[Federal Register Volume 78, Number 6 (Wednesday, January 9, 2013)]
[Notices]
[Pages 1907-1910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-00257]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68578; File No. SR-BOX-2012-025]


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

DATE: January 3, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 26, 2012, 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 for 
trading on BOX. In particular, the Exchange proposes to amend certain 
Exchange Fees for Professionals set forth in Section I of the Fee 
Schedule so that Professional accounts are assessed the same fees as 
Broker-Dealers. While changes to the Fee Schedule pursuant to this 
proposal will be effective upon filing, the changes will become 
operative on January 2, 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 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule for trading on BOX. 
In particular, the Exchange proposes to amend certain Exchange Fees for 
Professionals set forth in Section I of the Fee Schedule so that 
Professional accounts are assessed the same fees as Broker-Dealers.
    For Auction Transactions,\5\ the Exchange proposes to increase 
Professional fees for Improvement Orders in the PIP and Responses in 
the Solicitation and Facilitation mechanisms from $0.15 to $0.35, the 
same fee Broker-Dealers are currently charged. Note that Exchange Fees 
for Primary Improvement Orders, Facilitation Orders, and Solicitation 
Orders will continue to be based upon a Participant's monthly average 
daily volume (``ADV'') in Auction Transactions as calculated at the end 
of each month as set forth in Section I.A. of the Fee Schedule. The 
Exchange notes that the proposed fees for Professionals are within the 
range of Professional fees presently assessed in the industry.\6\
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    \5\ Auction Transactions are those transactions executed through 
the Price Improvement Period (``PIP''), Solicitation, and 
Facilitation auction mechanisms.
    \6\ Professional customers are charged $0.33 per contract for 
Select Symbols on the International Securities Exchange (``ISE''), 
$0.32 per contract for taking liquidity on NYSE Amex, and $0.45 or 
more per contract on the NASDAQ Options Market (``NOM'') for adding 
or removing liquidity in non-Penny Pilot securities. See ISE fee 
schedule, available at: http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf, NYSE Amex Options Fee 
Schedule, available at: https://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_amex_options_fee_schedule_12_01_12_.pdf, and see NOM Fee Schedule, available at: http://www.nasdaqtrader.com/Micro.aspx?id=OptionsPricing.

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[[Page 1908]]

