Document ID: SEC-2018-1600-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2018-10-16T04:00Z

[Federal Register Volume 83, Number 200 (Tuesday, October 16, 2018)]
[Notices]
[Pages 52283-52285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22424]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84391; File No. SR-BOX-2018-34]

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 Adopt a 
New Rebate for Certain Manual Transactions Initiated From the Trading 
Floor

October 10, 2018.
    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 September 27, 2018, 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

[[Page 52284]]

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 on the BOX Options Market LLC (``BOX'') 
facility. While changes to the fee schedule pursuant to this proposal 
will be effective upon filing, the changes will become operative on 
October 1, 2018. 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 adopt a new rebate for manual transactions initiated from the 
Trading Floor. Specifically, the Exchange proposes that on each trading 
day, Floor Brokers will be eligible to receive a $500 rebate for 
presenting certain Strategy QOO Orders on the Trading Floor.\5\ The 
rebate will be applied once the current $1,000 Fee Cap for all 
reversal, conversion, jelly roll, and box spread strategies \6\ is 
met.\7\
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    \5\ Eligibility to receive the $500 rebate relies on the Floor 
Broker's customer reaching the $1,000 Strategy Order Fee Cap each 
trading day.
    \6\ A ``reversal strategy'' is established by combining a short 
security position with a short put and a long call position that 
shares the same strike and expiration. A ``conversion strategy'' is 
established by combining a long position in the underlying security 
with a long put and a short call position that shares the same 
strike and expiration. A ``jelly roll strategy'' is created by 
entering into two separate positions simultaneously. One position 
involves buying a put and selling a call with the same strike price 
and expiration. The second position involves selling a put and 
buying a call, with the same strike price, but with a different 
expiration from the first position. A ``box spread strategy'' is a 
strategy that synthesizes long and short stock positions to create a 
profit. Specifically, a long call and short put at one strike is 
combined with a short call and long put at a different strike to 
create synthetic long and synthetic short stock positions, 
respectively.
    \7\ The $1,000 Fee Cap is applied to customer orders sent to a 
Floor Broker on the BOX Trading Floor. For example, when Customer A 
sends certain Strategy QOO Orders to Floor Broker 1 on the Trading 
Floor, Customer A's fees for these orders will be capped at $1,000 
per day. If Customer A reaches the $1,000 Fee Cap, Floor Broker 1, 
who entered these orders on behalf of Customer A into the BOX 
system, will receive the $500 rebate. Customer B may also send 
certain Strategy QOO Orders to Floor Broker 1 for execution on the 
BOX Trading Floor. Customer B's fees for these orders will also be 
capped at $1,000 per day and Floor Broker 1, who entered these 
orders, will receive the $500 rebate if Customer B reaches the 
$1,000 daily Fee Cap.
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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,\8\ 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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    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed Strategy QOO Order Rebate 
is reasonable, equitable and not unfairly discriminatory. The Exchange 
believes the proposed rebate is reasonable when compared to rebates 
assessed at another options exchange.\9\ Further, the Exchange believes 
that offering the proposed rebate will allow Floor Brokers to price 
their services at a level that would enable them to attract this 
Strategy QOO order flow to the BOX Trading Floor. As such, the Exchange 
believes that the proposed rebate is reasonable.
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    \9\ See Cboe Exchange Inc. (``Cboe'') Fee Schedule Footnote 25. 
At Cboe, Floor Brokers that execute an average of 15,000 customer 
and/or professional customer and voluntary professional open-outcry 
contracts per day over the course of a calendar month in certain 
underlying symbols will receive a rebate of $9,000 on the Floor 
Broker's Trading Permit Fees. The Exchange believes that the 
proposed rebate is similar as Floor Brokers on the BOX Trading Floor 
may only receive the proposed $500 rebate once its customer sends 
enough Strategy QOO volume to reach the $1,000 Fee Cap. For example, 
if Floor Broker 1 executes 4,000 Strategy QOO Order contracts per 
day for Customer A discussed above, Customer A will meet the $1,000 
Fee Cap and Floor Broker 1 will receive the $500 rebate. If instead, 
Floor Broker 1 only executes 2,000 Strategy QOO Order contracts on 
behalf of Customer A, Customer A will not reach the $1,000 Fee Cap 
and Floor Broker 1 will not receive the $500 rebate. In other words, 
the rebate ultimately relies on Strategy QOO order volume submitted 
by Floor Brokers on the Trading Floor much like the rebate at Cboe 
discussed above. The Exchange notes that the proposed rebate will go 
directly to the Floor Broker and not offset their Floor Broker fees 
like the rebate at Cboe. The Exchange believes that this difference 
is minor, as the Floor Broker is receiving a rebate based on 
customer volume in both circumstances.
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    The Exchange believes that the proposed rebate is equitable and not 
unfairly discriminatory as the rebate is available to all Floor 
Brokers. Further, the Exchange believes that applying the proposed 
rebate to Floor Brokers and not to Floor Market Makers is equitable and 
not unfairly discriminatory as Floor Market Makers only represent their 
own interest on the Trading Floor and therefore do not need a similar 
incentive. The Exchange believes that applying the rebate to Floor 
Brokers and not to the Floor Broker's customers is equitable and not 
unfairly discriminatory.\10\ As discussed herein, Floor Brokers serve 
an important function in facilitating the execution of orders via open 
outcry for customers who do not have their own technology, systems and 
personnel to participate on the BOX Trading Floor. As such, the 
Exchange believes that offering the proposed rebate will allow Floor 
Brokers to price their services at a level that would enable them to 
attract Strategy QOO order flow from participants who would otherwise 
utilize other front-end order entry mechanisms offered by the 
Exchange's competitors instead of incurring the cost in time and 
resources to install and develop their own internal systems to deliver 
Strategy QOO orders directly to the Exchange's system.
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    \10\ The Exchange notes that it currently offers a rebate to 
Floor Brokers who present QOO Orders on the BOX Trading Floor on 
behalf of their customers. The Exchange believes that like the QOO 
Order Rebate, the proposed rebate is appropriate as the Floor Broker 
is offering a service to its customers in facilitating the execution 
of orders via open outcry. The Exchange notes that executions 
subject to the Strategy QOO Order Fee Cap, and therefore the 
proposed Strategy QOO Order Floor Broker rebate, are not eligible 
for the QOO Order Rebate.
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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

