Document ID: SEC-2022-0681-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange, LLC
Posted Date: 2022-05-17T04:00Z

[Federal Register Volume 87, Number 95 (Tuesday, May 17, 2022)]
[Notices]
[Pages 29987-29992]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10520]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94894; File No. SR-BOX-2022-17]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee 
Schedule on the BOX Options Market LLC Facility To Adopt Electronic 
Market Maker Trading Permit Fees

May 11, 2022.
    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 April 27, 2022, 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

[[Page 29988]]

comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to amend the Fee Schedule to 
establish a new monthly Participant Fee on the BOX Options Market LLC 
(``BOX'') options 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 to establish a new 
monthly Participant Fee. Specifically, the Exchange proposes to adopt 
electronic Market Maker Trading Permit Fees as follows: (i) $4,000 per 
month for Market Maker Appointments in up to and including 10 classes; 
(ii) $6,000 per month for Market Maker Appointments in up to and 
including 40 classes; (iii) $8,000 per month for Market Maker 
Appointments in up to and including 100 classes; and (iv) $10,000 per 
month for Market Maker Appointments for over 100 classes. For the 
calculation of the monthly electronic Market Maker Trading Permit fees, 
the number of classes is defined as the greatest number of classes the 
Market Maker was appointed to quote in on any given day within the 
calendar month. The Exchange notes that the proposed electronic Market 
Maker Trading Permit fees are lower than fees assessed at competing 
options exchanges.\5\ The Exchange notes the current monthly 
Participant Fee of $1,500 per month will not apply to electronic Market 
Makers. Under this proposal, electronic Market Makers will pay the 
applicable monthly electronic Market Maker Trading Permit fee only. All 
other electronic Participants \6\ will continue to pay the monthly 
Participant Fee in Section I.B of the BOX Fee Schedule.
---------------------------------------------------------------------------

    \5\ See NYSE Arca, Inc. (``NYSEArca'') Fee Schedule (assessing 
Market Makers $6,000 for up to 175 option issues, an additional 
$5,000 for up to 350 option issues, an additional $4,000 for up to 
1,000 option issues, and an additional $3,000 for all option issues 
traded on the Exchange). The Exchange notes that these fees are 
compounded, so Market Makers who trade in all option issues on the 
exchange are assessed $18,000 per month. See also Miami 
International Securities Exchange, LLC (``MIAX'') Fee Schedule 
(assessing Market Makers $7,000 for up to 10 classes or up to 20% of 
classes by volume, $12,000 for up to 40 classes or up to 35% of 
classes by volume, $17,000 for up to 100 classes or up to 50% or 
classes by volume, and $22,000 for over 100 classes or over 50% of 
classes by volume up to all classes listed on MIAX).
    \6\ The Exchange notes the following Participant types on BOX: 
Public Customers, Professional Customers, Broker Dealers, and Market 
Makers. Pursuant to this proposal, Public Customers, Professional 
Customers, and Broker Dealers will continue to be charged the $1,500 
Participant Fee detailed in Section I.B of the BOX Fee Schedule.
---------------------------------------------------------------------------

    The Exchange initially filed the proposed fee change on January 3, 
2022 (SR-BOX-2022-01) (the ``Original Filing''). BOX withdrew the 
Original Filing and submitted SR-BOX-2022-04 (the ``Second Proposed 
Rule Change''). BOX withdrew the Second Proposed Rule Change and 
submitted the SR-BOX-2022-06 (the ``Third Proposed Rule Change''). On 
February 1, 2022, BOX withdrew the Third Proposed Rule Change and 
submitted SR-BOX-2022-07 (the ``Fourth Proposed Rule Change'') to lower 
the fees detailed in the past filings after industry feedback. On April 
5, 2022, BOX withdrew and submitted SR-BOX-2022-12 (the ``Fifth 
Proposed Rule Change''). On April 11, 2022, BOX withdrew and submitted 
SR-BOX-2022-15 (the ``Sixth Proposed Rule Change''). The Exchange is 
now withdrawing the Sixth Proposed Rule Change and submitting this 
filing (the ``Seventh Proposed Rule Change'').
    The Exchange notes that the proposed electronic Market Maker 
Trading Permit fees have been effective, and thus paid by BOX Market 
Makers, since January 1, 2022.\7\ The Exchange believes it is notable 
that during this time, there have been no comment letters submitted to 
the Commission arguing that the Exchange's new fees are unreasonable. 
The Exchange also believes it's significant and notable that, due to 
industry feedback received in January from BOX Market Makers, the 
Exchange withdrew its proposed fee change and refiled to decrease the 
proposed fees in response to the feedback.
---------------------------------------------------------------------------

