Document ID: SEC-2013-0720-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2013-04-12T04:00Z

[Federal Register Volume 78, Number 71 (Friday, April 12, 2013)]
[Notices]
[Pages 21993-21996]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08650]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69336; File No. SR-BOX-2013-19]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Fee Schedule for Trading on BOX

April 8, 2013.
    Pursuant to Section 19(b)(1) under the Securities Exchange Act of 
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on March 29, 2013, 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 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 for 
trading on the BOX Market LLC (``BOX'') options facility. While the 
change to the fee schedule pursuant to this proposal will be effective 
upon filing, the change will become operative on April 1, 2013. 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.

[[Page 21994]]

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, Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the BOX Fee Schedule to specify in 
Section II (Liquidity Fees and Credits) that when a non-immediately 
marketable order executes against a PIP Order, therefore becoming an 
Unrelated Order, it shall be charged as an Improvement Order.
    Currently transactions in the BOX PIP are either assessed a fee for 
adding liquidity or provided a credit for removing liquidity regardless 
of account type.\5\ PIP Orders (i.e., the agency orders opposite the 
Primary Improvement Order \6\) receive the ``removal'' credit and 
Improvement Orders \7\ are charged the ``add'' fee. PIP transactions in 
classes with a minimum price variation of $0.01 (i.e., Penny Pilot 
classes where the trade price is less than $3.00 and all series in QQQ, 
SPY, and IWM) are assessed a fee for adding liquidity of $0.30, 
regardless of account type. For PIP transactions where 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 fee for adding 
liquidity is $0.75, regardless of account type. These liquidity fees 
and credits are part of an Exchange Pilot Program (``Program'') that 
has been in effect on BOX since February 2012 and was recently extended 
through August 31, 2013.\8\
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    \5\ See Section II of the BOX Fee Schedule.
    \6\ An Improvement Order is a response to a PIP auction.
    \7\ A Primary Improvement Order is the matching contra order 
submitted to the PIP on the opposite side of an agency order.
    \8\ See Securities Exchange Act Release Nos. 66278 (January 30, 
2012), 77 FR 5590 (February 3, 2012) (SR-BX-2011-046), (Commission 
Order Granting Accelerated Approval of the BOX Credits and Fees for 
PIP Transactions on a pilot basis); 66979 (May 14, 2012), 77 FR 
29740 (May 18, 2012) (SR-BOX-2012-002) (Notice of Filing and 
Immediate Effectiveness to adopt the Fee Schedule for trading on BOX 
which included the Program); and 69054 (March 7, 2013), 78 FR 16025 
(March 13, 2013) (SR-BOX-2013-09) (Notice of Filing and Immediate 
Effectiveness to extend the PIP Fee Pilot Program).
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    An Unrelated Order is defined as any non-Improvement Order entered 
on the BOX market during a PIP.\9\ Currently all Unrelated Orders are 
charged as Non-Auction Transactions under Section II.C. of the 
Exchange's Fee Schedule and are subject to a per contract fee of $0.30 
for adding liquidity in Penny Pilot Classes, and $0.75 for adding 
liquidity in non-Penny Pilot Classes.
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    \9\ BOX Rule 7150(a).
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    The purpose of this proposed rule change is to specify that, when 
