Document ID: SEC-2016-0818-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange, LLC
Posted Date: 2016-05-12T04:00Z

[Federal Register Volume 81, Number 92 (Thursday, May 12, 2016)]
[Notices]
[Pages 29584-29587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11153]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77778; File No. SR-BOX-2016-21]

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

May 6, 2016.
    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 April 29, 2016, BOX Options Exchange LLC (the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Exchange filed the 
proposed rule change pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ 
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to amend the Fee Schedule on 
the BOX Market LLC (``BOX'') options facility. While changes to the fee 
schedule pursuant to this proposal will be effective upon filing, the 
changes will become operative on May 2, 2016. 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 amend the Fee Schedule for trading on BOX.

[[Page 29585]]

PIP and COPIP Transactions
    The Exchange first proposes to amend certain PIP and COPIP 
Transaction fees for Professional Customers, Broker Dealer and Market 
Makers in Section I.B of the BOX Fee Schedule. Specifically, the 
Exchange proposes to reduce the PIP and COPIP Order fees for 
Professional Customers and Broker Dealers from $0.37 to $0.15 and the 
PIP and COPIP Order Fees for Market Makers from $0.20 to $0.15.
    The revised pricing structure for PIP and COPIP Transactions will 
be as follows:

----------------------------------------------------------------------------------------------------------------
                                                                   Account type
                                 -------------------------------------------------------------------------------
                                                         Professional
                                   Public  customer        customer         Broker  dealer       Market  maker
----------------------------------------------------------------------------------------------------------------
PIP Order or COPIP Order........  $0.00.............  $0.15.............  $0.15.............  $0.15.
Improvement Order in PIP or       0.15..............  0.37..............  0.37..............  0.30.
 COPIP.
Primary Improvement Order.......  See Section I. B.1  See Section I. B.1  See Section I. B.1  See Section I.
                                                                                               B.1.
----------------------------------------------------------------------------------------------------------------

    The Exchange also proposes to make a clerical correction to Section 
I.B. of the BOX Fee Schedule. Specifically, the Primary Improvement 
Order row references ADV (Average Daily Volume). The Exchange no longer 
uses a Participant's ADV to determine volume based tiers for rebates 
and fees. Instead, the qualification thresholds are based on a 
percentage of the Participant's volume relative to the account type's 
overall total industry equity and ETF option volume. Therefore, the 
Exchange proposes to remove the reference ADV and only refer to Section 
I.B.1.
BVR
    Under the BVR, the Exchange offers a tiered per contract rebate for 
all PIP Orders and COPIP orders of 100 contracts and under that do not 
trade solely with their contra order. Percentage thresholds are 
calculated on a monthly basis by totaling the Participant's PIP and 
COPIP volume submitted to BOX, relative to the total national Customer 
volume in multiply-listed options classes.
    The Exchange proposes to establish an additional tier within the 
BVR for percentage thresholds of 1.250% and above. Participants whose 
PIP and COPIP volume submitted to BOX, relative to the total national 
Customer volume in multiply-listed options classes, is 1.250% or above 
will receive a per contract rebate of $0.18 in PIP transactions and 
$0.06 in COPIP transactions. With this, the Exchange also proposes to 
adjust the threshold in Tier 4 to end at 1.249%.
    The new BVR set forth in Section I.B.2 of the BOX Fee Schedule will 
be as follows:

