[Federal Register Volume 85, Number 99 (Thursday, May 21, 2020)]
[Notices]
[Pages 31005-31007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10927]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88882; File No. SR-BOX-2020-10]


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 To Amend 
Section I.D., Qualified Contingent Cross Transactions

May 15, 2020.
    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 May 1, 2020, 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 
to amend Section I.D., Qualified Contingent Cross (``QCC'') \5\ 
Transactions. Currently, Professional Customers, Broker Dealers and 
Market Makers are assessed a $0.17 fee for their Agency Orders and a 
$0.17 fee for their Contra Orders for QCC transactions. Public 
Customers are not assessed a QCC Transaction Fee. The Exchange proposes 
to no longer assess Professional Customers QCC Transaction Fees.
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    \5\ A QCC Order is an originating order (Agency Order) to buy or 
sell at least 1,000 standard option contracts, or 10,000 mini-option 
contracts, that is identified as being part of a qualified 
contingent trade, coupled with a contra side order to buy or sell an 
equal number of contracts.
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    The Exchange also proposes to amend the rebate for QCC 
Transactions. Currently, a $0.14 per contract rebate is applied to the 
Agency Order where at least one party to the QCC transaction is a Non-
Public Customer. The Exchange now proposes to apply the $0.14 per 
contract rebate to the Agency Order where at least one party to the QCC 
Transaction is either a Broker Dealer or a Market Maker. The rebate 
will continue to be paid to the Participant that entered the order into 
the BOX system.
    Lastly, the Exchange proposes to establish a $0.22 per contract 
rebate that will be applied to the Agency Order when both parties to 
the QCC Transaction are a Broker Dealer or Market Maker. The rebate 
will be paid to the Participant that entered the order into the BOX 
system. Further, if the Participant qualifies for both rebates, only 
the larger rebate will be applied to the QCC transaction.
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.
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    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that no longer assessing QCC transaction fees 
for

[[Page 31006]]

