[Federal Register Volume 89, Number 172 (Thursday, September 5, 2024)]
[Notices]
[Pages 72542-72547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19952]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100882; File No. SR-BOX-2024-19]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee 
Schedule Relating to BOX Connectivity Fees and Port Fees for Trading on 
the BOX Options Market LLC Facility

August 30, 2024.
    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 August 16, 2024, 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 Terms of 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 relating to BOX Connectivity Fees and Port Fees 
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 Fee Schedule for trading on BOX 
to increase BOX Connectivity Fees for 10 gigabit (``Gb'') Connections, 
Non-10 Gb Connections, Financial Information Exchange (``FIX'') Ports, 
SOLA[supreg] Access Information Language (``SAIL'') Ports, Drop Copy 
Ports, and High Speed Vendor Feed (``HSVF'') Ports (collectively 
``Connectivity and Ports'').\5\ Specifically, the Exchange proposes to 
increase its fees for Connectivity and Ports in Sections III.A.2 and 
III.B of the BOX Fee Schedule.
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    \5\ The Exchange initially filed the proposed pricing change on 
June 3, 2024 (SR-BOX-2024-13). On June 18, 2024, the Exchange 
withdrew that filing and submitted SR-BOX-2024-16. The instant 
filing replaces SR-BOX-2024-16, which was withdrawn on August 16, 
2024.
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    By way of background, a physical connection is utilized by a 
Participant or non-Participant to connect to BOX at the datacenters 
where BOX's servers are located. BOX currently assesses the following 
physical connectivity fees for

[[Page 72543]]

Participants and non-Participants on a monthly basis: $1,000 per 
connection for a Non-10 Gb Connection and $5,000 per connection for a 
10 Gb Connection. The Exchange proposes to increase the monthly fee for 
Non-10 Gb Connections from $1,000 to $1,200 per connection and from 
$5,000 to $6,000 monthly fee for each 10 Gb Connection. The Exchange 
notes the proposed fee change better enables BOX to continue to 
maintain and improve its market technology and services and also notes 
that the proposed fee amount, even as amended, continues to be lower 
than the amounts assessed by other exchanges for similar connections, 
except for MEMX where their xNet Physical Connection is $6,000 per 
month, the same price as proposed for BOX's 10 GB Connection.\6\ 
However, MEMX does not offer a less expensive alternative, while BOX 
will offer a Non-10 Gb Connection for $1,200 per month.
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    \6\ See Cboe EDGX Exchange, Inc. (``Cboe EDGX'') Options Fee 
Schedule (assessing $2,500/month for a 1Gb physical port and $8,500/
month for a 10Gb physical port). The 1Gb physical port is analogous 
to the Exchange's Non-10 Gb Connection and the 10Gb physical port is 
analogous to the Exchange's 10 Gb Connection. See also Cboe Options 
Fee Schedule (10 Gb Physical Port $7,000 per month and 1 Gb Physical 
Port $1,500 per month). The 1 Gb Physical Port is analogous to the 
Exchange's Non-10 Gb Connection and the 10 Gb Physical Port is 
analogous to the Exchange's 10 Gb Connection. See also Cboe BZX 
Exchange, Inc. (``Cboe BZX'') Options Fee Schedule (10 Gb physical 
port $7,500 per month and 1 Gb physical port $2,500 per month). The 
1Gb physical port is analogous to the Exchange's Non-10 Gb 
Connection and the 10Gb physical port is analogous to the Exchange's 
10 Gb Connection. The relevant Cboe C2 Exchange, Inc. (``Cboe C2'') 
fees are the same as Cboe BZX. See Cboe C2 Options Fee Schedule. See 
also Nasdaq PHLX LLC (``Nasdaq Phlx'') Rules, General 8, Section 1 
``Co-Location Services, Connectivity to the Exchange'' (Fiber 
Connection to the Exchange (10Gb Ultra) $15,825 per month and Fiber 
Connection to the Exchange (1Gb Ultra) $2,638 per month) and Nasdaq 
BX, Inc. General 8, Section 1 (same) and Nasdaq GEMX, LLC General 8, 
Section 1 (same) and Nasdaq ISE, LLC General 8, Section 1 (same) and 
Nasdaq MRX, LLC General 8, Section 1 (same) and Nasdaq Stock Market 
LLC General 8, Section 1 (same). The 1Gb Ultra is analogous to the 
Exchange's Non-10 Gb Connection and the 10Gb Ultra is analogous to 
the Exchange's 10 Gb Connection. See also New York Stock Exchange 
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE 
National, Inc. Connectivity Fee Schedule (10 Gb LX LCN Circuit 
$22,000 per month and IP Network Access 1 Gb Circuit $2,500 per 
month). The IP Network Access 1 Gb Circuit is analogous to the 
Exchange's Non-10 Gb Connection and the 10 Gb LX LCN Circuit is 
analogous to the Exchange's 10 Gb Connection. See also MIAX Options 
Fee Schedule, Section 5)a) (Primary/Secondary Facility 10 Gigabit 
ULL Per Connection $13,500 per month and Primary/Secondary Facility 
1 Gigabit Per Connection $1,400 per month) and MIAX Pearl, LLC 
Options Fee Schedule (same) and MIAX Emerald, LLC Options Fee 
Schedule (same) and MIAX Sapphire, LLC Options Fee Schedule (same). 
The 1 Gigabit is analogous to the Exchange's Non-10 Gb Connection 
and the 10 Gigabit ULL is analogous to the Exchange's 10 Gb 
Connection. See also MEMX LLC (``MEMX'') Connectivity Fee Schedule 
(xNet Physical Connection $6,000 per month). The Exchange notes that 
MEMX only has one type of connection.
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    Further, BOX currently provides four types of ports, including: (i) 
the FIX Port, which allows Participants to electronically send orders 
in all products traded on BOX; (ii) the SAIL Port, which allows Market 
Makers to submit electronic quotes and orders and other Participants to 
submit orders to BOX; (iii) the Drop Copy Port, which provides a real-
time feed containing trade execution, trade correction, trade 
cancellation and trade allocation for regular and complex orders on BOX 
for Participants; and (iv) the HSVF Port, which provides a BOX market 
data feed for both Participants and non-Participants. The Exchange 
notes that Participants must connect to a minimum of one port via FIX 
or SAIL and that there is no minimum or maximum number of ports 
required for the Drop Copy Port or the HSVF Port.
    Current FIX Port fees are as follows:

------------------------------------------------------------------------
          FIX ports                      BOX monthly port fees
------------------------------------------------------------------------
1st FIX Port.................  $500 per port per month.
FIX Ports 2 through 5........  $250 per port per month.
Additional FIX Ports over 5..  $150 per port per month.
------------------------------------------------------------------------

    Current SAIL Port fees are as follows:

------------------------------------------------------------------------
          SAIL ports                     BOX monthly port fees
------------------------------------------------------------------------
Market Making................  $1,000 per month for all Ports.
Order Entry..................  $500 per month per port (1-5 Ports).
                               $150 per month for each additional Port.
------------------------------------------------------------------------

    The Exchange proposes to increase FIX Port fees as follows:

------------------------------------------------------------------------
          FIX ports                      BOX monthly port fees
------------------------------------------------------------------------
1st FIX Port.................  $600 per port per month.
FIX Ports 2 through 5........  $300 per port per month.
Additional FIX Ports over 5..  $180 per port per month.
------------------------------------------------------------------------

    The Exchange proposes to increase SAIL Port fees as follows:

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          SAIL ports                     BOX monthly port fees
------------------------------------------------------------------------
Market Making................  $1,200 per month for all Ports.
Order Entry..................  $600 per month per port (1-5 Ports).
                               $180 per month for each additional Port.
------------------------------------------------------------------------


[[Page 72544]]