----------------------------------------------------------------------------------------------------------------
                                                    Percentage thresholds of         Per contract rebate (all
                                                  national customer  volume in            account types)
                     Tier                       multiply-listed options  classes -------------------------------
                                                            (monthly)                   PIP            COPIP
----------------------------------------------------------------------------------------------------------------
1.............................................  0.000% to 0.159%................         ($0.00)         ($0.00)
2.............................................  0.160% to 0.339%................          (0.04)          (0.02)
3.............................................  0.340% to 0.999%................          (0.11)          (0.04)
4.............................................  1.000% to 1.249%................          (0.14)          (0.06)
5.............................................  1.250% and Above................          (0.18)          (0.06)
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Complex Orders
    The Exchange then proposes to adjust certain fees within the 
Complex Order Pricing Structure in Section III.A. of the BOX Fee 
Schedule (All Complex Orders). The Exchange recently introduced a 
pricing structure where Complex Orders are assessed 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.\5\
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    \5\ See Securities Exchange Act Release No. 77568 (April 8, 
2016), 81 FR 22151 (April 14, 2016) (SR-BOX-2016-15).
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    The Exchange now proposes to adjust certain fees and rebates within 
the new pricing structure. Specifically, the Exchange proposes to 
replace the $0.10 credit applied to Market Makers, Professional 
Customer and Broker Dealers making liquidity against a Public Customer 
in Penny Pilot Classes. The Exchange proposes to instead assess 
Professional Customers or Broker Dealers $0.45 and Market Makers $0.40 
when their Penny Pilot Complex Order makes liquidity against a Public 
Customer Complex Order.
    For Complex Orders in Non-Penny Pilot Classes, the Exchange 
proposes to replace the $0.10 credit applied to Market Makers, 
Professional Customer and Broker Dealers making liquidity against a 
Public Customer. The Exchange proposes to instead assess Professional 
Customers and Broker Dealers $0.80 and Market Makers $0.75 when their 
Non-Penny Pilot Complex Order makes liquidity against a Public Customer 
Complex Order.
    The revised Complex Order Pricing Structure will be as follows:

[[Page 29586]]

----------------------------------------------------------------------------------------------------------------
                                                        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              (0.35)          (0.35)          (0.70)          (0.70)
                                 Customer/Broker
                                 Dealer.
                                Market Maker....          (0.35)          (0.35)          (0.70)          (0.70)
Professional Customer or        Public Customer.            0.45            0.45            0.80            0.80
 Broker Dealer.
                                Professional              (0.10)            0.30          (0.10)            0.45
                                 Customer/Broker
                                 Dealer.
                                Market Maker....          (0.10)            0.30          (0.10)            0.45
Market Maker..................  Public Customer.            0.40            0.40            0.75            0.75
                                Professional              (0.10)            0.30          (0.10)            0.45
                                 Customer/Broker
                                 Dealer.
                                Market Maker....          (0.10)            0.30          (0.10)            0.45
----------------------------------------------------------------------------------------------------------------

