[Federal Register Volume 79, Number 207 (Monday, October 27, 2014)]
[Notices]
[Pages 63982-63988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25433]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73397; File No. SR-BOX-2014-24]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fee Schedule on the BOX Market LLC (``BOX'') Options Facility
October 21, 2014.
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 October 9, 2014, 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 the
Substance of the Proposed Rule Change
The Exchange is filing with the Securities and Exchange Commission
(``Commission'') a proposed rule change to amend the Fee Schedule on
the BOX 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 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.
[[Page 63983]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to make a number of changes to the BOX Fee
Schedule.
Select Symbols
First, the Exchange proposes to amend Section I (Exchange Fees) to
establish a subsection entitled ``Select Symbols.'' The following
symbols will be considered Select Symbol for purposes of the Fee
Schedule:
------------------------------------------------------------------------
------------------------------------------------------------------------
Penny Non-penny classes
classes
------------------------------------------------------------------------
SPY GPRO RAD VHC PANW HRB
AAPL GTAT MBLY MPEL NUGT QEP
IWM PCLN CBS SVXY JD OREX
YHOO FEYE SPLS INVN DG SWKS
QQQ GOOGL RSX ABBV ESV GLNG
EEM HYG QIHU UA RAX IRM
BAC SDRL AVNR LOCO YELP KERX
VXX VNET OIH CMG ACHN SNSS
FB GOOG EPI AZN NPSP KNDI
TWTR HTZ END KORS SPLK GDP
------------------------------------------------------------------------
Non-Auction Transactions in Select Symbols
The Exchange then proposes to establish a separate exchange fee
structure for Non-Auction Transactions \5\ in these Select Symbols that
are different from the fees for non-auction transactions in all other
symbols. Currently, non-auction transactions in all securities are
subject to the fee structure outlined in Section I of the BOX Fee
Schedule. For every non-auction transaction Public Customers are
assessed a $0.07 fee per contract, and Professional Customers and
Broker Dealers $0.42 per contract. Market Makers are assessed a per
contract fee based upon the Market Maker's Monthly ADV in all
transactions executed on BOX, as calculated at the end of each month.
All non-auction executions for that month are charged the same per
contract fee according to the ADV achieved by the Market Maker, which
ranges from $0.13 to $0.35.
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\5\ Non-Auction Transactions are those transactions executed on
the BOX Book.
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In proposed Section I.C.1, (Non-Auction Transactions in Select
Symbols), the Exchange proposes to adopt a pricing model where the
Exchange will assess transaction fees and credits dependent upon two
factors: (i) The account type of the Participant submitting the order
and if the Participant is a liquidity provider or liquidity taker; and
(ii) the account type of the contra party and if the contra party is a
liquidity provider or liquidity taker. Transactions in Penny Pilot
Classes will also be assessed different fees or credits than
transactions in Non-Penny Pilot Classes.
The Exchange also proposes to specify that these transactions will
now be exempt from the Liquidity Fees and Credits outlined in Section
II of the BOX Fee Schedule. The proposed fee structure is as follows:
----------------------------------------------------------------------------------------------------------------
Penny pilot classes Non-penny pilot classes
---------------------------------------------------------------
Account type Contra party Maker fee/ Taker fee/ Maker fee/ Taker fee/
credit credit credit credit
----------------------------------------------------------------------------------------------------------------
Public Customer............... Public Customer. $0.00 $0.00 $0.00 $0.00
Professional (0.22) (0.22) (0.57) (0.57)
Customer/Broker
Dealer.
Market Maker.... (0.22) (0.22) (0.57) (0.57)
Professional Customer or Public Customer. 0.55 0.59 0.90 0.94
Broker Dealer. Professional 0.20 0.35 0.30 0.35
Customer/Broker
Dealer.
Market Maker.... 0.20 0.39 0.30 0.39
Market Maker.................. Public Customer. 0.51 0.55 0.85 0.90
Professional 0.00 0.05 0.00 0.10
Customer/Broker
Dealer.
