[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Notices]
[Pages 39789-39792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-16449]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67308; File No. SR-BOX-2012-005]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend
the Fee Schedule for Trading on BOX
June 28, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on June 25, 2012, BOX Options 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 Substance
of the Proposed Rule Change
BOX Options Exchange LLC (the ``Exchange'') proposes to amend its
Fee Schedule for trading on its options facility, BOX Market LLC
(``BOX''). While changes to the fee schedule pursuant to this proposal
will be effective upon filing, the changes will become operative on
July 1, 2012. 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 Web site 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 its Fee Schedule. While changes to
the fee schedule pursuant to this proposal will be effective upon
filing, the changes will become operative on July 1, 2012.
The Exchange proposes to amend Market Maker Exchange Fees for
Auction Transaction responses in Section I of its fee schedule to
implement a tiered schedule to provide potentially discounted fees
based upon a Market Maker's monthly average daily volume (``ADV'').
Market Makers will be assessed a per contract execution fee based on
ADV considering all of their executed transactions on BOX as calculated
at the end of each month. All executions for the month will be charged
the same per contract fee according to the Market Maker's ADV,
according to the table below:
[[Page 39790]]
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Market maker monthly ADV Per contract fee
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150,001 contracts and greater........................ $0.13
100,001 contracts to 150,000 contracts............... 0.16
50,001 contracts to 100,000 contracts................ 0.18
10,001 contracts to 50,000 contracts................. 0.25
5,001 contracts to 10,000 contracts.................. 0.30
1 contract to 5,000 contracts........................ 0.35
------------------------------------------------------------------------
This proposal will potentially lower Market Maker fees for all
transactions on BOX. In particular, this may potentially lower Market
Maker fees for Improvement Orders in the Price Improvement Period
(``PIP'') and Responses in the Solicitation or Facilitation Auction
mechanisms on BOX, allowing Market Makers to more effectively compete
for customer order flow in these mechanisms. Currently, Market Makers
may achieve a discounted Exchange Fee rate in these Auction
Transactions as their ADV in Auction Transactions (those transactions
executed through the PIP, Solicitation Auction mechanism, and
Facilitation Auction mechanism) increases past certain break points
(e.g., 20,000 contracts, 50,000 contracts, etc.). The proposed change
would provide Market Makers a potentially discounted Exchange Fee rate
for all of their BOX trades as their monthly ADV for all transactions
on BOX reaches certain break points.
The Exchange believes that providing this potential discount for
Market Makers in connection with their ADV considering all of their
transactions on BOX rather than only their Auction Transactions will
allow additional Market Makers to benefit from the potential discounts
in the tiered Exchange Fee schedule, and will provide an incentive for
Market Makers to potentially provide greater liquidity on BOX. The
Exchange also believes this may provide an incentive for Market Makers
to provide more competition in BOX Auction Transactions.
The Exchange also proposes to amend the Market Maker Tiered Fee
Schedule to modify the break point tiers and increase the per contract
fees for Market Makers with monthly ADV of 50,000 contracts or less.
Currently, Market Makers with monthly ADV of up to 10,000 contracts pay
an Exchange Fee of $0.25, and those with ADV of 10,001 to 50,000
contracts pay $0.20. As set forth in the table above, the Exchange
proposes to increase the per contract Exchange Fee for Market Makers
with monthly ADV of 10,001 to 50,000 contracts to $0.25, increase the
per contract Exchange Fee to $0.30 for Market Makers with monthly ADV
of 5,001 to 10,000 contracts, and increase the per contract Exchange
Fee to $0.35 for Market Makers with monthly ADV of 5,000 contracts or
less.
The Exchange proposes to amend the Tiered Fee Schedule for
Participants that initiate Auction Transactions (``Initiating
Participants''). Currently, Initiating Participants pay a per contract
fee, regardless of account type, that is reduced as the Participant's
monthly ADV in Auction Transactions increases past certain break
points. Currently, Initiating Participants pay $0.25 per contract for
monthly ADV up to 20,000 contracts. The Exchange proposes to amend the
tiers and increase the fees for those Participants with monthly ADV in
Auction Transactions of 10,000 or less. The Exchange proposes to
maintain the $0.25 fee for Initiating Participants with monthly ADV of
10,001 to 20,000 contracts. Additionally, the Exchange proposes to
increase the fee to $0.30 for monthly ADV of 5,001 to 10,000 contracts,
and to $0.35 for monthly ADV of 5,000 contracts or less.
The proposed tiered fee schedule for Initiating Participants is set
forth below:
------------------------------------------------------------------------
Per contract fee
Initiating participant monthly ADV in auction (all account
transactions types)
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150,001 contracts and greater........................ $0.10
100,001 contracts to 150,000 contracts............... 0.12
50,001 contracts to 100,000 contracts................ 0.15
20,001 contracts to 50,000 contracts................. 0.17
10,001 contracts to 20,000 contracts................. 0.25
5,001 contracts to 10,000 contracts.................. 0.30
1 contract to 5,000 contracts........................ 0.35
------------------------------------------------------------------------
Finally, the Exchange proposes to increase the fee in Section I of
the Fee Schedule for Broker-Dealer Improvement Orders in the PIP and
Responses in the Solicitation and Facilitation Auction Mechanisms from
$0.25 to $0.35.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\5\ in general, and Section
6(b)(4) of the Act,\6\ in particular, in that it provides for the
equitable allocation of reasonable dues, fees, and other charges among
BOX Options Participants and other persons using its facilities. The
impact of the proposal upon the net fees paid by any particular market
participant will depend on multiple variables, including whether the
Participant is most active on the BOX Book or within Auction
Transactions on BOX.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4).