    The Exchange also proposes to increase Drop Copy Ports, currently 
$500 per month, to $600 per month for each month a Participant is 
credentialed to use a Drop Copy Port. Drop Copy Port fees will remain 
capped at $2,000 per month.
    The Exchange proposes lastly to increase HSVF Port fees, currently 
$1,500 per month, to $1,800 per month for each month a Participant or 
non-Participant is credentialed to use the HSVF Port. The Exchange 
notes that the proposed fee amounts, even as amended, continue to be in 
line with, or lower than, amounts assessed by other exchanges for 
similar ports.\7\
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    \7\ See, e.g., Cboe C2 Exchange, Inc. (``Cboe C2'') Options Fee 
Schedule (assessing $650 per port per month for Logical Ports (BOE, 
FIX, Drop) and at least $1,500 per month for Bulk BOE Ports). The 
Exchange notes that Bulk BOE Ports are analogous to the Exchange's 
SAIL Ports and Logical Ports are analogous to the Exchange's FIX 
Ports; Nasdaq PHLX LLC (``Nasdaq Phlx'') Rules Options 7, Section 9 
(assessing $650 per month per mnemonic for FIX Ports and $1,250 per 
port, per month up to a maximum of $42,000 per month for SQF Ports). 
The Exchange notes that SQF Ports are similar to SAIL Ports. Under 
the proposal, Market Makers on BOX will be assessed $1,200 per month 
for all SAIL Ports, compared to Cboe C2 which assesses at least 
$1,500 per month for each Bulk BOE Port and Nasdaq Phlx which 
assesses $1,250 per port, per month up to a maximum of $42,000 per 
month for SQF Ports. The Exchange notes further that HSVF Ports 
allow access to BOX market data and, while BOX assesses fees for 
HSVF Ports, it does not assess market data fees. In contrast, other 
exchanges assess market data fees. See, e.g., Nasdaq Phlx Options 7, 
Section 10 (assessing $2,000 per month for Internal Distributors of 
Top of PHLX Options data); Cboe C2 Options Fee Schedule (assessing a 
$2,500 per month C2 Options Top Distribution Fee). The Exchange 
notes that Nasdaq Phlx and Cboe C2's market data fees are higher 
than BOX's proposed HSVF Port fees.
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    The Exchange notes that since these fees were initiated 6 years 
ago,\8\ there has been notable and unanticipated inflation. 
Specifically, between 2018 (when the connectivity and port fees were 
initiated) and 2024, the Consumer Price Index (``CPI'') produced a 
cumulative price increase of approximately 25%.\9\ The CPI is a measure 
of the total value of goods and services consumers have bought over a 
specified period. The Producer Price Index (``PPI''), which is a 
measure of inflation from the perspective of producers, produced a 
cumulative price increase of approximately 15%.\10\ Both the CPI and 
the PPI are considered ``key data releases, meaning the monthly 
indicator is heavily scrutinized by traders, since they are used by the 
Federal Reserve to assess developments in the economy.'' \11\ Further, 
the Employment Cost Index (``ECI''), which measures the change in the 
hourly labor cost to employers over time, produced a cumulative price 
increase of approximately 25%.\12\ Notwithstanding such significant 
inflation as shown by these indices, the Exchange has not increased its 
connectivity fees during this time.
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    \8\ The 10 Gb and Non-10 Gb Connection fees were initially 
effective on July 19, 2018. See Securities Exchange Act Release No. 
83728 (July 27, 2018), 83 FR 37853 (August 2, 2018) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Fee Schedule on BOX Market LLC (``BOX'') Options Facility 
To Establish BOX Connectivity Fees for Participants and Non-
Participants Who Connect to the BOX Network). These fees were 
suspended on September 17, 2018 and became effective again on 
October 31, 2019. HSVF port fees were increased on January 31, 2018. 
See Securities Exchange Act Release No. 82654 (February 7, 2018), 83 
FR 6284 (February 13, 2018) (SR-BOX-2018-04) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend Section 
VI. (Technology Fees) of the BOX Fee Schedule). SAIL, FIX, and Drop 
Copy port fees were established on April 27, 2018. See Securities 
Exchange Act Release No. 83197 (May 9, 2018), 83 FR 22567 (May 15, 
2018) (SR-BOX-2018-15) (Notice of Filing and Immediate Effectiveness 
of a Proposed Rule Change To Amend the Fee Schedule on the BOX 
Market LLC (``BOX'') Options Facility To Amend Connectivity Fees and 
Establish Port Fees).
    \9\ See https://www.officialdata.org/us/inflation/2010?amount=1 
(Last updated August 14, 2024).
    \10\ See https://data.bls.gov/timeseries/PCU5182105182105 (Last 
updated August 13, 2024).
    \11\ See https://www.cmegroup.com/education/courses/learn-about-key-economic-events/understanding-consumer-price-index-and-producer-price-index.html.
    \12\ See https://www.bls.gov/eci/tables.htm (Last updated August 
13, 2024).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\13\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \15\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes the proposed rule 
change is consistent with Section 6(b)(4) \16\ of the Act, which 
requires that Exchange rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among its Participants and 
other persons using its facilities.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
    \16\ 15 U.S.C. 78f(b)(4).
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    Specifically, the current connectivity and port fees do not 
properly reflect the value of the services and products, as fees for 
the services and products in question have been static in nominal 
terms, and therefore falling in real terms due to inflation. 
Additionally, exchange fees are constrained by the fact that market 
participants can choose among 18 different venues for options trading, 
and therefore no single venue can charge excessive fees for its 
products without losing customers and market share. The Exchange notes 
that of the 18 venues, BOX currently offers the lowest fees for 10 Gb 
Connections and Non-10 Gb Connections, and after this fee change will 
be tied with one other exchange for the lowest fees for such 
connections.\17\
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    \17\ See supra note 6.
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    The Exchange believes the proposed fee change is reasonable as it 
reflects a moderate increase in physical connectivity and port fees for 
10 Gb Connections, Non-10 Gb Connections, FIX Ports, SAIL Ports, Drop 
Copy Ports, and HSVF Ports. Further, the current connectivity and port 
fees have remained unchanged since 2018.\18\ The Exchange notes that 
since these fees were initiated 6 years ago, there has been notable 
inflation, regardless of which inflation index is referenced. As noted 
above, between 2018 and 2024, the CPI produced a cumulative price 
increase of approximately 25%,\19\ the PPI produced a cumulative price 
increase of approximately 15%,\20\ and the ECI produced a cumulative 
price increase of approximately 25%.\21\ The Exchange again notes that 
CPI measures inflation as experienced by consumers, and can be used as 
a gauge for annual cost escalation in commercial agreements, PPI 
measures inflation as experienced by producers of goods and services, 
and ECI measures changes in the cost of employees to employers over 
time. BOX experiences inflation as a consumer of technology goods and 
services, such as servers, network

