[Federal Register Volume 84, Number 208 (Monday, October 28, 2019)]
[Notices]
[Pages 57795-57799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23424]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87378; File No. SR-BOX-2019-30]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee
Schedule on the BOX Options Market LLC (``BOX'') Facility for Complex
Order Transactions
October 22, 2019.
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 10, 2019, BOX Exchange LLC (the ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Exchange filed the
proposed rule change pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of 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 Options Market LLC (``BOX'') facility. The text of the proposed
rule change is available from the principal office of the Exchange, at
the Commission's Public Reference Room and also on the Exchange's
internet website at 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.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is one of 16 options venues to which market participants may
direct their order flow. The Exchange believes that the ever-shifting
market share among the exchanges from month to month demonstrates that
market participants can shift order flow, or discontinue to reduce use
of certain categories of products, in response to fee changes.
Accordingly, competitive forces constrain the Exchange's transaction
fees, and market participant can readily trade on competing venues if
they deem pricing levels at those other venues to be more favorable.
[[Page 57796]]
In response to this competitive environment, the Exchange has
established a Make/Take pricing model for Complex Orders which was
intended to attract Complex Orders to the Exchange by offering market
participants incentives (i.e. maker or taker credits) to submit their
Complex Orders to the Exchange, which could result in greater overall
liquidity on BOX, ultimately benefiting all Participants trading on the
Exchange. These Make/Take pricing models have been accepted by both the
Commission and the industry.\5\ The result of this structure is that a
Participant does not know the fee it will be charged when submitting
the Complex Order. Therefore, the Participant must recognize that it
could be charged the highest applicable fee on the Exchange's Complex
Order schedule, which may, instead be lowered or changed to a credit
depending upon how the Complex Order interacts.
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\5\ The ``Make/Take'' model is currently used by Nasdaq ISE LLC
(``ISE') and NASDAQ PHLX LLC (``PHLX'').
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Proposal
The Exchange proposes to adjust certain fees and credits within the
Complex Order pricing structure. Specifically, the Exchange proposes to
increase the maker and taker credits for Public Customers interacting
with Professional Customers/Broker Dealers or Market Makers in both
Penny and Non-Penny Pilot Classes. Here, the Exchange proposes to
increase the credit Public Customers receive when interacting with
Professional Customers, Broker Dealers or Market Makers, regardless of
whether they are adding or removing liquidity to $0.50 from $0.35
(Penny Pilot Classes) and to $0.90 from $0.70 (Non-Penny Pilot
Classes).
The Exchange also proposes to adjust the Maker credits and Taker
fees for Professional Customers or Broker Dealers in both Penny Pilot
and Non-Penny Pilot Classes. Specifically, when a Professional Customer
or Broker Dealer interacts with a Public Customer in a Penny Pilot
Class, the Exchange proposes to raise this fee to $0.50 from $0.45 for
making liquidity and to $0.50 from $0.45 for taking liquidity. For Non-
Penny Pilot Classes, the Exchange proposes to raise the fees in this
same type of interaction to $0.98 from $0.80 for making liquidity and
to $0.98 from $0.80 for taking liquidity. For when a Professional
Customer or Broker Dealer interacts with another Professional Customer
or Broker Dealer in Penny Pilot Classes, the Exchange proposes to raise
the credit for making liquidity to $0.30 from $0.10 and raise the fee
for taking liquidity to $0.50 from $0.30. For Non-Penny Pilot Classes,
the Exchange proposes to raise the fees and credits in this same type
of interaction. Specifically, the Exchange proposes to raise the credit
for making liquidity to $0.30 from $0.10 and increase the fee for
taking liquidity to $1.00 from $0.45. For when a Professional Customer
or Broker Dealer interacts with a Market Maker in Penny Pilot Classes,
the Exchange proposes to raise the credit for making liquidity to $0.30
from $0.10 and increase the fee for taking liquidity to $0.50 from
$0.30. For Non-Penny Pilot Classes the Exchange proposes to raise the
fees and credits in this same type of interaction. Specifically, the
Exchange proposes to increase the credit for making liquidity to $0.30
from $0.10 and increase the fee for taking liquidity to $1.00 from
$0.45.
