[Federal Register Volume 81, Number 72 (Thursday, April 14, 2016)]
[Notices]
[Pages 22151-22154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08555]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77568; File No. SR-BOX-2016-15]


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 (``BOX'') Options Facility

April 8, 2016.
    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 March 31, 2016, BOX Options Exchange LLC (the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Exchange filed the 
proposed rule change pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ 
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to amend the Fee Schedule to 
revise the Complex Order pricing structure and make a clerical 
correction to Section III of the BOX Fee Schedule 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 April 1, 2016. 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 
to adopt a new pricing structure for Complex Orders.
    Currently, Complex Orders executed on BOX are assessed differing 
fees and credits depending on where the Complex Order executes. Complex 
Orders that executed against orders on the BOX Book are assessed a flat 
fee depending on the account type of the Participant submitting the 
order; while Complex Orders that execute against other Complex Orders 
on the Complex Order Book are assessed a fee or credit

[[Page 22152]]

depending upon (i) the account type of the Participant submitting the 
order; and (ii) the account type of the contra party in the 
transaction.
    First, the Exchange proposes to revise the Complex Order pricing 
structure to remove the execution distinction. Specifically, Complex 
Orders will now be assessed the same fee or credit regardless of 
whether the Complex Order executes against an Order on the BOX Book or 
against another Complex Order. To effect this change, the Exchange 
proposes to remove Section III.A. (Complex Orders Executed Against 
Orders on the BOX Book) and Section III.B. (Complex Orders Executed 
Against Other Complex Orders) and create a new Section III.A. entitled 
(All Complex Orders).
    The Exchange then proposes to adopt a contra party pricing 
structure in this new section that will assess transaction fees and 
credits dependent upon three factors: (i) The account type of the 
Participant submitting the order; (ii) whether the Participant is a 
liquidity provider or liquidity taker; and (iii) the account type of 
the contra party.\5\ The Exchange notes that Complex Orders in Penny 
Pilot Classes and Non-Penny Pilot Classes will continue to be assessed 
differently, a distinction that occurs across the entirety of the BOX 
Fee Schedule.
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    \5\ This pricing model is similar to the Non-Auction 
Transactions fee structure in Section I of the BOX Fee Schedule.
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    The Exchange proposed fee structure for all Complex Orders will be 
as follows:

----------------------------------------------------------------------------------------------------------------
                                                                 Penny pilot classes     Non-penny pilot classes
                                                             ---------------------------------------------------
            Account type                   Contra party        Maker fee/   Taker fee/   Maker fee/   Taker fee/
                                                                 credit       credit       credit       credit
----------------------------------------------------------------------------------------------------------------
Public Customer.....................  Public Customer.......        $0.00        $0.00        $0.00        $0.00
                                      Professional Customer/       (0.35)       (0.35)       (0.70)       (0.70)
                                       Broker Dealer.
                                      Market Maker..........       (0.35)       (0.35)       (0.70)       (0.70)
Professional Customer or Broker       Public Customer.......       (0.10)         0.45       (0.10)         0.80
 Dealer.
                                      Professional Customer/       (0.10)         0.30       (0.10)         0.45
                                       Broker Dealer.
                                      Market Maker..........       (0.10)         0.30       (0.10)         0.45
Market Maker........................  Public Customer.......       (0.10)         0.40       (0.10)         0.75
                                      Professional Customer/       (0.10)         0.30       (0.10)         0.45
                                       Broker Dealer.
                                      Market Maker..........       (0.10)         0.30       (0.10)         0.45
----------------------------------------------------------------------------------------------------------------