Market Maker.... 0.10 0.29 0.10 0.29
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For example, if a Public Customer submitted an order to the BOX
Book in a Penny Pilot Select Symbol (making liquidity) the Public
Customer would be credited $0.22 if the order interacted with a Market
Maker's order, and the Market Maker (taking liquidity) would be charged
$0.55. To expand on this example, if the Market Maker instead submitted
an order to the BOX Book in a Penny Pilot Select Symbol (making
liquidity) the Market Maker would be charged $0.51 if the order
interacted with a Public Customer's order and the Public Customer
(taking liquidity) would again be credited $0.22.
Tiered Volume Rebate for Non-Auction Transactions in Select Symbols
Finally, the Exchange proposes to introduce a tiered volume-based
rebate for Market Makers and Public Customers in Non-Auction
Transactions in Select Symbols. Specifically, Market Makers and Public
Customers will receive a per contract rebate based on ADV considering
all transactions executed on BOX by the Market Maker or Public
Customer, respectively, as calculated at the end of each month. All
Non-Auction Transactions in Select Symbols for that month will receive
the same per contract rebate according to the ADV achieved by the
Market Maker or Public Customer. The new per contract rebate for Market
Makers and Public Customers in Non-Auction Transactions in Select
Symbols as set forth in Section I.C.2. of the BOX Fee Schedule will be
as follows:
[[Page 63984]]
------------------------------------------------------------------------
Per contract
Market maker monthly ADV rebate
------------------------------------------------------------------------
100,001 contracts and greater........................... ($0.15)
60,001 contracts to 100,000 contracts................... (0.10)
35,001 contracts to 60,000 contracts.................... (0.07)
10,001 contracts to 35,000 contracts.................... (0.03)
1 contract to 10,000 contracts.......................... 0.00
------------------------------------------------------------------------
------------------------------------------------------------------------
Per contract
Public customer monthly ADV rebate
------------------------------------------------------------------------
35,001 contracts and greater............................ ($0.10)
15,001 contracts to 35,000 contracts.................... (0.06)
5,001 contracts to 15,000 contracts..................... (0.03)
1 contract to 5,000 contracts........................... 0.00
------------------------------------------------------------------------
Liquidity Fees and Credits
BOX proposes to simplify the categories for Liquidity Fees and
Credits in PIP and COPIP Transactions. Currently the Exchange separates
these into two categories: Symbols with a Minimum Price Variation of 1
cent (Penny Pilot classes where trade price is less than $3.00, and all
series in QQQ, SPY & IWM), and symbols with a Minimum Price Variation
of greater than 1 cent (All Non-Penny Pilot classes and Penny Pilot
classes where trade price is equal to or greater than $3.00, excluding
QQQ, SPY & IWM). The Exchange proposes to remove these and simply
separate these fees and credits into Penny Pilot Classes and Non-Penny
Pilot Classes:
----------------------------------------------------------------------------------------------------------------
Fee for adding Credit for removing
PIP and COPIP transactions liquidity (all account liquidity (all account
types) types)
----------------------------------------------------------------------------------------------------------------
Penny Pilot Classes........................................... $0.35 ($0.35)
Non-Penny Pilot Classes....................................... 0.75 (0.75)
----------------------------------------------------------------------------------------------------------------
This proposed change will mean that the liquidity fees and credits
for auction transactions in Penny Pilot classes where the trade price
is equal to or greater than $3.00 will now be charged a $0.35 fee for
adding liquidity (instead of $0.75) or receive a $0.35 credit for
removing liquidity (instead of a $0.75 credit). These are the only
classes impacted by this proposed change.
Additionally, the Exchange proposes to specify in Section II.C.
(Exempt Transactions) that Non-Auction Transactions in Select Symbols
will be considered exempt from all liquidity fees and credits.
Jumbo SPY Options
The Exchange also proposes to remove all references to Jumbo SPY
from the Fee Schedule. Jumbo SPY Options were moved to closing only in
June 2014 and any future transactions in Jumbo SPY Options before the
final expiration in January 2015 will be assessed the applicable
standard contract fee for purposes of the Fee Schedule.