The Exchange also proposes to adjust the Maker and Taker fees and
credits for Market Makers in both Penny Pilot and Non-Penny Pilot
Classes. Specifically, when a Market Maker interacts with a Public
Customer in a Penny Pilot Class, the Exchange proposes to raise the fee
to $0.50 from $0.40 for making liquidity and to $0.50 from $0.40 for
taking liquidity. For Non-Penny Pilot Classes, the Exchange proposes to
raise the fees in this same type of interaction to $0.98 from $0.75 for
making liquidity and to $0.98 from $0.75 for taking liquidity. For when
a Market Maker interacts with a Professional Customer or Broker Dealer
in Penny Pilot Classes, the Exchange proposes to raise the credit for
making liquidity to $0.30 from $0.10 and raise the fee for taking
liquidity to $0.50 from $0.30. For Non-Penny Pilot Classes, the
Exchange proposes to raise the fees and credits in this same type of
interaction. Specifically, the Exchange proposes to raise the credit
for making liquidity to $0.30 from $0.10 and increase the fee for
taking liquidity to $1.00 from $0.45. For when a Market Maker interacts
with another Market Maker in Penny Pilot Classes, the Exchange proposes
to raise the credit for making liquidity to $0.30 from $0.10 and
increase the fee for taking liquidity to $0.50 from $0.30. For Non-
Penny Pilot Classes, the Exchange proposes to raise the fees and
credits in this same type of interaction. Specifically, the Exchange
proposes to increase the credit for making liquidity to $0.30 from
$0.10 and increase the fee for taking liquidity to $1.00 from $0.45.
The revised Complex Order Pricing Structure will be as follows:
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Penny pilot classes Non-penny pilot classes
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Account type Contra party Maker fee/ Taker fee/ Maker fee/ Taker fee/
credit credit credit credit
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Public Customer............... Public Customer. $0.00 $0.00 $0.00 $0.00
Professional (0.50) (0.50) (0.90) (0.90)
Customer/Broker
Dealer.
Market Maker.... (0.50) (0.50) (0.90) (0.90)
Professional Customer or Public Customer. 0.50 0.50 0.98 0.98
Broker Dealer.
Professional (0.30) 0.50 (0.30) 1.00
Customer/Broker
Dealer.
Market Maker.... (0.30) 0.50 (0.30) 1.00
Market Maker.................. Public Customer. 0.50 0.50 0.98 0.98
Professional (0.30) 0.50 (0.30) 1.00
Customer/Broker
Dealer.
Market Maker.... (0.30) 0.50 (0.30) 1.00
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[[Page 57797]]
The Exchange next proposes to amend Section IV (Complex Order
Transaction Fees) of the BOX Fee Schedule to establish a $0.12 per
contract surcharge on any electronic non-Public Customer Complex Order
that executes against an electronic Public Customer Complex Order (the
``Complex Surcharge''). The Exchange notes that the proposed Complex
Surcharge is consistent with charges imposed by other options
exchanges.\6\
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\6\ See NYSE American LLC (``NYSE American'') Fee Schedule
(imposing a $0.12 per contract surcharge to certain complex orders).
See also Miami Securities International Exchange, LLC (``MIAX'') fee
schedule (imposing a $0.12 fee on certain complex orders).
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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,\7\ 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.
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\7\ 15 U.S.C. 78f(b)(4) and (5).
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Complex Order Transaction Fees
The Exchange believes that amending the Complex Order pricing
structure is reasonable, equitable and not unfairly discriminatory. The
fee structure for Complex Order Transactions has been well received by
Participants and the industry since it was adopted in 2016,\8\ and the
Exchange believes it is now appropriate to adjust certain fees and
credits in order to remain competitive with other options exchanges in
the industry. As discussed above, the Complex Order fee structure is
generally intended to attract order flow to the Exchange by offering
all market participants incentives to submit their Complex Orders to
the Exchange.
