[Federal Register Volume 78, Number 6 (Wednesday, January 9, 2013)]
[Notices]
[Pages 1907-1910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-00257]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68578; File No. SR-BOX-2012-025]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fee Schedule for Trading on BOX
DATE: January 3, 2013.
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 December 26, 2012, BOX Options Exchange LLC (the ``Exchange'')
filed with the Securities and Exchange Commission (the ``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
The Exchange is filing with the Securities and Exchange Commission
(``Commission'') a proposed rule change to amend the Fee Schedule for
trading on BOX. In particular, the Exchange proposes to amend certain
Exchange Fees for Professionals set forth in Section I of the Fee
Schedule so that Professional accounts are assessed the same fees as
Broker-Dealers. While changes to the Fee Schedule pursuant to this
proposal will be effective upon filing, the changes will become
operative on January 2, 2013. 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 the Fee Schedule for trading on BOX.
In particular, the Exchange proposes to amend certain Exchange Fees for
Professionals set forth in Section I of the Fee Schedule so that
Professional accounts are assessed the same fees as Broker-Dealers.
For Auction Transactions,\5\ the Exchange proposes to increase
Professional fees for Improvement Orders in the PIP and Responses in
the Solicitation and Facilitation mechanisms from $0.15 to $0.35, the
same fee Broker-Dealers are currently charged. Note that Exchange Fees
for Primary Improvement Orders, Facilitation Orders, and Solicitation
Orders will continue to be based upon a Participant's monthly average
daily volume (``ADV'') in Auction Transactions as calculated at the end
of each month as set forth in Section I.A. of the Fee Schedule. The
Exchange notes that the proposed fees for Professionals are within the
range of Professional fees presently assessed in the industry.\6\
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\5\ Auction Transactions are those transactions executed through
the Price Improvement Period (``PIP''), Solicitation, and
Facilitation auction mechanisms.
\6\ Professional customers are charged $0.33 per contract for
Select Symbols on the International Securities Exchange (``ISE''),
$0.32 per contract for taking liquidity on NYSE Amex, and $0.45 or
more per contract on the NASDAQ Options Market (``NOM'') for adding
or removing liquidity in non-Penny Pilot securities. See ISE fee
schedule, available at: http://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf, NYSE Amex Options Fee
Schedule, available at: https://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_amex_options_fee_schedule_12_01_12_.pdf, and see NOM Fee Schedule, available at: http://www.nasdaqtrader.com/Micro.aspx?id=OptionsPricing.
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Also, the Exchange proposes to implement a $0.22 per contract
surcharge for Professionals for all transactions in options on the
Nasdaq-100[supreg] Index (NDX) and on the Mini-NDX[supreg] Index (MNX).
BOX currently charges Market Makers and Broker-Dealers $0.22 per
contract for transactions in NDX and MNX. BOX incurs licensing fees for
transactions in these classes of options and believes it is appropriate
and reasonable to pass that fee through to BOX Participants, including
Professional accounts.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Securities Exchange Act of 1934
(the ``Act''),\7\ in general, and Section 6(b)(4) of the Act,\8\ 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.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposed fee change for Professionals in
Auction Transactions is reasonable, equitable and not unfairly
discriminatory because it charges Professionals, whose activity on BOX
is akin to the order flow activity and system usage to that of Broker-
Dealers, the same fee for competing in Auction Transactions as the fee
charged to Broker-Dealers. BOX does not assess ongoing systems access
fees, ongoing fees for access to BOX market data, or fees related to
order cancellation. Professional accounts, while Public Customers by
virtue of not being broker-dealers, generally engage in trading
activity more similar to broker-dealer proprietary trading accounts
(more than 390 orders per day on average). BOX notes that as of
December 2012, orders for Professionals generally account for a
majority of the orders BOX receives on a given trading day. This level
of trading activity draws on a greater amount of BOX system resources
than that of non-Professional Public Customers, and thus, greater
ongoing BOX operational costs. Simply, the more orders submitted to
BOX, the more messages sent to and received from BOX, the more orders
potentially routed to away exchanges, and the more BOX system resources
utilized. As such, rather than passing the costs of these higher order
volumes along to all market participants, the Exchange believes it is
more reasonable and equitable to assess those costs to the persons
directly responsible. To that end, BOX aims to recover costs incurred
by assessing Professional accounts a market competitive fee for
competing in Auction Transactions.
