
[Federal Register Volume 84, Number 40 (Thursday, February 28, 2019)]
[Notices]
[Pages 6842-6844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03543]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Securities Exchange Act of 1934; Release No. 34-85184/February 25, 
2019]


Order Affirming Order by Delegated Authority Temporarily 
Suspending and Instituting Proceedings on SR-BOX-2018-24 and Notice of 
Additional Comment Period for the Proceedings

    In the Matter of the BOX Exchange LLC Regarding a Suspension of 
and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change to Amend the Fee Schedule on the 
BOX Market LLC Options Facility to Establish BOX Connectivity Fees 
for Participants and Non-Participants Who Connect to the BOX Network 
(File No. SR-BOX-2018-24)

I. Background

    On July 19, 2018, BOX Exchange LLC (f/k/a BOX Options Exchange LLC) 
(``BOX'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change (SR-BOX-2018-24) to amend the fee schedule on the 
BOX Market LLC options facility to establish certain connectivity fees 
and reclassify its high speed vendor feed connection as a port fee. The 
proposed rule change was published in the Federal Register on August 2, 
2018.\3\ The Commission received one comment letter on the proposal 
urging the Commission to suspend the proposal and institute 
proceedings.\4\ BOX submitted a

[[Page 6843]]

response to comments on September 12, 2018.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83728 (July 27, 
2018), 83 FR 37853.
    \4\ See letter to Brent J. Fields, Secretary, Commission, from 
Tyler Gellasch, Executive Director, The Healthy Markets Association, 
dated August 23, 2018.
    \5\ See letter to Brent J. Fields, Secretary, Commission, from 
Lisa J. Fall, President, BOX, dated September 12, 2018.
---------------------------------------------------------------------------

    On September 17, 2018, the Division of Trading and Markets 
(``Division''), pursuant to delegated authority,\6\ issued an order 
temporarily suspending the proposed rule change pursuant to Section 
19(b)(3)(C) of the Act \7\ and simultaneously instituting proceedings 
under Section 19(b)(2)(B) of the Act \8\ to determine whether to 
approve or disapprove the proposed rule change (``Order Instituting 
Proceedings'').\9\ On October 17, 2018, the Commission received an 
additional comment letter in response to the Order Instituting 
Proceedings, supporting the decision to suspend and institute 
proceedings on the proposed fee changes.\10\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(57) and (58).
    \7\ 15 U.S.C. 78s(b)(3)(C).
    \8\ 15 U.S.C. 78s(b)(2)(B).
    \9\ See Securities Exchange Act Release No. 84168 (September 17, 
2018), 83 FR 47947 (September 21, 2018).
    \10\ See letter to Brent J. Fields, Secretary, Commission, from 
Theodore R. Lazo, Managing Director and Associate General Counsel, 
and Ellen Greene, Managing Director, Financial Services Operations, 
Securities Industry and Financial Markets Association, dated October 
15, 2018.
---------------------------------------------------------------------------

    On September 19, 2018, pursuant to Rule 430 of the Commission's 
Rules of Practice,\11\ the Exchange filed a notice of intention to 
petition for review of the Order Instituting Proceedings. Pursuant to 
Rule 431(e) of the Commission's Rules of Practice,\12\ a notice of 
intention to petition for review results in an automatic stay of the 
action by delegated authority. On September 26, 2018, the Exchange 
filed a petition for review of the Order Instituting Proceedings.\13\
---------------------------------------------------------------------------

    \11\ 17 CFR 201.430.
    \12\ 17 CFR 201.431(e).
    \13\ Petition for Review of Order Temporarily Suspending BOX 
Exchange LLC's Proposal to Amend the Fee Schedule on BOX Market LLC, 
dated September 26, 2018 (``Petition'').
---------------------------------------------------------------------------

    On November 16, 2018, the Commission granted BOX's Petition. 
Further, the Commission discontinued the automatic stay of the 
delegated action. In addition, the Commission ordered that any party or 
other person could file a statement in support or in opposition to the 
action made by delegated authority provided such statement was filed on 
or before December 10, 2018.\14\
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 84614 (November 16, 
2018), 83 FR 59432 (November 23, 2018).
---------------------------------------------------------------------------

    On December 7, 2018, the Commission received a statement from BOX 
opposing the action made by delegated authority and urging the 
Commission to lift the suspension and approve the proposed rule 
change.\15\ In its letter, BOX reiterates the arguments from its 
Petition that its proposed fees are lower than comparable fees charged 
by other exchanges and are designed to offset costs of maintaining and 
improving its trading systems.\16\ BOX's letter also includes 
additional statements describing in general terms the types of costs 
its proposed fees are intended to support. Specifically, BOX states 
that these may include costs related to connectivity, software and 
hardware enhancements, software development, quality assurance, 
technology support, network performance and stability improvements, and 
third-party data center rental and utilities.\17\ On December 10, 2018, 
the Commission received a second statement from BOX making identical 
arguments.\18\
---------------------------------------------------------------------------

    \15\ See letter to Brent J. Fields, Secretary, Commission, from 
Lisa J. Fall, President, BOX, dated December 7, 2018.
    \16\ See id. at 2-3.
    \17\ See id. at 2.
    \18\ See letter to Brent J. Fields, Secretary, Commission, from 
Amir C. Tayrani, Gibson, Dunn & Crutcher LLP, dated December 10, 
2018.
---------------------------------------------------------------------------

    On January 2, 2019, the Commission received two additional comment 
letters further commenting on BOX's proposed connectivity fees and 
arguing that the Exchange has not provided sufficient information to 
allow the Commission to assess whether the proposed fees are consistent 
with the Act.\19\
---------------------------------------------------------------------------

