[Federal Register Volume 83, Number 243 (Wednesday, December 19, 2018)]
[Notices]
[Pages 65192-65194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27411]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84814; File No. SR-BOX-2018-36]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee
Schedule on the BOX Options Market LLC (``BOX'') Facility To Establish
Separate Fees and Credits on PIP and COPIP Transactions for SPY Options
December 13, 2018.
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 November 30, 2018, BOX 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 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 December 1, 2018. 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 website 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 I.B, PIP and COPIP
Transactions and Section III, Liquidity Fees and Credits of the BOX Fee
Schedule. Specifically, the Exchange proposes to establish separate
fees and credits on PIP and COPIP Transactions for options overlying
the Standard and Poor's Depositary Receipts Trust (``SPY'').\5\
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\5\ Options overlying Standard and Poor's Depositary Receipts/
SPDRs (``SPY'') are based on the SPDR exchange-traded fund
(``ETF''), which is designed to track the performance of the S&P 500
Index.
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First, the Exchange proposes to establish PIP and COPIP Transaction
\6\ fees for options overlying SPY. Specifically, the Exchange proposes
a $0.05 fee for Professional Customers, Broker Dealers and Market
Makers for SPY PIP or COPIP Orders. Public Customers will not be
charged for SPY PIP or COPIP Orders. The Exchange notes that the
proposed SPY fees are identical to the current PIP and COPIP Order
fees. For SPY Improvement Orders, the Exchange proposes a $0.05 fee for
all account types. For SPY Primary Improvement Orders, the Exchange
proposes to establish a flat per contract execution fee of $0.02.
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\6\ 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.
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The Exchange notes that all SPY transactions executed through the
PIP and COPIP auction mechanisms will be included in the calculation of
Customer Volume in Multiply Listed Options Classes for purposes of the
Primary Improvement Order tiered execution fee and BOX Volume Rebate in
Section I.B of the BOX Fee Schedule. However, the tiered execution fee
and rebates defined in Section I.B will not apply to executions in SPY.
The Exchange believes that the proposed fees discussed above are
reasonable as they are similar to another options exchange.\7\
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\7\ See Nasdaq Phlx LLC (``Phlx'') Pricing Schedule Section 3,
Part C. Phlx assesses a $0.05 per contract fee for all PIXL
Initiating Orders in SPY (PIXL is Phlx's price improvement mechanism
similar to BOX's PIP mechanism). Further, Phlx assesses a $0.38 per
contract fee to non-Customers when their PIXL Order is contra to an
Initiating Order; unless the PIXL Order is a Public Customer, in
which case the fee is $0.00 per contract. Next, the Exchange
believes the $0.02 per contract Primary Improvement Order fee for
SPY executions is reasonable when compared to Phlx's fees for
similar transactions. The Exchange also notes the proposed SPY PIP
and COPIP Order Fees are identical to the PIP and COPIP Order Fees
that currently apply to all options. The Exchange is simply carving
out a separate section for all SPY PIP and COPIP transactions.
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Lastly, the Exchange proposes to establish liquidity fees and
credits for SPY executions in the PIP or COPIP auction mechanisms.
Currently, in Section III.A of the Fee Schedule, a Public Customer PIP
or COPIP Order receives a ``removal'' credit while the corresponding
Primary Improvement Order and any Improvement Order are charged an
``add'' fee. The Exchange proposes a $0.45 fee for all SPY PIP and
COPIP transactions that add liquidity and a $0.45 credit for all SPY
COPIP and PIP transactions that remove liquidity.
[[Page 65193]]
Further, under the BOX Fee schedule, when Non-Public Customer PIP
or COPIP orders do not trade with its Primary Improvement Order, the
Primary Improvement Order receives a ``removal'' credit and any
corresponding Improvement Order responses are charged an ``add'' fee.
For these types of executions the Exchange proposes a $0.45 fee for all
SPY PIP and COPIP transactions that add liquidity and a $0.45 credit
for all SPY PIP and COPIP transactions that remove liquidity. The
Exchange notes that the proposed fees and credits are similar to fees
at another options exchange.\8\ Lastly, the Exchange notes that it is
updating the footnotes throughout the Fee Schedule to accommodate the
addition of new footnotes related to the changes discussed above.
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\8\ See Phlx Pricing Schedule, Section 3, Part A. The Exchange
notes that Phlx offers rebates ranging from $0.15 to $0.35 to
Specialists and Market Makers for adding liquidity in SPY. Further,
Phlx assesses a $0.48 fee for Market Makers, Broker Dealers and
Professionals and a $0.45 fee for Public Customers for removing
liquidity in SPY. As discussed herein, the Exchange proposes to
assess fees for adding liquidity in SPY and offer credits for
removing liquidity in SPY. The Exchange believes this is reasonable
as the proposed change mirrors the structure of the liquidity fees
and credits currently in place in the BOX Fee Schedule for PIP and
COPIP transactions.
