[Federal Register Volume 81, Number 181 (Monday, September 19, 2016)]
[Notices]
[Pages 64218-64221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22420]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78827; File No. SR-BOX-2016-42]


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 
To Specify That All Complex Order Transactions Executed Through the 
Exchange's Auction Mechanisms Will Be Subject to Section I (Exchange 
Fees) and II (Liquidity Fees and Credits)

September 13, 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 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to amend the Fee Schedule to 
specify that all Complex Order transactions executed through the 
Exchange's auction mechanisms will be subject to Section I (Exchange 
Fees) and II (Liquidity Fees and Credits) of the BOX Fee Schedule. 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 Section III (Complex Order 
Transaction Fees) to specify that all Complex Order transactions 
executed through the Exchange's auction mechanisms will be subject to 
Section I (Exchange Fees) and II (Liquidity Fees and Credits) of the 
BOX Fee Schedule.\5\ The Exchange recently amended its rules to permit 
Complex Order \6\ transactions to execute through the Facilitation 
Auction mechanism \7\ and the Exchange is submitting this filing to 
clarify the fees that are applicable to these transactions.
---------------------------------------------------------------------------

    \5\ The Exchange notes that it intends to adjust to certain 
Facilitation and Solicitation fees and credits in the BOX Fee 
Schedule effective September 1, 2016.
    \6\ As defined in Rule 7240(a)(5), the term ``Complex Order'' 
means any order involving the simultaneous purchase and/or sale of 
two or more different options series in the same underlying 
security, for the same account, in a ratio that is equal to or 
greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) and for the purpose of executing a particular investment 
strategy.
    \7\ See Securities Release No. 78444 (July 29, 2016), 81 FR 
51533 (August 4, 2016) (SR-BOX-2016-37).
---------------------------------------------------------------------------

    Generally, Complex Order transactions are subject to the fees and 
credits set forth in Section III (Complex Order Transaction Fees) of 
the BOX Fee Schedule while transactions executed through the 
Facilitation and Solicitation auction mechanisms are subject to 
Sections I (Exchange Fees) and II (Liquidity Fees and Credits). The 
Exchange proposes to add language that clarifies that Complex Order 
transactions executed through the COPIP and Facilitation auction 
mechanism \8\ will be subject to Sections I (Exchange Fees) and II 
(Liquidity Fees and Credits).
---------------------------------------------------------------------------

    \8\ BOX's auction mechanisms include the Price Improvement 
Period (``PIP''), Complex Order Price Improvement Period 
(``COPIP''), Facilitation Auction and Solicitation Auction. The 
Exchange notes that Complex Orders are currently not permitted in 
the Solicitation Auction mechanism.
---------------------------------------------------------------------------

    Under Section I (Exchange Fees), the Exchange proposes the 
following fees for Complex Order transactions executed through the 
Facilitation auction mechanism. For Agency Orders \9\ and Facilitation 
Orders, Public Customer, Professional Customers and Brokers Dealers and 
Market Makers will not be charged. For Responses in the Facilitation 
Auction, Public Customers will be charged $0.15, Professional Customer 
and Broker Dealers will be charged $0.27, and Market Makers are charged 
$0.20.
---------------------------------------------------------------------------

    \9\ An Agency Order is the block-size order that an Order Flow 
Provider ``OFP'' seeks to facilitate as agent through the 
Facilitation Auction or Solicitation Auction mechanism.
---------------------------------------------------------------------------

    The Exchange then proposes to treat Complex Order transactions 
executed through the Facilitation mechanisms in the same manner as 
single legged Facilitation transactions for liquidity fees and credits, 
which are applied in addition to any applicable exchange fees as 
described in Section I of the Fee

[[Page 64219]]

Schedule. The fee structure for liquidity fees and credits for Complex 
Orders executed through the Facilitation mechanisms will be as follows:

------------------------------------------------------------------------
                                                          Credit for
  Facilitation and solicitation     Fee for adding    removing liquidity
          transactions              liquidity  (all       (all account
                                    account types)          types)
------------------------------------------------------------------------
Non-Penny Pilot Classes.........               $0.95             ($1.00)
Penny Pilot Classes.............                0.40              (0.45)
------------------------------------------------------------------------

    Complex Order transactions executed through the Facilitation 
mechanism will be assessed a ``removal'' credit only if the Agency 
Order does not trade with their contra order. Responses to Complex 
Order transactions executed through the Facilitation mechanism shall be 
charged the ``add'' fee.
    Finally, the Exchange is proposing to make additional non-
substantive changes to the Fee Schedule. Specifically, the Exchange is 
renumbering certain footnotes to accommodate the above proposed changes 
to the 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,\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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes that the proposal to specify that Complex 
Order transactions executed through the Exchange's COPIP and 
Facilitation mechanisms are subject to fees and credits in Sections I 
(Exchange Fees) and II (Liquidity Fees and Credits) is reasonable, 
equitable and not unfairly discriminatory. The new ability for Complex 
Order transactions to execute through the Facilitation Auction 
mechanism is similar to Complex Orders executing through the COPIP. As 
such, the Exchange believes it is reasonable for the fees for Complex 
Orders executed through the Facilitation mechanism to mimic the current 
COPIP transaction fees.\11\ In the BOX Fee Schedule, COPIP transactions 
are not subject to Section III (Complex Order Transactions) and are 
instead treated the same as PIP transactions. Additionally, the 
Exchange believes the proposed 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 proposed fees 
are intended to attract Complex Orders to the Exchange by offering 
market participants incentives to submit their Complex Orders through 
the Exchange's Facilitation auction mechanism. The Exchange believes it 
is appropriate to provide incentives for market participants to submit 
orders to the auction mechanisms, resulting in greater liquidity and 
ultimately benefiting all Participants trading on the Exchange.
---------------------------------------------------------------------------

    \11\ See Securities Exchange Release No. 71312 (January 15, 
2014), 79 FR 3649 (January 22, 2014) (SR-BOX-2014-01), where the 
Exchange established fees for Complex Orders submitted to the PIP in 
the BOX Fee Schedule.
---------------------------------------------------------------------------

Exchange Fees
    Currently, the Exchange does not charge any market participant a 
fee for their Facilitation Orders; however the Exchange charges varying 
fees for Responses in the Facilitation mechanism depending on the 
account type of the response. The Exchange believes it is reasonable, 
equitable and not unfairly discriminatory to charge higher exchange 
fees for responders to Complex Orders in the Facilitation auction than 
for initiators of these orders. The Exchange believes its proposed fees 
are reasonable as they are identical to the fees charged for single 
legged orders executed through the Facilitation auction mechanism on 
the Exchange.\12\
---------------------------------------------------------------------------

    \12\ See BOX Fee Schedule Sections I.C. and II.B.
---------------------------------------------------------------------------

    The Exchange also believes that charging Professional Customers and 
Broker Dealers higher fees than Public Customers for Complex Order 
Responses in the Facilitation auction mechanism 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. 
The Exchange believes that the higher level of trading activity from 
these Participants will draw a greater amount of BOX system resources, 
and the Exchange aims to recover its costs by assessing Professional 
Customers and Broker Dealers higher fees for these orders.
    The Exchange believes it is equitable and not unfairly 
discriminatory to charge Public Customers less than Market Makers, 
Broker Dealers and Professional Customers for their Complex Order 
Responses to the Facilitation Auction mechanism. 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. The Exchange believes that 
charging lower fees to Public Customers is reasonable and, ultimately, 
will benefit all Participants trading on the Exchange by attracting 
Public Customer order flow.
    Finally, 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 Complex Order Responses 
in the Facilitation auction mechanism 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.
Liquidity Fees and Credits
    The Exchange believes the proposed liquidity fees and credits for 
Complex Orders executed through the Facilitation auction mechanism are 
equitable and not unfairly discriminatory. Specifically, the Exchange 
believes the liquidity fees and credits fee structure aims to attract 
order flow to the Facilitation mechanism, potentially providing greater 
liquidity within the overall BOX Market to the benefit of all BOX 
market participants. The Exchange notes that the proposed fees and 
credits for Complex Order transactions executed through the 
Facilitation mechanism offset one another in any particular 
transaction. The result is that BOX will collect a fee from 
Participants that add liquidity on BOX and credit another Participant 
an equal amount for removing liquidity. Stated otherwise, the 
collection of these liquidity fees will not directly result in revenue 
to BOX,

