Document ID: SEC-2014-0441-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange, LLC
Posted Date: 2014-03-18T04:00Z

[Federal Register Volume 79, Number 52 (Tuesday, March 18, 2014)]
[Notices]
[Pages 15180-15183]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05860]

[[Page 15180]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71701; File No. SR-BOX-2014-11]

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

March 12, 2014.
    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 March 4, 2014, 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. 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

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to amend the Fee Schedule on 
the BOX 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 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 
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 proposes to amend the Fee Schedule for trading on BOX. 
In particular, the Exchange proposes to amend certain Exchange Fees for 
Market Makers and adjust the Tiered Auction Transaction Fees for 
Initiating Participants based upon monthly average daily volume (ADV) 
as set forth in Section I of the Fee Schedule. Additionally, the 
Exchange proposes to introduce a tiered rebate in Section I, the BOX 
Volume Rebate (``BVR'') for all PIP Orders and COPIP Orders of 250 
contracts and under.
    In Section I., Exchange Fees, the Exchange proposes to adopt a flat 
$0.30 fee for all Market Maker Improvement Orders in the PIP or COPIP, 
as well as Market Maker responses in the Solicitation or Facilitation 
auction mechanisms.
    In Section I.A., Auction Transaction Tiered Fee Schedule for 
Initiating Participant \5\ based upon Monthly Average Daily Volume 
(``ADV'') in Auction Transactions, the Exchange gives volume incentives 
for auction transactions to Initiating Participants that, on a daily 
basis, trade an average daily volume, as calculated at the end of the 
month, of more than 5,000 contracts on BOX. The Exchange proposes to 
now base these volumes on the quantity of Primary Improvement Order, 
Facilitation Order and Solicitation Order contracts submitted by the 
particular Initiating Participant to the Exchange rather than traded. 
Under the current Section I.A. an Initiating Participant that submits a 
Primary Improvement Order \6\ will only qualify for the tier based on 
the amount of those contracts that execute. The proposal will now allow 
this same Initiating Participant to include all the Primary Improvement 
Order contracts submitted in qualifying for the volume tier.
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    \5\ An Initiating Participant is a BOX Options Participant (an 
Order Flow Provider or Market Maker) that executes agency orders by 
designating Customer Orders for price improvement and submission to 
the PIP or COPIP.
    \6\ A Primary Improvement Order is a matching contra order 
submitted to the PIP or COPIP on the opposite side of the agency 
order.
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    For example, an Initiating Participant who submits a Customer Order 
of 100 contracts to the PIP or COPIP for potential price improvement 
will also submit a matching 100 contract Primary Improvement Order to 
guarantee the execution. At the end of the PIP or COPIP auction, the 
Initiating Participant's Primary Improvement Order retains allocation 
priority on forty percent (40%) \7\ of the Order (or 40 contracts) and 
then receives additional allocation after all other orders have been 
filled at the final price level. Today the volume tiers are based on 
the final allocation the Initiating Participant receives at the end of 
the auction (40 contracts plus the additional allocation). Under the 
proposed change the volume tiers will be based on the amount submitted 
by the Initiating Participant in the Primary Improvement Order; in this 
example 100 contracts.
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    \7\ If there is only one competing order the Initiating 
Participant's allocation priority is raised to fifty percent (50%).
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    The quantity submitted will still be calculated at the end of each 
month. Additionally, with this change the Exchange proposes to adjust 
the volume tiers and contract fees associated with each tier. The new 
per contract fee for Initiating Participants in Auction Transactions 
set forth in Section I.A. of the BOX Fee Schedule will be as follows:

------------------------------------------------------------------------
 Initiating participant monthly ADV in auction    Per contract fee  (all
                  transactions                        account types)
------------------------------------------------------------------------
100,001 contracts and greater..................                    $0.03
40,001 contracts to 100,000 contracts..........                     0.07
20,001 contracts to 40,000 contracts...........                     0.12
10,001 contracts to 20,000 contracts...........                     0.20
1 contract to 10,000 contracts.................                     0.25
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[[Page 15181]]

    Finally, the Exchange proposes to introduce a tiered per contract 
rebate in Section I.D., the (``BOX Volume Rebate'' or ``BVR''), for all 
PIP Orders and COPIP Orders \8\ of 250 contracts and under. Each 
Participant's monthly ADV will be based on PIP and COPIP quantity 
submitted, including those in Jumbo SPY Options, and will be calculated 
at the end of each month.\9\ All PIP and COPIP executions by the 
Participant for the month will be awarded the same per contract rebate 
according to the Participant's monthly ADV in PIP and COPIP 
transactions submitted to the Exchange.
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    \8\ PIP Orders and COPIP Orders are defined as Customer Orders 
designated to the PIP or COPIP. As such only Customer Orders will be 
eligible for the rebate.
    \9\ For purposes of calculating monthly ADV, BOX will count as a 
half day any day that the market closes early for a holiday 
observance.
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    The new per contract rebate for Participants in PIP and COPIP 
Transactions set forth in Section I.D. of the BOX Fee Schedule will be 
as follows:

----------------------------------------------------------------------------------------------------------------
                                                                    Per contract rebate  (all account types)
           Monthly ADV in PIP and COPIP transactions           -------------------------------------------------
                                                                          PIP                     COPIP
----------------------------------------------------------------------------------------------------------------
100,001 contracts and greater.................................                  ($0.17)                  ($0.08)
40,001 contracts to 100,000 contracts.........................                   (0.14)                   (0.06)
20,001 contracts to 40,000 contracts..........................                   (0.07)                   (0.04)
1 contract to 20,000 contracts................................                   (0.00)                   (0.00)
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act, in general, and Section 
6(b)(4) and 6(b)(5) of the Act,\10\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among BOX Participants and other persons using its facilities 
and does not unfairly discriminate between customers, issuers, brokers 
or dealers.
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    \10\ 15 U.S.C. 78f(b)(4) and (5).
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     The Exchange believes that establishing a flat $0.30 fee for all 
Market Maker Improvement Orders in the PIP or COPIP as well as Market 
Maker responses in the Solicitation or Facilitation auction mechanisms 
is reasonable, equitable and not unfairly discriminatory. While the 
proposal will potentially raise the Market Maker fee for auction 
responses, this will result in most Market Makers being assessed a 
lower fee than what they are currently assessed under the Section I.B 
tiered fee schedule. Further, the proposed fee is designed to be 
comparable to the fees that would be charged at competing venues.\11\ 
Finally, the Exchange believes that charging Market Makers a flat fee 
for Improvement Orders in the PIP or COPIP and responses in the 
Solicitation or Facilitation auction mechanism is not unfairly 
discriminatory. Today Market Makers are assessed a fee based on their 
trading volume; under the proposal the fee will apply to all Market 
Makers equally.
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    \11\ See Section IV of the Phlx Pricing Schedule entitled ``PIXL 
Pricing''. Phlx assess all auction Responders $0.30 per contract in 
Penny Pilot Options and $0.38 per contract in non-Penny Pilot 
Options, unless the Responder is a Customer, in which case the fee 
is $0.00 per contract.
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    The Exchange believes it is equitable and not unfairly 
discriminatory that Market Makers are charged lower fees in Improvement 
Orders in the PIP or COPIP and Solicitation or Facilitation responses 
than Professionals and Broker-Dealers. Generally, Market Makers have 
obligations on BOX that other Participants do not. They must maintain 
active two-sided markets in the classes in which they are appointed, 
and must meet certain minimum quoting requirements. Market Makers also 
provide significant contributions to overall market quality. 
Specifically, Market Makers can provide high volumes of liquidity and 
lowering their transaction fees will help attract a higher level of 
Market Maker order flow and create liquidity, which the Exchange 
believes will ultimately benefit all Participants trading on BOX. The 
Exchange also believes it is equitable and not unfairly discriminatory 
for Market Makers to be charged a higher fee than Public Customers. 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.
    Secondly, the Exchange believes its proposed amendments to the 
tiered fee structure for Initiating Participants in auction 
transactions are reasonable, equitable and not unfairly discriminatory. 
The reduced fees related to trading activity in BOX Auction 
Transactions are available to all BOX Options Participants that 
initiate Auction Transactions, and they may choose whether or not to 
trade on BOX to take advantage of the discounted fees for doing so. The 
Exchange believes it is fair and reasonable to base these volume tiers 
on the quantity of auction transactions submitted to the Exchange 
rather than the quantity traded, as Initiating Participants do not 
control whether an order they submit is executed or not. This proposal 
will allow Initiating Participants to fully control the volume tier for 
which they qualify. With this change, the Exchange also believes 
adjusting the volume tiers and contract fees associated with each tier 
is reasonable as Participants benefit from the opportunity to more 
easily attain a discounted fee tier.
    The Exchange believes it is appropriate to provide an incentive to 
BOX Participants to submit their customer orders to BOX, particularly 
into the PIP for potential price improvement. Such a discount will 
limit the exposure Initiating Participants have to Section II fees, 
where they are charged a fee for adding liquidity should their 
principal order execute against the customer order in any BOX Auction 
Transaction. The Exchange believes that making these changes to the 
tiered fee structure will attract more order flow to BOX, providing 
greater potential liquidity within the overall BOX market and its 
auction mechanisms, to the benefit of all BOX market participants.

