Document ID: SEC-2012-0789-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2012-05-18T04:00Z

[Federal Register Volume 77, Number 97 (Friday, May 18, 2012)]
[Notices]
[Pages 29740-29746]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12032]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66979; File No. SR-BOX-2012-002]

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

May 14, 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 May 10, 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 in preparation for the expected launch of trading of the 
BOX Market facility on May 14, 2012. The text of the proposed rule 
change is available from the principal office of the Exchange, on the 
Exchange's Internet Web site at http://boxexchange.com, and at the 
Commission's Public Reference Room.

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 in preparation for 
the expected launch of trading of its BOX Market LLC options trading 
facility (``BOX'') on May 14, 2012. The Exchange proposes to establish 
fees related to trading on BOX.

Exchange Fees

    The Exchange proposes Exchange Fees based on transaction type and 
account type. More specifically, the Exchange proposes fees for Auction 
Transactions (transactions executed through the BOX Price Improvement 
Period, Solicitation, and Facilitation auction mechanisms), and non-
Auction Transactions (transactions executed on the BOX Book). The 
account types on BOX are Public Customer, Professional, Broker-Dealer, 
and Market Maker (see Exchange Rule 100 Series for definitions of 
each). All of the proposed fees are identical to fees currently in 
place on the Boston Options Exchange Group,

[[Page 29741]]

LLC, an options trading facility of NASDAQ OMX BX, Inc.\5\
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    \5\ The automated electronic trading system operated by Boston 
Options Exchange Group, LLC as an options trading facility of NASDAQ 
OMX BX, Inc. will, upon the commencement of the Exchange's 
operations as a national securities exchange, be operated by BOX 
Market LLC as a facility of the Exchange. As such, the operation and 
functionalities of the system are the same as are in effect under 
the rules of the Boston Options Exchange Group, LLC facility. The 
Exchange is not proposing to adopt the fees currently set forth in 
Section 5b (CMS Order Routing Service), Section 5d (fees assessed to 
third-party service providers for testing or support) or Section 6a 
(compliance examination assessment) of the Fee Schedule of the 
Boston Options Exchange Group, LLC as the fees will not be 
applicable to BOX or the Exchange.
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    For Auction Transactions, the Exchange proposes a $0.15 fee for 
customer Improvement Orders in the PIP and Responses in the 
Solicitation and Facilitation mechanisms.\6\ The Exchange proposes a 
$0.25 fee for Broker-Dealers and Market Makers for Improvement Orders 
in the PIP and Responses in the Solicitation and Facilitation 
mechanisms. Exchange Fees for Initiating Participants in Auction 
Transactions through Primary Improvement Orders, Facilitation Orders, 
or Solicitation Orders will be based upon a Participants' monthly 
average daily volume (``ADV'') in Auction Transactions as calculated at 
the end of each month as set forth below.
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    \6\ References to customer in the Fee Schedule and this proposal 
include Public Customers and Professionals, unless otherwise noted.

------------------------------------------------------------------------
   Initiating participant monthly ADV in        Per contract fee (all
           auction transactions                    account 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
1 contract to 20,000 contracts............  $0.25
------------------------------------------------------------------------

     For non-Auction Transactions, the Exchange proposes to impose a 
per contract fee of $0.07 for Public Customers, $0.20 for 
Professionals, and $0.40 for Broker-Dealers. Additionally, the Exchange 
proposes a tiered, per contract fee for Market Makers, based upon their 
monthly ADV in non-Auction Transactions on BOX as set forth below:

------------------------------------------------------------------------
  Market maker monthly ADV in non-auction
               transactions                       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......  $0.20
1 contract to 10,000 contracts............  $0.25
------------------------------------------------------------------------

     The Exchange proposes a $0.22 per contract surcharge for Broker-
Dealers and Market Makers for all transactions in options on the 
Nasdaq-100[supreg] Index (NDX) and on the Mini-NDX[supreg] Index (MNX). 
BOX incurs licensing fees for transactions in these classes of options 
and believes it is appropriate and reasonable to pass that fee through 
to its Participants.

Liquidity Fees and Credits

    The Exchange proposes liquidity fees and credits for all options 
classes traded on BOX (unless explicitly stated otherwise) and proposes 
that they be applied in addition to any applicable Exchange Fees as 
described above (and in Section I of the Fee Schedule). The proposed 
liquidity fees and credits are identical to fees and credits currently 
in place on the Boston Options Exchange Group, LLC, an options trading 
facility of NASDAQ OMX BX, Inc.

