[Federal Register Volume 81, Number 164 (Wednesday, August 24, 2016)]
[Notices]
[Pages 57977-57981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20212]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78618; File No. SR-BOX-2016-41]


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

August 18, 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 August 15, 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 
make a number of changes to the fees and credits for PIP and COPIP 
Transactions 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.

[[Page 57978]]

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 make a number of changes to the fees and credits for PIP and COPIP 
Transactions.\5\ Overall, the Exchange proposes to amend the Fee 
Schedule to differentiate between those PIP and COPIP transactions 
where the PIP or COPIP Order is from the account of a Public Customer; 
and those PIP and COPIP transactions where a PIP or COPIP Order is from 
the account of a Professional Customer, Broker Dealer or Market Maker 
(``Non-Public Customer''). While most PIP and COPIP Orders are from the 
account of a Public Customer, any type of BOX Participant may submit a 
PIP or COPIP Order with a matching contra order equal to the full size 
of the PIP or COPIP Order to the PIP and COPIP auction mechanisms. 
Therefore, the Exchange believes this distinction is appropriate, as 
the current fees, rebates, and credits for PIP and COPIP transactions 
within the BOX Fee Schedule are meant to incentivize Public Customer 
order flow to the PIP and COPIP auctions. The Exchange believes that 
similar incentives are not necessary for Non-Public Customer PIP and 
COPIP order flow and the proposed fees and credits below are meant to 
establish separate fees and credits for Non-Public Customer PIP and 
COPIP Order flow which, taken as a whole, do not offer the same level 
of inducement. Further, the Exchange notes that the distinction between 
auction transactions from a Public Customer versus a Non-Public 
Customer is already in place on another options exchange.\6\
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    \5\ Transactions executed through Price Improvement Period 
(``PIP'') and the Complex Order Price Improvement Period (``COPIP'') 
auction mechanisms. All COPIP transactions will be charged per 
contract per leg.
    \6\ See Miami International Securities Exchange LLC (``MIAX'') 
Fee Schedule Section I(A)(v) available at https://www.miaxoptions.com/content/fees.
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Exchange Fees
PIP and COPIP Orders
    The Exchange proposes to adjust certain fees for PIP and COPIP 
Transactions. Currently, Professional Customers, Broker Dealers and 
Market Makers are assessed a fee of $0.15 for PIP and COPIP Orders \7\ 
and Public Customers are assessed no fee. The Exchange proposes to 
reduce the fees assessed to Professional Customers, Broker Dealers and 
Market Makers for PIP and COPIP Orders in Penny and Non-Penny Pilot 
Classes to $0.05.
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    \7\ A PIP Order or COPIP Order is a Customer Order (an agency 
order for the account of either a customer or a broker-dealer) 
designated for the PIP or COPIP, respectively.
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Primary Improvement Order
    Under the Primary Improvement Order \8\ tiered fee structure, the 
Exchange assesses a per contract execution fee to all Primary 
Improvement Order executions initiated by the particular Initiating 
Participant. Percentage thresholds are calculated on a monthly basis by 
totaling the Initiating Participant's Primary Improvement Order volume 
submitted to BOX, relative to the total national Customer volume in 
multiply-listed options classes.
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    \8\ A Primary Improvement Order is the matching contra order 
submitted to the PIP or COPIP on the opposite side of the PIP or 
COPIP order.
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    The Exchange proposes to first add language that will specify that 
the tiered fee schedule for initiating participants will only apply to 
Primary Improvement Order executions where the corresponding PIP or 
COPIP Order is from the account of a Public Customer. The Exchange then 
proposes to introduce a flat per contract fee of $0.05 for all Primary 
Improvement Orders where the corresponding PIP or COPIP Order is from 
the account of a Non-Public Customer.
BOX Volume Rebate (``BVR'')
    The Exchange then proposes to amend Section I.B.2 of the Fee 
Schedule (BVR). Under the current BVR, the Exchange offers a tiered per 
contract rebate for all PIP Orders and COPIP orders of 100 contracts 
and under. Percentage thresholds are calculated on a monthly basis by 
totaling the Participant's PIP and COPIP volume submitted to BOX, 
relative to the total national Customer volume in multiply-listed 
options classes. The Exchange proposes to add language that will 
specify that only Public Customer PIP and COPIP Orders are eligible for 
the BVR.
Liquidity Fees and Credits
    The Exchange then proposes to amend Section II.A. of the BOX Fee 
Schedule, Liquidity Fees and Credits for PIP and COPIP transactions. 
Specifically, the Exchange proposes to amend Section II.A. to 
differentiate between PIP and COPIP transactions where the PIP and 
COPIP Orders are from the accounts of Public Customers and PIP and 
COPIP transactions where the PIP and COPIP Orders are from the accounts 
of Non-Public Customers.
    First, the Exchange proposes to specify that the current liquidity 
fees and credits will only apply to PIP and COPIP transactions where 
the PIP and COPIP Order is from the account of a Public Customer. The 
liquidity fees and credits for these PIP and COPIP Orders, the Primary 
Improvement Order and any corresponding Improvement Orders remain 
unchanged and will be as follows:

------------------------------------------------------------------------
                                    Fee for adding        Credit for
                                       liquidity      removing liquidity
------------------------------------------------------------------------
Non-Penny Pilot Classes.........               $0.77             ($0.77)
Penny Pilot Classes.............               $0.38             ($0.38)
------------------------------------------------------------------------

    The Exchange then proposes to establish a new section for the 
Liquidity Fees and Credits of PIP and COPIP transactions where the PIP 
and COPIP Order is from the account of a Non-Public Customer. First, 
the Exchange proposes to specify that PIP or COPIP Orders from the 
account of a Non-Public Customer are assessed the ``removal'' credit 
only if the PIP or COPIP Order does not trade with its contra order 
(the Primary Improvement Order). The

[[Page 57979]]

Exchange also proposes to specify that only responses to PIP and COPIP 
Orders from the account of a Non-Public Customer that are executed in 
these mechanisms, also known as Improvement Orders, shall continue to 
be charged the ``add'' fee. Specifically, a PIP or COPIP Order from the 
account of a Non-Public Customer that does not trade with its Primary 
Improvement Order, and the corresponding Improvement Orders will 
subject to the fees and credits in the following table:

------------------------------------------------------------------------
                                    Fee for adding        Credit for
                                       liquidity      removing liquidity
------------------------------------------------------------------------
Non-Penny Pilot Classes.........               $0.77             ($0.77)
Penny Pilot Classes.............               $0.38             ($0.38)
------------------------------------------------------------------------