Finally, the Exchange is proposing to make additional non-
substantive changes to the Fee Schedule. Specifically, the Exchange is
renumbering certain footnotes to accommodate the proposed changes above
to the Fee Schedule.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act, in general, and Section
6(b)(4) and 6(b)(5)of the Act,\6\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees, and other
charges among BOX Participants and other persons using its facilities
and does not unfairly discriminate between customers, issuers, brokers
or dealers. The proposed changes will allow the Exchange to be
competitive with other exchanges and to apply fees and credits in a
manner that is equitable among all BOX Participants. Further, the
Exchange operates within a highly competitive market in which market
participants can readily direct order flow to any other competing
exchange if they determine fees at a particular exchange to be
excessive.
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\6\ 15 U.S.C. 78f(b)(4) and (5).
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Select Symbols
The Exchange believes establishing separate fee and credits for the
Select Symbols is reasonable. The symbols chosen were the top ten most
active Penny Pilot Symbols and top fifty most active Non-Penny Pilot
Symbols (excluding flex options) based on OCC volume across all
exchanges for the previous month. Further, at least one other exchange
currently uses a fee structure with Select Symbols based on the volume
of the symbols.\7\ The Exchange chose these high volume symbols to
encourage Participants to direct greater non-auction trade volume to
the Exchange. Increased volume will provide greater liquidity, which
will benefit all market participants on the Exchange. Further, the
Exchange believes it is equitable and not unfairly discriminatory to
establish these Select Symbols, as all Participants have the ability to
submit orders in Select Symbols to the Exchange.
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\7\ See the Miami International Securities Exchange, LLC
(``MIAX'') Fee Schedule, specifically the Priority Customer Rebate
Program.
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Non-Auction Transactions in Select Symbols
The Exchange believes establishing a different fee structure for
Non-Auction transactions in Select Symbols is reasonable, equitable and
not unfairly discriminatory. The proposed fee structure is intended to
attract order flow to the Exchange by offering all market participants
incentives to submit their orders in these symbols to the Exchange. The
practice of providing additional incentives to increase order flow in
high volume symbols is, and has been, a common practice in the options
markets.\8\ Further, the Exchange believes it is appropriate to provide
incentives for market participants, which will result in greater
liquidity and ultimately benefit all Participants trading on the
Exchange.
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\8\ See International Securities Exchange LLC (``ISE'') Schedule
of Fees, page 6 (providing reduced fee rates for making liquidity in
Select Symbols); NASDAQ OMX PHLX, (``PHLX''), Pricing Schedule
Section I (providing a rebate for adding liquidity in SPY); NYSE
Arca, Inc (``Arca'') Fees Schedule, page 4 (section titled
``Customer Monthly Posting Credit Tiers and Qualifications for
Executions in Penny Pilot Issues.''
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The Exchange also believes it is equitable, reasonable and not
unfairly discriminatory to assess fees and credits according to the
account type of the Participant originating the order and the contra
party. This proposed fee structure is similar to the model adopted by
the Exchange for Complex Orders Fees \9\ and has been accepted by both
the Commission and the
[[Page 63985]]
industry.\10\ The result of this structure is that a Participant does
not know the fee it will be charged when submitting a Complex Order.
Therefore, the Participant must recognize that it could be charged the
highest applicable fee on the Exchange's schedule, which may, instead,
be lowered or changed to a credit depending upon how its Complex Order
interacts. This structure has been favorably received by the industry
and the Exchange is proposing to apply a similar structure to Non-
Auction transactions in Select Symbols. After adopting this type of
structure for non-auction transactions in Select Symbols a Public
Customer submitting an order in a Select Symbol on the BOX Book will
recognize that it will not pay a fee for these transactions, and that
depending on with whom the order executes, the Public Customer may
receive an additional benefit for submitting the order. Likewise, a
Professional Customer or Broker Dealer submitting an order in a Select
Symbol will recognize that it will not be charged more than $0.59 in
penny pilot issues and $0.94 in non-penny pilot issues. The same is
true for Market Makers, who will recognize that their maximum charge
when submitting an order in a Select Symbol will be $0.55 in penny
pilot issues and $0.90 in non-penny pilot issues.
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\9\ See Securities Exchange Act Release No. 71312 (January 15,
2014), 79 FR 3649 (January 22, 2014) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend the Fee Schedule To
Establish Fees for Complex Order Price Improvement Period
(``COPIP'') Transactions).
