[Federal Register Volume 84, Number 59 (Wednesday, March 27, 2019)]
[Notices]
[Pages 11591-11593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05815]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85387; File No. SR-BOX-2019-07]
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 Add the
Concepts of Appointed OFP and Appointed MM
March 21, 2019.
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 March 11, 2019, 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 to
amend the Fee Schedule [sic] on the BOX Options Market LLC (``BOX'')
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 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 the Fee Schedule for trading on BOX
to amend Section VIII.A (Aggregate Billing) of the BOX Fee Schedule to
add the concepts of ``Appointed OFP'' and ``Appointed MM'' which would
increase opportunities for firms to qualify for various volume tier
discounts and rebates.
The Exchange proposes to allow BOX Market Makers to designate an
Order Flow Provider (``OFP'') \5\ as its ``Appointed OFP'' and to
likewise allow OFPs to designate a Market Maker as its ``Appointed
MM.'' \6\ As proposed, BOX Participants would effectuate the
designation--of an Appointed OFP or Appointed MM--by each sending an
email to the Exchange.\7\ The Exchange would view corresponding emails
as acceptance of such an appointment and would only recognize one such
designation for each party once every 12-months, which designation
would remain in effect unless or until the Exchange receives an email
from either party indicating that the appointment has been
terminated.\8\ The Exchange believes that this requirement would impose
a measure of exclusivity and would enable both parties to rely upon
each other's, and potentially increase, transaction volumes executed on
the Exchange, which is beneficial to all BOX Participants.
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\5\ See BOX Rule 100(a)(46) (defining OFP as those Options
Participants representing as agent Customer Orders on BOX and those
non-Market Maker Participants conducting proprietary trading).
\6\ See proposed rule text Section VIII.A.4.
\7\ See id.
\8\ See id.
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The Exchange proposes to allow a Participant to opt to combine its
volume with that of its Appointed OFP/Appointed MM to qualify for the
[[Page 11592]]
various incentive programs offered on the Exchange. First, a
Participant with an Appointed OFP/Appointed MM would be able to
aggregate certain of its volumes with that of its Appointed OFP/
Appointed MM for purposes of qualifying for certain (1) rebates
available in the Tiered Volume Rebate for Non-Auction Transactions for
Market Makers and Public Customers (``Tiered Volume Rebate for Non-
Auction Transactions''), (2) fees assessed for Primary Improvement
Orders, and (3) rebates available to all Public Customer PIP and COPIP
Orders of 250 and under contracts that do not trade with their contra
order (``BOX Volume Rebate''). Currently, a Participant can only
aggregate its volume with that of its affiliate(s).\9\ The concept of
Appointed OFP/Appointed MM would apply in instances where a Participant
qualifies for a favorable fee by calculating qualifying volume through
combining its transactions with that of Appointed OFP/Appointed MM.
However, a Participant that has both an Appointed OFP/Appointed MM and
any affiliate(s) may only aggregate volumes with one of those two, not
both. Thus, the Exchange proposes to modify the Fee Schedule to provide
that in calculating qualifications for volume of a Participant's
activity, the Participant may request the Exchange to ``aggregate its
eligible activity with the eligible activity of either its affiliate(s)
or its Appointed OFP or its Appointed Market Maker.'' \10\ The Exchange
notes that other exchanges have adopted similar concepts.\11\
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\9\ See BOX Fee Schedule.
\10\ See proposed language in Section VIII.A. of the BOX Fee
Schedule.
\11\ See Securities Exchange Act Release Nos. 77524 (April 5,
2016), 81 FR 21417 (April 11, 2016) (SR-BatsBZX-2016-04); 77526
(April 5, 2016), 81 FR 21405 (April 11, 2016) (SRBatsEDGX-2016-05);
77926 (May 26, 2016), 81 FR 35421 (June 2, 2016) (SR-CBOE-2016-045);
78382 (July 21, 2016), 81 FR 49293 (July 27, 2016) (SR-Phlx-2016-
62); 80416 (April 10, 2017), 82 FR 18028 (April 14, 2017) (SR-MIAX-
2017-15).
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The Exchange does not propose to modify any of the volume
qualifications or the associated fees and rebates for the various
incentive programs at this time.
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,\12\ 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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\12\ 15 U.S.C. 78f(b)(4) and (5).
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The proposal is reasonable, equitable and not unfairly
discriminatory for the following reasons. First, the proposal would be
available to all Market Makers and OFPs and the decision to be
designated as an ``Appointed OFP'' or ``Appointed MM'' would be
completely voluntary and a Participant may elect to accept this
appointment or not. In addition, the proposed changes would enable
firms that are not currently eligible for certain rebates and discounts
to avail themselves of these rebates/discounts, as well increase
opportunities for firms that are currently eligible for certain
rebates/discounts to potentially achieve a higher tier, thus qualifying
to higher rebates/discounts. The Exchange believes these proposed
changes would incentivize firms to direct their order flow to the
Exchange. Specifically, the proposed changes would enable any Market
Maker--not just those with affiliates--to pool certain volumes to
potentially qualify its Appointed OFP for rebates/discounts available
on the Exchange. Moreover, the proposed change would allow any OFP, by
virtue of designating an Appointed MM, to aggregate certain of its own
volumes with the activity of its Appointed MM, which would enhance the
OFP's potential to qualify for additional rebates and discounts. The
Exchange believes these proposed changes would incentivize Appointed
OFPs and OFPs with an Appointed MM to direct order flow to the
Exchange, which additional liquidity would benefit all market
participants (including those market participants that are not
currently affiliates and/or opt not to become an Appointed party) by
providing more trading opportunities and tighter spreads. The Exchange
also notes that the proposed changes are reasonable as other exchanges
have adopted similar concepts for their own affiliate-based incentive
programs.\13\
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\13\ See supra note 11.
