Document ID: SEC-2020-1139-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2020-07-20T04:00Z

[Federal Register Volume 85, Number 139 (Monday, July 20, 2020)]
[Notices]
[Pages 43921-43923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15556]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89315; File No. SR-BOX-2020-27]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Sections 
I.C.2 (Strategy Order Facilitation and Solicitation Transactions) and 
II.D (Strategy QOO Order Fee Cap and Rebate) of the Fee Schedule on the 
BOX Options Market LLC Facility

July 14, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 1, 2020, BOX Exchange LLC (``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 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 I.C.2 (Strategy Order Facilitation and Solicitation 
Transactions) and Section II.D (Strategy QOO Order Fee Cap and Rebate) 
to adopt the ``long stock interest'' strategy type. As proposed, a 
``long stock interest strategy'' is defined as a transaction done to 
achieve long stock interest involving the purchase, sale, and exercise 
of in-the-money options of the same class. The Exchange currently has 
the following strategies defined in the BOX Fee Schedule: Short stock 
interest, merger, reversal, conversion, jelly roll, box spread and 
dividend strategies.\5\ The Exchange notes that the proposed long stock 
interest strategies are currently traded on the BOX Trading Floor; 
however because these strategies are not defined within the Fee 
Schedule, these transactions are assessed the applicable manual 
transaction fees and are not eligible for the Strategy QOO Order Fee 
Cap and Rebate. The Exchange believes that the proposed long stock 
interest strategy type belongs in the group of strategies offered fee 
caps and rebates on the Exchange, as it is similar in nature to the 
short stock interest strategy. In particular, a short stock interest 
strategy is a transaction done to achieve a short stock interest 
arbitrage involving the purchase, sale, and exercise of in-the-money 
options of the same class where a long stock interest strategy is a 
transaction done to achieve long stock interest involving the purchase, 
sale, and exercise of in-the-money options of the same class.\6\
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    \5\ A ``short stock interest strategy'' is defined as a 
transaction done to achieve a short stock interest arbitrage 
involving the purchase, sale, and exercise of in-the-money options 
of the same class. A ``merger strategy'' is defined as transactions 
done to achieve a merger arbitrage involving the purchase, sale and 
exercise of options of the same class and expiration date, each 
executed prior to the date on which shareholders of record are 
required to elect their respective form of consideration, i.e., cash 
or stock. 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. A ``dividend strategy'' is defined as a 
transaction done to achieve a dividend arbitrage involving the 
purchase, sale and exercise of in-the-money options of the same 
class, executed the first business day prior to the date on which 
the underlying stock goes ex-dividend.
    \6\ In essence, the long stock interest strategy is taking the 
inverse position of the short stock interest strategy by utilizing 
call options. Under certain circumstances, stocks can become 
difficult to borrow because of limited supply. Under these market 
conditions, the cost of borrowing shares in order to short the stock 
can be prohibitively expensive. Customers may implement a long stock 
interest strategy in order to take a long stock position and offset 
the high short borrow costs associated with hard to borrow stocks.
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    The Exchange now proposes to amend Section I.C.2 and Section II.D 
of the BOX Fee Schedule to include the long stock interest strategy 
type in the respective fee and rebate structures applicable to other 
strategy types offered on the Exchange. Specifically, the Exchange 
proposes to amend Section I.C.2 to state that fees for long stock 
interest Strategy Orders executed through the electronic Facilitation 
and Solicitation auction mechanisms will be subject to the table below:

[[Page 43922]]