Liquidity Fees and Credits for Non-Auction Transactions

    Orders that add liquidity to the BOX Book will be charged a 
transaction fee upon execution. Any order, including an order with a 
Fill and Kill designation, which executes against an order that is 
being exposed before being placed on the BOX Book, will be considered 
to add liquidity. Any order, including an order with a Fill and Kill 
designation, which removes liquidity by trading immediately upon entry 
to the BOX Book or following its exposure as part of NBBO filtering, 
will receive a credit.
    The Exchange proposes that orders that add liquidity to the BOX 
Book will be charged a per contract fee of $0.22 for Penny Pilot 
Classes, and $0.65 for adding liquidity in non-Penny Pilot Classes. 
Orders that remove liquidity from the BOX Book (non-Auction 
Transactions) will be provided a per contract credit of $0.22 for 
transactions in Penny Pilot Classes, and $0.65 for removing liquidity 
in non-Penny Pilot Classes.

Liquidity Fees and Credits for PIP Transactions

    The Exchange proposes that PIP Transactions in classes where the 
minimum price variation of $0.01 (i.e., Penny Pilot classes there the 
trade price is less than $3.00 and all series in QQQ, SPY, and IWM) 
will be assessed a fee for adding liquidity or provided a credit for 
removing liquidity of $0.30, regardless of account type. PIP Orders 
(i.e., the agency orders opposite the Primary Improvement Order) shall 
receive the ``removal'' credit. Improvement Orders will be charged the 
``add'' fee.
    Further, the Exchange proposes a fee for adding liquidity or a 
credit for removing liquidity of $0.75, 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 Exchange proposes that this $0.75 liquidity fee and 
credit applicable to these PIP transactions be operative on a pilot 
basis until February 28, 2013.
    In connection with the pilot, the Exchange agrees to submit to the 
Commission on a quarterly basis during the pilot period certain monthly 
PIP transaction data in series traded in penny increments compared to 
series traded in nickel increments, subdivided by when BOX is at the 
NBBO and when BOX is not at the NBBO, including: (1) Volume by number 
of contracts traded; (2) number of contracts executed by the Initiating 
Participant as compared to others (``retention rate''); (3) percentage 
of contracts receiving price improvement when the Initiating 
Participant is the contra party and when others are the contra party; 
(4) average number of participants responding in the PIP; (5) average 
price improvement amount when the Initiating Participant is the contra 
party; (6) average price improvement amount when others are the contra 
party; and (7) percentage of contracts receiving price improvement 
greater than $0.01, $0.02 and $0.03 when the Initiating Participant is 
the contra party and when others are the contra party. Boston Options 
Exchange Group, LLC will provide this pilot data to the Commission for 
the time period from February 1, 2012, until the date BOX begins 
operations as a facility of the Exchange. The Exchange will provide the 
data to the Commission from the date BOX begins operations as a 
facility of the exchange through the period until February 1, 2013, and 
for any period thereafter as the Commission may request.

Liquidity Fees and Credits for Facilitation and Solicitation 
Transactions

    The Exchange proposes that Agency Orders submitted to the 
Facilitation and Solicitation mechanisms receive the ``removal'' credit 
and Responses

[[Page 29742]]

executed in these mechanisms be charged the ``add'' fee. The fee and 
credit for all account types for Facilitation or Solicitation 
transactions is proposed to be $0.30 for all options classes.

Transactions Exempt From Liquidity Fees and Credits

    Transactions which occur on the opening or re-opening of trading 
and Outbound Eligible Orders routed to an Away Exchange as defined in 
Exchange Rule 15000 Series are deemed to neither ``add'' nor ``remove'' 
liquidity, and as such will be subject only to the applicable exchange 
fees described in Section I of the Fee Schedule, and exempt from the 
Liquidity Fees and Credits.