\10\ This type of structure was also adopted by NYSE Arca in
2012. See Securities Release No. 68405 (December 11, 2012), 77 FR
74719 (December 17, 2012) (SR-NYSEArca-2012-137).
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The Exchange believes that the proposed fees and credits for Public
Customers in non-auction transactions in Select Symbols are reasonable.
Under the proposed fee structure Public Customers will either pay a
Make fee of $0.00 or receive a Make/Take credit of $0.22 for penny
pilot classes and $0.57 for non-penny pilot classes. These potential
fees and credits are reasonable and will at all times be less than the
current $0.07 Exchange Fee that Public Customers pay in non-auction
transactions.
The Exchange believes providing a credit or charging no fee to
Public Customers for all Non-Auction Transactions in Select Symbols is
equitable and not unfairly discriminatory. 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 public customer benefit. Accordingly, the Exchange
believes that charging no fee or providing a credit for Public
Customers is appropriate and not unfairly discriminatory. Public
Customers are less sophisticated than other Participants and the credit
will help to attract a high level of Public Customer order flow to the
BOX Book and create liquidity, which the Exchange believes will
ultimately benefit all Participants trading on BOX.
Finally, the Exchange believes it is reasonable, equitable and not
unfairly discriminatory to give Public Customers a credit when their
orders in Select Symbols execute against a non-Public Customer and,
accordingly, charge non-Public Customers a higher fee when their orders
in Select Symbols execute against a Public Customer. As stated above,
the Exchange aims to improve markets by developing features for the
benefit of its public customers. Similar to the payment for order flow
and other pricing models that have been adopted by the Exchange and
other exchanges to attract Public Customer order flow, the Exchange
increases fees to non-Public Customers in order to provide incentives
for Public Customers. The Exchange believes that providing incentives
for non-auction select symbol transactions by Public Customers is
reasonable and, ultimately, will benefit all Participants trading on
the Exchange by attracting Public Customer order flow.
The Exchange believes that charging Professional Customers and
Broker Dealers higher fees than Public Customers for non-auction
transactions in Select Symbols is equitable and non-unfairly
discriminatory. Professional Customers, while Public Customers by
virtue of not being Broker Dealers, generally engage in trading
activity more similar to Broker Dealer proprietary trading accounts
(submitting more than 390 standard orders per day on average). The
Exchange believes the higher level of trading activity from these
Participants will draw a greater amount of BOX system resources than
that of non-professional, Public Customers. Because this higher level
of trading activity will result in greater ongoing operational costs,
the Exchange aims to recover its costs by assessing Professional
Customers and Broker Dealers higher fees for transactions.
The Exchange also believes it is equitable and not unfairly
discriminatory for BOX Market Makers to be assessed lower fees than
Professional Customers and Broker Dealers for non-auction transactions
in Select Symbols because of the significant contributions to overall
market quality that Market Makers provide. Specifically, Market Makers
can provide higher volumes of liquidity, and lowering their fees will
help attract a higher level of Market Maker order flow to the BOX Book
and create liquidity, which the Exchange believes will ultimately
benefit all Participants trading on BOX. As such, the Exchange believes
it is appropriate that Market Makers be charged lower transaction fees
than Professional Customers and Broker Dealers for non-auction
transactions in Select Symbols.
The Exchange believes that the proposed fees and credits for all
other Participants in non-auction transactions in Select Symbols are
reasonable. Under the proposed fee structure a Professional Customer or
Broker Dealer making liquidity and interacting with a non-Public
Customer will either be charged a fee of $0.20 for Penny Pilot Classes,
or $0.30 for Non-Penny Pilot Classes. If the Professional Customer or
Broker Dealer is instead taking liquidity in either Penny Pilot or Non-
Penny Pilot Classes, it will be charged $0.35 if it interacts with a
Professional Customer or Broker Dealer, and $0.39 if it interacts with
a Market Maker. The Exchange believes the fees listed above are
reasonable as they are lower than the current $0.42 Exchange Fee
charged to Broker Dealers and Professional Customers in non-auction
transactions.
Similarly, in the proposed fee structure a Market Maker making
liquidity in both Penny Pilot and Non-Penny Pilot Classes will either
be charged a fee of $0.00 for interacting with a Professional Customer
or Broker Dealer, or $0.10 for interacting with another Market Maker.
