Document ID: SEC-2013-0522-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2013-03-18T04:00Z

[Federal Register Volume 78, Number 52 (Monday, March 18, 2013)]
[Notices]
[Pages 16743-16746]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06120]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69115; File No. SR-BOX-2013-10]

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

March 12, 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 February 28, 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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. In 
particular, the Exchange proposes to amend certain Exchange Fees for 
Professionals set forth in Section I of the Fee Schedule so that 
Professional Accounts are assessed the same fees as Broker-Dealers. 
Additionally, the Exchange proposes to increase the existing liquidity 
fees and credits for Non-Auction transactions within Section II of the 
Fee Schedule. While changes to the Fee Schedule pursuant to this 
proposal will be effective upon filing, the changes will become 
operative on March 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.

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 Fee Schedule for trading on BOX. 
In particular, the Exchange proposes to amend certain Exchange Fees for 
Professionals set forth in Section I of the Fee Schedule so that all 
Professional accounts are assessed the same fees as Broker-Dealers. 
Additionally, the Exchange proposes to increase the existing liquidity 
fees and credits for Non-Auction transactions within Section II of the 
Fee Schedule.
    In Section I. Exchange Fees, the Exchange proposes increase Auction 
Transaction \5\ fees for Professional PIP Orders or Agency Orders from 
$0.00 to $0.35. For Non-Auction Transactions the Exchange proposes to 
increase Professional fees from $0.20 to $0.40. Both of these increases 
will put the Professional fees in line with those that Broker-Dealers 
are currently charged. The Exchange notes that the proposed fees for 
Professionals are within the range of Professional fees presently 
assessed in the industry.\6\
---------------------------------------------------------------------------

    \5\ Auction Transactions are those transactions executed through 
the Price Improvement Period (``PIP''), Solicitation, and 
Facilitation auction mechanisms.
    \6\ Professional customers are charged $0.33 per contract for 
Select Symbols on the International Securities Exchange (``ISE''), 
$0.32 per contract for taking liquidity on NYSE Amex, and $0.45 or 
more per contract on the NASDAQ Options Market (``NOM'') for adding 
or removing liquidity in non-Penny Pilot securities. See ISE fee 
schedule, available at: http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf, NYSE Amex Options Fee 
Schedule, available at: https://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_amex_options_fee_schedule_12_01_12__.pdf, and see NOM Fee Schedule, available at: http://www.nasdaqtrader.com/Micro.aspx?id=OptionsPricing.
---------------------------------------------------------------------------

    In Section II. Liquidity Fees and Credits, the Exchange proposes to 
increase the fees and credits for Non-Auction Transactions. 
Specifically, the Exchange proposes that the per contract fee for 
orders that add liquidity to the BOX Book be raised to $0.30 from $0.22 
in Penny Pilot Classes, and to $.75 from $0.65 in non-Penny Pilot 
Classes. For orders that remove liquidity from the BOX Book, the 
Exchange proposes to raise the per contract credit to $0.30 from $0.22 
in Penny Pilot Classes, and to $0.75 from $0.65 in non-Penny Pilot 
Classes.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\7\ in general, and Section 
6(b)(4) of the Act,\8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes the proposed fee change for Professionals in 
both Auction Transactions and Non-Auction Transactions is reasonable, 
equitable and not unfairly discriminatory because it charges 
Professionals, whose activity

[[Page 16744]]

on BOX is akin to the order flow activity and system usage to that of 
Broker-Dealers, the same fee for transactions as the fee charged to 
Broker-Dealers. BOX does not assess ongoing systems access fees, 
ongoing fees for access to BOX market data, or fees related to order 
cancellation. Professional accounts, while Public Customers by virtue 
of not being broker-dealers, generally engage in trading activity more 
similar to broker-dealer proprietary trading accounts (more than 390 
orders per day on average). BOX notes that as of December 2012, orders 
for Professionals generally account for a majority of the orders BOX 
receives on a given trading day. This level of trading activity draws 
on a greater amount of BOX system resources than that of non-
Professional Public Customers, and thus, greater ongoing BOX 
operational costs. Simply, the more orders submitted to BOX, the more 
messages sent to and received from BOX, the more orders potentially 
routed to away exchanges, and the more BOX system resources utilized. 
As such, rather than passing the costs of these higher order volumes 
along to all market participants, the Exchange believes it is more 
reasonable and equitable to assess those costs to the persons directly 
responsible. To that end, BOX aims to recover costs incurred by 
assessing Professional accounts a market competitive fee for 
transactions.
    The Exchange believes the proposed change to increase Professional 
fees for Auction Transactions is not unfairly discriminatory as the 
fees will apply to all Professionals and Broker-Dealers competing in 
these transactions equally. Further, Professionals and Broker-Dealers 
are free to change the manner in which they access BOX. A Professional 
may, by sending fewer than 390 orders per day across the industry, 
begin participating as a non-Professional, Public Customer and 
potentially reduce transaction fees. Additionally, for Auction 
Transactions, Professionals will still benefit from certain priority 
advantages as a customer.\9\ As noted above, Professionals' order 
sending behavior and trading activity tend to be more similar to 
Broker-Dealers trading on a proprietary basis. This is particularly 
true in considering orders in response to BOX auction mechanisms. As 
such, the Exchange believes it is not unfairly discriminatory to charge 
them the same fee as Broker-Dealers when competing for customer order 
flow in these Auction Transactions.
---------------------------------------------------------------------------

