Document ID: SEC-2013-0955-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange LLC
Posted Date: 2013-05-22T04:00Z

[Federal Register Volume 78, Number 99 (Wednesday, May 22, 2013)]
[Notices]
[Pages 30367-30371]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12168]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69598; File No. SR-BOX-2013-26]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change, as 
Modified by Amendment No. 1, To Amend the Fee Schedule To Establish 
Fees for Jumbo SPY Option Transactions

May 16, 2013.
    Pursuant to Section 19(b)(1) under the Securities Exchange Act of 
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on May 8, 2013, BOX Options Exchange LLC (the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. On May 10, 2013, the 
Exchange submitted Amendment No. 1 to the proposed rule change. 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, as amended, 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

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to amend the Fee Schedule to 
establish fees for Jumbo SPY Option transactions on the BOX Market LLC 
(``BOX'') options facility. While changes to the fee schedule pursuant 
to this proposal will be effective upon filing, the changes will become 
operative on May 10, 2013. The text of the proposed rule change is 
available from the principal office of the Exchange, at the 
Commission's Public Reference Room and also on the Exchange's Internet 
Web site at http://boxexchange.com.

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

    In its filing with the Commission, the Exchange included statements

[[Page 30368]]

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

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

1. Purpose
    The Exchange received approval to list and trade option contracts 
overlying 1,000 shares of the SPDR[supreg] S&P[supreg] 500 Exchange-
Traded Fund \5\ (``Jumbo SPY Options'').\6\ Except for the difference 
in the number of deliverable shares, Jumbo SPY Options have the same 
terms and contract characteristics as regular-sized options contracts 
(``standard options''), including exercise style.
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    \5\ ``SPDR[supreg],'' ``Standard & Poor's[supreg],'' 
``S&P[supreg],'' ``S&P 500[supreg],'' and ``Standard & Poor's 500'' 
are registered trademarks of Standard & Poor's Financial Services 
LLC. The SPY ETF represents ownership in the SPDR S&P 500 Trust, a 
unit investment trust that generally corresponds to the price and 
yield performance of the SPDR S&P 500 Index.
    \6\ See Securities Exchange Act Release No. 69511 (May 03, 2013) 
(Order Approving SR-BOX-2013-06).
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    The Exchange notes that in the approval order the Commission stated 
it believed ``the listing and trading of Jumbo SPY Options could 
benefit investors by providing them with an additional investment 
alternative.'' The Commission also stated ``that the listing and 
trading of Jumbo SPY Options could benefit investors by providing 
another means to mitigate risk in managing large portfolios, 
particularly for institutional investors.'' \7\
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    \7\ Id.
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    The Exchange will list Jumbo SPY Options beginning May 10, 2013. 
The purpose of this filing is to establish transaction fees for trading 
in Jumbo SPY Options. In considering the appropriate and equitable 
amount for these transaction fees, the Exchange considered that it 
would like to promote trading in this new product by keeping the Jumbo 
SPY Options fees low and easy for investors to understand. The Exchange 
believes that the proposed transaction fees strikes the appropriate 
balance between establishing reasonable fees and the Exchange's goal of 
introducing a new product to the marketplace that is competitively 
priced.
    The following is a discussion of the existing Fee Schedule as it 
relates to the treatment of Jumbo SPY Options as compared to standard 
option contracts.
Section I. Exchange Fees
    The Exchange proposes to create a new category of Section I 