    For example, if a Market Maker's Complex Order in a Penny Pilot 
Class interacted with a Public Customer's Complex Order, regardless of 
whether the Complex Order was making or taking liquidity, the Market 
Maker would now be charged $0.40 and the Public Customer would be 
credited $0.35.
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.
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    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that reducing the PIP and COPIP Order Fees to 
$0.15 for Market Makers, Professional Customers and Broker Dealers is 
reasonable. Reducing these fees is meant to encourage auction order 
flow to the Exchange, which will benefit all market participants on the 
Exchange. BOX believes the $0.15 fee is equitable and not unfairly 
discriminatory, as it applies to all Market Marker, Professional 
Customers and Broker Dealers submitting PIP and COPIP Orders to these 
auction mechanisms. Further, the Exchange believes it is equitable and 
not unfairly discriminatory to charge Public Customers less than Non-
Public Customers for their PIP and COPIP Orders. The practice of 
incentivizing increased Public Customer order flow is common in the 
options markets.
    The Exchange believes the proposed amendments to the BVR in Section 
I.B.2 of the BOX Fee Schedule are reasonable, equitable and non-
discriminatory. The BVR was adopted to attract Public Customer order 
flow to the Exchange by offering these Participants incentives to 
submit their PIP and COPIP Orders to the Exchange and the Exchange 
believes it is appropriate to now amend the BVR. The Exchange believes 
it is equitable and not unfairly discriminatory to establish an 
additional tier within the BVR, as all Participants have the ability to 
qualify for a rebate, and rebates are provided equally to qualifying 
Participants. Finally, the Exchange believes it is reasonable and 
appropriate to continue to provide incentives for Public Customers, 
which will result in greater liquidity and ultimately benefit all 
Participants trading on the Exchange.
    BOX believes it is reasonable, equitable and not unfairly 
discriminatory to adjust the monthly Percentage Thresholds of National 
Customer Volume in Multiply-Listed Options Classes. The volume 
thresholds and applicable rebates are meant to incentivize Participants 
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. Other exchanges employ similar 
incentive programs,\7\ and the Exchange believes that the proposed 
changes to the volume thresholds and rebates are reasonable and 
competitive when compared to incentive structures at other exchanges.
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    \7\ See Section B of the PHLX Pricing Schedule entitled 
``Customer Rebate Program;'' ISE Gemini's Qualifying Tier Thresholds 
(page 6 of the ISE Gemini Fee Schedule); and CBOE's Volume Incentive 
Program (VIP).
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    The Exchange believes amending the Complex Order pricing structure 
is reasonable, equitable and not unfairly discriminatory. The fee 
structure for Complex Orders was recently adopted and the Exchange 
believes it is now appropriate to adjust certain fees and credits. The 
Complex Order fee structure is generally intended to attract order flow 
to the Exchange by offering all market participants incentives to 
submit their Complex Orders to the Exchange.
    The Exchange believes that the proposed fees for Professional 
Customers, Broker Dealers and Market Makers interacting with Public 
Customer Complex Orders are reasonable. A Professional Customer or 
Broker Dealer interacting against a Public Customer will now be charged 
$0.45 in Penny Pilot Classes and $0.80 Non-Penny Pilot Classes, 
regardless if it is making or taking liquidity. A Market Maker 
interacting against a Public Customer will now be charged $0.40 in 
Penny Pilot Classes and $0.75 Non-Penny Pilot Classes, regardless of 
whether it is making or taking liquidity. The Exchange believes these 
proposed Complex Order fees remain competitive when compared to the 
Complex Order fees on another exchange.\8\
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    \8\ Comparative Complex Order fees at another exchanges [sic] 
range from $0.30 [sic] to $0.88. See Section II of the International 
Securities Exchange (``ISE'') Schedule of Fees entitled ``Complex 
Order Fees and Rebates.''
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    The Exchange believes that charging Professional Customers and 
Broker Dealers higher fees than Public Customers for Complex Orders 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

[[Page 29587]]

Professional Customers and Broker Dealers for certain Complex Order 
executions 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 certain Complex Order 
executions.
    The Exchange also believes it is reasonable, equitable and not 
unfairly discriminatory to charge Non-Public Customers a higher fee 
when their Complex Order interacts with a Public Customer's Complex 
Order, when compared to the fee assessed when their Complex Order 
interacts with a Non-Public Customer's Complex Order. To attract Public 
Customer order flow, Public Customers are given credit when their 
Complex Order executes against a non-Public Customer. 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. Similar to 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 to provide incentives 
for Public Customers. The Exchange believes that providing incentives 
for Complex Orders by Public Customers is reasonable and, ultimately, 
will benefit all Participants trading on the Exchange by attracting 
Public Customer order flow.
    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.

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 is simply 
proposing to reduce PIP and COPIP Order fees and establish a new 
qualification tier in the BVR. The Exchange believes doing so will 
increase intermarket and intramarket competition by incenting 
Participants to direct their order flow to the exchange, which benefits 
all participants by providing more trading opportunities and improves 
competition on the Exchange. The Exchange also believes amending 
certain Complex Order fees and credits will enhance competition between 
exchanges because it is designed to allow the Exchange to better 
compete with other exchanges for Complex 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 \9\ and Rule 19b-4(f)(2) 
thereunder,\10\ because it establishes or changes a due, or fee.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
would otherwise further the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     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-2016-21 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-2016-21. 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-2016-21, and should be 
submitted on or before June 2, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11153 Filed 5-11-16; 8:45 am]
BILLING CODE 8011-01-P