Routing Fees

    The Exchange proposes to adopt a $0.50 per contract routing fee for 
Professional accounts.\7\ The Exchange proposes this routing fee, in 
part to offset the various costs BOX incurs in providing routing 
services. BOX uses third-party broker-dealers to route orders to other 
exchanges and incurs charges for each order routed to an away market. 
The Exchange proposes that BOX will route non-Professional, Public 
Customer Orders to an away exchange without imposing any fee, if more 
than 40% of the Participants' total non-Professional, Public Customer 
Orders sent to BOX each month execute on BOX. Executions on BOX would 
include orders executing on the BOX Book, or through any other BOX 
mechanism that may be available to execute Public Customer Orders 
(e.g., PIP, Solicitation or Facilitation Auction Mechanisms). If 60% or 
more of a Participants' total non-Professional, Public Customer Orders 
executed through BOX each month are routed to and executed at an away 
exchange, BOX will assess a $0.50 per contract routing fee to all of a 
Participants' Public Customer orders routed to an away exchange for 
execution for the month. BOX will calculate the percentage of contracts 
executed on BOX compared to the percentage routed and executed away at 
the end of each month. The routing fees proposed are identical to the 
routing fees currently in place on the Boston Options Exchange Group, 
LLC, an options trading facility of NASDAQ OMX BX, Inc.
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    \7\ By comparison, BOX does not route broker-dealer proprietary 
orders and thus does not assess them any routing fees.
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Technology Fees

    Points of Presence (``PoP'') are the sites where BOX Participants 
connect to the BOX market network for communication with BOX. Each PoP 
is operated by a third-party supplier under contract to BOX. The amount 
to be paid by each BOX Participant will vary based on the Participant's 
particular configuration, the determining factors being the number of 
physical connections a BOX Participant has and the bandwidth associated 
with each.
    ``Installation'' and ``Hosting'' costs are related to the physical 
installation of equipment (generally routers, though possibly other 
hardware) at the PoP site. BOX Participants will be required to pay the 
related fee only if they have physical installations at the BOX PoP and 
for which BOX incurs fees from its own service suppliers. ``Cross 
Connect'' fees are per physical connection and vary by size from the 
smallest (T-1) to the largest (CAT 6) that BOX may provide. The one 
time setup and ongoing monthly fees associated with Participant 
connection to BOX are set forth below. BOX Options Participants that 
waive-in as Options Participants will not be subject to the setup fees, 
and Participants that supply their own physical cross connections to 
BOX would not incur a fee. The Technology Fees proposed are identical 
to the technology fees currently in place on the Boston Options 
Exchange Group, LLC, an options trading facility of NASDAQ OMX BX, Inc.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
            Setup (one time charge for new BOX Participants)
------------------------------------------------------------------------
Installation....................................................    $350
Cross Connect per T-1...........................................     250
Cross Connect per T-3...........................................     350
Cross Connect per CAT 5, 5E, 6 \8\..............................     500
------------------------------------------------------------------------
                                 Monthly
------------------------------------------------------------------------
Hosting.........................................................     200
Cross Connect per T-1...........................................     100
Cross Connect per T-3...........................................     200
Cross Connect per CAT 5, 5E, 6..................................     250
------------------------------------------------------------------------

    Additionally, Back Office Trade Management Software (``TMS'') is 
optional software to which BOX Participants may subscribe in order to 
manage their BOX trades prior to their transmission by BOX to OCC. The 
Exchange proposes a monthly, per user fee as set forth in the table 
below, depending on the number of users per Participant:
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    \8\ CAT 5E and CAT 6 are not included in the current Fee 
Schedule of the Boston Options Exchange Group, LLC facility. The 
additions of these Cross Connect types to the tables for Setup and 
Monthly fees are to update the Exchange Fee Schedule to more 
accurately reflect the various types of Cross Connects that are 
available, including these newer and larger CAT 5E and CAT 6.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Users 1 to 5............................................            $300
Users 6 to 10...........................................             250
Users 11 and up.........................................             200
------------------------------------------------------------------------