[[Page 72545]]

devices, and datacenter space and power,\22\ as a provider of an 
options market where orders and quotes are matched and trades and 
prices are disseminated, and as an employer. As such, the Exchange 
believes that BOX has exposure to price increases measured by each of 
the CPI, PPI, and ECI. Accordingly, the Exchange believes that 
reviewing each index is an appropriate exercise when determining the 
effects of inflation on BOX.
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    \18\ See supra note 8.
    \19\ See https://www.officialdata.org/us/inflation/2010?amount=1 
(Last updated August 14, 2024).
    \20\ See https://data.bls.gov/timeseries/PCU5182105182105 (Last 
updated August 13, 2024).
    \21\ See https://www.bls.gov/eci/tables.htm (Last updated August 
13, 2024).
    \22\ As an example of rising costs at BOX, the Exchange notes 
that BOX's datacenter vendor has increased prices for power and 
space by 5% per year since at least 2020. BOX also notes that 
unregulated competitors providing connectivity and co-location 
services often have annual price increases written into their 
agreements with customers to account for inflation and rising costs.
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    The Exchange notes that the 2021, 2022, and 2023 inflation rates 
were historically high.\23\ The Exchange believes that this could not 
have been reasonably anticipated in 2018 when the current connectivity 
fees were established and that, in these specific circumstances, a 
connectivity fee increase is warranted. Therefore, this proposal 
attempts to take into account the higher than expected inflation rates 
seen since 2021 and the fact that BOX's connectivity fees have not 
changed since 2018.
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    \23\ See supra notes 19, 20, 21.
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    The Exchange believes that it is reasonable to increase its fees to 
compensate for inflation because, over time, inflation has degraded the 
value of each dollar that the Exchange collects in fees, such that the 
real revenue collected today is considerably less than that same 
revenue collected in 2018. The Exchange notes that this inflationary 
effect is a general phenomenon that is independent of any change in 
BOX's costs in providing its goods and services. The Exchange believes 
that it is reasonable for it to offset, in part, this erosion in the 
value of the revenues it collects. The Exchange notes that another 
exchange has filed for increases in certain connectivity-related fees, 
based in part on similar rationale.\24\
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    \24\ See Securities Exchange Act Release No. 100513 (July 12, 
2024), 89 FR 58460 (July 18, 2024) (SR-Phlx-2024-27).
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    The Exchange believes the proposed connectivity and port fees are 
reasonable as the increases represent a 20% increase from the rates 
adopted 6 years ago before the historical and unanticipated rise in 
inflation. The Exchange is proposing a 20% fee increase for each 
connection and port type and believes that a 20% price increase, over a 
period producing a cumulative price increase between 15% and 25% (as 
seen by the CPI, PPI and ECI detailed above), is reasonable because the 
proposed fee increases are broadly in line with those price increases. 
Further, the Exchange believes that the proposed 20% increase strikes a 
balance between market participants' expectations of the price for 
connectivity to BOX and the historical rise of inflation. The Exchange 
notes that the proposed fees remain in line with, or lower than, 
amounts assessed by other exchanges for similar connections and 
ports.\25\ The Exchange notes further that it does not intend to adjust 
connectivity and port fees due to inflation on an annual basis, rather 
the Exchange reiterates that the purpose of this proposal is to address 
the unanticipated and historical rise in inflation since the adoption 
of its connectivity fees in 2018 and, in particular in 2021, 2022, and 
2023.
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    \25\ See supra notes 6, 7.
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    Additionally, the Exchange believes the proposed fee increase is 
