Document ID: SEC-2012-1060-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2012-07-05T04:00Z

[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Notices]
[Pages 39789-39792]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16449]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67308; File No. SR-BOX-2012-005]

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

June 28, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on June 25, 2012, 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 Substance 
of the Proposed Rule Change

    BOX Options Exchange LLC (the ``Exchange'') proposes to amend its 
Fee Schedule for trading on its options facility, BOX Market LLC 
(``BOX''). While changes to the fee schedule pursuant to this proposal 
will be effective upon filing, the changes will become operative on 
July 1, 2012. 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 its Fee Schedule. While changes to 
the fee schedule pursuant to this proposal will be effective upon 
filing, the changes will become operative on July 1, 2012.
    The Exchange proposes to amend Market Maker Exchange Fees for 
Auction Transaction responses in Section I of its fee schedule to 
implement a tiered schedule to provide potentially discounted fees 
based upon a Market Maker's monthly average daily volume (``ADV''). 
Market Makers will be assessed a per contract execution fee based on 
ADV considering all of their executed transactions on BOX as calculated 
at the end of each month. All executions for the month will be charged 
the same per contract fee according to the Market Maker's ADV, 
according to the table below:

[[Page 39790]]

------------------------------------------------------------------------
               Market maker monthly ADV                 Per contract fee
------------------------------------------------------------------------
150,001 contracts and greater........................              $0.13
100,001 contracts to 150,000 contracts...............               0.16
50,001 contracts to 100,000 contracts................               0.18
10,001 contracts to 50,000 contracts.................               0.25
5,001 contracts to 10,000 contracts..................               0.30
1 contract to 5,000 contracts........................               0.35
------------------------------------------------------------------------

    This proposal will potentially lower Market Maker fees for all 
transactions on BOX. In particular, this may potentially lower Market 
Maker fees for Improvement Orders in the Price Improvement Period 
(``PIP'') and Responses in the Solicitation or Facilitation Auction 
mechanisms on BOX, allowing Market Makers to more effectively compete 
for customer order flow in these mechanisms. Currently, Market Makers 
may achieve a discounted Exchange Fee rate in these Auction 
Transactions as their ADV in Auction Transactions (those transactions 
executed through the PIP, Solicitation Auction mechanism, and 
Facilitation Auction mechanism) increases past certain break points 
(e.g., 20,000 contracts, 50,000 contracts, etc.). The proposed change 
would provide Market Makers a potentially discounted Exchange Fee rate 
for all of their BOX trades as their monthly ADV for all transactions 
on BOX reaches certain break points.
    The Exchange believes that providing this potential discount for 
Market Makers in connection with their ADV considering all of their 
transactions on BOX rather than only their Auction Transactions will 
allow additional Market Makers to benefit from the potential discounts 
in the tiered Exchange Fee schedule, and will provide an incentive for 
Market Makers to potentially provide greater liquidity on BOX. The 
Exchange also believes this may provide an incentive for Market Makers 
to provide more competition in BOX Auction Transactions.
    The Exchange also proposes to amend the Market Maker Tiered Fee 
Schedule to modify the break point tiers and increase the per contract 
fees for Market Makers with monthly ADV of 50,000 contracts or less. 
Currently, Market Makers with monthly ADV of up to 10,000 contracts pay 
an Exchange Fee of $0.25, and those with ADV of 10,001 to 50,000 
contracts pay $0.20. As set forth in the table above, the Exchange 
proposes to increase the per contract Exchange Fee for Market Makers 
with monthly ADV of 10,001 to 50,000 contracts to $0.25, increase the 
per contract Exchange Fee to $0.30 for Market Makers with monthly ADV 
of 5,001 to 10,000 contracts, and increase the per contract Exchange 
Fee to $0.35 for Market Makers with monthly ADV of 5,000 contracts or 
less.
    The Exchange proposes to amend the Tiered Fee Schedule for 
Participants that initiate Auction Transactions (``Initiating 
Participants''). Currently, Initiating Participants pay a per contract 
fee, regardless of account type, that is reduced as the Participant's 
monthly ADV in Auction Transactions increases past certain break 
points. Currently, Initiating Participants pay $0.25 per contract for 
monthly ADV up to 20,000 contracts. The Exchange proposes to amend the 
tiers and increase the fees for those Participants with monthly ADV in 
Auction Transactions of 10,000 or less. The Exchange proposes to 
maintain the $0.25 fee for Initiating Participants with monthly ADV of 
10,001 to 20,000 contracts. Additionally, the Exchange proposes to 
increase the fee to $0.30 for monthly ADV of 5,001 to 10,000 contracts, 
and to $0.35 for monthly ADV of 5,000 contracts or less.
    The proposed tiered fee schedule for Initiating Participants is set 
forth below:

------------------------------------------------------------------------
                                                        Per contract fee
    Initiating participant monthly ADV in auction         (all account
                     transactions                            types)
------------------------------------------------------------------------
150,001 contracts and greater........................              $0.10
100,001 contracts to 150,000 contracts...............               0.12
50,001 contracts to 100,000 contracts................               0.15
20,001 contracts to 50,000 contracts.................               0.17
10,001 contracts to 20,000 contracts.................               0.25
5,001 contracts to 10,000 contracts..................               0.30
1 contract to 5,000 contracts........................               0.35
------------------------------------------------------------------------

    Finally, the Exchange proposes to increase the fee in Section I of 
the Fee Schedule for Broker-Dealer Improvement Orders in the PIP and 
Responses in the Solicitation and Facilitation Auction Mechanisms from 
$0.25 to $0.35.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\5\ in general, and Section 
6(b)(4) of the Act,\6\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees, and other charges among 
BOX Options Participants and other persons using its facilities. The 
impact of the proposal upon the net fees paid by any particular market 
participant will depend on multiple variables, including whether the 
Participant is most active on the BOX Book or within Auction 
Transactions on BOX.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
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    With regard to Market Maker exchange fees, the Exchange believes it 
is reasonable, equitable, and not unfairly discriminatory for BOX 
Market Makers to have the opportunity to benefit from potentially 
discounted fees based on all of their transactions on BOX. The Exchange 
believes that the proposed tiered and potentially discounted fees for 
Market Makers that on a daily basis, trade an average daily volume (as 
calculated at the end of the month) of more than 5,000 contracts on BOX 
represents a fair and equitable allocation of reasonable dues, fees, 
and other charges as it is aimed at incentivizing these participants to 
provide a greater volume of liquidity. The Exchange believes that 
giving incentives for this activity will result in increased liquidity 
on BOX, and within its auction mechanisms, to the benefit of

[[Page 39791]]