    For example, if a Broker Dealer submits a PIP Order for the account 
of a Non-Public Customer to buy 100 contracts in the PIP and there are 
no responders, the PIP Order would execute against the matching Primary 
Improvement Order to sell 100 contracts and neither Order would be 
assessed a liquidity fee or credit. If, instead, the same PIP Order 
receives an Improvement Order response to sell 75 contracts, at the end 
of the auction the PIP Order would now execute against the Improvement 
Order for 75 contracts and the Primary Improvement Order for 25 
contracts, and liquidity fees and credits would only be assessed on the 
75 contracts which executed against the Improvement Order. 
Specifically, the 75 contracts from the PIP Order will receive the 
removal credit and the 75 contracts from the Improvement Order will be 
charged the add fee.
    Lastly, the Exchange also proposes to update the footnote numbering 
and make other non-substantive technical changes within the BOX Fee 
Schedule.
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,\9\ 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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    \9\ 15 U.S.C. 78f(b)(4) and (5).
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Exchange Fees
PIP and COPIP Transactions
    The Exchange believes that reducing the fees assessed to 
Professional Customers, Broker Dealers and Market Makers for PIP and 
COPIP Orders in Penny and Non-Penny Pilot Classes is reasonable, 
equitable, and not unfairly discriminatory. In particular, the Exchange 
believes that reducing these fees will encourage auction order flow to 
the Exchange, which will benefit all market participants on the 
Exchange. BOX believes that the proposed fee reductions from $0.15 to 
$0.05 are reasonable and in line with similar fees on other 
exchanges.\10\ Further, the Exchange believes the $0.05 fee is 
equitable and not unfairly discriminatory, as it applies equally to all 
Market Maker, Professional Customers and Broker Dealers submitting PIP 
and COPIP Orders to the PIP and COPIP auction mechanisms. The Exchange 
believes it is equitable and not unfairly discriminatory to charge 
these Non-Public Customers more for their PIP and COPIP Orders in Penny 
and Non-Penny Pilot Classes than Public Customers. The practice of 
incentivizing increased Public Customer order flow is common in the 
options markets.
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    \10\ See MIAX Fee Schedule Section I(A)(v); Phlx Pricing 
Schedule Section IV and ISE Fee Schedule Section I. Comparable fees 
at these exchanges range from $0.05 to $0.30.
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Primary Improvement Order
    The Exchange believes that adding language to specify that the 
tiered fee schedule for initiating participants will only apply to 
Primary Improvement Order executions where the corresponding PIP or 
COPIP Order is from the account of a Public Customer, as well as 
introducing a flat per contract fee of $0.05 for all Primary 
Improvement Orders where the corresponding PIP or COPIP Order is from 
the account of a Non-Public Customer is reasonable, equitable and not 
unfairly discriminatory. The Exchange also believes the proposed $0.05 
fee for Primary Improvement Order executions where the corresponding 
PIP or COPIP Order is from the account of a Non-Public Customer is 
reasonable, as it is within the range of fees currently assessed on all 
Primary Improvement Orders on BOX.\11\ The Exchange believes that this 
distinction is reasonable and competitive, as it is made on another 
options exchange.\12\ Finally, the Exchange believes that 
differentiating between Public Customer and Non-Public Customer PIP and 
COPIP Orders, and their corresponding Primary Improvement Orders is 
equitable and not unfairly discriminatory. As stated above, the current 
fees, credit and rebates for PIP and COPIP transactions are meant to 
encourage Public Customer order flow to the PIP and COPIP auction 
mechanisms. Specifically, the tiered fee schedule for initiating 
participants encourages Order Flow Providers to submit Public Customer 
orders to the PIP or COPIP to gain the benefit of a lower fee. The 
Exchange believes that this incentive is not necessary for Non-Public 
Customer PIP and COPIP order flow and that the proposed flat $0.05 fee 
is appropriate. Specifically, when taken as a whole, the proposed Non-
Public Customer PIP and COPIP transactions fees will result in the PIP 
or COPIP Order always being assessed a $0.05 fee with no rebate 
potential,\13\ and the corresponding Primary Improvement Order being 
assessed a flat $0.05 fee. In comparison, the Initiating Participant's 
Primary Improvement Order for a Public Customer PIP or COPIP Order 
could potentially be assessed a fee as low as $0.02,\14\ while the 
corresponding PIP or COPIP Order would be assessed no fee and could 
obtain a rebate of up $0.12 (PIP Orders) or $0.06 (COPIP Orders) 
depending on the Participant's volume.
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    \11\ For Primary Improvement Order executions, contract fees 
range from $0.25 to $0.02.
    \12\ PHLX also distinguishes between a PIXL Order from the 
account of a Non-Customer as compared to a PIXL Order from the 
account of a Customer. See NASDAQ PHLX LLC (``Phlx'') Fee Schedule 
Section V. When a PIXL Order is contra to a PIXL Auction Responder, 
a Customer PIXL Order will be assessed $0.00 per contract where a 
Non-Customer PIXL Order will be assessed $0.30 per contract in Penny 
Pilot Options or $0.38 in Non-Penny Pilot Options.
    \13\ These transactions will be exempt from the BVR.
    \14\ The Exchange notes that a majority of Primary Improvement 
Order executions are assessed Tier 4 and 5 fees within the tiered 
fee schedule for Initiating Participants.
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BOX Volume Rebate
    The Exchange believes the proposed changes to the BVR are 
reasonable, equitable and not unfairly discriminatory. The BVR was 
adopted to attract Public Customer order flow to the Exchange by 
offering these

[[Page 57980]]