Regulatory Fees

    The Exchange proposes an Options Regulatory Fee (``ORF'') of $0.003 
per contract to be assessed to each BOX Options Participant for all 
options transactions executed or cleared by the BOX Options Participant 
and cleared by The Options Clearing Corporation (OCC) in the customer 
range, regardless of the exchange on which the transaction occurs. The 
ORF is collected indirectly from BOX Options Participants. The OCC 
collects the ORF on behalf of BOX through each BOX Options 
Participant's clearing broker.
    Finally, the Exchange proposes that its Fee Schedule reflect a 
number of fees to be collected and retained by FINRA in connection with 
a BOX Options Participant's registration of persons associated with the 
Participant through FINRA's WebCRD system. The specific fees are set 
forth below and are identical to fees in place for Participants of the 
Boston Options Exchange Group, LLC options trading facility.
    (1) FINRA CRD Processing Fee: $85.00
    (2) FINRA Disclosure Processing Fee: $95.00
    (3) FINRA Annual System Processing Fee: $30.00
    (4) Fingerprinting Fees--vary depending on the submission:
    (a) First card submission: $27.50;
    (b) Second card submission: $13.00;
    (c) Third card submission: $27.50;
    (d) Processing fingerprint results where the member had prints 
processed through a self-regulatory organization other than FINRA: 
$13.00.
    As mentioned in note 5 above, the Exchange is not proposing any 
fees currently set forth in Section 5b (CMS Order Routing Service), 
Section 5d (fees assessed to third-party service providers for testing 
or support) or 6a (compliance examination assessment) of the Fee 
Schedule of the Boston Options Exchange Group, LLC as the fees will not 
be applicable to BOX or the Exchange.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\9\ in general, and Section 
6(b)(4) of the Act,\10\ in particular, in that it provides

[[Page 29743]]

for the equitable allocation of reasonable dues, fees, and other 
charges among BOX Options Participants and other persons using its 
facilities.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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Exchange Fees

    The Exchange believes the fees proposed for transactions on BOX are 
reasonable. BOX will operate within a highly competitive market in 
which market participants can readily direct order flow to any of eight 
other competing venues if they deem fees at a particular venue to be 
excessive. The proposed fee structure is intended to attract order flow 
to BOX by offering market participants incentives to submit their 
orders to BOX.
    The Exchange believes it is equitable and non-discriminatory to 
provide Initiating Participants a tiered fee structure related to its 
participation in BOX Auction Transactions. The proposed fee structure 
related to trading activity in BOX Auction Transactions is available to 
all BOX Options Participants 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 the BOX auction mechanisms 
to be reasonable. Participants will benefit from the opportunity to 
aggregate their trading in the BOX Facilitation and Solicitation 
Auction mechanisms with their PIP transactions to more easily 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, its auction 
mechanisms, to the benefit of all BOX market participants.
    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. This potentially increased volume also increases potential 
revenue to BOX, and would allow BOX and the Exchange to spread its 
administrative and infrastructure costs over a greater number of 
transactions, leading to lower costs per transaction. The decreased per 
transaction costs allows BOX to share its savings with its Participants 
in the form of lower tier rates. Furthermore, 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.
    With regard to exchange fees for transactions on the BOX Book, the 
Exchange believes it is equitable and not unfairly discriminatory for 
BOX Market Makers to have the opportunity to benefit from a potentially 
discounted fee less than that charged to broker-dealers. 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 10,000 contracts or more 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 results in increased volume on BOX. 
Such increased volume increases potential revenue to BOX, and would 
allow BOX and the Exchange to spread its administrative and 
infrastructure costs over a greater number of transactions, leading to 
lower costs per transaction. The decreased per transaction costs allows 
BOX to share its savings with its Participants in the form of lower 
tier rates.
    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 equitable because 
they are open to all Market Makers on an equal basis and provide 
discounts that are reasonably related to the value to 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 appropriate 
that Market Makers be charged potentially lower transaction fees on BOX 
when they provide greater volumes of liquidity to the market.
    The Exchange also believes it is equitable and not unfairly 
discriminatory that Public Customers be charged lower fees in non-
Auction Transactions than Professionals and broker-dealers 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 customer benefit. As such, the Exchange 
believes the proposed fees for Public Customer transactions are 
appropriate and not unfairly discriminatory. The Exchange believes 
comparably lower customer transaction fees are reasonable. The Exchange 
believes it promotes the best interests of investors to have lower 
transaction costs for Public Customers, and that the proposed reduction 
in fees will attract Public Customer order flow to BOX. The Exchange 
believes the proposed fees charged to broker-dealers, and market makers 
are reasonable because they are designed to be comparable to the fees 
that such accounts would be charged at competing venues.
    Further, the Exchange believes the proposed $0.20 fee per executed 
contract for Professional accounts in non-Auction Transactions to be 
equitable, reasonable, and not unfairly discriminatory. BOX does not 
assess ongoing systems access fees, ongoing fess 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). 
This level of trading activity draws on a greater amount of BOX system 
resources than that of non-Professional Public Customers. 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. This level of trading activity by 
Professional accounts results in greater ongoing operational costs to 
BOX. As such, BOX aims to recover its costs by assessing Professional 
accounts a market competitive fee for non-Auction Transactions. 
Generally, competing options exchanges assess Professionals fees at 
rates more comparable to fees charged to broker-dealers. 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 Professional accounts are fair and 
reasonable. While comparably higher transaction fees than those 
assessed to Public Customers, BOX is assessing Professional accounts 
transaction fees at a rate ($0.20) lower