all market participants. The increased liquidity also benefits all 
investors by deepening the BOX liquidity pool, supporting the quality 
of price discovery, promoting market transparency and improving 
investor protection. The Exchange believes that the volume based 
discounts such as the reducing tiered execution fee proposed for Market 
Makers are reasonable and equitable because they are open to all Market 
Makers on an equal basis and provide discounts that are reasonably 
related to the value of an exchange's market quality associated with 
higher levels of market activity, such as higher levels of liquidity 
provision and introduction of higher volumes of orders into the price 
and volume discovery processes. Finally, Market Makers have obligations 
that other Participants do not. In particular, they must maintain 
active two-sided markets in the classes in which they are appointed, 
and must meet certain minimum quoting requirements. As such, the 
Exchange believes it is reasonable and appropriate that Market Makers 
be charged fees on BOX that may be comparably lower than other market 
participants in certain circumstances, when they provide greater 
volumes of liquidity to the market.\7\
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    \7\ Note that if a Market Maker has ADV over 5,000 contracts the 
fee that Market Maker is charged for Improvement Orders in the PIP 
and Responses in other Auction Transactions may be lower than a 
particular Broker-Dealer is charged for an Improvement Order in the 
PIP or Response in another Auction Transaction. Note also that if a 
Market Maker has ADV over 150,000 contracts, the fee that Market 
Maker is charged for Improvement Orders in the PIP and Responses in 
other Auction Transactions may be lower than a particular customer 
is charged for such orders. As mentioned above, the Exchange 
believes this is equitable and not unfairly discriminatory given a 
Market Maker's value in providing liquidity to the market and other 
related obligations in acting as a Market Maker.
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    The Exchange believes the Market Maker fees proposed, including an 
increase in the fees at the bottom of the tiered schedule for Market 
Makers with ADV less than 10,000 contracts, are reasonable, equitable, 
and not unfairly discriminatory. BOX operates within a highly 
competitive market in which market participants can readily direct 
order flow to any other competing venue if they deem fees at a 
particular venue to be excessive. Additionally, Market Makers may 
choose on which markets they undertake their associated obligations and 
fees are a factor in their decision. The proposed Market Maker fees are 
intended to attract additional liquidity to BOX by offering market 
participants incentives to submit their quotes and orders. The Exchange 
believes that we are providing Market Makers a greater opportunity to 
receive discounted fees for their BOX transactions. To help offset the 
potentially discounted fees for Market Makers providing greater 
liquidity, the Exchange believes it is reasonable and equitable to 
increase the fees for Market Makers with ADV less than 10,000 contracts 
as these Market Makers are not providing the same level of liquidity to 
the market.
    The Exchange believes it is equitable and non-discriminatory to 
provide Initiating Participants the proposed fees in a tiered structure 
to provide potential discount related to participation in BOX Auction 
Transactions. The proposed fees related to trading activity in BOX 
Auction Transactions are available to all BOX Options Participants that 
initiate Auction Transactions, and they may choose to trade on BOX to 
take advantage of the discounted fees for doing so, or not. The 
Exchange also believes the proposed fees for BOX Participants 
initiating Auction Transactions to be reasonable.\8\ Further, the 
Exchange believes Participants benefit from the opportunity to 
aggregate their trading in the BOX Facilitation and Solicitation 
Auction mechanisms with their PIP transactions to attain a discounted 
fee tier. The tiered fee structure proposed for trading in the BOX 
auction mechanisms aims to attract order flow to BOX, providing greater 
potential liquidity within the overall BOX market, and its auction 
mechanisms, to the benefit of all BOX market participants.
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    \8\ The Exchange notes the proposed fees are comparable to fees 
currently in place at other exchanges. See International Securities 
Exchange, LLC (``ISE'') Schedule of Fees.
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    The Exchange believes that providing a volume discount to Options 
Participants that initiate auctions on customer orders is appropriate 
to provide an incentive to BOX Participants to submit their customer 
orders to BOX, particularly into the PIP for potential price 
improvement. Such a discount is necessary to limit the exposure that 
Initiating Participants will have to liquidity removal fees, because as 
Initiating Participants they will be adding liquidity and will be 
charged a fee should their principal order execute against the customer 
order in any BOX Auction Transaction. Further, the Exchange believes it 
is reasonable and equitable to increase the fees paid by Participants 
that have monthly Auction Transaction ADV of 10,000 contracts or less 
because the fees will be comparable to that of Market Makers trading on 
BOX.
    Further, the Exchange believes the proposed $0.35 fee per executed 
contract for Broker-Dealer Improvement Orders in the PIP and Responses 
in the Solicitation and Facilitation Auction Mechanisms to be 
equitable, reasonable, and not unfairly discriminatory. The Exchange 
believes the proposed fee is reasonable because the Exchange does not 
charge broker-dealers fees other than transaction fees (e.g., ongoing 
systems access fees, ongoing fees for access to BOX market data, or 
fees related to order cancellation) as other exchanges. Additionally, 
the proposed increase in trading fees charged to broker-dealer 
proprietary accounts is designed to be comparable to the costs that 
such accounts would be charged at competing venues.\9\ Further, the 
Exchange believes that these participants that add liquidity on BOX 
will not be impaired by this proposed increase to fees on broker-dealer 
proprietary accounts. Broker-Dealer proprietary trading draws on BOX 
system resources and results in ongoing operational costs to BOX. As 
such, BOX aims to recover its costs by assessing these accounts a 
market competitive trading fee for BOX transactions, including Auction 
Transactions. The Exchange believes this proposed fee is reasonable 
considering, in part, that such accounts are assessed a higher fee 
($0.40) for Non-Auction Transactions on BOX. Sending orders to and 
trading on BOX are entirely voluntary. Under these circumstances, BOX 
transaction fees must be competitive to attract order flow, execute 
orders, and grow its market. As such, BOX believes its trading fees 
proposed for these Broker-Dealer orders are fair and reasonable. The 
Exchange believes other parts of the proposed BOX fee structure (e.g., 
tiered Initiating Participant fees and Liquidity Fees and Credits) will 
provide incentives for broker-dealers to send order flow to the BOX PIP 
and other auction mechanisms, even with this increased trading fee.
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    \9\ The proposed fee is lower than that for similar orders on 
the ISE Schedule of Fees.
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    The Exchange believes it is equitable and not unfairly 
discriminatory to offer BOX Market Makers in Auction Transactions an 
opportunity to be charged potentially lower fees than broker-dealers. 
Market Makers have obligations that other Participants do not. In 
particular, they must maintain active two-sided markets in the classes 
in which they are appointed, and must meet certain minimum quoting 
requirements. As such, the Exchange believes it is appropriate that 
Market Makers be charged potentially lower transaction fees on BOX and 
within BOX Auction Transactions. As such, the