    Also, the Exchange proposes to implement a $0.22 per contract 
surcharge for Professionals for all transactions in options on the 
Nasdaq-100[supreg] Index (NDX) and on the Mini-NDX[supreg] Index (MNX). 
BOX currently charges Market Makers and Broker-Dealers $0.22 per 
contract for transactions in NDX and MNX. BOX incurs licensing fees for 
transactions in these classes of options and believes it is appropriate 
and reasonable to pass that fee through to BOX Participants, including 
Professional accounts.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Securities Exchange Act of 1934 
(the ``Act''),\7\ in general, and Section 6(b)(4) of the Act,\8\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees, and other charges among BOX Options Participants 
and other persons using its facilities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed fee change for Professionals in 
Auction Transactions is reasonable, equitable and not unfairly 
discriminatory because it charges Professionals, whose activity on BOX 
is akin to the order flow activity and system usage to that of Broker-
Dealers, the same fee for competing in Auction Transactions as the fee 
charged to Broker-Dealers. BOX does not assess ongoing systems access 
fees, ongoing fees for access to BOX market data, or fees related to 
order cancellation. Professional accounts, while Public Customers by 
virtue of not being broker-dealers, generally engage in trading 
activity more similar to broker-dealer proprietary trading accounts 
(more than 390 orders per day on average). BOX notes that as of 
December 2012, orders for Professionals generally account for a 
majority of the orders BOX receives on a given trading day. This level 
of trading activity draws on a greater amount of BOX system resources 
than that of non-Professional Public Customers, and thus, greater 
ongoing BOX operational costs. Simply, the more orders submitted to 
BOX, the more messages sent to and received from BOX, the more orders 
potentially routed to away exchanges, and the more BOX system resources 
utilized. 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 Professional accounts a market competitive fee for 
competing in Auction Transactions.
    The Exchange believes the proposed change to increase Professional 
fees is not unfairly discriminatory as the fees will apply to all 
Professionals and Broker-Dealers competing in Auction Transactions 
equally. Further, Professionals and Broker-Dealers are free to change 
the manner in which they access BOX. A Professional may, by sending 
fewer than 390 orders per day across the industry, begin participating 
as a non-Professional, Public Customer and potentially reduce 
transaction fees. Additionally, Professionals will still benefit from 
certain priority advantages as a customer in Auction Transactions.\9\ 
As noted above, Professionals' order sending behavior and trading 
activity tend to be more similar to Broker-Dealers trading on a 
proprietary basis. This is particularly true in considering orders in 
response to BOX auction mechanisms. As such, the Exchange believes it 
is not unfairly discriminatory to charge them the same fee as Broker-
Dealers when competing for customer order flow in these Auction 
Transactions.
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    \9\ See Rules 7150(f)(4) and 7270 regarding allocation and 
executions within each BOX auction mechanism.
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    Professionals may elect to register as a Broker-Dealer and, once 
registered, may apply to become a BOX Market Maker, subject to Exchange 
Fees based on their ADV. The Exchange believes the proposed Auction 
Transaction fees for Professionals is equitable and not unfairly 
discriminatory because such Participants are not subject to the same 
obligations as Market Makers when providing liquidity to the market. In 
particular, Market Makers must maintain active two-sided markets in 
appointed classes, and must meet certain minimum quoting requirements. 
As such, the Exchange believes it is appropriate that Market Makers be 
charged comparably lower Auction Transaction fees as compared to 
Professionals when the Market Makers provide greater volumes of 
liquidity to the market. In light of the ability to access BOX in a 
variety of ways, each of which is priced differently, Professionals, 
Broker-Dealers, and other market participants may each select the most 
economically beneficial manner to access BOX.
    Further, the Exchange believes the proposed fee change is equitable 
and not unfairly discriminatory because it will assure that retail 
investors (non-Professional, Public Customers) continue to receive the 
appropriate marketplace advantages for Auction Transactions on BOX, 
while furthering fair competition among marketplace professionals by 
treating them equally when they compete for these desirable customer 
orders. The Exchange believes it is reasonable and equitable to assess 
Auction Transaction fees for Professionals that are the same as those 
fees for Broker-Dealers because it applies a pricing structure that 
groups these sophisticated market participants together when they are 
competing in this manner.
    Generally, competing options exchanges assess Professionals fees at 
comparable rates to those proposed by the Exchange, and comparable to 
fees charged to Broker-Dealers.\10\ The Exchange operates within a 
highly competitive market in which market participants can readily 
direct order flow to any of several other competing venues if they deem 
fees at a particular venue to be excessive. As such, the Exchange 
believes the proposed increases are reasonable and equitable.
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    \10\ Supra, note 6.
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    The Exchange further believes the proposed fee change is equitable 
and not unfairly discriminatory because Professionals generally do not 
initiate Auction Transactions, unlike some Broker-Dealers. Doing so 
requires, in part, guaranteeing a customer order and execution. 
Initiating an Auction Transaction for the benefit of the customer 
order, an [sic] taking on this guarantee provides these Participants 
potentially discounted fees.\11\ The Exchange believes it is 
reasonable, equitable, and not unfairly discriminatory to charge 
Professional accounts the same fee as Broker-Dealers to compete for 
customer orders in Auction Transactions because when acting in response 
to an auction, as opposed to initiating the transaction, Professionals' 
behavior, systems' sophistication, and trading activity are similar to 
Broker-Dealers, and distinct from the retail investors on the opposite 
side of the Auction Transaction.
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    \11\ See Section I.A. of the Fee Schedule that provides Tiered 
Fees with potential discounts for Participants that Initiate Auction 
Transactions.
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    The Exchange believes it is equitable and not unfairly 
discriminatory for Public Customers to be charged lower fees than 
Professionals and Broker-

[[Page 1909]]