    \7\ The Exchange notes that the higher fees from the Original 
Filing were assessed for the month of January 2022, however the 
proposed fees were assessed for February 2022 and will continue to 
be assessed.
---------------------------------------------------------------------------

    As discussed herein, the Exchange believes the proposed changes are 
consistent with the Act because they are reasonable, equitably 
allocated, and not unfairly discriminatory, and not an undue burden on 
competition, as they are supported by evidence (including data and 
analysis) and are constrained by significant competitive forces. The 
Exchange also believes the proposed fees are reasonable as they are in 
line with the amounts assessed to Market Makers by other exchanges for 
similar permits. Accordingly, the Exchange believes that the proposed 
fees are consistent with the Act. The proposed rule change is 
immediately effective upon filing with the Commission pursuant to 
Section 19(b)(3)(A) of the Act.
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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange established the $1,500 monthly Participant Fee in 
October 2016 for all Participants regardless of account type.\9\ At the 
time BOX established this Participant Fee, BOX's market share was 2.45% 
and the total volume of options contracts traded on BOX in September 
2016 was 8,737,707. The Exchange established this lower (when compared 
to other options exchanges in the industry) Participant Fee in order to 
encourage market participants to become Participants of BOX and 
register as BOX Market Makers. Since 2016, BOX has grown its market 
share and membership base significantly. Specifically, in September 
2021, BOX's market share was 5.19% and the total volume of option 
contracts traded on BOX in September 2021 was 42,098,287. BOX recently 
reviewed its current Participant Fees detailed in Section I of the BOX 
Fee Schedule. In its review, BOX determined that

[[Page 29989]]

Participant Fees would need to be raised, and a flat fee for all 
Participant types is no longer appropriate. Specifically, BOX found 
that electronic Market Makers had been benefitting from a flat 
Participant Fee rate while (1) consuming the most bandwidth and 
resources of the network; (2) transacting the vast majority of the 
volume on BOX; and (3) requiring the high touch network support 
services provided by BOX and its staff. The Exchange notes that Broker 
Dealers, Professional Customers, and Public Customers take up 
significantly less BOX resources and costs as discussed further below. 
Further, BOX notes that Market Makers account for greater than 99% of 
message traffic over the network, while other non-Market Maker market 
participants account for less than 1% of message traffic over the 
network. In BOX's experience, most BOX Participants do not have a 
business need for the high performance network solutions required by 
Market Makers. BOX's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 3 million 
quote messages per second. On an average day, the BOX Trading Host 
handles over 1.6 billion total messages. Of those 1.6 billion daily 
messages, BOX Market Makers generate 1.59 billion of those messages, 
while other BOX Participants generate 9.5 million messages. 
Additionally, in order to achieve consistent, premium network 
performance, BOX must build out and maintain a network that has the 
capacity to handle the message rate requirements beyond those 1.6 
billion daily messages. These billions of messages per day consume 
BOX's resources and significantly contribute to the overall expense for 
storage and network transport capabilities. Given this difference in 
network utilization rate, the Exchange believes that it is reasonable, 
equitable, and not unfairly discriminatory that Market Makers begin to 
pay for a higher portion of the access costs (compared to other BOX 
Participant types).
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 79038 (October 4, 
2016), 81 FR 70214 (October 11, 2016) (SR-BOX-2016-47).
---------------------------------------------------------------------------