Participants incentives to submit their PIP and COPIP Orders to the 
Exchange.\15\ As such, the Exchange believes it is reasonable and 
appropriate to exempt Non-Public Customer PIP and COPIP Orders from the 
BVR. Further, the Exchange believes this exemption is equitable and not 
unfairly discriminatory as it will apply to all Non-Public Customers 
uniformly. As stated above, providing specific incentives for Public 
Customer volume is common both within the options industry and 
elsewhere in the BOX Fee Schedule.
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    \15\ See Securities Exchange Release No. 73547 (November 6, 
2014), 79 FR 67520 (November 13, 2014) (SR-BOX-2014-25).
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Liquidity Fees and Credits
    The Exchange believes amending the Liquidity Fees and Credits for 
PIP and COPIP transactions to differentiate between PIP and COPIP 
transactions where the PIP or COPIP Order is from the account of a 
Public Customer, and the PIP or COPIP Order is from the account of a 
Non-Public Customer is reasonable, equitable and not unfairly 
discriminatory. As stated above, the current liquidity fees and credits 
for PIP and COPIP transactions are focused on incentivizing Public 
Customer order flow to the PIP and COPIP auctions. Therefore, the 
Exchange believes it is equitable and not unfairly discriminatory to 
establish different fees and credits for Non-Public Customer order flow 
to these auction mechanisms. The Exchange notes that the liquidity fees 
and credits for PIP and COPIP transactions where the PIP and COPIP 
Order is from the account of a Public Customer remain unchanged.
    Accordingly, the Exchange believes the proposed liquidity fees and 
credits for PIP and COPIP transactions where the PIP or COPIP Order are 
from the account of a Non-Public Customer are reasonable, equitable and 
not unfairly discriminatory as they are identical to the current 
liquidity fees and credits assessed for PIP and COPIP transactions 
where the PIP or COPIP Order is from the account of a Public Customer.
    The Exchange also believes it is reasonable, equitable and not 
unfairly discriminatory to only apply the liquidity fees and credits to 
the portion of the PIP or COPIP Order from the account of a Non-Public 
Customer that does not trade with its contra order, and the Improvement 
Order responses. Liquidity fees and credits on BOX do not directly 
result in revenue to BOX, but are meant to incentivize Participants to 
attract order flow. Because of the value of Public Customer order flow, 
the Exchange believes these incentives are appropriate even if the 
Public Customer PIP or COPIP Order is fully internalized and trades 
only against its matching Primary Improvement Order. However, as stated 
above, the Exchange believes that the same level of incentives is not 
necessary for Non-Public Customer PIP or COPIP order flow. Therefore, 
the Exchange believes it reasonable to only provide these incentives to 
the portion of the Non-Public Customer PIP or COPIP Orders where 
liquidity is being added in the form of Improvement Order responses. 
Further, the Exchanges notes that the liquidity fees and credits for 
transactions within the Facilitation and Solicitation auction mechanism 
(Section II.B. of the BOX Fee Schedule) are assessed in a similar 
manner, and that the distinction is also made within the price 
improvement mechanism fees and rebates on another exchange in the 
options industry.\16\
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    \16\ Under Section I of the ISE Fee Schedule, the initiator 
receives a $0.35 ``break-up'' rebate only for contracts that are 
submitted to the PIM that do not trade with their contra order. The 
responder fee for these Orders is only applied to any contracts for 
which the rebate is provided.
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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 the proposed adjustments to the Non-
Public Customer PIP and COPIP Transactions fees will not impose a 
burden on competition among various Exchange Participants. Rather, BOX 
believes that the changes will result in the Participants being charged 
appropriately for their Non-Public Customer PIP and COPIP Transactions 
and is designed to enhance competition in Auction transactions on BOX. 
Submitting an order is entirely voluntary and Participants can 
determine which type of order they wish to submit, if any, to the 
Exchange.
    The Exchange also believes that amending the proposed liquidity 
fees and credits for Non-Public Customer PIP and COPIP Transactions 
will not impose a burden on competition among various Exchange 
Participants. The Exchange believes that the proposed changes will 
result these Participants being charged or credited appropriately for 
these transactions.
    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 \17\ and Rule 19b-4(f)(2) 
thereunder,\18\ because it establishes or changes a due, or fee.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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-2016-41 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-2016-41. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your

[[Page 57981]]

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-2016-41, and should be submitted on or before 
September 14, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20212 Filed 8-23-16; 8:45 am]
 BILLING CODE 8011-01-P