    \9\ See Rules 7150(f)(4) and 7270 regarding allocation and 
executions within each BOX auction mechanism.
---------------------------------------------------------------------------

    Professionals may elect to register as a Broker-Dealer and, once 
registered, may apply to become a BOX Market Maker, subject to Exchange 
Fees based on their ADV. The Exchange believes the proposed transaction 
fees for Professionals is equitable and not unfairly discriminatory 
because such Participants are not subject to the same obligations as 
Market Makers when providing liquidity to the market. In particular, 
Market Makers must maintain active two-sided markets in appointed 
classes, and must meet certain minimum quoting requirements. As such, 
the Exchange believes it is appropriate that Market Makers be charged 
comparably lower transaction fees as compared to Professionals when the 
Market Makers provide greater volumes of liquidity to the market. In 
light of the ability to access BOX in a variety of ways, each of which 
is priced differently, Professionals, Broker-Dealers and other market 
participants may each select the most economically beneficial manner to 
access BOX.
    Further, the Exchange believes the proposed fee change is equitable 
and not unfairly discriminatory because it will assure that retail 
investors (non-Professional, Public Customers) continue to receive the 
appropriate marketplace advantages on BOX, while furthering fair 
competition among marketplace professionals by treating them equally 
when they compete for these desirable customer orders. The Exchange 
believes it is reasonable and equitable to assess fees for 
Professionals that are the same as those fees for Broker-Dealers 
because it applies a pricing structure that groups these sophisticated 
market participants together when they are competing in this manner.
    Generally, competing options exchanges assess Professionals fees at 
comparable rates to those proposed by the Exchange, and comparable to 
fees charged to Broker-Dealers.\10\ These proposed fee changes will 
allow Professionals and Broker-Dealers to be charged equally for every 
type of Exchange Fee. The Exchange operates within a highly competitive 
market in which market participants can readily direct order flow to 
any of several other competing venues if they deem fees at a particular 
venue to be excessive. As such, the Exchange believes the proposed 
increases are reasonable and equitable.
---------------------------------------------------------------------------

    \10\ Supra, note 6.
---------------------------------------------------------------------------

    The Exchange further believes the proposed fee change for PIP 
Orders or Agency Orders is equitable and not unfairly discriminatory 
because Professionals generally do not initiate Auction Transactions, 
unlike some Broker-Dealers. Doing so requires, in part, guaranteeing a 
customer order an execution. Initiating an Auction Transaction for the 
benefit of the customer order, and taking on this guarantee provides 
these Participants potentially discounted fees.\11\ The Exchange 
believes it is reasonable, equitable, and not unfairly discriminatory 
to charge Professional accounts the same fee as Broker-Dealers to 
compete for customer orders in Auction Transactions because when acting 
in response to an auction, as opposed to initiating the transaction, 
Professionals' behavior, systems' sophistication, and trading activity 
are similar to Broker-Dealers, and distinct from the retail investors 
on the opposite side of the Auction Transaction.
---------------------------------------------------------------------------

    \11\ See Section I.A. of the Fee Schedule that provides Tiered 
Fees with potential discounts for Participants that Initiate Auction 
Transactions.
---------------------------------------------------------------------------

    The Exchange believes it is equitable and not unfairly 
discriminatory for Public Customers to be charged lower fees than 
Professionals and Broker-Dealers for all transactions on BOX. 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 the benefit of non-Professional, Public 
Customers.\12\ As such, the Exchange believes the proposed fees for 
Professional customer transactions are appropriate and not unfairly 
discriminatory. Additionally, the Exchange believes it promotes the 
best interests of investors to have lower Auction Transaction costs for 
non-Professional, Public Customers, and that the BOX fee structure will 
continue to attract this customer order flow to these auction 
mechanisms which BOX believes will provide greater potential price 
improvement to these investors.
---------------------------------------------------------------------------

