[Federal Register Volume 83, Number 184 (Friday, September 21, 2018)]
[Notices]
[Pages 47947-47949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20548]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84168; File No. SR-BOX-2018-24]


Self-Regulatory Organizations; BOX Options Exchange LLC; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change To Amend the Fee Schedule 
on the BOX Market LLC Options Facility To Establish BOX Connectivity 
Fees for Participants and Non-Participants Who Connect to the BOX 
Network

September 17, 2018.

I. Introduction

    On July 19, 2018, BOX Options Exchange LLC (``BOX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change (File No. SR-BOX-2018-24) to amend the BOX fee 
schedule to establish certain connectivity fees and reclassify its high 
speed vendor feed (``HSVF'') connection as a port fee. The proposed 
rule change was immediately effective upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act.\3\ The proposed rule change 
was published for comment in the Federal Register on August 2, 2018.\4\ 
The Commission has received one comment letter on the proposal \5\ and 
one response letter from the Exchange.\6\ Under Section 19(b)(3)(C) of 
the Act,\7\ the Commission is hereby: (i) Temporarily suspending the 
proposed rule change; and (ii) instituting proceedings to determine 
whether to approve or disapprove the proposed rule change.
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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).
    \4\ See Securities Exchange Act Release No. 83728 (July 27, 
2018), 83 FR 37853 (``Notice'').
    \5\ See Letter from Tyler Gellasch, Executive Director, The 
Healthy Markets Association, to Brent J. Fields, Secretary, 
Commission, dated August 23, 2018 (``Healthy Markets Letter'').
    \6\ See Letter from Lisa J. Fall, President, BOX, to Brent J. 
Fields, Secretary, Commission, dated September 12, 2018 (``BOX 
Response Letter'').
    \7\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend its fee schedule to establish 
connectivity fees for Participants \8\ and non-Participants who connect 
to the BOX network. Specifically, the Exchange proposes to charge 
Participants and non-Participants with 10 Gigabit connections a monthly 
fee of $5,000 per connection, and Participants and non-Participants 
with non-10 Gigabit connections a monthly fee of $1,000 per connection. 
The Exchange would charge the applicable connectivity fee for each 
calendar month to any Participant or non-Participant connected as of 
the last trading day of that month.
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    \8\ A participant is defined under BOX Rule 100(a)(41) as a firm 
or organization that is registered with the Exchange pursuant to the 
BOX Rule 2000 Series for purposes of participating in trading on a 
facility of the Exchange (``Participant'').
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    The Exchange also proposes to amend its fee schedule to reclassify 
the HSVF connection as a port fee and to state that subscribers must be 
credentialed by the Exchange to receive the HSVF. According to the 
Exchange, the HSVF subscription is not dependent on a physical 
connection to the Exchange, and thus is a port and not a physical 
connectivity option.\9\ The amount of the HSVF fee would remain 
unchanged, and the Exchange would continue to assess an HSVF port fee 
of $1,500 per month for each month a Participant or non-Participant is 
credentialed to use the HSVF port.
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    \9\ See Notice, supra note 4, at 37853.
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III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\10\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\11\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization (``SRO'') if it appears to the Commission that such action 
is necessary or appropriate in the public interest, for the protection 
of investors, or otherwise in furtherance of the purposes of the Act. 
As discussed below, the Commission believes a temporary suspension of 
the proposed rule change is necessary and appropriate to allow for 
additional analysis of the proposed rule change's consistency with the 
Act and the rules thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(C).
    \11\ 15 U.S.C. 78s(b)(1).
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    As noted above, the Commission received one comment letter on the