    For example, if a Public Customer submitted a Complex Order in a 
Penny Pilot Class (making liquidity), the Public Customer would be 
credited $0.35 if the Complex Order interacted with a Market Maker's 
Complex Order and the Market Maker (taking liquidity) would be charged 
$0.40. To expand on this example, if the Market Maker instead submitted 
a Complex Order in a Penny Pilot Class (making liquidity), the Market 
Maker would be credited $0.10 if the order interacted with a Public 
Customer's order and the Public Customer (taking liquidity) would be 
credited $0.35.
    The Exchange also proposes to make a clerical correction to Section 
III of the BOX Fee Schedule. Specifically, the third paragraph in the 
introduction to this section references a Market Maker's ADV (Average 
Daily Volume). The Exchange no longer uses a Participant's ADV to 
determine volume based tiers for rebates and fees. Instead, the 
qualification thresholds are based on a percentage of the Participant's 
volume relative to the account type's overall total industry equity and 
ETF option volume. Therefore, the Exchange proposes to remove the 
reference in this sentence to ADV and replace it with ``executed volume 
on BOX.''
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,\6\ 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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    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed Complex Order Fees are 
reasonable, equitable and not unfairly discriminatory. In particular, 
the proposed Complex Order Fees 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. 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 Complex Order Fees are intended to attract 
Complex Orders to the Exchange by offering market participants 
incentives to submit their Complex Orders to the Exchange. The Exchange 
believes it is appropriate to provide incentives for market 
participants to submit Complex Orders, resulting in greater liquidity 
and ultimately benefiting all Participants trading on the Exchange.
    The Exchange believes revising the Complex Order pricing structure 
to assess the same fee or credit regardless of whether the Complex 
Order executes against an Order on the BOX Book or against another 
Complex Order is reasonable, equitable and not unfairly discriminatory. 
With the adoption of the proposed Complex Order pricing structure, the 
Exchange believes it is no longer necessary to differentiate these 
transaction fees by where the Complex Order executes, and doing so will 
reduce investor confusion with respect to the applicable Complex Order 
fees and credits.
    The Exchange believes the proposed Complex Order fee structure is 
reasonable, equitable and not unfairly discriminatory. The proposed fee 
structure is similar to the structure already in place for Complex 
Orders that execute against other Complex Orders, and simply adds a 
Make/Take factor. Further, a similar fee structure is already in place 
for Non-Auction Transactions on the Exchange and has been accepted by 
both the Commission and the industry.\7\ The result of this structure 
is that a Participant does not know the fee it will be charged when 
submitting the Complex Order.

[[Page 22153]]