(Exchange Fees) for Jumbo SPY Option transactions. Currently the 
Exchange assesses exchange fees based on the transaction type and 
account type. Specifically, the Exchange has distinct 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 Customer, 
Broker-Dealer, and Market Maker (see BOX Rule 100 Series for 
definitions of each).
    The Exchange proposes to create a new category of Exchange Fees for 
all Jumbo SPY Option transactions, regardless of whether the 
transaction is through an Auction or executed on the BOX Book 
(therefore a Non-Auction Transaction). Specifically the Exchange 
proposes to assess a $0.00 per contract fee for Public Customers and a 
$0.25 per contract fee for Professional Customers and Broker-Dealers. 
For Market Makers the Exchange proposes to assess either a $0.25 per 
contract fee or a tiered per contract execution fee based upon the 
Participant's monthly average daily volume (``ADV'') detailed in 
Section I.B of the Fee Schedule, whichever one is lower. For example, 
under Section I.B of the Fee Schedule a Market Maker with a monthly ADV 
of 6,000 contracts would be charged a per contract fee of $0.30. This 
amount is higher than $0.25 so the Market Maker would only be charged 
$0.25 per contract in Jumbo SPY Option transactions. However, if the 
Market Maker had a monthly ADV of 60,000 contracts, the per contract 
fee would be lowered to $0.18. This fee is lower than $0.25 so the 
Market Maker would be charged $0.18 per contract in any Jumbo SPY 
Option transactions.
    For Exchange Fees that are based upon a Participant's monthly 
average daily volume (``ADV'') as outlined in Sections I.A. and I.B., 
the Exchange proposes to count all Jumbo SPY Option transactions the 
same as standard option transactions. The Exchange currently gives 
volume incentives for Initiating Participants based on their ADV in 
Auction Transactions, and for Market Makers based on their ADV in all 
transactions executed on BOX. For example, a Broker-Dealer initiating a 
Jumbo SPY Option Primary Improvement Order would be charged according 
to the proposed Jumbo SPY Option transaction sub-section outlined 
above, or $0.25. However, this transaction would count toward that 
Broker-Dealer's ADV in Auction Transactions under Section I.A.
Section II. Liquidity Fees and Credits
    The Exchange currently assesses liquidity fees and credits for all 
options classes traded on BOX (unless explicitly stated otherwise) that 
are applied in addition to any applicable Exchange Fees described 
above. The Exchange proposes to amend Section II.D (Exempt 
Transactions) to state that transactions in Jumbo SPY Options will also 
be considered exempt from all liquidity fees and credits.
Section III. Complex Order Transaction Fees
    The Exchange currently assesses fees and rebates for all Complex 
Order executions. The Exchange proposes to assess all Complex Order 
executions involving Jumbo SPY Options the standard Complex Order 
transaction fee under this section.
Section III. [sic] Eligible Orders Routed to an Away Exchange
    The Exchange is not proposing to adopt a routing fee for Jumbo SPY 
Options because Jumbo SPY Options are not currently traded on any other 
options exchange.
Section IV. [sic] Regulatory Fees
    Presently the Exchange charges an Options Regulatory Fee (``ORF'') 
of $0.0030 per contract. The Options Regulatory Fee is assessed on each 
BOX Options Participant for all options transactions executed or 
cleared by the BOX Options Participant that are cleared by The Options 
Clearing Corporation (OCC) in the customer range regardless of the 
exchange on which the transaction occurs. The Exchange is proposing to 
charge the same rate for transactions in Jumbo SPY Options, since the 
costs to the Exchange to process quotes, orders, trades and the 
necessary regulatory surveillance programs and procedures in Jumbo SPY 
Options are the same as for standard contracts. As such, the Exchange 
feels that it is appropriate to charge the ORF at the same rate as the 
standard contract.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\8\ in general, and Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ in particular, in that