[[Page 47948]]

proposal \12\ and one response letter from the Exchange.\13\ The 
commenter argues that the Exchange did not provide sufficient 
information in its filing to support a finding that the proposal is 
consistent with the Act.\14\ Specifically, the commenter objects to the 
Exchange's reliance on the fees of other exchanges to demonstrate that 
its fee increases are consistent with the Act. In addition, the 
commenter argues that the Exchange did not offer any details to support 
its basis for asserting that the proposed fees are consistent with the 
Act.\15\ The commenter further argues that the requirement that 
Participants or non-Participants be credentialed to use the HSVF port, 
added in connection with the redesignation of the HSVF fee, appears to 
discriminate between market participants.\16\ In its response letter, 
the Exchange rejects the commenter's suggestion that the Exchange 
should be required to provide additional information to support its 
belief that the proposed rule change is consistent with the Act. In 
addition, the Exchange argues that additional review, as requested by 
the commenter, is unnecessary because the Exchange submitted its 
proposal as an immediately effective rule change under the Act.\17\
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    \12\ See Healthy Markets Letter, supra note 5.
    \13\ See BOX Response Letter, supra note 6.
    \14\ See Healthy Markets Letter, supra note 5, at 4-5.
    \15\ See id. at 5-6, 10.
    \16\ See id. at 4.
    \17\ See BOX Response Letter, supra note 6, at 1.
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    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\18\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \19\
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    \18\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \19\ See id.
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    Among other things, exchange proposed rule changes are subject to 
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which 
requires the rules of an exchange to: (1) Provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \20\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \21\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\22\
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    \20\ 15 U.S.C. 78f(b)(4).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ 15 U.S.C. 78f(b)(8).
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    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether assessing the proposed fees to 
connect to the Exchange is consistent with the statutory requirements 
applicable to a national securities exchange under the Act. In 
particular, the Commission will consider whether the proposed rule 
change satisfies the standards under the Act and the rules thereunder 
requiring, among other things, that an exchange's rules provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using its facilities; not permit unfair discrimination 
between customers, issuers, brokers or dealers; and do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\23\
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    \23\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule changes.\24\
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    \24\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \25\ and 19(b)(2)(B) of the Act \26\ to determine whether 
the proposed rule change should be approved or disapproved. Institution 
of proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to disapprove the proposed rule 
change.
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    \25\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \26\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\27\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
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    \27\ 15 U.S.C. 78s(b)(2)(B).
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     Section 6(b)(4) of the Act, which requires that the rules 
of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities,'' \28\
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    \28\ 15 U.S.C. 78f(b)(4).
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     Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to perfect the operation of a free and open market and a national 
market system'' and ``protect investors and the public interest,'' and 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers,'' \29\ and
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    \29\ 15 U.S.C. 78f(b)(5).
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     Section 6(b)(8) of the Act, which requires that the rules 
of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \30\
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    \30\ 15 U.S.C. 78f(b)(8).
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    As noted above, the proposal imposes new fees for physical 
connections to the Exchange. The Exchange states that these fees would 
allow the Exchange to recover costs associated with offering 
connections.\31\ In addition, the Exchange believes that it does not 
have market power necessary to set fees that would be inconsistent with 
the Act.\32\ The commenter, among other concerns, asserts that the 
Exchange has not offered sufficient detail to support that the proposed 
fees are consistent with the Act and, in particular, whether the 
proposed fees are reasonable.\33\
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    \31\ See Notice, supra note 4, at 37854.
    \32\ See id.
    \33\ See Healthy Markets Letter, supra note 5, at 5-6, 10.
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \34\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\35\ and

[[Page 47949]]

any failure of an SRO to provide this information may result in the 
Commission not having a sufficient basis to make an affirmative finding 
that a proposed rule change is consistent with the Act and the 
applicable rules and regulations.\36\
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    \34\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \35\ See id.
    \36\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated; be designed to perfect the mechanism of a free 
and open market and the national market system, protect investors and 
the public interest, and not be unfairly discriminatory; or not impose 
an unnecessary or inappropriate burden on competition.\37\
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    \37\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by October 12, 2018. 
Rebuttal comments should be submitted by October 26, 2018. Although 
there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\38\
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    \38\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, 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-2018-24 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2018-24. 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 website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BOX-2018-24 and should be submitted on 
or before October 12, 2018. Rebuttal comments should be submitted by 
October 26, 2018.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\39\ that File No. SR-BOX-2018-24 be and hereby is, temporarily 
suspended. In addition, the Commission is instituting proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \39\ 15 U.S.C. 78s(b)(3)(C).
    \40\ 17 CFR 200.30-3(a)(57) and (58).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-20548 Filed 9-20-18; 8:45 am]
 BILLING CODE 8011-01-P