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With regard to Market Maker exchange fees, the Exchange believes it
is reasonable, equitable, and not unfairly discriminatory for BOX
Market Makers to have the opportunity to benefit from potentially
discounted fees based on all of their transactions on BOX. The Exchange
believes that the proposed tiered and potentially discounted fees for
Market Makers that on a daily basis, trade an average daily volume (as
calculated at the end of the month) of more than 5,000 contracts on BOX
represents a fair and equitable allocation of reasonable dues, fees,
and other charges as it is aimed at incentivizing these participants to
provide a greater volume of liquidity. The Exchange believes that
giving incentives for this activity will result in increased liquidity
on BOX, and within its auction mechanisms, to the benefit of
[[Page 39791]]
all market participants. The increased liquidity also benefits all
investors by deepening the BOX liquidity pool, supporting the quality
of price discovery, promoting market transparency and improving
investor protection. The Exchange believes that the volume based
discounts such as the reducing tiered execution fee proposed for Market
Makers are reasonable and equitable because they are open to all Market
Makers on an equal basis and provide discounts that are reasonably
related to the value of an exchange's market quality associated with
higher levels of market activity, such as higher levels of liquidity
provision and introduction of higher volumes of orders into the price
and volume discovery processes. Finally, Market Makers have obligations
that other Participants do not. In particular, they must maintain
active two-sided markets in the classes in which they are appointed,
and must meet certain minimum quoting requirements. As such, the
Exchange believes it is reasonable and appropriate that Market Makers
be charged fees on BOX that may be comparably lower than other market
participants in certain circumstances, when they provide greater
volumes of liquidity to the market.\7\
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\7\ Note that if a Market Maker has ADV over 5,000 contracts the
fee that Market Maker is charged for Improvement Orders in the PIP
and Responses in other Auction Transactions may be lower than a
particular Broker-Dealer is charged for an Improvement Order in the
PIP or Response in another Auction Transaction. Note also that if a
Market Maker has ADV over 150,000 contracts, the fee that Market
Maker is charged for Improvement Orders in the PIP and Responses in
other Auction Transactions may be lower than a particular customer
is charged for such orders. As mentioned above, the Exchange
believes this is equitable and not unfairly discriminatory given a
Market Maker's value in providing liquidity to the market and other
related obligations in acting as a Market Maker.
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The Exchange believes the Market Maker fees proposed, including an
increase in the fees at the bottom of the tiered schedule for Market
Makers with ADV less than 10,000 contracts, are reasonable, equitable,
and not unfairly discriminatory. BOX operates within a highly
competitive market in which market participants can readily direct
order flow to any other competing venue if they deem fees at a
particular venue to be excessive. Additionally, Market Makers may
choose on which markets they undertake their associated obligations and
fees are a factor in their decision. The proposed Market Maker fees are
intended to attract additional liquidity to BOX by offering market
participants incentives to submit their quotes and orders. The Exchange
believes that we are providing Market Makers a greater opportunity to
receive discounted fees for their BOX transactions. To help offset the
potentially discounted fees for Market Makers providing greater
liquidity, the Exchange believes it is reasonable and equitable to
increase the fees for Market Makers with ADV less than 10,000 contracts
as these Market Makers are not providing the same level of liquidity to
the market.
The Exchange believes it is equitable and non-discriminatory to
provide Initiating Participants the proposed fees in a tiered structure
to provide potential discount related to participation in BOX Auction
Transactions. The proposed fees related to trading activity in BOX
Auction Transactions are available to all BOX Options Participants that
initiate Auction Transactions, and they may choose to trade on BOX to
take advantage of the discounted fees for doing so, or not. The
Exchange also believes the proposed fees for BOX Participants
initiating Auction Transactions to be reasonable.\8\ Further, the
Exchange believes Participants benefit from the opportunity to
aggregate their trading in the BOX Facilitation and Solicitation
Auction mechanisms with their PIP transactions to attain a discounted
fee tier. The tiered fee structure proposed for trading in the BOX
auction mechanisms aims to attract order flow to BOX, providing greater
potential liquidity within the overall BOX market, and its auction
mechanisms, to the benefit of all BOX market participants.
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\8\ The Exchange notes the proposed fees are comparable to fees
currently in place at other exchanges. See International Securities
Exchange, LLC (``ISE'') Schedule of Fees.