an Unrelated Order that is not immediately marketable executes against 
a PIP Order, it shall be treated as an Improvement Order and charged 
the applicable ``add'' fee under Section II.A of the Exchange's Fee 
Schedule.\10\ In the current Fee Schedule the classes to which the 
liquidity fees and credits are applied are described differently in PIP 
Transactions compared to Non-Auction Transactions, therefore creating a 
discrepancy in how similar orders are charged. For example, in Section 
II.A (PIP Transactions) the liquidity fees and credits assessed differ 
depending on the Minimum Price Variation of the order. If the 
transaction is in a Penny Pilot Class where the trade price is less 
than $3.00 or in all series in QQQ, SPY & IWM it is assessed an ``add'' 
fee or ``removal'' credit of $0.30. If the transaction is in a Non-
Penny Pilot Class or in a Penny Pilot class where the trade price is 
equal to or greater than $3.00, excluding QQQ, SPY & IWM, then it is 
assessed an ``add'' fee or ``removal'' credit of $0.75. In Section 
II.C. (Non-Auction Transactions) the liquidity fees and credits 
assessed differ depending if the transaction is in a Penny Pilot Class 
($0.30 ``add'' fee or ``removal'' credit) or Non-Penny Pilot Class 
($0.75 ``add'' fee or ``removal'' credit).
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    \10\ Because the Unrelated Order is not immediately marketable, 
it will rest on the BOX Book and be charged the appropriate add fee 
unless it interacts with a PIP Order. In contrast, when an 
immediately marketable Unrelated Order is received it will execute 
against the PIP Order under BOX Rule 7150(j). This proposed rule 
change does not affect orders that are immediately marketable upon 
entry to BOX because under the Locked/Crossed Market plan, an 
immediately marketable Unrelated Order may have be [sic] routed from 
[sic] away exchange and submitted to BOX. The Exchange does not 
believe it should be subject to the PIP Transaction ``add'' fee 
since the Locked/Crossed Market plan may have required that the 
order be sent to BOX and a customer has no control over where this 
order is routed.
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    The proposed change will have no impact on the liquidity fees 
charged to a Participant for a majority of non-immediately marketable 
Unrelated Orders that execute against a PIP Order. For example, in a 
Non-Auction Non-Penny Pilot transaction, an order that adds liquidity 
is currently charged an ``add'' fee of $0.75. If this order interacts 
with the PIP under the current fee schedule, thereby becoming an 
Unrelated Order, the ``add'' fee remains the same regardless of the 
minimum price variation of the class involved.
    However, this proposed change will result in a greater ``add'' fee 
for orders in Penny Pilot Classes where the trade price is equal to or 
greater than $3.00, excluding QQQ, SPY, and IWM. For example, a Non-
Auction Penny Pilot transaction that adds liquidity is currently 
charged an ``add'' fee of $0.30. Under the proposed change, if this 
order interacts with the PIP, thereby becoming an Unrelated Order, the 
``add'' fee will remain at $0.30 if the order is in a Penny Pilot class 
where the trade price is less than $3.00 or in QQQ, SPY, and IWM. The 
fee will only be raised to $0.75 if the order is in a Penny Pilot Class 
where the trade price is equal to or greater than $3.00, excluding QQQ, 
SPY, and IWM.
    The tables below illustrate how the proposed change will affect the 
total charged for each type of transaction.
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    \11\ The order will continue to be charged as a Non-Auction 
transaction for purposes of assessing Exchange Fees under Section I 
of the BOX Fee Schedule.