[[Page 30369]]

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).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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Exchange Fees
    In setting the proposed fees for Jumbo SPY Option transactions, the 
Exchange considered that it would like to promote trading in this new 
product by keeping the Jumbo SPY Option transaction fees low and easy 
for investors to understand. The Exchange believes that these fees 
strike the appropriate balance between establishing new fees and the 
Exchange's goal of introducing new products to the marketplace that are 
competitively priced.
    First, the Exchange believes the proposed fees are reasonable and 
equitable because they provide comparable pricing to the transaction 
fees currently assessed by the Exchange. The Exchange also believes it 
is equitable and not unfairly discriminatory that Public Customers be 
charged $0.00 for transactions in Jumbo SPY Options. Public Customers 
are currently not charged PIP Order and Agency Order transactions, and 
establishing the same fee will help promote Public Customer order flow 
in Jumbo SPY Options. 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 fee for Public 
Customer transactions in Jumbo SPY Options is appropriate and not 
unfairly discriminatory. The Exchange believes it promotes the best 
interests of investors to have lower transaction costs for Public 
Customers, and that the proposed Jumbo SPY fees will attract Public 
Customer order flow to BOX.
    Moreover, the Exchange believes that assessing a $0.25 fee for 
Jumbo SPY Option transactions by Professionals, Broker-Dealers, and in 
certain cases Market Makers, is reasonable because it will help promote 
trading in this new product. These Participants are currently charged 
higher fees for their Auction and Non-Auction Transactions, and 
assessing a lower fee than would otherwise be applicable will help 
generate trading in Jumbo SPY Options. The Exchange also believes that 
this fee is equitable and not unfairly discriminatory because these 
types of Participants are more sophisticated and have higher levels of 
order flow activity and system usage. This level of trading activity 
draws on a greater amount of BOX system resources than that of Public 
Customers, and thus, greater ongoing BOX operational costs. As such, 
rather than passing the costs of these higher order volumes along to 
all market participants, the Exchange believes it is more reasonable 
and equitable to assess those costs to the persons directly 
responsible. To that end, BOX aims to recover costs incurred by 
assessing Professionals, Broker-Dealers and Market Makers a higher fee 
for Jumbo SPY Option transactions than the fee proposed for Public 
Customers. Further, the Exchange believes that charging Professionals, 
Broker-Dealers and in certain cases Market Makers the same fee for all 
transactions in Jumbo SPY Options is not unfairly discriminatory as the 
fees will apply to these Participants equally. Additionally, 
Professionals and Broker-Dealers remain free to change the manner in 
which they access BOX.
    Further, with regard to Jumbo SPY Option transaction fees, 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 than that charged to Broker-Dealers and Professional 
Customers. Market Makers also have additional obligations that are not 
applicable to Professional Customers and Broker-Dealers. 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 Jumbo SPY Option transaction fees on BOX than 
the fees charged to Broker-Dealers and Professional Customers.
    The Exchange believes that the proposed tiered and potentially 
discounted Jumbo SPY Options fees for Market Makers that, on a daily 
basis, trade an average daily volume (as calculated at the end of the 
month) of more than 50,000 contracts on BOX represent a fair and 
equitable allocation of reasonable dues, fees, and other charges as 
they are aimed at incentivizing these Participants to provide a greater 
volume of liquidity. Specifically, Market Makers can provide higher 
volumes of liquidity and possibly lowering their Jumbo SPY Option fees 
may help attract a higher level of Market Maker order flow to BOX and 
create liquidity, which the Exchange believes will ultimately benefit 
all Participants trading on BOX. As such, the Exchange believes it is 
appropriate that Market Makers may potentially be charged lower Jumbo 
SPY Option transaction fees.
    The Exchange believes that the proposed Market Maker tiered 
execution fee for Jumbo SPY Options contracts is equitable because it 
is available to all Market Makers on an equal basis and provides 
discounts that are reasonably related to the size of the contract and 
the value to an exchange's market quality associated with higher levels 
of market activity. For the reasons listed above, the Exchange believes 
it is appropriate that Market Makers be charged potentially lower 
transaction fees for Jumbo SPY Options on BOX when they provide greater 
volumes of liquidity to the market.
    The Exchange also believes it is reasonable, equitable and not 
unfairly discriminatory to combine the volume in standard options 
contracts and Jumbo SPY Options to calculate an Initiating Participant 
or Market Maker's ADV under Sections I.A. and I.B., because doing so 
will provide these Participants with an opportunity to qualify for 
lower transaction fees, therefore, incentivizing them to trade more 
order flow on the Exchange. Specifically, the Exchange believes that 
providing a volume discount to Options Participants that initiate 
auctions on Customer orders incentivizes these Participants to submit 
their customer orders to BOX, particularly into the PIP for potential 
price improvement. Even though they are treated differently in regards 
to the transaction fee assessed, Jumbo SPY Option Auction transactions 
are still Auction Transactions and Initiating Participants should 
receive the benefit of aggregating all their Auction transactions to 
more easily attain a discounted fee tier. The Exchange also believes it 
is reasonable, equitable and not unfairly discriminatory to combine 
volume in standard options and Jumbo SPY Options to calculate the tier 
a Market Maker has reached because doing so will provide the Market 
Maker with an opportunity to qualify for increased rebates and, 
therefore, incentivize Participants to trade more of such order flow on 
the Exchange.
    The Exchange believes that the proposed Jumbo SPY Option Exchange 
Fees will be applied in such a manner so as to be equitable among all 
BOX Participants. The Exchange believes the proposed fees are fair and 
reasonable.
Complex Order Transaction Fees
    The Exchange proposes to assess Complex Orders involving Jumbo SPY 
Options the standard fees and credits outlined in Section III (Complex 
Order Transaction Fees). The Exchange believes the proposed Complex 
Order Fees applicable to Jumbo SPY Options are reasonable, equitable 
and non-