The Exchange believes the proposed change to increase Professional
fees is not unfairly discriminatory as the fees will apply to all
Professionals and Broker-Dealers competing in Auction Transactions
equally. Further, Professionals and Broker-Dealers are free to change
the manner in which they access BOX. A Professional may, by sending
fewer than 390 orders per day across the industry, begin participating
as a non-Professional, Public Customer and potentially reduce
transaction fees. Additionally, Professionals will still benefit from
certain priority advantages as a customer in Auction Transactions.\9\
As noted above, Professionals' order sending behavior and trading
activity tend to be more similar to Broker-Dealers trading on a
proprietary basis. This is particularly true in considering orders in
response to BOX auction mechanisms. As such, the Exchange believes it
is not unfairly discriminatory to charge them the same fee as Broker-
Dealers when competing for customer order flow in these Auction
Transactions.
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\9\ See Rules 7150(f)(4) and 7270 regarding allocation and
executions within each BOX auction mechanism.
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Professionals may elect to register as a Broker-Dealer and, once
registered, may apply to become a BOX Market Maker, subject to Exchange
Fees based on their ADV. The Exchange believes the proposed Auction
Transaction fees for Professionals is equitable and not unfairly
discriminatory because such Participants are not subject to the same
obligations as Market Makers when providing liquidity to the market. In
particular, Market Makers must maintain active two-sided markets in
appointed classes, and must meet certain minimum quoting requirements.
As such, the Exchange believes it is appropriate that Market Makers be
charged comparably lower Auction Transaction fees as compared to
Professionals when the Market Makers provide greater volumes of
liquidity to the market. In light of the ability to access BOX in a
variety of ways, each of which is priced differently, Professionals,
Broker-Dealers, and other market participants may each select the most
economically beneficial manner to access BOX.
Further, the Exchange believes the proposed fee change is equitable
and not unfairly discriminatory because it will assure that retail
investors (non-Professional, Public Customers) continue to receive the
appropriate marketplace advantages for Auction Transactions on BOX,
while furthering fair competition among marketplace professionals by
treating them equally when they compete for these desirable customer
orders. The Exchange believes it is reasonable and equitable to assess
Auction Transaction fees for Professionals that are the same as those
fees for Broker-Dealers because it applies a pricing structure that
groups these sophisticated market participants together when they are
competing in this manner.
Generally, competing options exchanges assess Professionals fees at
comparable rates to those proposed by the Exchange, and comparable to
fees charged to Broker-Dealers.\10\ The Exchange operates within a
highly competitive market in which market participants can readily
direct order flow to any of several other competing venues if they deem
fees at a particular venue to be excessive. As such, the Exchange
believes the proposed increases are reasonable and equitable.
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\10\ Supra, note 6.
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The Exchange further believes the proposed fee change is equitable
and not unfairly discriminatory because Professionals generally do not
initiate Auction Transactions, unlike some Broker-Dealers. Doing so
requires, in part, guaranteeing a customer order and execution.
Initiating an Auction Transaction for the benefit of the customer
order, an [sic] taking on this guarantee provides these Participants
potentially discounted fees.\11\ The Exchange believes it is
reasonable, equitable, and not unfairly discriminatory to charge
Professional accounts the same fee as Broker-Dealers to compete for
customer orders in Auction Transactions because when acting in response
to an auction, as opposed to initiating the transaction, Professionals'
behavior, systems' sophistication, and trading activity are similar to
Broker-Dealers, and distinct from the retail investors on the opposite
side of the Auction Transaction.
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\11\ See Section I.A. of the Fee Schedule that provides Tiered
Fees with potential discounts for Participants that Initiate Auction
Transactions.
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The Exchange believes it is equitable and not unfairly
discriminatory for Public Customers to be charged lower fees than
Professionals and Broker-
[[Page 1909]]
Dealers for Auction Transactions on BOX. The securities markets
generally, and BOX in particular, have historically aimed to improve
markets for investors and develop various features within the market
structure for the benefit of non-Professional, Public Customers.\12\ As
such, the Exchange believes the proposed fees for Professional customer
transactions are appropriate and not unfairly discriminatory. The
Exchange believes it promotes the best interests of investors to have
lower Auction Transaction costs for non-Professional, Public Customers,
and that the BOX fee structure will continue to attract this customer
order flow to these auction mechanisms which BOX believes will provide
greater potential price improvement to these investors.