If the Market Maker is instead taking liquidity, it will be charged
$0.05 (for Penny Pilot Classes) and $0.10 (for Non-Penny Pilot Classes)
if it interacts with a Professional Customer or Broker Dealer. If a
Market Maker is taking liquidity and interacts with another Market
Maker will be charged $0.29 in all situations. The Exchange believes
the fees listed above are reasonable as they are in most situations
lower than the current $0.13 to $0.35 Exchange Fee range for Market
Makers under the BOX Fee Schedule, and are in line with what is
currently charged by the industry.\11\
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\11\ Many U.S. Options Exchanges do not differentiate their fees
between auction and non-auction transactions. However, the general
range for Market Maker fees is between $0.10 and $0.89. See NASDAQ
OMX BX (``BX'') Options Pricing, Chapter XV, Sec. 2; BX charges both
BX Options Market Makers and Non-Customer/Non-BX Options Market
Makers a fee of $0.46 to remove liquidity in Penny Pilot Options and
a fee of $0.89 to remove liquidity in Non-Penny Pilot Options, a fee
to add liquidity in Penny Pilot Options of $0.40 to BX Options
Market Makers and $0.45 to Non-Customer/Non-BX Options Market
Makers, and a fee to add liquidity in Non-Penny Pilot Options of
$0.50 to BX Options Market Makers (or $0.85 when interacting with
Customer) and $0.88 for Non-Customer/Non-BX Options Market Makers.
See NYSE Arca Options (``Arca'') Fees and Charges page 3; Arca
charges NYSE Arca Market Makers $0.16 for manual executions, $0.49
to take liquidity in Penny Pilot Issues, and $0.87 to take liquidity
in Non Penny Pilot Issues. See International Securities Exchange
(``ISE'') Schedule of Fees, Section I; ISE charges Market Makers
$0.10 for making liquidity in select symbols and $0.42 for taking
liquidity in select symbols.
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[[Page 63986]]
The Exchange believes it is reasonable, equitable and not unfairly
discriminatory for Professional Customers, Broker Dealers and Market
Makers to be charged higher fees for both making and taking liquidity
when interacting with Public Customers. In the proposed fee structure a
Professional Customer or Broker Dealer interacting with a Public
Customer will be charged a $0.55 maker fee or $0.59 taker fee for Penny
Pilot Classes and a $0.90 maker fee or $0.94 taker fee for non-Penny
Pilot Classes. Similarly a Market Marker interacting with a Public
Customer will be charged a $0.51 maker fee or $0.55 taker fee for Penny
Pilot Classes and a $0.85 maker fee or $0.90 taker fee for non-Penny
Pilot Classes. While these fees are higher than what these Participants
are currently charged for non-auction transactions, the Exchange
believes they are reasonable as they are in line when compared [sic]
similar fees in the options industry.\12\ Further, as stated above the
Exchange believes charging a higher fee for interactions with a Public
Customer is equitable and not unfairly discriminatory because it allows
the Exchange to incentivize Public Customer order flow by offering
credits to Public Customers transacting in Select Symbols. The Exchange
believes that providing incentives for non-auction select symbol
transactions by Public Customers will benefit all Participants trading
on the Exchange by attracting this Public Customer order flow.
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\12\ Id. Professional Customer and Broker Dealers are also
charged anywhere from $0.10 to $0.89 within the option exchange fee
schedules referenced above.
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The Exchange believes it is reasonable, equitable and not unfairly
discriminatory for Professional Customers, Broker Dealers and Market
Makers to be charged a higher fee for orders removing liquidity when
compared to the fee they receive for orders that add liquidity.
Charging a lower fee for orders that add liquidity will promote
liquidity on the Exchange and ultimately benefit all participants on
BOX. Further, the concept of incentivizing orders that add liquidity
over orders that remove liquidity is commonly accepted within the
industry as part of the ``Make/Take'' liquidity model.\13\
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\13\ The ``Make/Take'' model is currently used by the
International Securities Exchange LLC. [sic] (``ISE') and NASDAQ OMX
PHLX LLC. [sic] (``PHLX'').