    \12\ Note that BOX has historically imposed different, and 
higher, routing fees for Professionals as compared to non-
Professional Public Customers. See Securities Exchange Act Release 
Nos. 65538 (October 12, 2011), 76 FR 64413 (October 18, 2011) 
(Adopting a $0.50 per contract routing fee for Professionals while 
providing routing to non-Professional Public Customers at no 
charge), and 68149 (November 5, 2012), 77 FR 67693 (November 13, 
2012) (Continuing to charge Professionals $0.50 per contract 
executed on away exchanges and exempting Public Customer accounts 
from a routing fee for Directed Orders, provided 33% or more of a 
Participant's Public Customer Directed Orders received during the 
month are executed through PIP, and less than 45% of a Participant's 
Directed Orders received during the month are routed to and executed 
on an away exchange).
---------------------------------------------------------------------------

    BOX believes that the changes to its Non-Auction Transaction fees 
and credits are equitable and non-

[[Page 16745]]

discriminatory in that they apply to all categories of Participants and 
across all account types. BOX operates within a highly competitive 
market in which market participants can readily direct order flow to 
any of eight other competing venues if they deem fee levels at a 
particular venue to be excessive. The changes to BOX credits and fees 
proposed by this filing are reasonable because they are intended to 
attract order flow to BOX by offering incentives to all market 
participants to submit their orders to the Exchange. BOX notes that 
this proposed rule change will increase both the fees and credit for 
Non-Auction Transactions. The result is that BOX will collect a fee 
from Participants that add liquidity and credit another Participant for 
removing liquidity in the same transaction. Stated otherwise, the fees 
collected will not necessarily result in additional revenue to BOX, but 
will simply allow BOX to provide the credit incentive to Participants 
to attract additional order flow to the Exchange. BOX believes it is 
appropriate to provide incentives to market participants, which could 
benefit all market participants by creating greater liquidity.

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. BOX currently assesses 
Professional Customers and Broker Dealers equally for other types of 
Exchange Fees \13\ and this change will result in these participants 
being charged equally for all Auction and Non-Auction transactions. The 
BOX auction mechanisms provide the opportunity for market participants 
to compete for customer orders. The PIP has no limitations regarding 
the number of Market Makers, Options Participants that are not Market 
Makers, and customers that can participate and compete for orders in 
the PIP. BOX asserts that Participants are actively competing for 
customer orders, which is clearly supported by the simple fact that 
price improvement occurs in the PIP. Since the PIP began in 2004, 
customers have received more than $400 million in savings through 
better executions on BOX, a monthly average of more than $3.5 million 
over that time.
---------------------------------------------------------------------------

    \13\ See Section I. of the Fee Schedule. Professionals and 
Broker Dealers are currently assessed equal fees in Improvement 
Orders on the PIP, Responses in the Solicitation and Facilitation 
Mechanism, and in Options Surcharge on the NDX and MNX.
---------------------------------------------------------------------------

    The Exchange does not believe the proposed fee change will inhibit 
Professionals' ability to compete within BOX Auction Transactions. 
Broker-Dealers currently compete actively within the PIP, and BOX does 
not believe assessing Professionals a $0.35 per contract fee equivalent 
to that of Broker-Dealers, would impede Professionals' ability, or the 
incentive for Professionals, to compete therein. BOX notes that its 
market model and fees are generally intended to benefit retail 
customers by providing incentives for Participants to submit their 
customer order flow to BOX, and the PIP in particular. BOX makes a 
substantial amount of PIP-related data and statistics available to the 
public on its Web site www.boxexchange.com. Specifically, PIP Fee Pilot 
reports are available at: http://boxexchange.com/boxrReports_en; daily 
PIP volumes and average price improvement at: http://boxexchange.com/volumes_en; and BOX execution quality reports at: http://boxexchange.com/executionQualityReport_en. The data indisputably 
supports that the PIP provides price improvement for customer orders.
    Furthermore, this proposed rule change will result in Non-Auction 
transactions being subject to increased fees and credits, which the 
Exchange believes will promote competition by enabling the Exchange to 
better compete for order flow and improve the Exchange's competitive 
position.
    The fee changes proposed would assess Professionals the same fees 
as Broker-Dealers and increase both the fees and credits for Non-
Auction Transactions. Because this change would charge Professionals 
similarly to Broker-Dealers in all circumstances, charge them a fee 
comparable to what Professionals and Broker-Dealers pay on competing 
exchanges,\14\ and for additional reasons as stated above, the Exchange 
does not believe that the proposed change will impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.
---------------------------------------------------------------------------

    \14\ Supra, note 6.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
would otherwise further the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     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-2013-10 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-2013-10. 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

[[Page 16746]]

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-2013-10 and should be 
submitted on or before April 8, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06120 Filed 3-15-13; 8:45 am]
BILLING CODE 8011-01-P