[Federal Register Volume 78, Number 52 (Monday, March 18, 2013)]
[Notices]
[Pages 16743-16746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-06120]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69115; File No. SR-BOX-2013-10]
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
March 12, 2013.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on February 28, 2013, 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 the BOX Market LLC (``BOX'') options facility. 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.
Additionally, the Exchange proposes to increase the existing liquidity
fees and credits for Non-Auction transactions within Section II of the
Fee Schedule. While changes to the Fee Schedule pursuant to this
proposal will be effective upon filing, the changes will become
operative on March 1, 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, 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 all
Professional accounts are assessed the same fees as Broker-Dealers.
Additionally, the Exchange proposes to increase the existing liquidity
fees and credits for Non-Auction transactions within Section II of the
Fee Schedule.
In Section I. Exchange Fees, the Exchange proposes increase Auction
Transaction \5\ fees for Professional PIP Orders or Agency Orders from
$0.00 to $0.35. For Non-Auction Transactions the Exchange proposes to
increase Professional fees from $0.20 to $0.40. Both of these increases
will put the Professional fees in line with those that Broker-Dealers
are currently charged. 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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In Section II. Liquidity Fees and Credits, the Exchange proposes to
increase the fees and credits for Non-Auction Transactions.
Specifically, the Exchange proposes that the per contract fee for
orders that add liquidity to the BOX Book be raised to $0.30 from $0.22
in Penny Pilot Classes, and to $.75 from $0.65 in non-Penny Pilot
Classes. For orders that remove liquidity from the BOX Book, the
Exchange proposes to raise the per contract credit to $0.30 from $0.22
in Penny Pilot Classes, and to $0.75 from $0.65 in non-Penny Pilot
Classes.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of 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
both Auction Transactions and Non-Auction Transactions is reasonable,
equitable and not unfairly discriminatory because it charges
Professionals, whose activity
[[Page 16744]]
on BOX is akin to the order flow activity and system usage to that of
Broker-Dealers, the same fee for 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
transactions.
The Exchange believes the proposed change to increase Professional
fees for Auction Transactions is not unfairly discriminatory as the
fees will apply to all Professionals and Broker-Dealers competing in
these 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, for Auction
Transactions, Professionals will still benefit from certain priority
advantages as a customer.\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 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 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 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 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\ These proposed fee changes will
allow Professionals and Broker-Dealers to be charged equally for every
type of Exchange Fee. 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 for PIP
Orders or Agency Orders 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 an execution. Initiating an Auction Transaction for the
benefit of the customer order, and 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-Dealers for all 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. Additionally, 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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BOX believes that the changes to its Non-Auction Transaction fees
and credits are equitable and non-
[[Page 16745]]
discriminatory in that they apply to all categories of Participants and
across all account types. BOX operates within a highly competitive
market in which market participants can readily direct order flow to
any of eight other competing venues if they deem fee levels at a
particular venue to be excessive. The changes to BOX credits and fees
proposed by this filing are reasonable because they are intended to
attract order flow to BOX by offering incentives to all market
participants to submit their orders to the Exchange. BOX notes that
this proposed rule change will increase both the fees and credit for
Non-Auction Transactions. The result is that BOX will collect a fee
from Participants that add liquidity and credit another Participant for
removing liquidity in the same transaction. Stated otherwise, the fees
collected will not necessarily result in additional revenue to BOX, but
will simply allow BOX to provide the credit incentive to Participants
to attract additional order flow to the Exchange. BOX believes it is
appropriate to provide incentives to market participants, which could
benefit all market participants by creating greater liquidity.
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. BOX currently assesses
Professional Customers and Broker Dealers equally for other types of
Exchange Fees \13\ and this change will result in these participants
being charged equally for all Auction and Non-Auction transactions. The
BOX auction mechanisms 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.
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\13\ See Section I. of the Fee Schedule. Professionals and
Broker Dealers are currently assessed equal fees in Improvement
Orders on the PIP, Responses in the Solicitation and Facilitation
Mechanism, and in Options Surcharge on the NDX and MNX.
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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.
Furthermore, this proposed rule change will result in Non-Auction
transactions being subject to increased fees and credits, which the
Exchange believes will promote competition by enabling the Exchange to
better compete for order flow and improve the Exchange's competitive
position.
The fee changes proposed would assess Professionals the same fees
as Broker-Dealers and increase both the fees and credits for Non-
Auction Transactions. Because this change would charge Professionals
similarly to Broker-Dealers in all circumstances, charge them a fee
comparable to what Professionals and Broker-Dealers pay on competing
exchanges,\14\ 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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\14\ 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 Exchange Act \15\ and Rule 19b-4(f)(2)
thereunder,\16\ because it establishes or changes a due, fee, or other
charge applicable only to a member.
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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 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-2013-10 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.
All submissions should refer to File Number SR-BOX-2013-10. 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
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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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; 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-2013-10 and should be
submitted on or before April 8, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06120 Filed 3-15-13; 8:45 am]
BILLING CODE 8011-01-P