[Federal Register Volume 85, Number 139 (Monday, July 20, 2020)]
[Notices]
[Pages 43921-43923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15556]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89315; File No. SR-BOX-2020-27]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Sections
I.C.2 (Strategy Order Facilitation and Solicitation Transactions) and
II.D (Strategy QOO Order Fee Cap and Rebate) of the Fee Schedule on the
BOX Options Market LLC Facility
July 14, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 1, 2020, BOX Exchange LLC (``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
to amend Section I.C.2 (Strategy Order Facilitation and Solicitation
Transactions) and Section II.D (Strategy QOO Order Fee Cap and Rebate)
to adopt the ``long stock interest'' strategy type. As proposed, a
``long stock interest strategy'' is defined as a transaction done to
achieve long stock interest involving the purchase, sale, and exercise
of in-the-money options of the same class. The Exchange currently has
the following strategies defined in the BOX Fee Schedule: Short stock
interest, merger, reversal, conversion, jelly roll, box spread and
dividend strategies.\5\ The Exchange notes that the proposed long stock
interest strategies are currently traded on the BOX Trading Floor;
however because these strategies are not defined within the Fee
Schedule, these transactions are assessed the applicable manual
transaction fees and are not eligible for the Strategy QOO Order Fee
Cap and Rebate. The Exchange believes that the proposed long stock
interest strategy type belongs in the group of strategies offered fee
caps and rebates on the Exchange, as it is similar in nature to the
short stock interest strategy. In particular, a short stock interest
strategy is a transaction done to achieve a short stock interest
arbitrage involving the purchase, sale, and exercise of in-the-money
options of the same class where a long stock interest strategy is a
transaction done to achieve long stock interest involving the purchase,
sale, and exercise of in-the-money options of the same class.\6\
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\5\ A ``short stock interest strategy'' is defined as a
transaction done to achieve a short stock interest arbitrage
involving the purchase, sale, and exercise of in-the-money options
of the same class. A ``merger strategy'' is defined as transactions
done to achieve a merger arbitrage involving the purchase, sale and
exercise of options of the same class and expiration date, each
executed prior to the date on which shareholders of record are
required to elect their respective form of consideration, i.e., cash
or stock. A ``reversal strategy'' is established by combining a
short security position with a short put and a long call position
that shares the same strike and expiration. A ``conversion
strategy'' is established by combining a long position in the
underlying security with a long put and a short call position that
shares the same strike and expiration. A ``jelly roll strategy'' is
created by entering into two separate positions simultaneously. One
position involves buying a put and selling a call with the same
strike price and expiration. The second position involves selling a
put and buying a call, with the same strike price, but with a
different expiration from the first position. A ``box spread
strategy'' is a strategy that synthesizes long and short stock
positions to create a profit. Specifically, a long call and short
put at one strike is combined with a short call and long put at a
different strike to create synthetic long and synthetic short stock
positions, respectively. A ``dividend strategy'' is defined as a
transaction done to achieve a dividend arbitrage involving the
purchase, sale and exercise of in-the-money options of the same
class, executed the first business day prior to the date on which
the underlying stock goes ex-dividend.
\6\ In essence, the long stock interest strategy is taking the
inverse position of the short stock interest strategy by utilizing
call options. Under certain circumstances, stocks can become
difficult to borrow because of limited supply. Under these market
conditions, the cost of borrowing shares in order to short the stock
can be prohibitively expensive. Customers may implement a long stock
interest strategy in order to take a long stock position and offset
the high short borrow costs associated with hard to borrow stocks.
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The Exchange now proposes to amend Section I.C.2 and Section II.D
of the BOX Fee Schedule to include the long stock interest strategy
type in the respective fee and rebate structures applicable to other
strategy types offered on the Exchange. Specifically, the Exchange
proposes to amend Section I.C.2 to state that fees for long stock
interest Strategy Orders executed through the electronic Facilitation
and Solicitation auction mechanisms will be subject to the table below:
[[Page 43922]]
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Agency order Facilitation order or Responses in the
------------------------- solicitation order solicitation or
------------------------- facilitation auction
mechanisms
Account type Penny Non-penny Penny Non-penny -----------------------
interval interval interval interval Penny Non-penny
classes classes classes classes interval interval
classes classes
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Public Customer....................... $0.00 $0.00 $0.00 $0.00 $0.25 $0.40
Professional Customer................. 0.10 0.10 0.10 0.10 0.25 0.40
Broker Dealer......................... 0.25 0.25 0.25 0.25 0.25 0.40
Market Maker.......................... 0.25 0.25 0.25 0.25 0.25 0.40
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Further, the Exchange proposes that fees for long stock interest
strategy orders executed through the electronic Facilitation and
Solicitation mechanisms be capped at $1,000 per day per customer along
with other applicable strategy orders. The Exchange also proposes that
on each trading day, Participants are eligible to receive a $500 rebate
per customer for executing long stock interest Strategy Orders through
the electronic Facilitation or Solicitation mechanisms. The rebate will
be applied once the $1,000 fee cap per customer is met. The rebate will
be paid to the Participant that entered the order into the BOX
system.\7\
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\7\ The Exchange notes that short stock interest, merger,
reversal, conversion, jelly roll, and box spread strategies are all
subject to the same fees, fee cap and rebate.