[[Page 39792]]

Exchange believes the proposed fees for broker-dealers, as compared to 
Market Makers, is appropriate and not unfairly discriminatory because 
it promotes enhanced BOX market quality.
    The Exchange believes that the proposed Exchange Fees will keep BOX 
competitive with other exchanges and apply in such a manner so as to be 
equitable among BOX Participants. The Exchange believes the proposed 
fees are fair and reasonable and must be competitive with fees in place 
on other exchanges. Further, the Exchange believes that this 
competitive marketplace impacts the fees proposed for BOX. Greater 
liquidity and additional volume executed on BOX aids the price and 
volume discovery process.

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 the 
proposed fee changes are reasonably designed to potentially enhance 
competition in BOX Auction Transactions, particularly in the PIP.
    The proposed fee changes modify the tiered fees charged to 
Initiating Participants based on their monthly ADV in Auction 
Transactions. This may result in higher fees for Initiating 
Participants with monthly Auction Transaction ADV of less than 20,000 
contracts. The proposed changes also increases the fee charged to 
broker-dealers for Improvement Orders in the PIP and Responses in the 
Solicitation and Facilitation Auction Mechanisms from $0.25 to $0.35. 
The Exchange believes this increase will not impair broker-dealers from 
adding liquidity and competing in Auction Transactions, so that they 
may gain the opportunity to interact with the customer orders seeking 
to remove liquidity in Auction Transactions.
    Further, the proposed changes modify the tiered fees for Market 
Makers based on their ADV considering all of their BOX transactions. 
This may potentially increase or decrease any particular Market Maker's 
fees on BOX, including those fees for Auction Transactions, based on 
their monthly ADV. The Exchange believes it is likely that more Market 
Makers may benefit from lower fees as a result of this proposed change, 
lowering their cost to compete in BOX Auction Transactions.
    Considering all of the above, the Exchange believes the proposed 
fee changes are reasonably designed to potentially enhance competition 
in BOX Auction Transactions, particularly in the PIP, and 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.

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 \10\ and Rule 19b-4(f)(2) 
thereunder,\11\ because it establishes or changes a due, fee, or other 
charge applicable only to a member.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 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 such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Exchange Act.

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-2012-005 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 20549-1090.

All submissions should refer to File Number SR-BOX-2012-005. 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 
a.m. and 3 p.m. Copies of the 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-2012-005 and should be 
submitted on or before July 26, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16449 Filed 7-3-12; 8:45 am]
BILLING CODE 8011-01-P