[[Page 52285]]

Exchange notes that it operates in a highly competitive market in which 
market participants can readily favor competing venues if they deem 
rebate opportunities available at other venues to be more favorable. In 
such an environment, the Exchange must continually adjust its rebates 
to remain competitive with other exchanges. Because competitors are 
free to modify their own rebates in response, the Exchange believes 
that the degree to which rebate changes in this market may impose any 
burden on competition is limited. For the reasons discussed above, the 
Exchange believes that the proposed changes do not impose an undue 
burden on competition.
    Further, the Exchange does not believe that offering a rebate to 
Floor Brokers will impose an undue burden on intra-market competition 
because all Floor Brokers are eligible to transact Strategy QOO Orders 
and receive a rebate. Further, as discussed above, the Exchange 
believes that applying the proposed rebate to Floor Brokers and not to 
Floor Market Makers is appropriate as Floor Market Makers only 
represent their own interest on the Trading Floor and therefore do not 
need a similar incentive. Lastly, the Exchange believes that the rebate 
will promote competition by allowing Floor Brokers to competitively 
price their services and for the Exchange to remain competitive with 
other exchanges with trading floors.

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 \11\ and Rule 19b-4(f)(2) 
thereunder,\12\ because it establishes or changes a due, or fee.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 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 [email protected]. Please include 
File Number SR-BOX-2018-34 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-2018-34. 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-2018-34, and should be submitted on 
or before November 6, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22424 Filed 10-15-18; 8:45 am]
 BILLING CODE 8011-01-P