[[Page 29744]]

than that charged to broker-dealer proprietary trading firms.
    Moreover, the Exchange believes the transaction fees proposed for 
broker-dealers in non-Auction Transactions are reasonable. As stated 
above, BOX operates within a highly competitive business. The proposed 
fees charged to broker-dealers are designed to be comparable to the 
fees that such accounts would be charged at competing venues. Further, 
and as stated above, the Exchange believes that participants that add 
liquidity on BOX will not be impaired by the level of fees on broker-
dealer proprietary accounts proposed. 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 BOX.
    The Exchange believes it is equitable and not unfairly 
discriminatory to charge broker-dealer proprietary accounts comparably 
higher fees than BOX Market Makers. 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 lower 
transaction fees on BOX. The Exchange also believes it is equitable and 
not unfairly discriminatory that customers, including Professionals, be 
charged lower transaction fees than broker-dealers 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 customer benefit. As such, the Exchange 
believes the proposed fees for broker-dealers, as compared to 
customers, is appropriate and not unfairly discriminatory.
    Regarding the surcharge for transactions in NDX and MNX, due to a 
licensing agreement with The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') to 
use various indices and trademarks in connection with the listing and 
trading of index options on NDX and MNX, BOX will pay a per contract 
license fee of $0.22 to NASDAQ OMX for NDX and MNX options contracts 
traded on BOX. The Exchange proposes this surcharge fee for 
transactions in NDX and MNX options to offset the costs incurred by BOX 
for each transaction in these options. The Exchange believes that 
passing this cost through to BOX Options Participants that trade these 
instruments is the most equitable means of recovering the costs of the 
license.
    The Exchange's proposal to assess broker-dealers and Market Makers 
a $.22 per contract surcharge for transactions in MNX and NDX, as 
compared to no surcharge being assessed to customers, is equitable and 
not unfairly discriminatory because the Exchange believes that a lower 
customer fee benefits all market participants by incentivizing market 
participants to transact a greater number of customer orders, which 
results in increased liquidity.
    The Exchange believes that the proposed Exchange Fees will keep BOX 
competitive with other exchanges as well as 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.

Liquidity Fees and Credits

    The Exchange believes that it is reasonable and equitable to 
provide a credit to any Participant that removes liquidity from BOX. 
The Exchange further believes these credits will attract order flow to 
BOX, resulting in greater liquidity to the benefit of all market 
participants. The Exchange believes that the proposed fees for adding 
liquidity and credits for removing liquidity are equitable and not 
unfairly discriminatory because such fees and credits apply uniformly 
to all categories of participants, across all account types. As stated 
above, 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 fees at a particular venue to be 
excessive. The proposed fees and credits are intended to attract order 
flow to BOX by offering incentives to all market participants to submit 
their orders to BOX.
    The Exchange believes it is equitable and non-discriminatory to 
assess the proposed fees for the BOX Solicitation and Facilitation 
Auction mechanisms because the proposed fee for adding liquidity and 
credit for removing liquidity will apply uniformly to all categories of 
participants, across all account types. The Exchange also believes the 
proposed fees and credits for the BOX auction mechanisms to be 
reasonable. The fee structure proposed for these auction mechanisms, in 
particular, the proposed credit for removing liquidity, aims to attract 
order flow to these BOX auction mechanisms, providing greater potential 
liquidity within the overall BOX market to the benefit of all BOX 
market participants.
    The Exchange notes that the proposed fees and credits for 
transactions on BOX offset one another in any particular transaction. 
The result is that BOX will collect a fee from Participants that add 
liquidity on BOX and credit another Participant an equal amount for 
removing liquidity. Stated otherwise, the collection of these liquidity 
fees will not directly result in revenue to BOX, but will simply allow 
BOX to provide the credit incentive to Participants to attract order 
flow. The Exchange believes it is appropriate to provide incentives to 
market participants to direct order flow to remove liquidity from BOX, 
similar to various and widely-used, exchange sponsored payment for 
order flow programs. Further, the Exchange believes that fees for 
adding liquidity on BOX will not deter Participants from seeking to add 
liquidity to the BOX market so that they may interact with those 
participants seeking to remove liquidity.
    The Exchange believes it is reasonable to assess the proposed 
liquidity fees and credits at lower rates ($0.22 and $0.30) in series 
that trade in $0.01 increments compared to higher rates ($0.65 and 
$0.75) in series that trade in increments of $0.05 or more. The 
Exchange believes that options that trade at these wider spreads of 
$0.05 or more merit offering greater inducement for market 
participants. In particular, within the PIP, minimum increments of $.05 
or $.10 provide greater opportunity for market participants to offer 
price improvement. As such, BOX believes that the opportunity for 
additional price improvement provided by these wider spreads, again 
merits offering greater incentive for Participants to increase the 
potential price improvement for customer orders in these PIP 
transactions.