reasonable in light of recent and anticipated connectivity-related 
upgrades and changes. Specifically, BOX has recently replaced trading 
servers and added additional servers to increase performance and 
capacity, to increase competitiveness, and to support growth. For 
example, the rapid growth of trading volumes from 2020 has increased 
the number of servers, network devices, and telecommunications lines 
required to keep pace with the growth of trade, order, and quote data. 
As part of another recent change, BOX deployed additional low latency 
network switches and increased its datacenter space. As a result of 
these initiatives, BOX increased its overall hardware footprint at the 
datacenters which directly results in increased support costs at the 
datacenter as well.
    The goal of the initiatives discussed above, among other things, is 
to provide faster and more consistent order handling and matching 
performance for options, while ensuring quicker processing time and 
supporting increasing volumes. Accordingly, BOX continuously invests in 
improvements that enhance the value of its connectivity services. The 
Exchange expended, and will continue to expend, resources to innovate 
and modernize technology so that it may benefit its Participants and 
continue to compete among other options markets. BOX regularly invests 
in efforts to support and optimize its systems to support system 
capacity, reliability, and performance.
    Further, Participants and non-Participants will continue to choose 
the method of connectivity based on their specific needs and no broker-
dealer is required to become a Participant of, let alone connect 
directly to, BOX. There is also no regulatory requirement that any 
market participant connect to any one particular exchange. Moreover, 
direct connectivity is not a requirement to participate on BOX. 
Participants may choose to connect indirectly to BOX via a third-party 
reseller of connectivity. Additionally, market participants may choose 
to connect to other options exchanges. Indeed, there are currently 17 
registered options exchanges that trade options, many with higher 
connectivity and port fees.\26\ Based on publicly available 
information, no single options exchange has more than approximately 19% 
of the market share.\27\ Further, low barriers to entry mean that new 
exchanges may rapidly enter the market and offer additional substitute 
platforms to further compete with BOX and the products it offers. For 
example, there are 5 exchanges that have been added in the U.S. options 
markets in the last 6 years (i.e., Nasdaq MRX, LLC, MIAX Pearl, LLC, 
MEMX LLC, MIAX Sapphire LLC, and MIAX Emerald LLC).
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    \26\ Id.
    \27\ See Cboe Global Markets U.S. Options Market Volume Summary 
(August 14, 2024), available at https://markets.cboe.com/us/options/market_statistics/.
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    The Exchange notes that both Participants and non-Participants may 
purchase connectivity and that either Participants or non-Participants 
may resell such connectivity. This indirect connectivity is a viable 
alternative for market participants to consume market data from BOX 
without connecting directly to BOX (and thus not pay BOX's connectivity 
fees), which alternative is already being used by both Participants and 
non-Participants and further constrains the price that BOX is able to 
charge for connectivity. The Exchange notes that it could, but chooses 
not to, preclude resale of its connectivity. The Exchange also chooses 
not to adopt fees that would be assessed to third-party resellers on a 
per customer basis (i.e., fee based on number of Participants that 
connect to BOX indirectly via the third-party). Particularly, these 
third-party resellers may purchase BOX's connections and resell access 
to such connections either alone or as part of a package of services. 
The Exchange notes that multiple Participants are able to share a 
single physical connection (and corresponding bandwidth) with other 
non-affiliated Participants if purchased through a third-party re-
seller. This allows resellers to mutualize the costs of the connections 
for market participants and provide such connections at a price