    BOX notes that while Market Makers continue to account for a vast 
majority of the increased costs and resources placed on BOX and its 
systems (as discussed herein), Market Makers continue to be valuable 
market participants on the exchanges as the options market is a quote 
driven industry. BOX recognizes the value that Market Makers bring to 
the Exchange. In fact, BOX provides Market Makers volume-based 
discounts and rebates to incentivize Market Makers to direct order flow 
to the Exchange to obtain the benefit of the rebate, which will in turn 
benefit all market participants by increasing liquidity on the 
Exchange. Additionally, for certain transactions, BOX also assesses a 
lower fee for Market Makers compared to the fee for Broker Dealers or 
Professional Customers for the same reason.\10\ The proposed Trading 
Permit fees discussed herein are meant to strike a balance between 
offsetting the costs to which Market Makers place on BOX and continuing 
to incentivize Market Makers to access and make a market on BOX.
---------------------------------------------------------------------------

    \10\ For example, in Section IV.A (Non-Auction Transactions) of 
the BOX Fee Schedule, Market Makers are assessed a lower fee than 
Broker Dealers and Professional Customers when their orders interact 
with Public Customers, Professional Customers, Broker Dealers, and 
Market Makers. They are also eligible for rebates under the Tiered 
Volume Rebate for Non-Auction Transactions in Section IV.A.1 of the 
BOX Fee Schedule. Additionally, Market Makers are assessed lower 
fees on opening or re-opening transactions than Professional 
Customers and Broker Dealers under Section IV.A.2 of the BOX Fee 
Schedule.
---------------------------------------------------------------------------

    In its review of Participant Fees, BOX found that since 2016, 
Market Makers have had the luxury of paying the same Participant Fees 
as other account types despite Market Makers consuming the most 
resources on the BOX system and contributing to increased costs for 
BOX. As such, the Exchange proposes to establish higher, separate 
electronic Trading Permit fees for Market Makers that are more aligned 
with the costs and resources that Market Makers continue to place on 
BOX and its systems. Additionally, the Exchange believes that the 
proposed change will better align BOX Participant Fees with rates 
charged by competing options exchanges in the industry for similar 
Trading Permits for such market participants. As such, BOX believes the 
proposed electronic Market Maker Trading Permit fees are reasonable in 
that they are lower than comparable fees at other options 
exchanges.\11\ Further, the Exchange believes that the proposal is 
reasonably designed to continue to compete with other options exchanges 
by incentivizing market participants to register as Market Makers on 
BOX in a manner than enables BOX to improve its overall competitiveness 
and strengthen market quality for all market participants. As stated 
above, the Exchange believes the proposed Market Maker Trading Permit 
fees are an appropriate balance between offsetting the costs to which 
Market Makers cost BOX and continuing to incentivize Market Makers to 
access and make a market on BOX.
---------------------------------------------------------------------------

    \11\ See supra note 5.
---------------------------------------------------------------------------

    The proposed fees are equitable and not unfairly discriminatory as 
the fees apply equally to all electronic Market Makers. As such, all 
similarly situated electronic Market Makers, with the same number of 
appointments, will be subject to the same electronic Market Maker 
Trading Permit fee. The Exchange also believes that assessing lower 
fees to electronic Market Makers that quote in fewer classes is 
reasonable and appropriate as it will allow BOX to retain and attract 
smaller-scale electronic Market Makers, which are an integral component 
of the options industry marketplace. Since these smaller electronic 
Market Makers utilize less bandwidth and capacity on the BOX network 
due to the lower number of quoted classes, the Exchange believes it is 
reasonable and appropriate to offer such electronic Market Makers a 
lower fee. The Exchange also notes that other options exchanges assess 
permit fees at different rates, based upon a member's participation on 
that exchange,\12\ and, as such, this concept is not new or novel.
---------------------------------------------------------------------------