[[Page 30370]]

discriminatory because they further the Exchange's goal of promoting 
trading in this new product. The Exchange's Complex Order Book was 
launched on May 3, 2013 and the Exchange believes that adjusting the 
Complex Order fees for Jumbo SPY Option would unnecessarily confuse 
investors. Further, the Exchange believes that this proposal is not 
unfairly discriminatory as the assessment of standard Complex Order 
fees on Complex Order involving Jumbo SPY will apply equally to all 
Participants on the Exchange.
Liquidity Fees and Credits
    BOX believes that it is reasonable, equitable and not unfairly 
discriminatory to exempt Jumbo SPY Option transactions from Liquidity 
Fees and Credits. Liquidity fees and credits are intended to attract 
order flow to BOX by offering incentives to all market participants to 
submit their orders to BOX. While the Exchange believes that listing 
Jumbo SPY Options will benefit investors by providing additional 
methods to trade highly liquid SPY options and mitigate the risks 
inherent in managing large portfolios, due to the unique and novel 
nature of Jumbo SPY Options the Exchange believes it is reasonable to 
not provide additional incentives to market participants to submit 
orders in this product.
    Further, since SPY options are currently the most actively traded 
option class in terms of average daily volume (``ADV''),\10\ the 
Exchange does not believe that an added incentive to increase volume in 
these issues is needed. In standard contract transactions BOX collects 
a fee from Participants that add liquidity on BOX and credits another 
Participant an equal amount for removing liquidity. Stated otherwise, 
the collection of these liquidity fees does not directly result in 
revenue to BOX, but simply allows BOX to provide the credit incentive 
to Participants to attract order flow. The Exchange believes that it is 
reasonable and equitable to exempt Jumbo SPY Options from liquidity 
fees and credits since these fees and credits for transactions offset 
one another in any particular transaction.
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    \10\ SPY ADV was 2,156,482 contracts in April 2012. ADV for the 
same period for the next four most actively traded options was: 
Apple Inc. (option symbol AAPL)--1,074,351; S&P 500 Index (option 
symbol SPX)--656,250; PowerShares QQQ Trust\SM\, Series 1 (option 
symbol QQQ)--573,790; and iShares[supreg] Russell 2000[supreg] Index 
Fund (option symbol IWM)--550,316. The Exchange notes that any 
expansion of the program would require that a subsequent proposed 
rule change be submitted to the Commission.
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    Further, the Exchange believes that this proposal is not unfairly 
discriminatory as the exemption of Jumbo SPY Options from liquidity 
fees and credits applies equally to all Participants and across all 
account types on the Exchange.
Routing Fees
    The Exchange is not proposing to adopt a routing fee for Jumbo SPY 
Options because Jumbo SPY Options are not currently traded on any other 
options exchange.
Regulatory Fees
    Finally, as discussed above, the Exchange believes that charging 
the same ORF for transactions in Jumbo SPY Options is reasonable, 
equitable and not unfairly discriminatory since the costs to the 
Exchange to process quotes, orders, trades and maintain the necessary 
regulatory surveillance programs and procedures in Jumbo SPY Options 
are the same as for standard options. The ORF is in place to help the 
Exchange offset regulatory expenses and the Exchange's cost of 
supervising and regulating Participants, including performing routine 
surveillances, and policy, rulemaking, interpretive, and enforcement 
activities remains the same for Jumbo SPY Options.

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 by 
offering Jumbo SPY Options it will encourage order flow to be directed 
to the Exchange, which will benefit all market participants by 
increasing liquidity on the Exchange. Specifically, the Exchange 
believes that adopting fees for Jumbo SPY Options that are low and easy 
for investors to understand will incentivize market participants to 
trade this new product and will not impose a burden on competition 
among various market participants on the Exchange but rather will 
continue to promote competition on the Exchange.
    The Exchange believes that the adopting of the proposed fees for 
Jumbo SPY Options will not impose any unnecessary burden on intermarket 
competition because even though Jumbo SPY Options will be listed solely 
on the Exchange, the Exchange operates in a highly competitive market 
compromised of eleven exchanges, any of which may determine to trade a 
similar product. Also, Jumbo SPY Options should result in increased 
options volume and greater trading opportunities for all market 
participants.
    The Exchange also believes that adopting fees on Jumbo SPY Options 
will not impose a burden on competition among various market 
participants on the Exchange. BOX currently assesses distinct standard 
contract Exchange fees for different account and transaction types. The 
Exchange believes that applying a similarly segmented fee structure to 
Jumbo SPY Options will result in these participants being charged 
proportionally for their transactions in Jumbo SPY Options.
    Accordingly, the fees that are assessed by the Exchange described 
in the above proposal are influenced by these robust market forces and 
therefore must remain competitive with fees charged by other venues for 
other products, and therefore must continue to be reasonable and 
equitably allocated.

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 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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

[[Page 30371]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BOX-2013-26 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-2013-26. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BOX-2013-26 and should be 
submitted on or before June 12, 2013.

    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. 2013-12168 Filed 5-21-13; 8:45 am]
BILLING CODE 8011-01-P