                                     Transactions in Non-Penny Pilot Classes
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                                          Exchange                   Total
                                          fee \11\     Add fee      charged                  Effect
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Treated as a Non-Auction Transaction          $0.40        $0.75        $1.15  None.
 under the current Fee Schedule.
Treated as an Improvement Order under          0.40         0.75         1.15  None.
 the proposed change.
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[[Page 21995]]

                                       Transactions in Penny Pilot Classes
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                                          Exchange                   Total
                                            fee        Add fee      charged                  Effect
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Treated as a Non-Auction Transaction          $0.40        $0.30        $0.70  None.
 under the current Fee Schedule.
Treated as an Improvement Order under          0.40         0.30         0.70  None.
 the proposed change (Minimum Price
 Variation of 1 Cent).
Treated as an Improvement Order where          0.40         0.75         1.15  Increased by $0.40.
 the under the proposed change
 (Minimum Price Variation of > 1 Cent).
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    Therefore, as demonstrate above, the only difference in ``add'' 
fees is in the last row of possible orders, here there is a potential 
$0.40 fee increase. The Exchange notes that this proposed change will 
only apply to non-immediately marketable Unrelated Orders that are 
entered on the BOX market.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\12\ in general, and Section 
6(b)(4) of the Act,\13\ 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes it is reasonable and equitable to treat a 
non-immediately marketable Unrelated Order that executes against a PIP 
Order as an Improvement Order for purposes of the Exchange's liquidity 
fees. The PIP liquidity fees and credits are intended to attract order 
flow to the Exchange by offering incentives to all market participants 
to participate in the PIP. Currently a Participant that submits an 
Unrelated Order which then executes against a PIP Order receives the 
same trading benefit as a Participant who submits an Improvement Order, 
but is sometimes assessed a lesser ``add'' fee. While non-immediately 
marketable Unrelated Orders are not typically submitted on the opposite 
side of a PIP Order, they should be charged the fair and appropriate 
``add'' fee once they execute against a PIP Order. Furthermore, as 
demonstrated above this change will have no impact on the liquidity 
fees charged to a Participant for a majority of non-immediately 
marketable Unrelated Orders that execute against a PIP Order.
    The Exchange believes the proposed change to be reasonable. As 
noted above, the fees and credits for PIP transactions are intended to 
attract order flow to the Exchange by offering incentives to all market 
participants to submit their orders to the PIP for potential price 
improvement. As a result, the Exchange credits Participants who submit 
a PIP order and collects a fee from Participants who respond to a PIP 
through an Improvement Order. A non-immediately marketable Unrelated 
Order that executes against a PIP Order as an Improvement Order will 
not necessarily result in additional revenue to the Exchange, but will 
simply allow BOX to continue to provide the credit incentives to 
Participants to attract additional order flow to the PIP. In order to 
continue to offer these incentives for price improvement the Exchange 
needs to ensure that its liquidity fees and credits remain revenue 
neutral by charging orders that are executing in the same way the same 
fee.
    The Exchange believes it is appropriate to provide incentives to 
market participants to use PIP, resulting in potential benefit to 
customers through potential price improvement and to all market 
participants to provide greater liquidity on BOX. The Exchange believes 
that treating non-immediately marketable Unrelated Orders as 
Improvement Orders for the purpose of liquidity fees and credits will 
not deter Participants from seeking to add liquidity to BOX so that 
they may interact with other Participants seeking to remove liquidity.
    Furthermore, this change will only affect the liquidity fees 
charged for a small percentage of non-immediately marketable Unrelated 
Order transactions that execute against a PIP Order, those in Penny 
Pilot Classes where the trade price is equal to or greater than $3.00, 
excluding QQQ, SPY, and IWM under the PIP Fee Pilot Program.\14\ The 
Exchange currently offers additional incentives to market participants 
for PIP transactions in these specified classes because such options 
have wider spreads and provide greater opportunity for market 
participants to offer price improvement. The Exchange believes it is 
reasonable and equitable to treat a non-immediately marketable 
Unrelated Order that executes against this type of PIP transaction the 
same liquidity fee that an Improvement Order would be charged.
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    \14\ See supra, note 8.
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    The Exchange believes that treating non-immediately marketable 
Unrelated Orders as Improvement Orders is equitable and not unfairly 
discriminatory because the applicable liquidity fees will apply 
uniformly to all categories of participants, across all account types. 
The Exchange operates within a highly competitive market in which 
market participants can readily direct order flow to other competing 
venues if they deem fees at a particular venue to be excessive. BOX and 
the other options exchanges are engaged in an intense competition on 
price (and other dimensions of competition) to attract order flow from 
order flow providers. Accordingly, the fees assessed by the Exchange 
must remain competitive with fees charged by other venues and therefore 
must continue to be reasonable and equitably allocated to those 
Participants that opt to send orders to the Exchange rather than to a 
competing venue. Further, the Exchange believes that the current PIP 
transaction liquidity fees and credits it assesses are fair and 
reasonable and must be competitive with fees and credits in place on 
other exchanges.

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. With this proposed rule change, 
non-immediately marketable Unrelated Orders executing against PIP 
Orders will be subject to fees that are already in place on the 
Exchange. These types of orders are currently subject to similar 
``add'' fees and the proposed change will better align the applicable 
liquidity fees. The Exchange does not believe that this change would 
disincentives [sic] a market participant from sending in an Unrelated 
Order, in a majority of situations there would be [sic] change to the 
``add'' fee assessed and the Participant submitting the order is 
receiving the benefit of executing

[[Page 21996]]

against the PIP Order and the allocation that follows after the 
conclusion of the PIP. The Exchange believes that the proposed change 
promotes competition, as it is designed to allow the Exchange to 
continue compete for order flow and offer greater opportunities for 
price improvement. As mentioned above, liquidity fees and credits do 
not necessarily result in additional revenue to the Exchange, but will 
simply allow BOX to continue to provide the credit incentives to 
Participants to attract additional order flow to the PIP. In order to 
continue to offer these incentives for price improvement the Exchange 
needs to ensure that its liquidity fees and credits remain revenue 
neutral by charging orders that are executing in the same way the same 
fee.

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, fee, or other 
charge applicable only to a member.
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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-2013-19 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549.

All submissions should refer to File Number SR-BOX-2013-19. 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-2013-19 and should be 
submitted on or before May 3, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08650 Filed 4-11-13; 8:45 am]
BILLING CODE 8011-01-P