    \12\ See e.g., NYSE Arca Options Fees and Charges, p.1 
(assessing market makers $6,000 for up to 175 option issues, an 
additional $5,000 for up to 350 option issues, an additional $4,000 
for up to 1,000 option issues, an additional $3,000 for all option 
issues on the exchange, and an additional $1,000 for the fifth 
trading permit and for each trading permit thereafter); NYSE 
American Options Fee Schedule, p. 23 (assessing market makers $8,000 
for up to 60 plus the bottom 45% of option issues, an additional 
$6,000 for up to 150 plus the bottom 45% of option issues, an 
additional $5,000 for up to 500 plus the bottom 45% of option 
issues, and additional $4,000 for up to 1,100 plus the bottom 45% of 
option issues, an additional $3,000 for all issues traded on the 
exchange, and an additional $2,000 for 6th to 9th ATPs; plus an 
addition fee for premium products). See also Cboe BZX Options 
Exchange (``BZX Options'') assesses the Participant Fee, which is a 
membership fee, according to a member's ADV. See Cboe BZX Options 
Exchange Fee Schedule under ``Membership Fees''. The Participant Fee 
is $500 if the member ADV is less than 5000 contracts and $1,000 if 
the member ADV is equal to or greater than 5000 contracts.
---------------------------------------------------------------------------

    Further, the Exchange believes the proposed tiered structure of the 
electronic Market Maker Trading Permit fees is reasonable and 
appropriate. Under the proposal, electronic Market Makers will be 
charged monthly fees based on the greatest number of classes quoted on 
any given trading day in a calendar month. Under the proposed fee 
structure, the fees increase as the number of classes quoted by a 
Market Maker increases. The Exchange believes this structure is 
reasonable because the BOX system requires increased performance and 
capacity in order to provide the opportunity for Market Makers to quote 
in a higher number of options classes on BOX. Specifically, the more 
classes that are actively quoted

[[Page 29990]]

on BOX by a Market Maker requires increased memory for record 
retention, increased bandwidth for optimized performance, increased 
functionalities on each application layer, and increased optimization 
with regard to surveillance and monitoring of such classes quoted. As 
such, basing the Market Maker Trading Permit fee on the greatest number 
of classes quoted in on any given day in a calendar month is reasonable 
and appropriate when taking into account how the increased number of 
quoted classes directly impact the costs and resources required for 
BOX. Further, the Exchange believes that the proposed tiered structure 
is equitable and not unfairly discriminatory as all similarly situated 
Market Makers will be charged the same fee. The Exchange notes that 
another options exchange in the industry calculates Market Maker Permit 
Fees in the same manner.\13\
---------------------------------------------------------------------------

    \13\ See Nasdaq Phlx LLC (``Phlx'') Fee Schedule, Section 8(B) 
detailing the tiered structure for Streaming Quote Trader (``SQT'') 
Fees.
---------------------------------------------------------------------------

    The Exchange notes that there is no regulatory requirement that 
market makers connect and access any one options exchange. Moreover, a 
Market Maker membership is not a requirement to participate on the 
Exchange and participation on an exchange is completely voluntary. BOX 
reviewed membership details at three options exchanges and found that 
there are 62 market making firms across these three exchanges.\14\ 
Further, BOX found that 42 of the 62 market making firms access only 
one of the three exchanges. Additionally, BOX has identified numerous 
market makers that are members of other options exchanges, but not the 
Exchange. For example, BOX identified 47 market makers that are members 
of Cboe Exchange Inc. (an exchange that only lists options), but not 
the Exchange (which also lists only options). Not only is there not an 
actual regulatory requirement to connect to every options exchange, the 
Exchange believes there is also no ``de facto'' or practical 
requirement as well, as further evidenced by the market maker 
membership analysis of three options exchanges discussed above. Indeed, 
Market Makers choose if and how to access a particular exchange and 
because it is a choice, BOX must set reasonable pricing, otherwise 
prospective market makers would not connect and existing Market Makers 
would disconnect from the Exchange.
---------------------------------------------------------------------------

    \14\ BOX reviewed membership lists at Cboe Exchange Inc. 
(``Cboe''), Miami International Securities Exchange, LLC (``MIAX''), 
and BOX--all of which detail the firms registered as making makers 
on their respective exchanges. The Nasdaq and NYSE exchange groups 
do not provide this level of detail in their membership lists. As 
such, BOX has not included the Nasdaq and NYSE exchanges in this 
analysis.
---------------------------------------------------------------------------