Routing Fees

    BOX believes that the proposed routing fee structure for routing 
customer orders to other market venues is reasonable because the fee 
will allow BOX to recoup its transaction costs attendant with offering 
routing services that are optional for Participants. BOX uses third-
party broker-dealers to route orders to other exchanges and incurs 
charges for each order routed to and executed at an away market, in 
addition to the transaction fees charged by other exchanges. In order 
to better recover those related costs and to potentially generate 
additional revenue, the Exchange proposes a routing fee structure 
associated with providing this

[[Page 29745]]

optional service. The Exchange is proposing a routing fee structure to 
continue to provide routing services for non-Professional, Public 
Customer Order at no charge if the Participants trade on BOX 40% of 
their non-Professional Public Customer volume traded through BOX each 
month.
    Additionally, the Exchange believes that the proposed fee for 
routing Professional customer orders to various markets is reasonable, 
equitable, and not unfairly discriminatory in that the fee will further 
allow BOX to recoup its costs attendant with offering optional routing 
services. BOX does not route broker-dealer proprietary orders, and 
therefore, does not assess routing fees on such orders. BOX 
Participants can manage their own routing to different options 
exchanges or can utilize a myriad of other routing solutions that are 
available to market participants. Further, the characteristics of 
Professional accounts tend to be more similar to broker-dealers than to 
non-Professional Public Customers. As such, BOX believes Professionals 
are more likely to be able to route their orders to the exchange venues 
where they wish to trade. By assessing a fee for routing certain 
orders, BOX aims to recover its costs in providing this optional 
service. The Exchange believes that providing non-Professional, Public 
Customers a preferred rate for routing is consistent with the long 
history in the options markets of such customers being given preferred 
fees. The Exchange believes the proposed routing fee structure is 
equitable and not unfairly discriminatory because the incentive to 
trade on BOX it is available to all Participants on an equal basis.
    The Exchange believes it is reasonable, equitable, and not unfairly 
discriminatory to assess Participants a fee for routing non-
Professional, Public Customer Orders to away exchanges, if those 
Participants are submitting such orders to BOX so as to evade other 
exchanges' fees and take advantage of BOX routing services. Based on 
market data related to activity on the Boston Options Exchange Group, 
LLC, an options trading facility of NASDAQ OMX BX, Inc., BOX believes 
that it is reasonable to charge Participants a fee if they 
intentionally submit orders to BOX when limited liquidity is on BOX at 
the NBBO. This limited liquidity may not be enough to fill the orders 
submitted, and thus, BOX is required, in accordance with its 
obligations to customer orders under the national market system plan 
for Options Order Protection and Locked/Crossed Markets, to route such 
orders to a market that is displaying liquidity at the NBBO. The market 
data indicates that the Boston Options Exchange, LLC facility generally 
routes significantly less than 60% of a Participant's non-Professional, 
Public Customer Orders to an away exchange for execution. As such, the 
Exchange believes that this proposed routing fee will only impact 
Participants submitting orders to BOX intending to evade other 
exchanges' fees and take advantage of BOX routing services.
    The Exchange believes the proposed routing fee structure is 
equitable and not unfairly discriminatory because the incentive to 
trade on BOX is available to all Participants on an equal basis. The 
Exchange believes it is reasonable and equitable to provide 
Participants (A) an incentive to trade on BOX, and (B) the ability to 
route customer orders at no cost, because transactions executed on BOX 
increase BOX market activity and market quality. Greater liquidity and 
additional volume executed on BOX aids the price and volume discovery 
process. Participant trading on BOX also results in revenue that BOX is 
able to use to provide routing services at no cost to Participants. 
Accordingly, the Exchange believes that the proposal is not unfairly 
discriminatory because it promotes enhancing BOX market quality. The 
routing fees proposed are intended to provide an incentive to BOX 
Participants to submit orders for execution on BOX and not engage in 
abusive and predatory practices to evade fees on other exchanges.
    BOX therefore believes that assessing the fee only to those 
Participants that have 60% or more of their total non-Professional, 
Public Customer Orders routed to an away exchange for execution is 
reasonable, and an equitable allocation of its fees for providing 
routing services. The Exchange believes that permitting a Participant 
to have up to 60% of such orders routed to an away exchange for 
execution without being assessed any routing fee is reasonable and 
appropriate.