Therefore, the Participant must recognize that it could be charged the 
highest applicable fee on the Exchange's Complex Order schedule, which 
may, instead, be lowered or changed to a rebate depending upon how the 
Complex Order interacts.
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    \7\ See supra note 5.
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    The Exchange believes that the proposed credits for Public 
Customers in Complex Orders are reasonable. Under the proposed fee 
structure, Public Customers will never pay a fee for a Complex Order, 
but may receive a credit of $0.35 in Penny Pilot Classes and $0.70 in 
Non-Penny Pilot Classes. The Exchange believes providing a credit or 
charging no fee to Public Customers for Complex Orders is equitable and 
not unfairly discriminatory. 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 Public 
Customer benefit. Accordingly, the Exchange believes that charging no 
fee or providing a credit for Public Customers is appropriate and not 
unfairly discriminatory. Public Customers are less sophisticated than 
other Participants and the credit will help to attract a high level of 
Public Customer order flow to the BOX Book and create liquidity, which 
the Exchange believes will ultimately benefit all Participants trading 
on BOX.
    The Exchange also believes it is reasonable, equitable and not 
unfairly discriminatory to give Public Customers a credit when their 
Complex Order executes against a non-Public Customer and, accordingly, 
charge non-Public Customers a higher fee when their Complex Order 
executes against a Public Customer compared to the fee or rebate they 
would be assessed if their Complex Order interacts with a non-Public 
Customer. As stated above, the Exchange aims to improve markets by 
developing features for the benefit of its Public Customers. Similar to 
the payment for order flow and other pricing models that have been 
adopted by the Exchange and other exchanges to attract Public Customer 
order flow, the Exchange increases fees to non-Public Customers to 
provide incentives for Public Customers. The Exchange believes that 
providing incentives for Complex Orders by Public Customers is 
reasonable and, ultimately, will benefit all Participants trading on 
the Exchange by attracting Public Customer order flow.
    The Exchange believes that the proposed fees for Professional 
Customers and Broker Dealers in Complex Orders are reasonable. Under 
the proposed fee structure, a Professional Customer or Broker Dealer 
making liquidity and interacting with a Public Customer, Professional 
Customer, Broker Dealer or Market Marker will be credited $0.10 for 
Complex Orders in both Penny Pilot Classes and Non-Penny Pilot Classes. 
If the Professional Customer or Broker Dealer is instead taking 
liquidity, for Complex Orders in Penny Pilot Classes it will be charged 
either $0.45 if the Complex Order interacts with a Public Customer's 
Complex Order or $0.30 if the Complex Order interacts with a 
Professional Customer or Broker Dealer or a Market Maker. For Complex 
Orders in Non-Penny Pilot Classes, the Professional Customer or Broker 
Dealer will be charged either $0.80 if the Complex Order interacts with 
a Public Customer's Complex Order or $0.45 if the Complex Order 
interacts with a Professional Customer or Broker Dealer or a Market 
Maker.
    The Exchange believes that charging Professional Customers and 
Broker Dealers higher fees than Public Customers for Complex Orders is 
equitable and not unfairly discriminatory. Professional Customers, 
while Public Customers by virtue of not being Broker Dealers, generally 
engage in trading activity more similar to Broker Dealer proprietary 
trading accounts (submitting more than 390 standard orders per day on 
average). The Exchange believes that the higher level of trading 
activity from these Participants will draw a greater amount of BOX 
system resources than that of non-professional, Public Customers. 
Because this higher level of trading activity will result in greater 
ongoing operational costs, the Exchange aims to recover its costs by 
assessing Professional Customers and Broker Dealers higher fees for 
transactions.
    Finally, the Exchange believes that the proposed fees for Market 
Makers in Complex Orders are reasonable. Under the proposed fee 
structure, a Market Maker making liquidity and interacting with a 
Public Customer, Professional Customer, Broker Dealer or Market Marker 
will be credited $0.10 for Complex Orders in both Penny Pilot Classes 
and Non-Penny Pilot Classes. If the Market Maker is instead taking 
liquidity, for Complex Orders in Penny Pilot Classes it will be charged 
either $0.40 if the Complex Order interacts with a Public Customer's 
Complex Order or $0.30 if the Complex Order interacts with a 
Professional Customer or Broker Dealer or a Market Maker. For Complex 
Orders taking liquidity in Non-Penny Pilot Classes, the Market Maker 
will be charged either $0.75 if the Complex Order interacts with a 
Public Customer's Complex Order or $0.45 if the Complex Order interacts 
with a Professional Customer or Broker Dealer or a Market Maker.
    The Exchange believes it is equitable and not unfairly 
discriminatory for BOX Market Makers to be assessed lower fees than 
Professional Customers and Broker Dealers for certain Complex Order 
executions because of the significant contributions to overall market 
quality that Market Makers provide. Specifically, Market Makers can 
provide higher volumes of liquidity and lowering their fees will help 
attract a higher level of Market Maker order flow to the BOX Book 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 be charged lower transaction fees than 
Professional Customers and Broker Dealers for certain Complex Order 
executions.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory for Professional Customers, Broker Dealers and Market 
Makers to be charged a higher fee for orders removing liquidity when 
compared to the credit they receive for orders that add liquidity. 
Giving a credit to Complex Orders that add liquidity will promote 
liquidity on the Exchange and ultimately benefit all participants on 
BOX. Further, the concept of incentivizing orders that add liquidity 
over orders that remove liquidity is commonly accepted within the 
industry as part of the ``Make/Take'' liquidity model.\8\
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    \8\ The ``Make/Take'' model is currently used by the 
International Securities Exchange LLC (``ISE') and NASDAQ OMX PHLX 
LLC (``PHLX'').
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    Finally, the Exchange also believes it is reasonable to charge 
Professional Customers, Broker Dealers, and Market Makers less for 
certain executions in Penny Pilot issues compared to Non-Penny Pilot 
issues because these classes are typically more actively traded; 
assessing lower fees will further incentivize order flow in Penny Pilot 
issues on the Exchange, ultimately benefiting all Participants trading 
on BOX. Additionally, the Exchange believes it is reasonable to give a 
greater credit to Public Customers for Complex Orders in Non-Penny 
Pilot issues as compared to Penny Pilot issues. Since these classes 
have wider spreads and are less actively traded, giving a larger credit 
will further incentivize Public Customers to trade in these classes, 
ultimately benefitting all Participants trading on BOX.

[[Page 22154]]

    The Exchange believes that the proposed Complex Order fee structure 
will keep the Exchange competitive with other exchanges and will be 
applied in an equitable manner among all BOX Participants. The Exchange 
believes the proposed fee structure is reasonable and competitive with 
fee structures in place on other exchanges. Further, the Exchange 
believes that the competitive marketplace impacts the fees proposed for 
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. The Exchange believes that 
applying a fee structure that is determined according to whether the 
Complex Order removes or adds liquidity, the account type of the 
Participant submitting the Complex Order, and the contra party will 
result in Participants being charged appropriately for these 
transactions. Submitting a Complex is entirely voluntary and 
Participants can determine which type of order they wish to submit, if 
any, to the Exchange.
    Further, the Exchange believes that this proposal will enhance 
competition between exchanges because it is designed to allow the 
Exchange to better compete with other exchanges for Complex Order flow.
    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing exchanges. 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 \9\ and Rule 19b-4(f)(2) 
thereunder,\10\ because it establishes or changes a due, or fee.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
would otherwise further the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2016-15 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-2016-15. 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-2016-15, and should be 
submitted on or before May 5, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08555 Filed 4-13-16; 8:45 am]
 BILLING CODE 8011-01-P