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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's proposal to adopt new pricing for PIP and COPIP SPY
executions is reasonable, equitable, and not unfairly discriminatory
because pricing by symbol is a common practice on many U.S. options
exchanges as a means to incentivize order flow to be sent to an
exchange for execution in the most actively traded options classes.\10\
The Exchange notes that another options exchange has a similar pricing
structure for SPY in their respective price improvement mechanism.\11\
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\10\ The Exchange is proposing to decrease the fees for SPY
Improvement Orders, which are responses in the PIP and COPIP
mechanisms, to $0.05 for all types of Participants; as well as
assess a flat $0.02 fee for SPY Primary Improvement Orders. The
Exchange believes these decreased fees are reasonable and will
result in increased SPY order flow to BOX's auction mechanisms.
\11\ See supra note 7.
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The Exchange believes that the proposed fees for SPY PIP and COPIP
Orders are reasonable, equitable and not unfairly discriminatory. As
noted above, these fees are identical to the current PIP and COPIP
Order fees assessed on the Exchange.
The Exchange believes that the proposed SPY Improvement Order fees
are equitable and not unfairly discriminatory as the decreased fees
will encourage market participants to take advantage of the new pricing
structure and respond to more SPY PIP and COPIP Orders. The Exchange
believes it is reasonable to assess lower fees to transact SPY
Improvement Orders (compared to Penny and Non-Penny Improvement Orders)
because the Exchange seeks to incentivize market participants to
transact a greater number of SPY option transactions in the PIP or
COPIP mechanisms.
The Exchange's proposal to assess a flat fee for SPY Primary
Improvement Orders is reasonable, equitable and not unfairly
discriminatory. Specifically, the Exchange is proposing a flat $0.02
per contract fee which is the same as the highest volume tier for all
other Primary Improvement Orders.\12\ The Exchange believes that the
proposed fee will encourage Participants to submit Primary Improvement
Orders to the Exchange, thus increasing order flow to BOX's auction
mechanisms and benefitting all market participants.
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\12\ The Exchange notes that under the volume base tiered fee
structure for Primary Improvement Orders, a majority of BOX
Participants reach the highest tier and are assessed the $0.02 fee
for their Primary Improvement Orders. Further, Improvement Orders
are assessed $0.12 for Professional Customers and Broker Dealers and
Market Makers and $0.15 for Public Customers. Under this proposal,
SPY Primary Improvement Orders will be assessed the $0.02 flat fee
and the SPY Improvement Order will be charged $0.05 (regardless of
account type), a substantially less differential than what is
currently assessed today for SPY transactions.
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Further, the Exchange believes exempting SPY COPIP and PIP Orders
from the BVR is reasonable, equitable and not unfairly discriminatory.
The Exchange notes that the BVR is meant to incentivize order flow,
which the Exchange believes is already achieved by assessing lower fees
for SPY PIP and COPIP Orders.
The Exchange believes including SPY transactions in the Customer
Volume in Multiply Listed Options Classes for purposes of the Primary
Improvement Order tiered execution fee and BOX Volume Rebate is
reasonable as it will allow market participants to benefit from SPY PIP
and COPIP volume in terms of qualifying for these volume based
thresholds in Section I.B.1 of the Fee Schedule. Lastly, the Exchange
believes the proposed change is equitable and not unfairly
discriminatory because the Exchange includes the SPY PIP and COPIP
transaction volume regardless of account type.
The Exchange believes that the proposed changes to Section III
(Liquidity Fees and Credits) are equitable and not unfairly
discriminatory in that the fees and credits apply to all categories of
participants and across all account types. The Exchange notes that
liquidity fees and credits on BOX are meant to offset one another in
any particular transaction. The liquidity fees and credits do not
directly result in revenue to BOX, but simply allows BOX to provide
incentives to Participants to attract order flow. The Exchange also
believes the proposed liquidity fees and credits for SPY PIP and COPIP
transactions are reasonable as they mirror the structure of liquidity
fees and credits currently in place for PIP and COPIP transactions on
BOX. Further, the Exchange notes that Phlx assesses fees and offers
rebates for removing or adding liquidity in SPY.\13\
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\13\ See supra note 8.
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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 pricing for SPY options in PIP and COPIP transactions promotes
competition in this highly liquid option. The Exchange does not believe
that the proposed changes will burden competition by creating a
disparity between the fees an Initiating Participant in the PIP or
COPIP auction pays and the fees a competitive responder pays that would
result in certain Participants being unable to compete with initiators.
In fact, the Exchange believes that these changes will not impair these
Participants from adding liquidity and competing in the auction
mechanisms and will help promote competition by providing incentives
for market participants to submit SPY PIP or COPIP order flow to BOX
and thus, create a greater opportunity for customers to receive
additional price improvement.
Further, the Exchange believes that the proposed liquidity fees and
credits for SPY PIP and COPIP transactions will not impose a burden on
competition. Rather, BOX believes that the changes
[[Page 65194]]
will result in Participants being charged or credited appropriately for
their 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.
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 \14\ and Rule 19b-4(f)(2) thereunder,\15\ because it
establishes or changes a due, or fee.
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\14\ 15 U.S.C. 78s(b)(3)(A)(ii).
\15\ 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-2018-36 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-2018-36. 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 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. 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-2018-36, and should be submitted on
or before January 9, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27411 Filed 12-18-18; 8:45 am]
BILLING CODE 8011-01-P