Dealers for Auction Transactions on BOX. The securities markets 
generally, and BOX in particular, have historically aimed to improve 
markets for investors and develop various features within the market 
structure for the benefit of non-Professional, Public Customers.\12\ As 
such, the Exchange believes the proposed fees for Professional customer 
transactions are appropriate and not unfairly discriminatory. The 
Exchange believes it promotes the best interests of investors to have 
lower Auction Transaction costs for non-Professional, Public Customers, 
and that the BOX fee structure will continue to attract this customer 
order flow to these auction mechanisms which BOX believes will provide 
greater potential price improvement to these investors.
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    \12\ Note that BOX has historically imposed different, and 
higher, routing fees for Professionals as compared to non-
Professional Public Customers. See Securities Exchange Act Release 
Nos. 65538 (October 12, 2011), 76 FR 64413 (October 18, 2011) 
(Adopting a $0.50 per contract routing fee for Professionals while 
providing routing to non-Professional Public Customers at no 
charge), and 68149 (November 5, 2012), 77 FR 67693 (November 13, 
2012) (Continuing to charge Professionals $0.50 per contract 
executed on away exchanges and exempting Public Customer accounts 
from a routing fee for Directed Orders, provided 33% or more of a 
Participant's Public Customer Directed Orders received during the 
month are executed through PIP, and less than 45% of a Participant's 
Directed Orders received during the month are routed to and executed 
on an away exchange).
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    Regarding the surcharge for transactions in NDX and MNX, due to a 
licensing agreement with The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') to 
use various indices and trademarks in connection with the listing and 
trading of these index options, BOX will pay a per contract license fee 
of $0.22 to NASDAQ OMX for NDX and MNX options contracts traded on BOX. 
The Exchange proposes to assess a surcharge fee for Professional 
transactions in NDX and MNX options to offset the costs BOX incurs for 
each such transaction. The Exchange believes that passing this cost 
through to BOX Options Participants that trade these options, including 
Professionals, is the most equitable means of recovering the costs of 
the license.
    The Exchange's proposal to assess Professionals, Broker-Dealers and 
Market Makers a $.22 per contract surcharge for transactions in MNX and 
NDX, as compared to no surcharge being assessed to non-Professional 
Public Customers, is equitable and not unfairly discriminatory because 
the Exchange believes that a lower fee for non-Professional, Public 
Customers benefits all BOX market participants by incentivizing market 
participants to transact a greater number of Public Customer orders, 
which results in increased liquidity on BOX.
    The Exchange believes that the proposed fees will keep BOX 
competitive with other exchanges and will apply in an equitable manner 
among BOX Participants. The Exchange believes the proposed fees are 
fair and reasonable and must be competitive with fees in place on other 
exchanges.

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 BOX auction mechanisms, the 
PIP in particular, provide the opportunity for market participants to 
compete for customer orders. The PIP has no limitations regarding the 
number of Market Makers, Options Participants that are not Market 
Makers, and customers that can participate and compete for orders in 
the PIP. BOX asserts that Participants are actively competing for 
customer orders, which is clearly supported by the simple fact that 
price improvement occurs in the PIP. Since the PIP began in 2004, 
customers have received more than $400 million in savings through 
better executions on BOX, a monthly average of more than $3.5 million 
over that time.
    The Exchange does not believe the proposed fee change will inhibit 
Professionals' ability to compete within BOX Auction Transactions. 
Broker-Dealers currently compete actively within the PIP, and BOX does 
not believe assessing Professionals a $0.35 per contract fee equivalent 
to that of Broker-Dealers, would impede Professionals' ability, or the 
incentive for Professionals, to compete therein. 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 the PIP in particular. BOX makes a 
substantial amount of PIP-related data and statistics available to the 
public on its Web site www.boxexchange.com. Specifically, PIP Fee Pilot 
reports are available at: http://boxexchange.com/boxrReports_en; daily 
PIP volumes and average price improvement at: http://boxexchange.com/volumes_en; and BOX execution quality reports at: http://boxexchange.com/executionQualityReport_en. The data indisputably 
supports that the PIP provides price improvement for customer orders.
    The fee change proposed would charge Professionals the same fee as 
Broker-Dealers when competing in Auction Transactions. Because this 
change would charge Professionals similarly to Broker-Dealers in this 
particular circumstance, charge them a fee comparable to what 
Professionals and Broker-Dealers pay on competing exchanges,\13\ and 
for additional reasons as stated above, the Exchange does not believe 
that the proposed change will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \13\ Supra, note 6.
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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 Act \14\ and Rule 19b-4(f)(2) thereunder,\15\ 
because it establishes or changes a due, fee, or other charge 
applicable only to a member.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
would otherwise further the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml ); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2012-025 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary,

[[Page 1910]]

Securities and Exchange Commission, 100 F Street NE., Washington, DC 
20549-1090.

All submissions should refer to File Number SR-BOX-2012-025. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml 
). Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BOX-2012-025 and should be 
submitted on or before January 30, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00257 Filed 1-8-13; 8:45 am]
BILLING CODE 8011-01-P