[[Page 15182]]

    Finally, the Exchange believes the adoption of a tiered per 
contract auction transaction rebate in Section I.D. for all PIP Orders 
and COPIP Orders of 250 contracts and under is reasonable, equitable 
and non-discriminatory. In particular, the proposed BVR will allow the 
Exchange to be competitive with other exchanges and to apply fees and 
credits in a manner that is equitable among all BOX Participants.\12\ 
The Exchange operates within a highly competitive market in which 
market participants can readily direct order flow to any other 
competing exchange if they determine fees at a particular exchange to 
be excessive. The proposed BVR is intended to attract Public Customer 
order flow to the Exchange by offering these Participants incentives to 
submit their PIP and COPIP Orders to the Exchange. The Exchange 
believes it is appropriate to provide incentives for Public Customers, 
which will result in greater liquidity and ultimately benefit all 
Participants trading on the Exchange. The Exchange believes providing a 
rebate to Participants that reach a certain volume threshold is 
equitable and non-discriminatory as the rebate will apply to all 
Participants uniformly.
    Additionally, the Exchange believes that the proposed volume 
thresholds are reasonable because they incentivize Participants 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. Further, other exchanges employ incentive 
programs.\13\ The Exchange believes that its proposed volume threshold 
and rebate is competitive when compared to rebate structures at other 
exchanges.
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    \12\ See Section A of the Phlx Pricing Schedule entitled 
``Customer Rebate Program'' and CBOE's Volume Incentive Program 
(VIP). CBOE's Volume Incentive Program (``VIP'') pays certain tiered 
rebates to Trading Permit Holders for electronically executed 
multiply-listed option orders which include AIM orders. Note that 
these exchanges base these rebate programs on the percentage of 
total national Public Customer volume traded on their respective 
exchanges, which the Exchange is not proposing to do.
    \13\ Id.
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    The Exchange also believes it is reasonable, equitable and non-
discriminatory to restrict the BVR to PIP and COPIP Orders of 250 
contracts and under. The rebate is intended to incentivize Participants 
to direct Customer order flow to the Exchange, which is typically 
comprised of small order sizes. Large institutional orders of more than 
250 contracts are encouraged to use the Facilitation and Solicitation 
Auction mechanisms.\14\ The Exchange believes restricting the BVR to 
PIP and COPIP Orders of 250 contracts and under is equitable and non-
discriminatory as this will apply to all Participants uniformly.
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    \14\ The Facilitation Auction and Solicitation Auction were 
designed to give market participants mechanisms for large block 
orders. See Securities Exchange Act Release No. 65387 (September 23, 
2011), 76 FR 60569 (September 29, 2011) (Order Approving Proposed 
Rule Change of SR-BX-2011-034).
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    The Exchange believes that the proposed rebates are reasonable. 
Once the volume threshold is met, the Exchange will pay the rebates on 
applicable PIP and COPIP Orders. The Exchange also believes the 
proposed BVR is equitable and not unfairly discriminatory because 
Participants are eligible to receive a rebate provided they meet both 
the volume and order type requirements. The Exchange believes that 
applying the rebate to PIP and COPIP Orders provides these Participants 
with an added incentive to transact a greater number of Public Customer 
Orders on the Exchange to the benefit of all market participants.
    The Exchange believes that incentivizing Participants to submit PIP 
and COPIP Orders to the Exchange will provide all market participants 
an opportunity to interact with that order flow. The Exchange believes 
that it is reasonable to only apply the rebate to certain order types 
because the Exchange is not seeking to incentivize Participants to 
transact in order types other than PIP and COPIP Orders at this time. 
Further, PIP and COPIP Orders bring unique benefits to the marketplace 
in terms of liquidity and order interaction. It is an important 
Exchange function to provide an opportunity to all market participants 
to trade against these PIP and COPIP Orders.
    Finally, the Exchange believes that it is equitable and not 
unfairly discriminatory to provide a higher rebate for PIP Orders than 
COPIP Orders. The rebate is intended to incentivize Participants to 
submit PIP and COPIP Orders to the Exchange and the Exchange believes 
that COPIP Orders do not need the same level of incentivization since 
the COPIP is a new offering on the Exchange. The Exchange believes the 
lower COPIP rebate will still provide greater liquidity and trading 
opportunities for 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. The Exchange believes the 
proposed fee changes are reasonably designed to enhance competition in 
BOX transactions, particularly auction transactions.
    The proposed rule change establishes a flat fee for Market Maker 
responses to orders in the PIP and COPIP, which the Exchange believes 
does not impose a burden on competition because all Market Makers will 
be affected to the same extent.
    The proposed rule change also modifies the tiered fees charged to 
Initiating Participants based on their monthly ADV in Auction 
Transactions. BOX notes that its market model and fees are generally 
intended to benefit retail customers by providing incentives for 
Participants to submit their customer order flow to BOX, and to the PIP 
in particular. The Exchange does not believe that the proposed fee 
changes burden competition by creating such a disparity between the 
fees an Initiating Participant pays and the fees a competitive 
responder pays that would result in certain participants being unable 
to compete with initiators in the PIP and COPIP The Exchange does not 
believe competitive responders in the PIP and COPIP will be burdened 
from competing in these auctions. In fact, the Exchange believes that 
these changes will not impair these Participants from adding liquidity 
and competing in Auction Transactions and will help promote competition 
by providing incentives for market participants to submit customer 
order flow to BOX and thus, create a greater opportunity for retail 
customers to receive additional price improvement.

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 \15\ and Rule 19b-4(f)(2) 
thereunder,\16\ because it establishes or changes a due, or fee.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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

[[Page 15183]]

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-2014-11 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-2014-11. 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-2014-11 and should be 
submitted on or before April 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05860 Filed 3-17-14; 8:45 am]
BILLING CODE 8011-01-P