    As discussed above, BOX responded to Market Maker feedback to the 
proposed fees in January 2022 and due to this valuable feedback, BOX 
lowered the proposed fees. The Exchange believes that this reduction 
demonstrates that competitive constraints do not depend on showing that 
a Market Maker walked away, or threatened to walk away, from BOX due to 
a pricing change. Rather, the absence of negative feedback (in and of 
itself, and particularly when coupled with valuable feedback suggesting 
modifications or alternatives) is indicative that the proposed fees 
are, in fact, reasonable and consistent with BOX being subject to 
competitive forces in setting fees. Accordingly, the Exchange believes 
the Commission has a sufficient basis to determine that BOX was subject 
to significant competitive forces in setting the terms of its proposed 
fees. Moreover, the Commission has found that, if an exchange meets the 
burden of demonstrating it was subject to significant competitive 
forces in setting its fees, the Commission ``will find that its fee 
rule is consistent with the Act unless `there is a substantial 
countervailing basis to find that the terms' of the rule violate the 
Act or the rules thereunder.'' \15\ The Exchange is not aware of, nor 
has the Commission articulated, a substantial countervailing basis for 
finding the proposal violates the Act or the rules thereunder.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74781 (December 9, 2008) (``2008 ArcaBook 
Approval Order'') (approving proposed rule change to establish fees 
for a depth-of-book market data product).
---------------------------------------------------------------------------

    In order to provide more detail and to quantify BOX's costs 
associated with providing access to the BOX network in general, BOX 
notes that there are material costs associated with providing the 
infrastructure and headcount to fully-support access to BOX. BOX incurs 
technology expenses related to establishing and maintaining Information 
Security services, enhanced network monitoring and customer reporting 
associated with its network technology. While some of the expense is 
fixed, much of the expense is not fixed, and thus increases as the 
expenses associated with access services for electronic Market Makers 
increases. For example, new Market Makers to BOX may require the 
purchase of additional hardware to support those Participants as well 
as enhanced monitoring and reporting of customer performance that BOX 
provides. Further, as the total number of Market Makers increase, BOX 
may need to increase their data center footprint and consume more 
power, resulting in increased costs charged by their third-party data 
center provider. Accordingly, the cost to BOX to provide access to its 
electronic Market Makers is not fixed. BOX believes the proposed 
electronic Market Maker Trading Permit fees are reasonable in order to 
offset a portion of the costs to BOX associated with providing access 
to Market Makers to its network infrastructure.
    As discussed above, BOX Market Makers have and continue to account 
for the vast majority of network capacity utilization and trading 
activity on BOX and thus account for the majority of expenses placed on 
BOX systems. Specifically, in 2017 (the year after BOX established the 
flat Participant Fee), the total expense for providing access services 
for all Participant types was approximately $819,000. Broken down 
further, in 2017, the total expense for providing access services to 
non-Market Maker Participants was approximately $117,000 and the total 
expense for providing access services to Market Makers was 
approximately $702,000. The Exchange has seen this disparity in access 
expenses between non-Market Makers and Market Makers year after year 
since the establishment of the Participant Fee in 2016. In 2018, the 
total expense for providing access services for all Participant types 
was approximately $763,000--approximately $109,000 allocated to non-
Market Maker expenses and approximately $654,000 allocated to Market 
Maker expenses. In 2019, the total expense for providing access 
services for all Participant types was approximately $722,000--
approximately $103,000 allocated to non-Market Maker expenses and 
approximately $619,000 allocated to Market Makers. In 2020, the total 
expense for providing access services for all Participant types was 
approximately $1.1 million--approximately $161,000 allocated to non-
Market Maker expenses and approximately $971,000 allocated to Market 
Makers. Further, as discussed herein, BOX experienced a material 
increase in costs in 2021 and projects a similar material increase for 
2022 due to projects to make its network environment more transparent 
and deterministic, and increased order flow seen throughout the 
industry. Specifically, in 2021, the total expense for providing access 
services for all Participant types was approximately $1.29 million--
approximately $190,000 allocated to non-Market Maker expenses