[[Page 64220]]

but will simply allow BOX to provide the credit incentive to 
Participants in order to attract order flow. The Exchange believes it 
is appropriate to provide incentives to market participants to direct 
order flow to remove liquidity from BOX, similar to various and widely-
used, exchange-sponsored payment for order flow programs. Further, the 
Exchange believes that fees for adding liquidity on BOX will not deter 
Participants from seeking to add liquidity to the BOX market so that 
they may interact with those participants seeking to remove liquidity.
    The Exchange continues to believe it is reasonable to establish 
different fees and credits for Facilitation transactions in Penny Pilot 
Classes compared to transactions in Non-Penny Pilot Classes. The 
Exchange makes this distinction throughout the BOX Fee Schedule, 
including the liquidity fees and credits for PIP and COPIP 
Transactions. The Exchange believes it is reasonable to establish 
higher fees and credits for Non-Penny Pilot Classes because these 
Classes are typically less actively traded and have wider spreads. The 
Exchange believes that offering a higher rebate will incentivize order 
flow in Non-Penny Pilot issues on the Exchange, ultimately benefitting 
all Participants trading on BOX.
    Further, the Exchange continues to believe it is reasonable, 
equitable and not unfairly discriminatory to only assess liquidity fees 
and credits on Agency Orders that do not trade with their contra order, 
and the Responses to these Orders. As stated above, liquidity fees and 
credits are meant to incentivize order flow, and the Exchange believes 
incentives are not necessary for internalized orders in these 
mechanisms that only trade against their contra order. Additionally, 
other Exchanges also make this distinction in their Facilitation 
auction mechanism.\13\
---------------------------------------------------------------------------

    \13\ See ISE Schedule of Fees at http://www.ise.com/assets/documents/OptionsExchange/legal/fee/ISE_fee_schedule.pdf. Under the 
ISE Fee Schedule, in the equivalent of Penny Pilot Classes, the 
initiator receives a ``break-up'' rebate only for contracts that are 
submitted to the Facilitation and Solicitation mechanisms 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.
---------------------------------------------------------------------------

    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.

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 proposed change is designed 
to provide greater specificity and precision within the Fee Schedule 
with respect to the fees that will be applicable to Complex Order 
transactions executed through the Exchange's Facilitation auction 
mechanism.
    The Exchange believes that adopting these fees will not impose a 
burden on competition among various Exchange Participants. The proposed 
fees are meant to mimic the fees currently assessed for single legged 
orders executed through the Facilitation auction mechanism. Submitting 
an order through an auction mechanism 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 the proposed fees will enhance 
competition between exchanges because it is designed to allow the 
Exchange to better compete with other exchanges for Complex Order flow. 
In this regard, the new feature which allows Complex Order transactions 
to execute through the Facilitation mechanism is being introduced by 
the Exchange and BOX is unable to absolutely determine the impact that 
the proposed fees proposed herein will have on trading. That said, 
however, the Exchange believes that the proposed fees would not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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 \14\ and Rule 19b-4(f)(2) 
thereunder,\15\ because it establishes or changes a due, or fee.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2016-42 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-2016-42. 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

[[Page 64221]]

available publicly. All submissions should refer to File Number SR-BOX-
2016-42, and should be submitted on or before October 11, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22420 Filed 9-16-16; 8:45 am]
 BILLING CODE 8011-01-P