----------------------------------------------------------------------------------------------------------------
                                              Agency order        Facilitation order or      Responses in the
                                       -------------------------    solicitation order        solicitation or
                                                                -------------------------  facilitation auction
                                                                                                mechanisms
             Account type                  Penny     Non-penny      Penny     Non-penny  -----------------------
                                         interval     interval    interval     interval      Penny     Non-penny
                                          classes     classes      classes     classes     interval    interval
                                                                                            classes     classes
----------------------------------------------------------------------------------------------------------------
Public Customer.......................       $0.00       $0.00        $0.00       $0.00        $0.25       $0.40
Professional Customer.................        0.10        0.10         0.10        0.10         0.25        0.40
Broker Dealer.........................        0.25        0.25         0.25        0.25         0.25        0.40
Market Maker..........................        0.25        0.25         0.25        0.25         0.25        0.40
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    Further, the Exchange proposes that fees for long stock interest 
strategy orders executed through the electronic Facilitation and 
Solicitation mechanisms be capped at $1,000 per day per customer along 
with other applicable strategy orders. The Exchange also proposes that 
on each trading day, Participants are eligible to receive a $500 rebate 
per customer for executing long stock interest Strategy Orders through 
the electronic Facilitation or Solicitation mechanisms. The rebate will 
be applied once the $1,000 fee cap per customer is met. The rebate will 
be paid to the Participant that entered the order into the BOX 
system.\7\
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    \7\ The Exchange notes that short stock interest, merger, 
reversal, conversion, jelly roll, and box spread strategies are all 
subject to the same fees, fee cap and rebate.
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    Under Section II.D, as proposed, the manual transaction fees for 
long stock interest strategies executed on the same trading day will be 
capped at $1,000 per day per customer along with other applicable 
strategy orders. Currently, on each trading day, Floor Brokers are 
eligible to receive a $500 rebate per customer for presenting certain 
Strategy QOO Orders on the BOX Trading Floor. The rebate will be 
applied once the $1,000 fee cap per customer for all dividend, short 
stock interest, merger, reversal, conversion, jelly roll, and box 
spread strategies is met. The Exchange proposes to now include long 
stock interest strategies to the above-mentioned rebate.
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. The Exchange notes that it operates in a highly competitive 
market in which the Exchange must continually reassess its fees in 
order to maintain its competitiveness within the options exchange 
industry. The proposed changes reflect a competitive pricing structure 
designed to incentivize market participants to direct their order flow 
to the Exchange.
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    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed addition of long stock 
interest strategies to Sections I.C.2 and II.D to the BOX Fee Schedule 
is reasonable, equitable and not unfairly discriminatory. As discussed 
herein, long stock interest strategies are currently traded on the BOX 
Trading Floor, however they are not defined in the BOX Fee Schedule and 
are thus charged the applicable manual transaction fees in Section 
II.A. and are not eligible for the applicable fee caps and rebates. The 
Exchange believes that the proposed addition of long stock interest 
strategies to Sections I.C.2 and II.D of the BOX Fee Schedule is 
reasonable and appropriate as the long stock interest strategy is 
similar in nature to the short stock interest strategy. Both strategy 
types are executed to achieve short stock interest (short stock 
interest strategy) or long stock interest (long stock interest 
strategy) involving the purchase, sale, and exercise of in-the-money 
options of the same class. As such, the Exchange further believes it is 
reasonable and appropriate to include the long stock interest strategy 
type with the other strategies that may benefit from the fee caps and 
rebates available in Sections I.C.2 and II.D of the BOX Fee Schedule.
    Further, the Exchange believes that including long stock interest 
strategies in Sections I.C.2 and Section II.D of the BOX Fee Schedule 
will incentivize Participants to submit increased order flow to the 
Exchange thus creating increased trading opportunities ultimately 
benefitting all market participants. The Exchange also believes that 
the proposed change is equitable and not unfairly discriminatory as all 
Participants, regardless of account type, may submit these types of 
strategies to the Exchange and may avail themselves of the proposed fee 
caps and rebates.
    Lastly, the Exchange represents that the purpose of the proposed 
rule change is to attract additional order flow to the Exchange. The 
Exchange believes that implementing the rebate and fee cap for long 
stock interest strategies--similar to the rebates and fee caps 
currently in place for short stock interest, merger, reversal, 
conversion, jelly roll, and box spread strategies--should increase 
order flow to the Exchange resulting in increased trading opportunities 
ultimately benefitting all market participants.

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 because the proposed change 
applies uniformly to all Participants that incur transaction fees for 
long stock interest strategies. Further, the Exchange notes that long 
stock interest strategies are currently traded on the BOX Trading Floor 
but are not eligible to receive the fee caps and rebates discussed 
herein. As such, the Exchange believes that including long stock 
interest strategies in Sections I.C.2 and II.D. of the BOX Fee Schedule 
will incentivize Participants to submit these strategy types to the 
Strategy Order Facilitation and Solicitation mechanisms or the BOX 
Trading Floor, which in turn, will bring increased liquidity and order 
flow to the Exchange for the benefit of all market participants.
    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 credits to remain competitive with other 
exchanges. For the reasons described above, the Exchange believes that 
the proposed rule change reflects this competitive environment.

[[Page 43923]]

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 \9\ and Rule 19b-4(f)(2) 
thereunder,\10\ because it establishes or changes a due, or fee.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 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-2020-27 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-2020-27. 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-2020-27, and should be submitted on 
or before August 10, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15556 Filed 7-17-20; 8:45 am]
BILLING CODE 8011-01-P