[[Page 29991]]

and approximately $1.1 million allocated to Market Makers. Further, in 
the projected expenses for 2022, the total projected expense for 
providing access services for all Participant types is approximately 
$1.89 million--approximately $270,000 allocated to non-Market Maker 
expenses and $1.62 million allocated to Market Makers. As illustrated 
by these access expenses year over year, it is clear that BOX Market 
Makers account for the majority of expenses related to the provision of 
access services for BOX Participants. Accordingly, BOX believes that it 
is reasonable and appropriate to charge electronic Market Makers more 
than other BOX Participants for electronic Trading Permits to access 
the BOX network.
    The Exchange believes that the proposed electronic Market Maker 
Trading Permit fees are reasonable, equitable, and not unfairly 
discriminatory. The Exchange believes that the reasonableness of its 
proposed fees is demonstrated by the very fact that such fees are in 
line with, and in some cases lower than, the costs of similar access 
fees at other exchanges.\16\ The Exchange notes these fees were 
similarly filed with the Commission and neither suspended nor 
disapproved.\17\ The proposed fees are fair and equitable and not 
unfairly discriminatory because they apply equally to all Market Makers 
and access to BOX is offered on terms that are not unfairly 
discriminatory. BOX designed the fee rates in order to provide 
objective criteria for Market Makers of different sizes and business 
models that best matches their quoting activity on BOX. BOX believes 
that the proposed fee rates and criteria provide an objective and 
flexible framework that will encourage Market Makers to be appointed 
and quote in option classes while also equitably allocating the fees in 
a reasonable manner amongst Market Maker appointments to account for 
quoting and trading activity.\18\
---------------------------------------------------------------------------

    \16\ See supra note 5.
    \17\ The Exchange presumes that the fees of other exchanges are 
reasonable, as required by the Exchange Act in the absence of any 
suspension or disapproval order by the Commission providing 
otherwise.
    \18\ Prior to filing the Original Proposal, the Exchange notes 
that BOX Market Makers were made aware of the proposed tier 
structure and fee change. BOX received feedback from Market Makers 
and adjusted the fees accordingly based on their feedback. Market 
Makers are not required to quote on every options exchange. BOX 
Market Makers choose to quote and transact business on BOX because 
BOX is providing increased trading opportunities for these firms.
---------------------------------------------------------------------------

    The Exchange again notes that it operates in a highly competitive 
market in which market makers can readily favor competing venues if 
they deem fee levels at a particular venue to be excessive. In such an 
environment, BOX must continually adjust its fees for services and 
products, in addition to order flow, to remain competitive with other 
exchanges. BOX believes that the proposed changes reflect this 
competitive environment.
    The Exchange again notes it is not aware of any reason why Market 
Makers could not simply drop their access to an exchange (or not 
initially access an exchange) if an exchange were to establish prices 
for its non-transaction fees that, in the determination of such Market 
Maker, did not make business or economic sense for such Market Maker to 
access such exchange. The Exchange again notes that no market makers 
are required by rule, regulation, or competitive forces to be a Market 
Maker on the Exchange.
    Furthermore, the Exchange wishes to highlight that one Market Maker 
modified their access to BOX since the implementation of the proposed 
fee change. This Market Maker was approved as an electronic Market 
Maker in 2017 but never underwent the process of provisioning itself to 
access the BOX systems.\19\ After the Market Maker reviewed the notice 
the Exchange issued describing the proposed fees, the Market Maker 
informed the Exchange that it would terminate its Market Maker status 
on BOX as it had no intention to provision itself for access. The 
Exchange believes this further demonstrates competition within the 
market for exchange access, which as a result constrains fees the 
Exchange may charge for that access. The Exchange believes the fact 
that this Participant chose to terminate its Market Maker status on BOX 
but retained its status as an Order Flow Provider on BOX demonstrates 
that market participants can and do alter their membership statuses at 
exchanges if the market participant deems any fees as too high for its 
relevant marketplace. In BOX's case, the Participant determined that 
the Exchange's proposed fees for electronic Market Makers did not make 
business sense for itself, however it retained its membership as a BOX 
Participant in a different capacity.
---------------------------------------------------------------------------

    \19\ The Exchange notes that the Participant is also currently 
an Order Flow Provider on BOX.
---------------------------------------------------------------------------

    In sum, the Exchange believes the proposed fees are reasonable and 
reflect a competitive environment, as BOX seeks to amend its Trading 
Permit fees for Market Makers, while still attracting Market Makers to 
continue to, or seek to, access BOX. The Exchange further believes the 
proposed Trading Permit fees discussed herein are an appropriate 
balance between offsetting the costs to which Market Makers cost BOX 
and continuing to incentivize Market Makers to access and make a market 
on BOX.