    \19\ See letters to Brent J. Fields, Secretary, Commission, from 
Tyler Gellasch, Executive Director, The Healthy Markets Association, 
dated January 2, 2019 and Chester Spatt, Pamela R. and Kenneth B. 
Dunn Professor of Finance, Tepper School of Business, Carnegie 
Mellon University, to Brent J. Fields, Secretary, Commission, dated 
January 2, 2019.
---------------------------------------------------------------------------

    On January 25, 2019, pursuant to Section 19(b)(2) of the Act,\20\ 
the Commission designated a longer period within which to approve the 
proposed or disapprove the proposed rule change.\21\
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(2).
    \21\ See Securities Exchange Act Release No. 84989 (January 25, 
2019), 84 FR 858 (January 31, 2019). The Commission noted that March 
30, 2019, is a Saturday and, therefore, the Commission designated 
March 29, 2019, as the date by which the Commission shall either 
approve or disapprove the proposed rule change.
---------------------------------------------------------------------------

    On February 19, 2019, the Commission received another letter from 
BOX.\22\ In its letter, BOX argues that its provision of connectivity 
services is related to its trading function. BOX asserts that 
competition for order flow with other exchanges constrains its ability 
to price its services, including connectivity.\23\ Therefore, BOX 
claims such competition ensures that its proposed fees are reasonable, 
equitable, and not unfairly discriminatory and do not impose an 
unnecessary or inappropriate burden on competition.\24\ As a result, 
BOX claims it is unnecessary to provide detailed cost information in 
order to justify its proposed fees.\25\
---------------------------------------------------------------------------

    \22\ See letter to Brent J. Fields, Secretary, Commission, from 
Lisa J. Fall, President, BOX, dated February 19, 2019.
    \23\ See id. at 2.
    \24\ See id.
    \25\ See id. at 3-4.
---------------------------------------------------------------------------

II. Discussion

    The Commission's Rules of Practice set forth procedures for the 
review of actions made pursuant to delegated authority. Rule 431(a) 
provides that the Commission may affirm, reverse, modify, set aside, or 
remand for further proceedings, in whole or in part, any action made 
pursuant to authority delegated in 17 CFR 200.30-1 through 200.30-
18.\26\ For the reasons discussed below, the Commission affirms the 
temporary suspension of the proposed rule change and the institution of 
proceedings.
---------------------------------------------------------------------------

    \26\ See 17 CFR 201.431(a).
---------------------------------------------------------------------------

    Instituting proceedings and keeping in place the temporary 
suspension provides a process for the Commission to further consider 
whether the proposed rule change is consistent with the statutory 
requirements applicable to a national securities exchange under the 
Act. In particular, this approach will allow the Commission to consider 
whether the proposed rule change satisfies the standards under the Act 
and the rules thereunder requiring, among other things, that (i) an 
exchange's rules provide for the equitable allocation of reasonable 
fees among members, issuers, and other persons using its facilities; 
(ii) do not permit unfair discrimination between customers, issuers, 
brokers, or dealers; and (iii) do not impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the 
Act.\27\ Accordingly, the Order Instituting Proceedings properly 
concluded that it was appropriate in the public interest, for the 
protection of investors, and otherwise in furtherance of the purposes 
of the Act to temporarily suspend the proposed rule change and to 
institute proceedings to determine whether the proposed rule change 
should be approved or disapproved in view of the significant legal and 
policy issues raised by the proposal.\28\
---------------------------------------------------------------------------

    \27\ See Order Instituting Proceedings, supra note 9, at 47948.
    \28\ See id.
---------------------------------------------------------------------------

    The Commission recognizes the issues and views raised by the 
commenters

[[Page 6844]]

and BOX as to the impact of and justification for the proposed fee 
changes. Instituting proceedings provides an opportunity for additional 
comment on, and Commission consideration of, these matters, as well as 
an opportunity for the Commission to more fully assess whether the 
filing is consistent with the Act.
    Further, suspending the filing and instituting proceedings 
constitutes an interim step in the Commission's consideration of the 
substantive issues raised by the filing, and does not constitute a 
final disposition of the proposed rule change. As reflected in the 
Order Instituting Proceedings, the Commission has not reached any 
conclusions with respect to the issues involved.\29\ To the contrary, 
the Commission sought additional comment with respect to the concerns 
raised by the filing,\30\ and noted that the institution of proceedings 
provides the Commission the opportunity to more fully assess the issues 
raised. In addition, as discussed below, the Commission is providing an 
additional comment and rebuttal period in this order. This will help 
the Commission further assess the proposed rule change and inform its 
ultimate decision as to whether the proposed rule change is consistent 
with the Act.
---------------------------------------------------------------------------

    \29\ See id.
    \30\ See id.
---------------------------------------------------------------------------

    As noted above, during the proceedings the Commission will consider 
whether the proposal satisfies the standards under the Act and the 
rules thereunder requiring, among other things, that an exchange's 
rules provide for the equitable allocation of reasonable fees among 
members, issuers, and other persons using its facilities; not permit 
unfair discrimination between customers, issuers, brokers or dealers; 
and do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.
    The Commission also believes it is appropriate to provide that (1) 
interested persons may submit comments related to SR-BOX-2018-24 until 
8 days from publication of this order in the Federal Register and (2) 
rebuttal comments may be submitted until 15 days from publication of 
this order in the Federal Register.
    For the reasons stated above, it is hereby:
    Ordered that the Division's Order Instituting Proceedings by 
delegated authority is hereby affirmed; and
    It is further Ordered that interested persons may submit comments 
related to SR-BOX-2018-24 until 8 days from publication in the Federal 
Register; rebuttal comments may be submitted until 15 days from 
publication in the Federal Register.

    By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03543 Filed 2-27-19; 8:45 am]
 BILLING CODE 8011-01-P