Professional Customers, thus permitting Professional Customer orders to 
be treated similar to Public Customer Orders with respect to the QCC 
order type, is reasonable. QCC Orders are an order to buy or sell at 
least 1,000 contracts, or 10,000 contracts in the case of Mini Options. 
These large-sized contingent orders are complex in nature and have a 
stock-tied component, which requires the option leg to be executed at 
the NBBO or better. The parties to a contingent trade are focused on 
the spread or ratio between the transaction prices for each of the 
component instruments (i.e., the net price of the entire contingent 
trade), rather than on the absolute price of any single component.
    The differentiation between a Public Customer and Professional 
Customer is not necessary with respect to QCC Orders because these 
orders are exempt from requirements regarding order exposure.\7\ In 
addition, when the Exchange originally adopted fees for the QCC order 
type, the Exchange was largely focused on maintaining a market 
structure with features to benefit Public Customers.\8\ This still 
holds true today, and the Exchange will continue to do this by charging 
no fees to Public Customers in QCC transactions. In the current 
proposal, the Exchange simply wishes to extend this benefit to an 
additional type of market participant, specifically Professional 
Customers.\9\ The Exchange believes that charging no fees to Public 
Customers and Professional Customers is reasonable and, ultimately, 
will benefit all Participants trading on the Exchange by attracting 
additional order flow. Further, QCC Orders are not executed pursuant to 
a priority scheme.\10\ As discussed herein, the Exchange believes that 
treating Public Customer orders and Professional Customer orders in a 
similar manner with respect to fees, when transacting QCC Orders, will 
attract more QCC Orders to the Exchange because there would be no fee 
for Professional Customer orders. Lastly, the Exchange notes that 
another options exchange assesses no fees to Professional Customers for 
their QCC transactions.\11\
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    \7\ See Rule 7110(c)(6).
    \8\ See SR-BOX-2017-24.
    \9\ The Exchange notes Professional Customers are not brokers or 
dealers in securities, their designation is derived from the higher 
number of orders placed in comparison to Public Customers.
    \10\ By way of comparison, Public Customers receive priority 
over other market participants with respect to the execution of 
their orders within the Exchange's order book or on the Floor.
    \11\ See Nasdaq Phlx LLC (``Phlx'') Fee Schedule Options 7 
Pricing Schedule; Section 4 (``Customers and Professionals are not 
assessed a QCC Transaction Fee'').
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    The Exchange believes the proposed changes with respect to the QCC 
Rebate is reasonable, equitable and not unfairly discriminatory. The 
Exchange believes that applying the $0.14 per contract rebate to the 
Agency Order where at least one party to the QCC transaction is a 
Broker Dealer or Market Maker is reasonable as Professional Customers 
will no longer be assessed a fee for these transactions. The Exchange 
believes that Professional Customers no longer need the incentive of 
the rebate since the Exchange will no longer assess fees for their 
Agency Orders or Contra Orders for QCC transactions pursuant to this 
proposal. Further, the Exchange believes that the proposed change is 
equitable and not unfairly discriminatory because it potentially 
applies to all Participants that enter the originating order (except 
for when both the agency order and contra-side orders are Public 
Customers or Professional Customers) and because it is intended to 
incentivize the sending of more QCC Orders to the Exchange. The 
Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to not provide a rebate for the originating order for 
QCC transactions when both the originating order and contra side orders 
are from Public Customers or Professional Customers, since Public 
Customers and Professional Customers are already incentivized by having 
no transaction fee for QCC Orders. The Exchange notes that another 
exchange in the industry does not apply rebates to these types of 
orders.\12\
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    \12\ See Phlx Fee Schedule Options 7 Pricing Schedule; Section 
4. On Phlx, QCC rebates will be applied for all qualifying executed 
QCC orders except where the transaction is either: (i) Customer-to-
Customer; (ii) Customer-to-Professional; and (iii) Professional-to-
Professional.
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    Lastly, the Exchange believes the proposal to adopt the $0.22 per 
contract rebate applied to the Agency Order when both parties to the 
QCC transaction are a Broker Dealer and a Market Maker is reasonable, 
equitable and not unfairly discriminatory. The Exchange again notes 
that Public Customers are generally assessed a $0.00 transaction fee. 
Further, under this proposal, Professional Customers will no longer be 
assessed transaction fees for their QCC Orders. As discussed herein, 
Professional Customers do not need the incentive of the proposed rebate 
since there are no fees assessed for their Agency Orders or Contra 
Orders for QCC transactions. Further, the Exchange believes that it is 
reasonable, equitable, and not unfairly discriminatory to adopt the 
proposed QCC rebate for when both parties to the QCC transaction are a 
Broker Dealer or Market Maker, in order to increase competition and 
potentially attract different combinations of additional QCC order flow 
to the Exchange. Further, the Exchange notes that another exchange 
currently applies a similar rebate to QCC transactions.\13\
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    \13\ See Miami International Securities Exchange LLC (``MIAX'') 
Fee Schedule. MIAX offers a $0.22 per contract rebate to Market 
Makers and Broker Dealers when their Contra Order is from a Non-
Public Customer. The Exchange notes that under this proposal, 
Professional Customers will not be assessed fees for their QCC 
transactions (unlike MIAX who assesses a $0.15 and $0.17 fee for 
their Agency Orders and Contra Order, respectively). As such, the 
Exchange believes it is reasonable and appropriate to establish a 
similar rebate for these types of orders.
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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. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the degree to which fee changes in this market may impose any burden on 
competition is extremely limited.
    The initial purpose of the distinction between a Public Customer 
order and a Professional Customer order was to prevent market 
professionals with access to sophisticated trading systems that contain 
functionality not available to retail customers, from taking advantage 
of Public Customer priority, where Public Customer orders are given 
execution priority over Non-Public Customer orders.
    QCC Orders are by definition large-sized contingent orders which 
have a stock-tied component. The parties to a contingent trade are 
focused on the spread or ratio between the transaction prices for each 
of the component instruments (i.e., the net price of the entire 
contingent trade), rather than on the absolute price of any single 
component. Treating Public Customer orders and Professional Customer 
orders in the same manner in terms of pricing

[[Page 31007]]

with respect to QCC Orders does not provide any advantage to a 
Professional Customer. The distinction does not create an opportunity 
to burden competition, for the reasons stated herein with respect to 
priority. Further, the Exchange notes that another Exchange in the 
options industry treats Public Customers and Professional Customers the 
same with regard to QCC transactions.\14\
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    \14\ See supra note 11.
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    Lastly, the Exchange believes that the proposed rebates will not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act because it will encourage 
increased QCC order flow, which will bring greater volume and 
liquidity, thereby benefitting all market participants by providing 
more trading opportunities and tighter spreads.

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 rule-comments@sec.gov. Please include 
File Number SR-BOX-2020-10 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-2020-10. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet 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-2020-10, and should be submitted on 
or before June 11, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10927 Filed 5-20-20; 8:45 am]
BILLING CODE 8011-01-P


