[Federal Register Volume 82, Number 15 (Wednesday, January 25, 2017)]
[Notices]
[Pages 8481-8484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01611]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79832; File No. SR-BOX-2017-01]


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

January 18, 2017.
    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 January 5, 2017, 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 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 January 9, 2017. 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. The Exchange recently amended its rules to permit 
Complex Order \5\ transactions to execute through the Solicitation 
Auction mechanism \6\ and the Exchange is submitting this filing to 
clarify the fees that are applicable to these transactions.
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    \5\ 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.
    \6\ See Securities [sic] Release No. 79557 (December 14, 2016), 
81 FR 92919 (December 20, 2016) (Notice of Filing and Immediate 
Effectiveness SR-BOX-2016-57).
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    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 Auction Mechanisms \7\ will be subject to 
Sections I (Exchange Fees) and II (Liquidity Fees and Credits).
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    \7\ BOX's auction mechanisms include the Price Improvement 
Period (``PIP''), Complex Order Price Improvement Period 
(``COPIP''), Facilitation Auction and Solicitation Auction.
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    Under Section I (Exchange Fees), the Exchange proposes the 
following fees for Complex Order transactions executed through the 
Solicitation auction mechanism. For Agency Orders \8\ and Solicitation 
Orders, Professional Customers, Broker Dealers and Market Makers will 
be charged $0.15 in Penny and Non-Penny Pilot Classes, and Public 
Customers will not be charged. For Responses in the Solicitation 
Auction, all account types will be charged $0.25 for Penny Pilot 
Classes and $0.40 for Non-Penny Pilot Classes.
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    \8\ 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.
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    The Exchange then proposes to treat Complex Order transactions 
executed through the Solicitation mechanism in the same manner as 
single legged Solicitation transactions for liquidity fees and credits, 
which are applied in addition to any applicable exchange fees as 
described in Section I of the Fee Schedule. The fee structure for 
liquidity fees and credits for Complex Orders executed through the 
Solicitation mechanisms will be as follows:

[[Page 8482]]



------------------------------------------------------------------------
                                 Fee for adding     Credit for  removing
      Facilitation and           liquidity  (all       liquidity  (all
  solicitation transactions      account types)        account types)
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Non-Penny Pilot Classes.....                 $0.75                (0.75)
Penny Pilot Classes.........                 $0.25                (0.25)
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    Complex Order transactions executed through the Solicitation 
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 Solicitation 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,\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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    The Exchange believes that the proposal to specify that Complex 
Order transactions executed through the Exchange's Auction 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 Solicitation Auction mechanism is similar to 
Complex Orders executing through the COPIP and Facilitation Auction 
mechanisms. As such, the Exchange believes it is reasonable for the 
fees for Complex Orders executed through the Solicitation mechanism to 
mimic the current COPIP and Facilitation mechanism transaction 
fees.\10\ 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. Similarly, Complex Order Facilitation Auction 
transactions are not subject to Section III (Complex Order 
Transactions) and are instead treated the same as single-legged 
Facilitation transactions in Section I. 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 
Solicitation 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.
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    \10\ See Securities Exchange Release Nos. 71312 (January 15, 
2014), 79 FR 3649 (January 22, 2014) (SR-BOX-2014-01); 78827 
(September 13, 2016), 81 FR 64218 (September 19, 2016) (SR-BOX-2016-
42); where the Exchange established fees for Complex Orders 
submitted to the PIP and the Facilitation Mechanisms in the BOX Fee 
Schedule, respectively.
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Exchange Fees
    Currently, for Facilitation Orders, the Exchange assesses a $0.15 
per contract fee for Professional Customers, Broker Dealers and Market 
Makers in Penny and Non-Penny Pilot Classes and does not assess a fee 
for Public Customers. The Exchange proposes to assess the same fees for 
Solicitation Orders. The Exchange believes that charging Professional 
Customers and Broker Dealers and Market Makers more than Public 
Customers for Solicitation Orders is reasonable, 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. The Exchange believes that charging lower fees to 
Public Customers in Facilitation and Solicitation transactions is 
reasonable and, ultimately, will benefit all Participants trading on 
the Exchange by attracting Public Customer order flow.
    Currently, for Responses in the Facilitation Auction mechanism, the 
Exchange assesses a $0.25 fee in Penny Pilot Classes and a $0.40 fee in 
Non-Penny Pilot Classes, regardless of account type. The Exchange 
proposes to assess the same fees for Responses in the Solicitation 
Auction mechanism. The Exchange believes it is reasonable, equitable 
and not unfairly discriminatory to charge higher exchange fees for 
responders to Complex Orders in the Solicitation auction than for 
initiators of these orders. Moreover, the higher fees for responders to 
Complex Orders are similar with fees charged by another options 
exchange.\11\ For example, at the ISE, fees for Responses to Crossing 
Orders are $0.50, regardless of Participant type, in both Penny and 
Non-Penny Pilot Classes where fees for initiating Crossing Orders range 
from $0.20 and $0.25. Further, the Exchange believes its proposed fees 
for Responses in the Solicitation Auction mechanism are reasonable as 
they are identical to the fees charged for Complex Orders executed 
through the Facilitation auction mechanism on the Exchange. The 
Exchange also notes that the proposed fees for Responses to 
Solicitation Orders are not unfairly discriminatory because they apply 
equally to all Participants.
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    \11\ See International Securities Exchange (``ISE'') Fee 
Schedule Section I available at https://www.ise.com/assets/documents/OptionsExchange/legal/fee/ISE_fee_schedule.pdf.
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    The Exchange believes it is reasonable to establish different fees 
for Solicitation 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 Exchange 
Fees for PIP and COPIP Transactions. The Exchange believes it is 
reasonable to establish higher fees for Non-Penny Pilot Classes because 
these Classes are typically less actively traded and have wider 
spreads.
Liquidity Fees and Credits
    The Exchange believes the proposed liquidity fees and credits for 
Complex Orders executed through the Solicitation 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 Solicitation 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 
Solicitation mechanism offset one another in any particular 
transaction.

[[Page 8483]]

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, 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 Solicitation 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 Solicitation 
auction mechanism.\12\
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    \12\ 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.
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    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 Solicitation 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 Complex 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 Solicitation 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 \13\ and Rule 19b-4(f)(2) 
thereunder,\14\ because it establishes or changes a due, or fee.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 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-2017-01 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-2017-01. 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

[[Page 8484]]

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-2017-01, and should be 
submitted on or before February 15, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01611 Filed 1-24-17; 8:45 am]
 BILLING CODE 8011-01-P