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Similarly, the proposal, which would permit the opportunity for
both parties to rely upon each other's, and potentially increase,
transaction volumes, is reasonable, equitable and not unfairly
discriminatory because it may encourage Market Makers to increase in
order flow, capital commitment and resulting liquidity on the Exchange
would benefit all market participants by expanding liquidity, providing
more trading opportunities and tighter spreads.
Further, the Exchange believes that the proposal is reasonable and
equitably allocated because it is beneficial to all Exchange
Participants because it enables parties to rely upon each other's
transaction volumes executed on the Exchange, and potentially increase
such volumes. In turn, the potential increase in order flow, capital
commitment and resulting liquidity on the Exchange would benefit all
market participants by expanding liquidity, providing more trading
opportunities and tighter spreads.
The proposal is also reasonable, equitable and not unfairly
discriminatory because the Exchange would only recognize one such
designation for each party once every 12 months (from the date of its
most recent designation), a requirement that would impose a measure of
exclusivity while allowing both parties to rely upon each other's
transaction volumes executed on the Exchange, and potentially increase
such volumes, again, to the benefit of all market participants.
Finally, the Exchange believes the proposal is reasonable,
equitable and not unfairly discriminatory and facilitates trading as it
may benefit all market participants through increased order flow on the
exchange, even to those market participants that are either currently
affiliated by virtue of their common ownership or that opt not to
become an Appointed OFP or Appointed Market Maker under this proposal.
Further, as discussed herein, other exchanges have adopted similar
concepts.\14\
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\14\ See supra note 11.
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For these reasons, the Exchange believes that the proposal is
consistent with the Act.
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 changes are pro-competitive as they would increase
opportunities for additional firms to qualify for various rebates and
discounts, which may increase intermarket and intramarket competition
by incenting Appointed OFPs and Appointed MMs to direct their orders to
the Exchange, thereby increasing the volume of contracts traded on the
Exchange and enhancing the quality of quoting. Enhanced market quality
and increase transaction volume that results from the anticipated
increase in order flow directed to the Exchange would benefit all
market participants and improve competition on the Exchange.
[[Page 11593]]
With regard to aggregating volume for Primary Improvement Orders,
the Exchange does not believe that the proposed change will burden
competition by creating a disparity between the fees an initiator pays
and the fees a competitive responder pays that would result in certain
Participants being unable to compete with initiators. The Exchange
believes that the differential is reasonable as responders are willing
to pay a higher fee for liquidity discovery. Further, the Exchange
believes these changes will help promote competition by providing
incentives for market participants to submit these orders, and thus
benefit all Participants trading on the Exchange. Further, the Exchange
notes that other exchanges allow appointed aggregation for incentive
programs (which include transactions in their improvement mechanisms)
currently in place.\15\
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\15\ See Cboe Exchange Inc. (``Cboe'') Fee Schedule, Affiliate
Volume Plan (``AVP'') and Volume Incentive Plan (``VIP''). On Cboe,
the Volume Incentive Program (``VIP'') credits each Trading Permit
Holder (``TPH'') the per contract amount set forth in the VIP table
for Public Customer orders (which include Simple AIM Orders, Simple
non-AIM Orders, Complex AIM Orders and Complex non-AIM Orders)
transmitted by that TPH which is executed electronically on the
Exchange, provided the TPH meets certain volume thresholds. Further,
the Affiliate Volume Plan (``AVP'') allows a Market Maker to qualify
for additional discounts on that Market Maker's LP Sliding Scale
transaction fees when the Market Maker's Affiliate or Appointed OFP
qualifies for credits under the VIP. While Cboe credits its TPHs and
their Appointed OFPs or Appointed MMs under their fee schedule, the
Exchange believes the end result is comparable to the proposed
change discussed herein. Here, the Exchange proposes to allow
Participants to aggregate volume for Primary Improvement Orders,
while Cboe allows its TPHs to aggregate volume for their AIM Orders
in order to receive a credit.
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The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues. In
such an environment, the Exchange must continually review, and consider
adjusting, its fees and rebates to remain competitive with other
exchanges. For the reasons discussed above, the Exchange believes that
the proposed 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 \16\ and Rule 19b-4(f)(2)
thereunder,\17\ because it establishes or changes a due, or fee.
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 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-2019-07 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-2019-07. 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-2019-07, and should be submitted on
or before April 17, 2019.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05815 Filed 3-26-19; 8:45 am]
BILLING CODE 8011-01-P