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Further, the Exchange believes it is equitable and not unfairly
discriminatory to charge the Professional Customer or Broker Dealer
more for taking liquidity against a Market Maker than they are charged
for taking liquidity against other Professional Customers or Broker
Dealers. As stated above, the Exchange proposes to provide certain
incentives to Market Makers because of the high volumes of liquidity
they can provide, and increasing fees for Professional Customers and
Broker Dealers taking liquidity will allow the Exchange to offer these
incentives, ultimately benefiting all Participants trading on BOX.
Finally, the Exchange also believes it is reasonable to charge
Professional Customers, Broker Dealers, and Market Makers less for
certain executions in penny pilot issues compared to non-penny pilot
issues because these classes are typically more actively traded;
assessing lower fees will further incentivize order flow in Penny Pilot
issues on the Exchange, ultimately benefiting all Participants trading
on BOX. Additionally, the Exchange believes it is reasonable to give a
greater credit to Public Customers for non-auction Select Symbol
executions in non-penny pilot issues as compared to penny pilot issues.
These classes have wider spreads and are less actively traded; and
giving a larger credit will further incentivize Public Customers to
trade in these classes, ultimately benefitting all Participants trading
on BOX.
The Exchange believes that the proposed Select Symbol non-auction
transactions fee structure will keep the Exchange competitive with
other exchanges and will be applied in an equitable manner among all
BOX Participants. The Exchange believes the proposed fee structure is
reasonable and competitive with fee structures in place on other
exchanges. Further, the Exchange believes that the competitive
marketplace impacts the fees proposed for BOX.
Tiered Volume Rebate for Non-Auction Transactions in Select Symbols
BOX believes it is reasonable, equitable and not unfairly
discriminatory to introduce tiered volume based rebates for Market
Makers and Public Customers in non-auction transactions in Select
Symbols. Other exchanges employ similar incentive programs,\14\ and the
Exchange believes that its proposed volume thresholds and rebates are
reasonable and competitive when compared to incentive structures at
other exchanges.
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\14\ See Section B of the Phlx Pricing Schedule entitled
``Customer Rebate Program'' and CBOE's Volume Incentive Program
(VIP). CBOE's Volume Incentive Program (``VIP'') pays certain tiered
rebates to Trading Permit Holders for electronically executed
multiply-listed option orders which include AIM orders. Note that
these exchanges base these rebate programs on the percentage of
total national Public Customer volume traded on their respective
exchanges, which the Exchange is not proposing to do.
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Additionally, the Exchange believes that the proposed volume
thresholds are reasonable because they will incentivize Public
Customers and Market Makers to direct order flow to the Exchange to
obtain the benefit of the rebate, which will in turn benefit all market
participants by increasing liquidity on the Exchange. The Exchange
believes that its proposed volume threshold and rebate is competitive
when compared to rebate structures at other exchanges.
The Exchange also believes it is equitable and not unfairly
discriminatory to only adopt these structures for Public Customers and
Market Makers. The proposed volume credits are intended to further
encourage Public Customer and Market Maker order flow to the Exchange
in these high volume symbols. Increased Public Customer and Market
Maker volume will provide greater liquidity, which benefits all market
participants on the Exchange. The practice of incentivizing increased
Public Customer order flow is common in the options markets. Further,
Market Makers also provide significant contributions to overall market
quality. Specifically, Market Makers can provide high volumes of
liquidity, and potentially lowering their transaction fees in Select
Symbols will help attract a higher level of Market Maker order flow and
create liquidity, which the Exchange believes will ultimately benefit
all Participants trading on BOX.