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Under Section II.D, as proposed, the manual transaction fees for
long stock interest strategies executed on the same trading day will be
capped at $1,000 per day per customer along with other applicable
strategy orders. Currently, on each trading day, Floor Brokers are
eligible to receive a $500 rebate per customer for presenting certain
Strategy QOO Orders on the BOX Trading Floor. The rebate will be
applied once the $1,000 fee cap per customer for all dividend, short
stock interest, merger, reversal, conversion, jelly roll, and box
spread strategies is met. The Exchange proposes to now include long
stock interest strategies to the above-mentioned rebate.
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,\8\ 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 Exchange notes that it operates in a highly competitive
market in which the Exchange must continually reassess its fees in
order to maintain its competitiveness within the options exchange
industry. The proposed changes reflect a competitive pricing structure
designed to incentivize market participants to direct their order flow
to the Exchange.
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\8\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposed addition of long stock
interest strategies to Sections I.C.2 and II.D to the BOX Fee Schedule
is reasonable, equitable and not unfairly discriminatory. As discussed
herein, long stock interest strategies are currently traded on the BOX
Trading Floor, however they are not defined in the BOX Fee Schedule and
are thus charged the applicable manual transaction fees in Section
II.A. and are not eligible for the applicable fee caps and rebates. The
Exchange believes that the proposed addition of long stock interest
strategies to Sections I.C.2 and II.D of the BOX Fee Schedule is
reasonable and appropriate as the long stock interest strategy is
similar in nature to the short stock interest strategy. Both strategy
types are executed to achieve short stock interest (short stock
interest strategy) or long stock interest (long stock interest
strategy) involving the purchase, sale, and exercise of in-the-money
options of the same class. As such, the Exchange further believes it is
reasonable and appropriate to include the long stock interest strategy
type with the other strategies that may benefit from the fee caps and
rebates available in Sections I.C.2 and II.D of the BOX Fee Schedule.
Further, the Exchange believes that including long stock interest
strategies in Sections I.C.2 and Section II.D of the BOX Fee Schedule
will incentivize Participants to submit increased order flow to the
Exchange thus creating increased trading opportunities ultimately
benefitting all market participants. The Exchange also believes that
the proposed change is equitable and not unfairly discriminatory as all
Participants, regardless of account type, may submit these types of
strategies to the Exchange and may avail themselves of the proposed fee
caps and rebates.
Lastly, the Exchange represents that the purpose of the proposed
rule change is to attract additional order flow to the Exchange. The
Exchange believes that implementing the rebate and fee cap for long
stock interest strategies--similar to the rebates and fee caps
currently in place for short stock interest, merger, reversal,
conversion, jelly roll, and box spread strategies--should increase
order flow to the Exchange resulting in increased trading opportunities
ultimately benefitting all market participants.
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 because the proposed change
applies uniformly to all Participants that incur transaction fees for
long stock interest strategies. Further, the Exchange notes that long
stock interest strategies are currently traded on the BOX Trading Floor
but are not eligible to receive the fee caps and rebates discussed
herein. As such, the Exchange believes that including long stock
interest strategies in Sections I.C.2 and II.D. of the BOX Fee Schedule
will incentivize Participants to submit these strategy types to the
Strategy Order Facilitation and Solicitation mechanisms or the BOX
Trading Floor, which in turn, will bring increased liquidity and order
flow to the Exchange for the benefit of all market participants.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues. 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.
[[Page 43923]]
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 \9\ and Rule 19b-4(f)(2)
thereunder,\10\ because it establishes or changes a due, or fee.
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\9\ 15 U.S.C. 78s(b)(3)(A)(ii).
\10\ 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-2020-27 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-2020-27. 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-2020-27, and should be submitted on
or before August 10, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15556 Filed 7-17-20; 8:45 am]
BILLING CODE 8011-01-P