[Federal Register Volume 88, Number 88 (Monday, May 8, 2023)]
[Notices]
[Pages 29771-29774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09680]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97418; File No. SR-BOX-2023-12]


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 Facility To Establish a Monthly 
Dividend Strategy Fee Cap for Dividend Strategy Qualified Open Outcry 
Orders

May 2, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 1, 2023, BOX Exchange LLC (``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

[[Page 29772]]

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 
establish a monthly dividend strategy fee cap for dividend strategy 
Qualified Open Outcry (``QOO'') Orders on the BOX Options Market LLC 
(``BOX'') options 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 https://rules.boxexchange.com/rulefilings.

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 BOX Fee Schedule to establish a 
monthly dividend strategy fee cap for dividend strategy Qualified Open 
Outcry (``QOO'') Orders. Specifically, the Exchange is proposing to: 
(1) rename Section V.D to Section V.D.1; (2) add Section V.D.2; and (3) 
to establish a monthly dividend strategy fee cap for dividend strategy 
QOO Orders.
    Currently, the transaction fees for QOO Orders, including Strategy 
\5\ QOO Orders, are detailed in Section V of the BOX Fee Schedule. 
Specifically, Broker Dealer QOO transactions are assessed $0.25 per 
contract and Market Maker QOO transactions are assessed $0.35 per 
contract. Public Customers and Broker Dealers facilitating a Public 
Customer are assessed $0.00. Professional Customers are assessed $0.10 
per contract.\6\ Additionally, Floor Brokers are eligible for a rebate 
for QOO Orders presented on the Trading Floor.\7\ The rebate does not 
apply to Public Customer executions, executions subject to the Strategy 
QOO Order Fee Cap and Rebate, discussed below, or Broker Dealer 
executions where the Broker Dealer is facilitating a Public Customer.
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    \5\ Strategy orders are defined as one of the following: A 
``short stock interest strategy'' is defined as a transaction done 
to achieve a short stock interest arbitrage involving the purchase, 
sale, and exercise of in-the-money options of the same class. A 
``long stock interest strategy'' is defined as a transaction done to 
achieve long stock involving the purchase, sale, and exercise of in-
the-money options of the same class. A ``merger strategy'' is 
defined as transactions done to achieve a merger arbitrage involving 
the purchase, sale and exercise of options of the same class and 
expiration date, each executed prior to the date on which 
shareholders of record are required to elect their respective form 
of consideration, i.e., cash or stock. A ``reversal strategy'' is 
established by combining a short security position with a short put 
and a long call position that shares the same strike and expiration. 
A ``conversion strategy'' is established by combining a long 
position in the underlying security with a long put and a short call 
position that shares the same strike and expiration. A ``jelly roll 
strategy'' is created by entering into two separate positions 
simultaneously. One position involves buying a put and selling a 
call with the same strike price and expiration. The second position 
involves selling a put and buying a call, with the same strike 
price, but with a different expiration from the first position. A 
``box spread strategy'' is a strategy that synthesizes long and 
short stock positions to create a profit. Specifically, a long call 
and short put at one strike is combined with a short call and long 