Liquidity Fees and Credits
The Exchange believes it reasonable, equitable and non-
discriminatory to simplify the Liquidity Fees and Credits for Auction
Transactions by removing the Minimum Price Variation distinction to
separate the applicable fees and credits by Penny Pilot Classes and
Non-Penny Pilot Classes. The current categories separate the fees and
credits into transactions where (1) the Minimum Price Variation of
$0.01 (Penny Pilot Classes where the trade
[[Page 63987]]
price is less than $3.00, and all series in QQQ, SPY, and IWM); and (2)
the Minimum Price Variation is greater than $0.01 (i.e., all non-Penny
Pilot Classes, and Penny Pilot Classes where the trade price is equal
to or greater than $3.00, excluding QQQ, SPY, and IWM). The Exchange
believes that changing these to Penny Pilot Classes and Non-Penny Pilot
Classes is reasonable as it will reduce investor confusion as to what
fee or credit is applicable. While delineating between classes within
pricing structures is common at most other options exchanges, BOX is
the only exchange that makes a Minimum Price Variation distinction and
changing this to Penny Pilot vs. Non-Penny Pilot will allow investors
to more quickly determine the applicable fees and credits. Further,
while the Exchange recognizes this proposal will result in certain
classes being charged or credited different liquidity fees and credits
(Penny Pilot classes where the trade price is equal to or greater than
$3.00), the Exchange believes it is reasonable to make this adjustment
because within these classes there is a fundamental difference in the
liquidity and quoted spreads between options that are quoted in penny
increments and those that are not. Additionally, these classes will in
actuality receive a lower charge or rebate than under the current
structure. Finally, the Exchange believes that the proposed change to
the liquidity fees and credits for auction transactions is equitable
and not unfairly discriminatory because it is applicable to all
Participants on an equal basis.
The Exchange believes that exempting Non-Auction Transactions in
Select Symbols from Section II (Liquidity Fees and Credits) is
reasonable, equitable and not unfairly discriminatory. The Exchange's
Liquidity Fees and Credits are intended to attract order flow to the
Exchange by offering incentives to all market participants to submit
orders to the Exchange and the Exchange believes that the proposed fee
structure will provide appropriate incentives to encourage Participants
to submit Non-Auction Transactions in Select Symbols to the Exchange.
The Exchange believes that exempting Non-Auction Transactions in Select
Symbols from liquidity fees and credits is reasonable compared to the
similar fees and credits offered by the other exchanges. The Exchange
believes exempting Non-Auction Transactions in Select Symbols from
liquidity fees and credits is not unfairly discriminatory as the
exemption from the liquidity fees and credits applies equally to all
Participants on the Exchange.
Jumbo SPY Options
The Exchange believes it is reasonable to remove all references of
Jumbo SPY Options from the Fee Schedule and treat any future Jumbo SPY
Option transactions before the final expiration in January 2015 as
standard contracts for purposes of the Fee Schedule. On June 20, 2014
the Exchange delisted all Jumbo SPY series with no open interest and
canceled all resting Jumbo SPY orders on the BOX Book. No further Jumbo
SPY Options series will be added and the five remaining Jumbo SPY
Options series with open interest were moved to closing only
transactions. The Exchange believes it is reasonable to remove these
references from the Fee Schedule because doing so will reduce investor
confusion by clarifying that the product will no longer be listed and
traded on BOX. The Exchange also believes it is equitable and not
unfairly discriminatory to remove all references to Jumbo SPY Options
as this applies equally to all Participants on the Exchange.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed new fee structure for
Select Symbols will neither impose burdens on competition among various
Exchange Participants nor impose any burden on competition among
exchanges in the listed options marketplace, not necessary or
appropriate in furtherance of the purposes of the Act.
The Exchange believes that adopting a different fee structure for
Select Symbols will not impose a burden on competition among various
Exchange Participants. BOX currently assesses distinct standard
contract Exchange Fees for different account and transaction types. The
Exchange believes that applying a fee structure that is determined by
whether the order removes or adds liquidity, and according to the
account type of the Participant submitting the order and the contra
party will result in Participants being charged appropriately for these
transactions. Submitting an order is entirely voluntary and
Participants can determine which type of order they wish to submit, if
any, to the Exchange.
Further, the Exchange believes that this proposal will enhance
competition between exchanges because it is designed to allow the
Exchange to better compete with other exchanges for order flow.
Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing exchanges. In such an environment, the Exchange must
continually review, and consider adjusting, its fees and credits to
remain competitive with other exchanges. For the reasons described
above, the Exchange believes that the proposed rule change reflects
this competitive environment.
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, or fee.
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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-2014-24 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-2014-24. This file
number should be included on the subject line if email is used. To help
the Commission process and review your
[[Page 63988]]
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
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-2014-24, and should be submitted on or before
November 17, 2014.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-25433 Filed 10-24-14; 8:45 am]
BILLING CODE 8011-01-P