Document ID: SEC-2019-0352-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2019-03-27T04:00Z

[Federal Register Volume 84, Number 59 (Wednesday, March 27, 2019)]
[Notices]
[Pages 11591-11593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05815]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85387; File No. SR-BOX-2019-07]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee 
Schedule on the BOX Options Market LLC (``BOX'') Facility To Add the 
Concepts of Appointed OFP and Appointed MM

March 21, 2019.
    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 March 11, 2019, BOX Exchange LLC (the ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the Exchange. The Exchange filed the proposed 
rule change pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ and Rule 
19b-4(f)(2) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to amend the Fee Schedule to 
amend the Fee Schedule [sic] on the BOX Options Market LLC (``BOX'') 
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 website at http://boxexchange.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule for trading on BOX 
to amend Section VIII.A (Aggregate Billing) of the BOX Fee Schedule to 
add the concepts of ``Appointed OFP'' and ``Appointed MM'' which would 
increase opportunities for firms to qualify for various volume tier 
discounts and rebates.
    The Exchange proposes to allow BOX Market Makers to designate an 
Order Flow Provider (``OFP'') \5\ as its ``Appointed OFP'' and to 
likewise allow OFPs to designate a Market Maker as its ``Appointed 
MM.'' \6\ As proposed, BOX Participants would effectuate the 
designation--of an Appointed OFP or Appointed MM--by each sending an 
email to the Exchange.\7\ The Exchange would view corresponding emails 
as acceptance of such an appointment and would only recognize one such 
designation for each party once every 12-months, which designation 
would remain in effect unless or until the Exchange receives an email 
from either party indicating that the appointment has been 
terminated.\8\ The Exchange believes that this requirement would impose 
a measure of exclusivity and would enable both parties to rely upon 
each other's, and potentially increase, transaction volumes executed on 
the Exchange, which is beneficial to all BOX Participants.
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    \5\ See BOX Rule 100(a)(46) (defining OFP as those Options 
Participants representing as agent Customer Orders on BOX and those 
non-Market Maker Participants conducting proprietary trading).
    \6\ See proposed rule text Section VIII.A.4.
    \7\ See id.
    \8\ See id.
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    The Exchange proposes to allow a Participant to opt to combine its 
volume with that of its Appointed OFP/Appointed MM to qualify for the

[[Page 11592]]

various incentive programs offered on the Exchange. First, a 
Participant with an Appointed OFP/Appointed MM would be able to 
aggregate certain of its volumes with that of its Appointed OFP/
Appointed MM for purposes of qualifying for certain (1) rebates 
available in the Tiered Volume Rebate for Non-Auction Transactions for 
Market Makers and Public Customers (``Tiered Volume Rebate for Non-
Auction Transactions''), (2) fees assessed for Primary Improvement 
Orders, and (3) rebates available to all Public Customer PIP and COPIP 
Orders of 250 and under contracts that do not trade with their contra 
order (``BOX Volume Rebate''). Currently, a Participant can only 
aggregate its volume with that of its affiliate(s).\9\ The concept of 
Appointed OFP/Appointed MM would apply in instances where a Participant 
qualifies for a favorable fee by calculating qualifying volume through 
combining its transactions with that of Appointed OFP/Appointed MM. 
However, a Participant that has both an Appointed OFP/Appointed MM and 
any affiliate(s) may only aggregate volumes with one of those two, not 
both. Thus, the Exchange proposes to modify the Fee Schedule to provide 
that in calculating qualifications for volume of a Participant's 
activity, the Participant may request the Exchange to ``aggregate its 
eligible activity with the eligible activity of either its affiliate(s) 
or its Appointed OFP or its Appointed Market Maker.'' \10\ The Exchange 
notes that other exchanges have adopted similar concepts.\11\
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    \9\ See BOX Fee Schedule.
    \10\ See proposed language in Section VIII.A. of the BOX Fee 
Schedule.
    \11\ See Securities Exchange Act Release Nos. 77524 (April 5, 
2016), 81 FR 21417 (April 11, 2016) (SR-BatsBZX-2016-04); 77526 
(April 5, 2016), 81 FR 21405 (April 11, 2016) (SRBatsEDGX-2016-05); 
77926 (May 26, 2016), 81 FR 35421 (June 2, 2016) (SR-CBOE-2016-045); 
78382 (July 21, 2016), 81 FR 49293 (July 27, 2016) (SR-Phlx-2016-
62); 80416 (April 10, 2017), 82 FR 18028 (April 14, 2017) (SR-MIAX-
2017-15).
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    The Exchange does not propose to modify any of the volume 
qualifications or the associated fees and rebates for the various 
incentive programs at this time.
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,\12\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among BOX Participants and other persons using its facilities 
and does not unfairly discriminate between customers, issuers, brokers 
or dealers.
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    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposal is reasonable, equitable and not unfairly 
discriminatory for the following reasons. First, the proposal would be 
available to all Market Makers and OFPs and the decision to be 
designated as an ``Appointed OFP'' or ``Appointed MM'' would be 
completely voluntary and a Participant may elect to accept this 
appointment or not. In addition, the proposed changes would enable 
firms that are not currently eligible for certain rebates and discounts 
to avail themselves of these rebates/discounts, as well increase 
opportunities for firms that are currently eligible for certain 
rebates/discounts to potentially achieve a higher tier, thus qualifying 
to higher rebates/discounts. The Exchange believes these proposed 
changes would incentivize firms to direct their order flow to the 
Exchange. Specifically, the proposed changes would enable any Market 
Maker--not just those with affiliates--to pool certain volumes to 
potentially qualify its Appointed OFP for rebates/discounts available 
on the Exchange. Moreover, the proposed change would allow any OFP, by 
virtue of designating an Appointed MM, to aggregate certain of its own 
volumes with the activity of its Appointed MM, which would enhance the 
OFP's potential to qualify for additional rebates and discounts. The 
Exchange believes these proposed changes would incentivize Appointed 
OFPs and OFPs with an Appointed MM to direct order flow to the 
Exchange, which additional liquidity would benefit all market 
participants (including those market participants that are not 
currently affiliates and/or opt not to become an Appointed party) by 
providing more trading opportunities and tighter spreads. The Exchange 
also notes that the proposed changes are reasonable as other exchanges 
have adopted similar concepts for their own affiliate-based incentive 
programs.\13\
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    \13\ See supra note 11.
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    Similarly, the proposal, which would permit the opportunity for 
both parties to rely upon each other's, and potentially increase, 
transaction volumes, is reasonable, equitable and not unfairly 
discriminatory because it may encourage Market Makers to increase in 
order flow, capital commitment and resulting liquidity on the Exchange 
would benefit all market participants by expanding liquidity, providing 
more trading opportunities and tighter spreads.
    Further, the Exchange believes that the proposal is reasonable and 
equitably allocated because it is beneficial to all Exchange 
Participants because it enables parties to rely upon each other's 
transaction volumes executed on the Exchange, and potentially increase 
such volumes. In turn, the potential increase in order flow, capital 
commitment and resulting liquidity on the Exchange would benefit all 
market participants by expanding liquidity, providing more trading 
opportunities and tighter spreads.
    The proposal is also reasonable, equitable and not unfairly 
discriminatory because the Exchange would only recognize one such 
designation for each party once every 12 months (from the date of its 
most recent designation), a requirement that would impose a measure of 
exclusivity while allowing both parties to rely upon each other's 
transaction volumes executed on the Exchange, and potentially increase 
such volumes, again, to the benefit of all market participants.
    Finally, the Exchange believes the proposal is reasonable, 
equitable and not unfairly discriminatory and facilitates trading as it 
may benefit all market participants through increased order flow on the 
exchange, even to those market participants that are either currently 
affiliated by virtue of their common ownership or that opt not to 
become an Appointed OFP or Appointed Market Maker under this proposal. 
Further, as discussed herein, other exchanges have adopted similar 
concepts.\14\
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    \14\ See supra note 11.
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    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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 that the 
proposed changes are pro-competitive as they would increase 
opportunities for additional firms to qualify for various rebates and 
discounts, which may increase intermarket and intramarket competition 
by incenting Appointed OFPs and Appointed MMs to direct their orders to 
the Exchange, thereby increasing the volume of contracts traded on the 
Exchange and enhancing the quality of quoting. Enhanced market quality 
and increase transaction volume that results from the anticipated 
increase in order flow directed to the Exchange would benefit all 
market participants and improve competition on the Exchange.