[[Page 72546]]

that may be lower than BOX charges due to this mutualized connectivity. 
These third-party sellers may also provide an additional value to 
market participants as they may also manage and monitor these 
connections. Additionally, clients of these third-parties may also be 
able connect from the same colocation facility either from their own 
racks or using the third-party's managed racks and infrastructure which 
may provide further cost-savings. Further, the Exchange does not 
receive any connectivity revenue when connectivity is resold by a 
third-party, which often is resold to multiple customers. Given the 
availability of third-party providers that also offer connectivity 
solutions, the Exchange believes participation on BOX remains 
affordable (notwithstanding the proposed fee change) for all market 
participants, including smaller trading firms that may be able to take 
advantage of lower costs that result from mutualized connectivity.
    Accordingly, the vigorous competition among national securities 
exchanges provides many alternatives for firms to voluntarily decide 
whether direct connectivity to BOX is appropriate and worthwhile, and 
as noted above, no broker-dealer is required to become a Participant of 
the Exchange, let alone connect directly to it. In the event that a 
market participant views BOX's proposed fee change as more or less 
attractive than the competition, that market participant can choose to 
connect to BOX indirectly or may choose not to connect at all and 
connect instead to one or more of the other 17 options markets. As 
such, BOX must set its fees, including its fees for connectivity and 
ports competitively. If not, customers may move to other venues or 
reduce use of the BOX's services. ``If competitive forces are 
operative, the self-interest of the exchanges themselves will work 
powerfully to constrain unreasonable or unfair behavior.'' \28\ 
Accordingly, ``the existence of significant competition provides a 
substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \29\ Disincentivizing market participants 
from purchasing BOX connectivity would only serve to discourage 
participation on BOX, which ultimately does not benefit BOX. Moreover, 
if BOX charges excessive fees, BOX may stand to lose not only 
connectivity and port revenues but also other revenues, including 
revenues associated with the execution of orders. In summary, the 
proposal represents an equitable allocation of reasonable dues, fees 
and other charges because BOX's connectivity and port fees have fallen 
in real terms and customers have a choice in trading venue and will 
exercise that choice and trade at another venue if connectivity and 
port fees are not set such that BOX's revenues are sufficient to invest 
in a competitive connectivity offering.
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    \28\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \29\ Id.
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    As for market participants that determine to continue to maintain 
their current connectivity to BOX, or to purchase connectivity for 
business purposes, those business reasons presumably result in revenue 
capable of covering the proposed fees. Further, for such market 
participants that choose to connect to BOX, the Exchange believes the 
proposed fees continue to provide flexibility with respect to how to 
connect to BOX based on each market participants' respective business 
needs. For example, the amount and type of ports are determined by 
factors relevant and specific to each market participant, including its 
business model, costs of connectivity, how its business is segmented 
and allocated, and volume of messages sent to BOX. Moreover, the 
Exchange notes that BOX does not have unlimited system capacity and the 
proposed fees are also designed to encourage market participants to be 
efficient with their respective port usage and discourage the 
purchasing of large amounts of superfluous ports. There is also no 
requirement that any market participant maintain a specific number of 
ports and a market participant may choose to maintain as many or as few 
of such ports as each deems appropriate.\30\ Further, market 
participants are free to reduce or discontinue use of these ports in 
response to the proposed fees.
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    \30\ As noted herein, Participants must connect to a minimum of 
one port via FIX or SAIL.
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    As noted above, there is no regulatory requirement that any market 
participant connect to any one options exchange, nor that any market 
participant connect at a particular connection speed or act in a 
particular capacity on BOX, or trade any particular product offered on 
an exchange. Moreover, membership is not a requirement to participate 
on BOX. Indeed, the Exchange is unaware of any one options exchange 
whose membership includes every registered broker-dealer. By way of 
example, while the Exchange has 54 Participants (i.e., members), Cboe 
BZX has 61 members that trade options,\31\ Cboe C2 has 52 Trading 
Permit Holders (``TPHs'') (i.e., members),\32\ NYSE American Options 
has 71 members,\33\ NYSE Arca Options has 69 members,\34\ MIAX Options 
has 46 members,\35\ and MIAX Pearl Options has 40 members.\36\ 
Accordingly, excessive fees would simply serve to reduce demand for 
these products, which market participants are under no regulatory 
obligation to utilize.
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    \31\ See Securities Exchange Act Release No. 100366 (June 18, 
2024), 89 FR 53163 (June 25, 2024) (SR-CboeEDGX-2024-036).
    \32\ Id.
    \33\ See https://www.nyse.com/markets/american-options/membership#directory.
    \34\ See https://www.nyse.com/markets/arca-options/membership#directory.
    \35\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf.
    \36\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf.
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    The Exchange believes that the proposed fee changes are not 
unfairly discriminatory because the fees are assessed uniformly across 
all market participants that voluntarily subscribe to or purchase 
connectivity or ports. The Exchange notes that SAIL Port fees are 
higher than FIX Port fees, although both types of ports may be used to 
enter orders, only SAIL Ports may be used to enter quotes. Thus, a 
Market Maker entering quotes will be assessed higher port fees than 
another Participant entering orders using a FIX Port. The Exchange 
believes that the fee disparity between SAIL Ports and FIX Ports is not 
unfairly discriminatory because SAIL Ports allow bulk quotes and Market 
Maker functions such as Market Maker Protection. These features allow 
Market Makers to maintain and manage large numbers of quotes which 
provides unique value to Market Makers.