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\8\ See Securities Exchange Act Release No. 77568 (April 8,
2016), 81 FR 22151 (April 14, 2016) (SRBOX-2016-15.
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The Exchange believes that the proposed increase in the amount of
credits for Public Customer Complex Orders are reasonable. Under the
proposed fee structure, Public Customers will either receive a $0.50
credit for making or taking liquidity in Penny Pilot Classes when
interacting with a Professional Customer, Broker Dealer or Market Maker
or receive a $0.90 credit for making or taking liquidity in Non-Penny
Pilot Classes when interacting with a Professional Customer, Broker
Dealer or Market Maker. Public Customers will continue to be charged no
fee when interacting with another Public Customer. The Exchange
believes providing an increased credit and charging no fee to Public
Customers for Complex Orders 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 proposed increased 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.
The Exchange also believes it is reasonable, equitable and not
unfairly discriminatory to give Public Customers a credit when their
Complex Order executes against a non-Public Customer and, accordingly,
charge non-Public Customers a higher fee when their Complex Order
executes 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 to provide incentives for Public Customers. The
Exchange believes that providing incentives for Complex Orders 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 the proposed fees and credits for
Professional Customers and Broker Dealers in Complex Orders are
reasonable. Under the proposed fee structure, a Professional Customer
or Broker Dealer making liquidity and interacting with a Public
Customer will be charged $0.50 in Penny Pilot Classes and $0.98 in Non-
Penny Pilot Classes. Further, Professional Customers or Broker Dealers
making liquidity and interacting with another Professional Customer,
Broker Dealer or Market Maker will be credited $0.30 for Complex Orders
in Penny Pilot Classes. If the Professional Customer or Broker Dealer
is instead taking liquidity and interacting with another Professional
Customer, Broker Dealer or Market Maker, they will be charged $0.50 for
Complex Orders in Penny Pilot Classes. For Complex Orders in Non-Penny
Pilot Classes, the Professional Customer or Broker Dealer will be
charged $0.98 if the Complex Order interacts with a Public Customer's
Complex Order in the Non-Penny Pilot Classes. Further, Professional
Customers and Broker Dealers will be credited $0.30 when making
liquidity in Non-Penny Pilot Classes and interacting with another
Professional Customer, Broker Dealer or Market Maker. Lastly,
Professional Customers and Broker Dealers taking liquidity in Non-Penny
Pilot Classes will be charged $1.00 if the Complex Order interacts with
a Professional Customer or Broker Dealer or a Market Maker.
The Exchange believes that charging Professional Customers and
Broker Dealers higher fees than Public Customers for Complex Orders is
equitable and not 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 that the higher level of trading
activity from these Participants will draw a greater amount of BOX
system resources than that of nonprofessional, 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.
Finally, the Exchange believes that the proposed fees for Market
Makers in Complex Orders are reasonable. Under the proposed fee
structure, a Market Maker making or taking liquidity and interacting
with a Public Customer will be charged $0.50 for Complex Orders in
Penny Pilot Classes. A Market Maker making liquidity and interacting
with a Professional Customer, Broker Dealer or Market Marker will be
credited $0.30 for Complex Orders in both Penny Pilot Classes and Non-
Penny Pilot Classes. If the Market Maker is instead taking liquidity,
for Complex Orders in Penny Pilot Classes it will be charged $0.50 if
the Complex Order interacts with a Professional Customer or Broker
Dealer or a Market Maker. For Market Maker Complex Orders making or
taking liquidity and interacting with a Public Customer in Non-Penny
Pilot Classes, the Market Maker will be charged $0.98. Further, Market
Makers will be credited $0.30 when making liquidity in Non-Penny Pilot
Classes and interacting with another Professional Customer or Broker
[[Page 57798]]
Dealer or Market Maker. Lastly, Market Makers taking liquidity in Non-
Penny Pilot Classes will be charged $1.00 if the Complex Order
interacts with a Professional Customer or Broker Dealer or a Market
Maker.