put at a different strike to create synthetic long and synthetic 
short stock positions, respectively. A ``dividend strategy'' is 
defined as a transaction done to achieve a dividend arbitrage 
involving the purchase, sale and exercise of in-the-money options of 
the same class, executed the first business day prior to the date on 
which the underlying stock goes ex-dividend. See BOX Fee Schedule, 
notes 30 and 36.
    \6\ See BOX Fee Schedule, Section V.A, ``Manual Transaction 
Fees''.
    \7\ See BOX Fee Schedule, Section V.C, ``QOO Order Rebate''.
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    Currently, to further incentivize Participants to execute strategy 
QOO transactions on BOX, BOX offers the Strategy QOO Order Fee Cap and 
Rebate in Section V.D of its Fee Schedule.\8\ Specifically, the manual 
transaction fees for certain Strategy QOO Orders are capped on a daily 
basis. Short stock interest, long stock interest, merger, reversal, 
conversion, jelly roll, and box spread strategies executed on the same 
trading day are capped at $500 per day per customer. Further, dividend 
strategies executed on the same trading day in the same options class 
are capped at $1,000 per day per customer. In addition to the fee caps 
detailed above, on each trading day, Floor Brokers are eligible to 
receive a $500 rebate per customer for presenting certain Strategy QOO 
Orders on the Trading Floor. The rebate is applied once the $500 fee 
cap, per customer, for all short stock interest, long stock interest, 
merger, reversal, conversion, jelly roll, and box spread strategies is 
met. For dividend strategies, the rebate of $500 per customer is 
applied once the $1,000 fee cap, per customer, is met.\9\
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    \8\ See BOX Fee Schedule, Section V.D, ``Strategy QOO Order Fee 
Cap and Rebate''.
    \9\ Id.
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    The Exchange now proposes to: (1) rename Section V.D to Section 
V.D.1; (2) add Section V.D.2; and (3) to establish a monthly dividend 
strategy QOO Order fee cap. The Exchange proposes to add Section V.D.2 
in order to separate dividend strategy fee caps and rebates from short 
stock interest, long stock interest, merger, reversal, conversion, 
jelly roll, and box spread strategy fee caps and rebates. Specifically, 
the references to dividend strategies in current Section V.D will be 
removed and added to proposed Section V.D.2 and what remains of current 
Section V.D will be renamed Section V.D.1. As such, proposed Section 
V.D.2 will include the dividend strategy provisions moved from current 
Section V.D and will establish a new monthly fee cap for dividend 
strategy QOO Orders. Specifically, under this proposal, dividend 
strategies executed in the same month will be capped at $65,000 per 
month per customer. Manual transaction fees for dividend strategies 
will continue to be capped at $1,000 per day per options class per 
customer. The monthly cap for dividend strategies will be applied to 
manual transaction fees for dividend strategies executed in the same 
month per customer. Floor Brokers will not be eligible to receive a 
$500 daily rebate for dividend strategies once the monthly cap is met.
    The Exchange notes that all Strategy QOO and dividend strategy 
transactions will continue to count toward Market Maker and Public 
Customer monthly executed volume on BOX, as detailed in Section IV.A.1 
(Tiered Volume Rebate for Non-Auction Transactions) of the BOX Fee 
Schedule.
    The Exchange notes that the proposed change is designed to compete 
with another monthly fee cap for strategy orders.\10\ Therefore, the 
Exchange