[[Page 11593]]

    With regard to aggregating volume for Primary Improvement Orders, 
the Exchange does not believe that the proposed change will burden 
competition by creating a disparity between the fees an initiator pays 
and the fees a competitive responder pays that would result in certain 
Participants being unable to compete with initiators. The Exchange 
believes that the differential is reasonable as responders are willing 
to pay a higher fee for liquidity discovery. Further, the Exchange 
believes these changes will help promote competition by providing 
incentives for market participants to submit these orders, and thus 
benefit all Participants trading on the Exchange. Further, the Exchange 
notes that other exchanges allow appointed aggregation for incentive 
programs (which include transactions in their improvement mechanisms) 
currently in place.\15\
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    \15\ See Cboe Exchange Inc. (``Cboe'') Fee Schedule, Affiliate 
Volume Plan (``AVP'') and Volume Incentive Plan (``VIP''). On Cboe, 
the Volume Incentive Program (``VIP'') credits each Trading Permit 
Holder (``TPH'') the per contract amount set forth in the VIP table 
for Public Customer orders (which include Simple AIM Orders, Simple 
non-AIM Orders, Complex AIM Orders and Complex non-AIM Orders) 
transmitted by that TPH which is executed electronically on the 
Exchange, provided the TPH meets certain volume thresholds. Further, 
the Affiliate Volume Plan (``AVP'') allows a Market Maker to qualify 
for additional discounts on that Market Maker's LP Sliding Scale 
transaction fees when the Market Maker's Affiliate or Appointed OFP 
qualifies for credits under the VIP. While Cboe credits its TPHs and 
their Appointed OFPs or Appointed MMs under their fee schedule, the 
Exchange believes the end result is comparable to the proposed 
change discussed herein. Here, the Exchange proposes to allow 
Participants to aggregate volume for Primary Improvement Orders, 
while Cboe allows its TPHs to aggregate volume for their AIM Orders 
in order to receive a credit.
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    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues. In 
such an environment, the Exchange must continually review, and consider 
adjusting, its fees and rebates to remain competitive with other 
exchanges. For the reasons discussed above, the Exchange believes that 
the proposed 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 \16\ and Rule 19b-4(f)(2) 
thereunder,\17\ because it establishes or changes a due, or fee.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 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-2019-07 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-2019-07. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BOX-2019-07, and should be submitted on 
or  before April 17, 2019.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05815 Filed 3-26-19; 8:45 am]
 BILLING CODE 8011-01-P