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 fee change will 
not impact intramarket competition because it will apply to all 
similarly situated Participants and non-Participants equally (i.e., all 
market participants that choose to purchase connectivity or ports).\37\ 
The Exchange notes that SAIL Port fees are higher than FIX Port fees, 
although both types of ports may be used to enter orders, only SAIL 
Ports may be used to enter quotes. Thus, a

[[Page 72547]]

Market Maker entering quotes will be assessed higher port fees than 
another Participant entering orders using a FIX Port. The Exchange 
believes that the fee disparity between SAIL Ports and FIX Ports is not 
unfairly discriminatory because SAIL Ports allow bulk quotes and Market 
Maker functions such as Market Maker Protection. These features allow 
Market Makers to maintain and manage large numbers of quotes which 
provides unique value to Market Makers.
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    \37\ The Exchange notes that only Participants may purchase FIX 
Ports, SAIL Ports, and Drop Copy Ports.
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    Additionally, the Exchange does not believe its proposed pricing 
will impose a barrier to entry to smaller market participants and notes 
that its proposed connectivity pricing is associated with relative 
usage of the various market participants. For example, market 
participants with modest capacity needs can continue to buy fewer ports 
than market participants with greater capacity needs and the less 
expensive Non-10 Gb Connection or may choose to obtain access via a 
third-party re-seller. Accordingly, the proposed connectivity and port 
fees do not favor certain categories of market participants in a manner 
that would impose a burden on competition; rather, the allocation 
reflects the network resources consumed by the various size of market 
participants--lowest bandwidth consuming members pay the least, and 
highest bandwidth consuming members pay the most.
    The Exchange notes that the proposed fees are still lower than many 
fees for similar connectivity and ports on other exchanges and 
therefore may stimulate intermarket competition by attracting 
additional firms to connect to BOX or at least should not deter 
interested market participants from connecting directly to BOX. The 
Exchange believes that this fee increase will not impose any burden on 
intermarket competition not necessary or appropriate in furtherance of 
the purposes of the Act. The Exchange believes further that, without 
this fee increase, it is potentially at a competitive disadvantage to 
certain other exchanges that have in place higher fees for similar 
services. Further, if the changes proposed herein are unattractive to 
market participants, BOX can, and likely will, see a decline in 
connectivity and ports as a result. The Exchange operates in a highly 
competitive market in which market participants can determine whether 
or not to connect directly to BOX and how many ports to purchase, if 
any, based on the value received compared to the cost of doing so. 
Indeed, market participants have numerous alternative venues that they 
may participate on and direct their order flow to, including 17 other 
options markets, as well as off-exchange venues, where competitive 
products are available for trading.

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 \38\ and Rule 19b-4(f)(2) 
thereunder,\39\ because it establishes or changes a due, or fee.
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    \38\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \39\ 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-2024-19 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-2024-19. 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 
a.m. and 3 p.m. Copies of the 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-2024-19 and should be 
submitted on or before September 26, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19952 Filed 9-4-24; 8:45 am]
BILLING CODE 8011-01-P