transaction on the opening would not be charged an Exchange 
Fee under Section I of the BOX Fee Schedule. Instead the Exchange is 
proposing to ensure that these transactions are assessed a fee. The 
Exchange has previously had this type of fee within the BOX Fee 
Schedule \20\ and other exchanges with liquidity fees and credits also 
spell out how these transactions are treated within their respective 
fee schedules.\21\ The Exchange believes assessing a flat fee of $0.00 
for Public Customers, $0.20 for Professional Customers and Broker 
Dealers and $0.12 for Market Makers is in line with the Non-Auction 
Transactions fees outlined in the new fee structure. The Exchange 
believes it is equitable and not unfairly discriminatory for Public 
Customers to be charged no fee for transactions which occur on the 
opening or re-opening of trading. As stated above, the Exchange aims to 
improve markets by developing features for the benefit of its Public 
Customers. The Exchange also believes it is equitable and not unfairly 
discriminatory to charge a Market Maker less for these transactions 
than what is charged to Professional Customers and Broker Dealers; as 
stated above, Market Makers have obligations that other Participants do 
not and can also provide high volumes of liquidity that will ultimately 
benefit all Participants on the Exchange.
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    \20\ See Securities Exchange Act Release No. 61342 (January 13, 
2010), 75 FR 3503 (January 21, 2014 [sic]) (Notice of Filing and 
Immediate Effectiveness of a [sic] Proposed Rule Change to Amend 
[sic] the Fee Schedule of the Boston Options Exchange Facility).
    \21\ See ISE Gemini, LLC (``ISE Gemini'') Schedule of Fees 
Section I. Footnote 4 and Section II. Footnote 4. See NASDAQ OMX BX, 
Inc. (``BX'') Chapter XV Options Pricing Sec. 2(2). See NASDAQ 
Options Market LLC (``NOM'') Chapter XV Options Pricing Sec. 2(2).
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MNX
    The Exchange believes it is reasonable to remove from the BOX Fee 
Schedule a reference to a fee that is no longer applicable as options 
on MNX have been delisted and are no longer traded on BOX. The Exchange 
also believes it is equitable and not unfairly discriminatory to remove 
all references to MNX as this applies equally to all Participants on 
the Exchange.

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 adopting the proposed fee structure for 
all Non-Auction Transactions 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 according to whether the order removes or adds liquidity, 
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.

[[Page 67526]]

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 \22\ and Rule 19b-4(f)(2) 
thereunder,\23\ because it establishes or changes a due, or fee.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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#7d0f081118501e1210101813090e3d0e181e531a120b"><span class="__cf_email__" data-cfemail="e89a9d848dc58b8785858d869c9ba89b8d8bc68f879e">[email protected]</span></a>. Please include 
File Number SR-BOX-2014-25 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-2014-25. 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 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-2014-25, and should be 
submitted on or before December 4, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26811 Filed 11-12-14; 8:45 am]
BILLING CODE 8011-01-P


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