Technology Fees

    The Exchange believes that the proposed Technology Fees constitute 
an equitable allocation of fees, and not unfairly discriminatory, as 
all similarly situated Options Participants and other market 
participants would be charged the same amounts for the same services. 
Additionally, access to the BOX market will be offered on fair and non-
discriminatory terms. The proposed Technology Fees are expected to 
offset the costs BOX and the Exchange incur in maintaining, and 
implementing ongoing improvements to BOX, including increasing 
connectivity costs, costs based on gateway software and hardware 
enhancements and resources dedicated to gateway development, quality 
assurance, and technology support. The Exchange believes that its 
proposed fees are reasonable in that they are competitive with those 
charged by other venues.

Regulatory Fees

    The Exchange believes the proposed ORF is reasonable because it is 
lower than many competitor exchanges. The ORF will help the Exchange 
offset regulatory expenses. The Exchange believes that the ORF is 
equitable and not unfairly discriminatory because it is objectively 
allocated to BOX Options Participants in that it would continue to be 
charged to all Participants on all of their transactions that clear as 
customer at OCC. The Exchange believes that the amount of resources 
required to regulate non-customer trading activity will be 
significantly less than the amount of resources the Exchange must 
dedicate to regulate customer trading activity. Regulating customer 
trading activity is more labor intensive and requires greater 
expenditure of human and technical resources than regulating non-
customer trading activity. Surveillance and regulation of non-customer 
trading activity tends to be more automated and less labor-intensive. 
As a result, the costs associated with administering the customer 
component of the Exchange's overall regulatory program are anticipated 
to be higher than the costs associated with administering the non-
customer component of its regulatory program. As such, the Exchange 
proposes assessing higher fees to those firms that will require more 
Exchange regulatory services based on the amount of customer options 
business they conduct.
    As previously stated, the OCC collects the ORF on behalf of BOX 
through each BOX Options Participant's clearing broker. In addition, 
the ORF seeks to recover the costs of supervising and regulating 
Participants, including performing routine surveillances, and policy, 
rulemaking, interpretive, and enforcement activities. The Exchange will 
continue to monitor the amount of revenue collected from the ORF to 
ensure that it, in combination with its other regulatory fees and 
fines, do not exceed regulatory costs. If the Exchange determines 
regulatory revenues exceed regulatory costs, the Exchange will adjust 
the ORF by submitting a fee change filing to the Commission.
    Finally, the Exchange believes it is reasonable, equitable and not 
unfairly discriminatory for the FINRA fees to be included on the 
Exchange Fee Schedule

[[Page 29746]]

because these fees are not being assessed or set by BOX or the 
Exchange, but by FINRA, and will be assessed to broker-dealers that 
register associated persons through FINRA's WebCRD system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe 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 \11\ and Rule 19b-4(f)(2) 
thereunder,\12\ because it establishes or changes a due, fee, or other 
charge applicable only to a member.
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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 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-2012-002 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-2012-002. 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 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-2012-002 and should be 
submitted on or before June 8, 2012.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12032 Filed 5-17-12; 8:45 am]
BILLING CODE 8011-01-P