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The Exchange believes that providing a volume discount to Options
Participants that initiate auctions on customer orders is appropriate
to provide an incentive to BOX Participants to submit their customer
orders to BOX, particularly into the PIP for potential price
improvement. Such a discount is necessary to limit the exposure that
Initiating Participants will have to liquidity removal fees, because as
Initiating Participants they will be adding liquidity and will be
charged a fee should their principal order execute against the customer
order in any BOX Auction Transaction. Further, the Exchange believes it
is reasonable and equitable to increase the fees paid by Participants
that have monthly Auction Transaction ADV of 10,000 contracts or less
because the fees will be comparable to that of Market Makers trading on
BOX.
Further, the Exchange believes the proposed $0.35 fee per executed
contract for Broker-Dealer Improvement Orders in the PIP and Responses
in the Solicitation and Facilitation Auction Mechanisms to be
equitable, reasonable, and not unfairly discriminatory. The Exchange
believes the proposed fee is reasonable because the Exchange does not
charge broker-dealers fees other than transaction fees (e.g., ongoing
systems access fees, ongoing fees for access to BOX market data, or
fees related to order cancellation) as other exchanges. Additionally,
the proposed increase in trading fees charged to broker-dealer
proprietary accounts is designed to be comparable to the costs that
such accounts would be charged at competing venues.\9\ Further, the
Exchange believes that these participants that add liquidity on BOX
will not be impaired by this proposed increase to fees on broker-dealer
proprietary accounts. Broker-Dealer proprietary trading draws on BOX
system resources and results in ongoing operational costs to BOX. As
such, BOX aims to recover its costs by assessing these accounts a
market competitive trading fee for BOX transactions, including Auction
Transactions. The Exchange believes this proposed fee is reasonable
considering, in part, that such accounts are assessed a higher fee
($0.40) for Non-Auction Transactions on BOX. Sending orders to and
trading on BOX are entirely voluntary. Under these circumstances, BOX
transaction fees must be competitive to attract order flow, execute
orders, and grow its market. As such, BOX believes its trading fees
proposed for these Broker-Dealer orders are fair and reasonable. The
Exchange believes other parts of the proposed BOX fee structure (e.g.,
tiered Initiating Participant fees and Liquidity Fees and Credits) will
provide incentives for broker-dealers to send order flow to the BOX PIP
and other auction mechanisms, even with this increased trading fee.
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\9\ The proposed fee is lower than that for similar orders on
the ISE Schedule of Fees.
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The Exchange believes it is equitable and not unfairly
discriminatory to offer BOX Market Makers in Auction Transactions an
opportunity to be charged potentially lower fees than broker-dealers.
Market Makers have obligations that other Participants do not. In
particular, they must maintain active two-sided markets in the classes
in which they are appointed, and must meet certain minimum quoting
requirements. As such, the Exchange believes it is appropriate that
Market Makers be charged potentially lower transaction fees on BOX and
within BOX Auction Transactions. As such, the
[[Page 39792]]
Exchange believes the proposed fees for broker-dealers, as compared to
Market Makers, is appropriate and not unfairly discriminatory because
it promotes enhanced BOX market quality.
The Exchange believes that the proposed Exchange Fees will keep BOX
competitive with other exchanges and apply in such a manner so as to be
equitable among BOX Participants. The Exchange believes the proposed
fees are fair and reasonable and must be competitive with fees in place
on other exchanges. Further, the Exchange believes that this
competitive marketplace impacts the fees proposed for BOX. Greater
liquidity and additional volume executed on BOX aids the price and
volume discovery process.
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 the
proposed fee changes are reasonably designed to potentially enhance
competition in BOX Auction Transactions, particularly in the PIP.
The proposed fee changes modify the tiered fees charged to
Initiating Participants based on their monthly ADV in Auction
Transactions. This may result in higher fees for Initiating
Participants with monthly Auction Transaction ADV of less than 20,000
contracts. The proposed changes also increases the fee charged to
broker-dealers for Improvement Orders in the PIP and Responses in the
Solicitation and Facilitation Auction Mechanisms from $0.25 to $0.35.
The Exchange believes this increase will not impair broker-dealers from
adding liquidity and competing in Auction Transactions, so that they
may gain the opportunity to interact with the customer orders seeking
to remove liquidity in Auction Transactions.
Further, the proposed changes modify the tiered fees for Market
Makers based on their ADV considering all of their BOX transactions.
This may potentially increase or decrease any particular Market Maker's
fees on BOX, including those fees for Auction Transactions, based on
their monthly ADV. The Exchange believes it is likely that more Market
Makers may benefit from lower fees as a result of this proposed change,
lowering their cost to compete in BOX Auction Transactions.
Considering all of the above, the Exchange believes the proposed
fee changes are reasonably designed to potentially enhance competition
in BOX Auction Transactions, particularly in the PIP, and 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.
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 \10\ and Rule 19b-4(f)(2)
thereunder,\11\ because it establishes or changes a due, fee, or other
charge applicable only to a member.
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\10\ 15 U.S.C. 78s(b)(3)(A)(ii).
\11\ 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 such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Exchange Act.
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-2012-005 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2012-005. 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 Web site (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 Web site 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. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BOX-2012-005 and should be
submitted on or before July 26, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16449 Filed 7-3-12; 8:45 am]
BILLING CODE 8011-01-P