Document ID: SEC-2014-1801-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2014-10-27T04:00Z

[Federal Register Volume 79, Number 207 (Monday, October 27, 2014)]
[Notices]
[Pages 63982-63988]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-25433]

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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.
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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. 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.

[[Page 63983]]

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                          Non-penny classes
  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 non-auction 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.
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    \5\ Non-Auction Transactions are those transactions executed on 
the BOX Book.
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    In proposed Section I.C.1, (Non-Auction 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 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 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)
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 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:

[[Page 63984]]

------------------------------------------------------------------------
                                                           Per contract
                Market maker monthly ADV                      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
------------------------------------------------------------------------

------------------------------------------------------------------------
                                                           Per contract
               Public customer monthly ADV                    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:

----------------------------------------------------------------------------------------------------------------
                                                                     Fee for adding        Credit for removing
                  PIP and COPIP transactions                    liquidity  (all account  liquidity  (all account
                                                                         types)                   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.
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    \6\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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.
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    \7\ See the Miami International Securities Exchange, LLC 
(``MIAX'') Fee Schedule, specifically the Priority Customer Rebate 
Program.
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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.
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    \8\ See 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.''
---------------------------------------------------------------------------

    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

[[Page 63985]]

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 non-auction 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.
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    \9\ 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).
    \10\ 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).
---------------------------------------------------------------------------

    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 non-Public 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 non-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 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 non-Public 
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 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 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\
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    \11\ 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 63986]]

    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.
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    \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.
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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.\13\
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    \13\ The ``Make/Take'' model is currently used by the 
International Securities Exchange LLC. [sic] (``ISE') and NASDAQ OMX 
PHLX LLC. [sic] (``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 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.
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    \14\ 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.
    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

[[Page 63987]]

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 Non-Auction 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 Non-Auction 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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-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

[[Page 63988]]

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 before 
November 17, 2014.
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    \17\ 17 CFR 200.30-3(a)(12).

    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