[[Page 29773]]

believes the proposed change may further incentivize Participants to 
direct dividend strategy order volume to the BOX Trading Floor.
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    \10\ See Nasdaq PHLX LLC (``PHLX'') Options 7, Section 4 
(providing that dividend strategies, among others, per member 
organization's combined executions in a month when trading in its 
own proprietary accounts qualify for a $65,000 monthly cap if the 
buy and sell side of a transaction originates either from the PHLX 
Trading Floor or as a Floor Qualified Contingent Cross Order). The 
Exchange notes that PHLX's monthly fee cap applies to dividend, 
merger, short stock interest, reversal and conversion, jelly roll 
and box spread strategies, while this proposal applies only to 
dividend strategies.
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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,\11\ 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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    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange notes that it operates in a highly competitive 
environment. Indeed, there are currently 16 registered options 
exchanges that trade options. Based on publicly available information, 
no single options exchange has more than 18% of the market share and 
currently the Exchange represents only approximately 5% of the market 
share.\12\ The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Particularly, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \13\ As stated 
above, the Exchange operates in a highly competitive market in which 
market participants can readily direct order flow to competing venues 
if they deem fee levels at a particular venue to be excessive or 
incentives to be insufficient. The proposed fee changes reflect a 
competitive pricing structure designed to incentivize market 
participants to direct their order flow to BOX, in particular dividend 
strategy QOO Orders.
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    \12\ See Cboe Global Markets U.S. Options Market Month-to-Date 
Volume Summary (February 13, 2023), available at https://markets.cboe.com/us/options/market_statistics/.
    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    The Exchange believes the proposed change is reasonable, equitable, 
and not unfairly discriminatory as there is another exchange with a 
similar monthly fee cap for strategy orders \14\ and the proposed fee 
cap is uniformly applicable to all Participants. The Exchange also 
believes the proposed change would further incentivize Participants to 
execute dividend strategy QOO Orders on BOX and may encourage 
Participants to aggregate all types of strategy orders at BOX as a 
primary execution venue. The Exchange believes that Participants may 
consolidate different order types for execution on a single exchange 
because it increases the volume counted towards volume-based fee 
incentives, such as, the Tiered Volume Rebate for Non-Auction 
Transactions in Section IV.A.1., of the BOX Fee Schedule, which 
provides Market Makers and Public Customers with incentives to achieve 
certain volume thresholds on BOX.\15\ To the extent that the proposed 
change attracts more dividend strategy orders to BOX, this increased 
order flow may make BOX a more competitive venue for order execution.
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    \14\ See supra note 10.
    \15\ See BOX Fee Schedule, Section IV.A.1, ``Tiered Volume 
Rebate for Non-Auction Transactions''.
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    The Exchange also believes that the ever-shifting market share 
among the exchanges from month to month demonstrates that market 
participants can shift order flow or discontinue or reduce use of 
certain categories of products in response to fee changes. Accordingly, 
competitive forces constrain options exchange transaction fees. Stated 
differently, changes to exchange transaction fees can have a direct 
effect on the ability of an exchange to compete for order flow. The 
Exchange believes the proposed change is a reasonable attempt to 
effectively compete for manual dividend strategy orders. The Exchange 
believes that the proposed change may encourage Participants to execute 
dividend strategy orders on BOX and, in turn, may increase the depth of 
the market to the benefit of all market participants. The Exchange 
notes that Participants may avail themselves of the proposed dividend 
strategy order pricing on BOX or they can opt for similar offerings at 
another exchange.\16\
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    \16\ See supra note 10.
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    The Exchange believes that not allowing Floor Brokers to be 
eligible to receive a daily $500 rebate for dividend strategies once 
the monthly cap is met is reasonable, equitable and not unfairly 
discriminatory because, as proposed, this limitation applies to all 
Floor Brokers equally and a fee is not assessed for transactions once 
the monthly cap is met. As such, the Exchange believes that 
Participants do not require additional incentives to execute these 
transactions on BOX once the monthly cap is met.

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 attract additional order flow to 
BOX. The Exchange believes that the proposed change could further 
incentivize market participants to direct their dividend strategy 
orders to BOX. As noted herein, the proposed monthly cap for dividend 
strategy fees would be applicable to all similarly situated market 
participants, and, as such, the proposed change would not impose a 
disparate burden on competition among Participants on BOX.
    Further, the Exchange also does not believe that the proposed fees 
will impose any burden on intermarket competition that is not necessary 
or appropriate in furtherance of the Act because, as noted above, 
another competing options exchange currently has a similar fee cap in 
place in connection with strategy orders.\17\ Because competitors are 
free to modify their own fees or fee caps in response to competing 
exchanges, the Exchange believes that the degree to which changes in 
this market may impose any burden on competition is limited. Further, 
the Exchange believes that the proposed change could promote 
competition between BOX and other execution venues, including those 
that currently offer similar strategy order fees or fee caps. Finally, 
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 credits to remain competitive with other 
exchanges. For the reasons described above, the Exchange believes that 
the proposed rule change reflects this competitive environment.
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    \17\ Id.
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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.

[[Page 29774]]

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 \18\ and Rule 19b-4(f)(2) 
thereunder,\19\ because it establishes or changes a due, or fee.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BOX-2023-12 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-2023-12. 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 (https://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. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection.
    All submissions should refer to File Number SR-BOX-2023-12, and 
should be submitted on or before May 30, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09680 Filed 5-5-23; 8:45 am]
BILLING CODE 8011-01-P