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.
Intra-Market Competition
    The Exchange believes that the proposed electronic Market Maker 
Trading Permit fees do not place certain market participants at a 
relative disadvantage to other market participants because the proposed 
fees do not favor certain categories of market participants in a manner 
that would impose a burden on competition; rather, the fee rates are 
designed in order to provide objective criteria for Market Makers of 
different sizes and business models that best matches their quoting 
activity on BOX. Further, the Exchange believes that the proposed 
electronic Market Maker Trading Permit fees will not impose a burden on 
intramarket competition because, when these fees are viewed in the 
context of the overall activity on BOX, Market Makers: (1) Consume the 
most bandwidth and resources of the network; (2) transact the vast 
majority of the volume on BOX; and (3) require the high touch network 
support services provided by BOX and its staff, including more costly 
network monitoring, reporting and support services, resulting in a much 
higher cost to BOX. The Exchange notes that the majority of customer 
demand comes from Market Makers, whose transactions make up a majority 
of the volume on BOX. Further, as discussed herein, other Participant 
types (Broker Dealers, Professional Customers, and Public Customers) 
take up significantly less BOX resources and costs. As such, the 
Exchange does not believe charging electronic Market Makers higher 
Trading Permit fees than other Participant types will impose a burden 
on intramarket competition.
    The Exchange believes that the tiered structure of the proposed 
electronic Market Maker Trading Permit fees will not impose a burden on 
intramarket competition because the tiered structure takes into account 
the number of classes quoted by each individual Market Maker. As 
discussed herein, the BOX system requires increased performance and 
capacity in order to provide the opportunity for each Market Maker to 
quote in a higher number of options classes on BOX. Specifically, the 
more

[[Page 29992]]

classes that are actively quoted on BOX by a Market Maker requires 
increased memory for record retention, increased bandwidth for 
optimized performance, increased functionalities on each application 
layer, and increased optimization with regard to surveillance and 
monitoring of such classes quoted. As such, basing the Market Maker 
Trading Permit fee on the greatest number of classes quoted in on any 
given day in a calendar month is reasonable and appropriate when taking 
into account how the increased number of quoted classes directly impact 
the costs and resources for BOX.
Inter-Market Competition
    The Exchange believes the proposed Market Maker Trading Permit Fees 
do not place an undue burden on competition on other SROs that is not 
necessary or appropriate. In particular, market making firms are not 
forced to become market makers on all options exchanges. The Exchange 
notes that it has far less Market Makers as compared to the much 
greater number of market makers at other options exchanges. There are a 
number of large market makers that are participants of other options 
exchange but not Participants of BOX. The Exchange is also unaware of 
any assertion that its existing fee levels or the proposed electronic 
Market Maker Fees would somehow unduly impair its competition with 
other options exchanges. To the contrary, if the fees charged are 
deemed too high by a market making firm, they can simply discontinue 
their membership with BOX.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
Based on publicly-available information, and excluding index-based 
options, no single exchange has more than 17% market share. Therefore, 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. For the month of 
November 2021, BOX had a market share of approximately 5.58% of 
executed multiply-listed equity options \20\ and BOX believes that the 
ever-shifting market share among exchanges from month to month 
demonstrates that market participants can discontinue or reduce use of 
certain categories of products, or shift order flow, in response to fee 
changes. In such an environment, BOX must continually adjust its fees 
and fee waivers to remain competitive with other exchanges and to 
attract order flow to the facility.
---------------------------------------------------------------------------

    \20\ See Options Volume by Exchange available at https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Volume-by-Exchange.
---------------------------------------------------------------------------

    Finally, 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.

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 \21\ and Rule 19b-4(f)(2) 
thereunder,\22\ because it establishes or changes a due, or fee.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \22\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
would otherwise further the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2022-17 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-2022-17. 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-2022-17, and should be submitted on 
or before June 7, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10520 Filed 5-16-22; 8:45 am]
BILLING CODE 8011-01-P