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\12\ Note that BOX has historically imposed different, and
higher, routing fees for Professionals as compared to non-
Professional Public Customers. See Securities Exchange Act Release
Nos. 65538 (October 12, 2011), 76 FR 64413 (October 18, 2011)
(Adopting a $0.50 per contract routing fee for Professionals while
providing routing to non-Professional Public Customers at no
charge), and 68149 (November 5, 2012), 77 FR 67693 (November 13,
2012) (Continuing to charge Professionals $0.50 per contract
executed on away exchanges and exempting Public Customer accounts
from a routing fee for Directed Orders, provided 33% or more of a
Participant's Public Customer Directed Orders received during the
month are executed through PIP, and less than 45% of a Participant's
Directed Orders received during the month are routed to and executed
on an away exchange).
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Regarding the surcharge for transactions in NDX and MNX, due to a
licensing agreement with The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') to
use various indices and trademarks in connection with the listing and
trading of these index options, BOX will pay a per contract license fee
of $0.22 to NASDAQ OMX for NDX and MNX options contracts traded on BOX.
The Exchange proposes to assess a surcharge fee for Professional
transactions in NDX and MNX options to offset the costs BOX incurs for
each such transaction. The Exchange believes that passing this cost
through to BOX Options Participants that trade these options, including
Professionals, is the most equitable means of recovering the costs of
the license.
The Exchange's proposal to assess Professionals, Broker-Dealers and
Market Makers a $.22 per contract surcharge for transactions in MNX and
NDX, as compared to no surcharge being assessed to non-Professional
Public Customers, is equitable and not unfairly discriminatory because
the Exchange believes that a lower fee for non-Professional, Public
Customers benefits all BOX market participants by incentivizing market
participants to transact a greater number of Public Customer orders,
which results in increased liquidity on BOX.
The Exchange believes that the proposed fees will keep BOX
competitive with other exchanges and will apply in an equitable manner
among BOX Participants. The Exchange believes the proposed fees are
fair and reasonable and must be competitive with fees in place on other
exchanges.
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 BOX auction mechanisms, the
PIP in particular, provide the opportunity for market participants to
compete for customer orders. The PIP has no limitations regarding the
number of Market Makers, Options Participants that are not Market
Makers, and customers that can participate and compete for orders in
the PIP. BOX asserts that Participants are actively competing for
customer orders, which is clearly supported by the simple fact that
price improvement occurs in the PIP. Since the PIP began in 2004,
customers have received more than $400 million in savings through
better executions on BOX, a monthly average of more than $3.5 million
over that time.
The Exchange does not believe the proposed fee change will inhibit
Professionals' ability to compete within BOX Auction Transactions.
Broker-Dealers currently compete actively within the PIP, and BOX does
not believe assessing Professionals a $0.35 per contract fee equivalent
to that of Broker-Dealers, would impede Professionals' ability, or the
incentive for Professionals, to compete therein. BOX notes that its
market model and fees are generally intended to benefit retail
customers by providing incentives for Participants to submit their
customer order flow to BOX, and the PIP in particular. BOX makes a
substantial amount of PIP-related data and statistics available to the
public on its Web site www.boxexchange.com. Specifically, PIP Fee Pilot
reports are available at: http://boxexchange.com/boxrReports_en; daily
PIP volumes and average price improvement at: http://boxexchange.com/volumes_en; and BOX execution quality reports at: http://boxexchange.com/executionQualityReport_en. The data indisputably
supports that the PIP provides price improvement for customer orders.
The fee change proposed would charge Professionals the same fee as
Broker-Dealers when competing in Auction Transactions. Because this
change would charge Professionals similarly to Broker-Dealers in this
particular circumstance, charge them a fee comparable to what
Professionals and Broker-Dealers pay on competing exchanges,\13\ and
for additional reasons as stated above, the Exchange does not believe
that the proposed change will impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.
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\13\ Supra, note 6.
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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.
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 Act \14\ and Rule 19b-4(f)(2) thereunder,\15\
because it establishes or changes a due, fee, or other charge
applicable only to a member.
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\14\ 15 U.S.C. 78s(b)(3)(A)(ii).
\15\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend the rule
change if it appears to the Commission that the action is necessary or
appropriate in the public interest, for the protection of investors, or
would otherwise further the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml ); or
Send an email to [email protected]. Please include
File Number SR-BOX-2012-025 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary,
[[Page 1910]]
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549-1090.
All submissions should refer to File Number SR-BOX-2012-025. 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 10:00 a.m. and
3:00 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-2012-025 and should be
submitted on or before January 30, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00257 Filed 1-8-13; 8:45 am]
BILLING CODE 8011-01-P