The Exchange believes it is equitable and not unfairly
discriminatory for BOX Market Makers to be assessed the same fees as
Professional Customers and Broker Dealers as the proposed change will
provide uniformity throughout the Complex Order pricing structure for
non-Public Customers which will provide clarity and reduce investor
confusion.
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 credit they receive for orders that add liquidity.
Giving a credit to Complex 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.\9\
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\9\ The ``Make/Take'' model is currently used by Nasdaq ISE LLC
(``ISE') and NASDAQ PHLX LLC (``PHLX'').
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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 Complex Orders in Non-Penny
Pilot issues as compared to Penny Pilot issues. Since these classes
have wider spreads and are less actively traded, 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 Complex Order 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.
Complex Surcharge
The Exchange believes the proposed Complex Surcharge is reasonable,
equitable and not unfairly discriminatory, as it applies to all non-
Public Customer orders. Applying the surcharge to all market
participants except Public Customers is equitable and not unfairly
discriminatory because Public Customer order flow enhances liquidity on
the Exchange for the benefit of all market participants. Specifically,
Public Customer liquidity benefits all market participants by providing
more trading opportunities, which attracts Market Makers. An increase
in the activity of Market Makers in turn facilities tighter spreads,
which may cause an additional corresponding increase in order flow from
other market participants.
In addition, the proposed Complex Surcharge is reasonable,
equitable, and not unfairly discriminatory as it is consistent with
fees charged by other options exchanges.\10\ Specifically, NYSE
American imposes a $0.12 per contract surcharge to any electronic non-
customer complex order that executes against a customer complex order
which may result in an overall per contract fee of $0.62.\11\ The
Exchange notes that the proposed Complex Surcharge of $0.12 is
identical to the surcharges imposed on both NYSE American and MIAX. In
addition, the Exchange believes that the proposed surcharge is not new
or novel as it incorporates aspects of the surcharges that are already
imposed on NYSE American and MIAX.
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\10\ See supra note 6.
\11\ Id. On NYSE American, NYSE American Market Makers have a
potential total per contract fee of $0.62 in the Penny Pilot classes
which includes a ``Rate Per Contract for Electronic Transactions,''
a per contract ``Marketing Charge,'' and a $0.12 complex order
surcharge. NYSE American Broker Dealers also have a potential total
per contract fee of $0.62 in the Penny Pilot classes which includes
a ``Rate Per Contract for Electronic Transactions'' and the complex
surcharge. Similarly, on MIAX, Market Makers who qualify for Tier 1
of the Market Maker Sliding Scale fee structure have a potential
total per contract fee of $0.62 which includes a $0.25 ``Complex Per
Contract Fee for Penny Classes,'' a $.25 per contract ``Marketing
Fee,'' and a $0.12 ``Per Contract Surcharge for Trading Against a
Priority Customer Complex Order for Penny and Non-Penny Classes.''
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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 Complex Surcharge would not impose an unfair burden on
competition as it is consistent with fees charged by other
exchanges.\12\ Further, the Exchange believes that amending certain
Complex Order fees and credits will enhance competition between
exchanges because it is designed to allow the Exchange to better
compete with other exchanges for Complex Order flow.
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\12\ See supra notes 6 and 11.
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In addition, the proposal does not impose an undue burden on intra-
market competition because the changes will apply equally to all
similarly situated Participants. Further, the Exchange does not believe
the proposed changes impose a unnecessary burden on intra-market
competition, as they are merely designed to allow the Exchange to stay
competitive within the industry where Participants already pay similar
fees at other competitor exchanges.
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 believe 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 \13\ and Rule 19b-4(f)(2)
thereunder,\14\ because it establishes or changes a due, or fee.
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 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.
[[Page 57799]]
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-2019-30 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-2019-30. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street, NE, Washington,
DC 20549 on official business days between the hours of 10:00 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-BOX-2019-30, and should be submitted on
or before November 18, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23424 Filed 10-25-19; 8:45 am]
BILLING CODE 8011-01-P