[Federal Register Volume 87, Number 153 (Wednesday, August 10, 2022)]
[Notices]
[Pages 48744-48747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17104]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95430; File No. SR-BOX-2022-24)


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 Facility To Establish Section 
IV.D.2 (``Strategy QCC Transactions'')

August 4, 2022.
    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 August 1, 2022, 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 to 
amend the Fee Schedule for trading on BOX to establish Section IV.D.2 
(``Strategy QCC Transactions'') on the BOX Options Market LLC (``BOX'') 
options facility. While changes to the fee schedule

[[Page 48745]]

pursuant to this proposal will be effective upon filing, the changes 
will become operative on August 1, 2022. 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 establish Section IV.D.2 (``Strategy QCC Transactions'').
    Currently, the transaction fees for Qualified Contingent Cross 
(``QCC'') Orders, including strategy QCC Orders, are detailed in 
Section IV.D. in the Fee Schedule. Broker Dealer and Market Maker QCC 
transactions are assessed $0.17 per contract for both the Agency Order 
and the Contra Order. Public Customers and Professional Customers are 
assessed $0.00 for both the Agency Order and the Contra Order and are 
eligible for a rebate if at least one side of the QCC transaction is a 
Broker Dealer or Market Maker.\5\
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    \5\ See BOX Fee Schedule, Section IV.D, ``Qualified Contingent 
Cross (``QCC'') Transactions.''
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    To further incentivize Participants to execute strategy \6\ QCC 
transactions on BOX, the Exchange now proposes to establish Section 
IV.D.2 that will detail the fees assessed for these transactions.\7\ 
Specifically, the Exchange proposes to assess no fees for strategy QCC 
transactions which are comprised of an originating order to buy or sell 
at least 1,000 contracts, or 10,000 mini-option contracts, that is 
identified as being part of a qualified contingent trade, as that term 
is defined in IM-7110-2 below, coupled with a contra-side order or 
orders totaling an equal number of contracts. IM-7110-2 provides a 
``qualified contingent trade'' is a transaction consisting of two or 
more component orders, executed as agent or principal, where: (1) At 
least one component is an NMS Stock, as defined in Rule 600 of 
Regulation NMS under the Exchange Act; (2) all components are effected 
with a product or price contingency that either has been agreed to by 
all the respective counterparties or arranged for by a broker dealer as 
principal or agent; (3) the execution of one component is contingent 
upon the execution of all other components at or near the same time; 
(4) the specific relationship between the component orders (e.g., the 
spread between the prices of the component orders) is determined by the 
time the contingent order is placed; (5) the component orders bear a 
derivative relationship to one another, represent different classes of 
shares of the same issuer, or involve the securities of participants in 
mergers or with intentions to merge that have been announced or 
cancelled; and (6) the transaction is fully hedged (without regard to 
any prior existing position) as a result of other components of the 
contingent trade.\8\ Because these transactions will not be assessed a 
fee, the Exchange proposes that strategy QCC transactions will not be 
eligible for a QCC Rebate and will not count toward QCC Agency Order 
volume detailed in Section IV.D.1. The Exchange notes that strategy QCC 
transactions will continue to count toward Market Maker and Public 
Customer monthly executed volume on BOX detailed in Section IV.A.1 of 
the BOX Fee Schedule but will not be eligible for the QCC Rebate in 
Section IV.D.1 and will not be counted towards the QCC Rebate Tiers.
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    \6\ Strategy orders are defined as one of the following: 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 
``long stock interest strategy'' is defined as a transaction done to 
achieve long stock 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. See BOX Fee Schedule, 
notes 29 and 35.
    \7\ The Exchange notes that Public Customers and Professional 
Customers are not charged a fee for QCC Orders. Therefore, the 
Exchange believes that Public Customers and Professional Customers 
will not be as incentivized as other Participants by the proposed 
fees.
    \8\ BOX Rule 7110(c)(6).
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    The proposed change is designed to compete with open outcry fee 
caps for strategy orders.\9\ The Exchange believes that Participants 
may choose to execute strategy orders that would qualify as strategy 
QCC Orders either in open outcry or as electronic QCC transactions 
depending on convenience, fees, and access to Floor Brokers. The 
Exchange believes that Participants are otherwise indifferent to 
whether a strategy order is executed in open outcry or electronically. 
Therefore, the proposed change is designed to further incentivize 
certain Participants to direct strategy order volume to BOX's 
electronic QCC mechanism rather than to another exchange's trading 
floor.
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    \9\ The Exchange's proposal to not assess fees on strategy QCC 
transactions is similar to Cboe Exchange, Inc. (``CBOE''), which 
caps open outcry strategy transactions at $0.00. See CBOE Fee 
Schedule, ``QCC Rate Table''; footnote 13. CBOE's fee cap applies to 
open outcry strategy transactions. Although, the proposed strategy 
QCC Orders are executed electronically, the Exchange believes that 
executing strategy orders as QCC orders is an alternative for 
trading strategy orders in open outcry. As such, the proposed change 
will allow BOX to compete with other exchanges who offer strategy 
orders at no cost. BOX notes that other exchanges offer fee caps on 
open outcry strategy transactions as well. See generally NYSE 
American Options Fee Schedule, Section I(J), ``Options Transaction 
Fees and Credits'' (Strategy transactions in open outcry and QCC 
reversal and conversion strategies are capped at $1,000 on the same 
trading day. The cap is reduced to $200 per trading day for ATP 
Holders that trade at least 25,000 billable contract sides in 
qualifying strategy executions) and Nasdaq PHLX LLC Rules Options 7, 
Section 4 (reversal and conversion strategies capped at $200 per 
day; merger, short stock interest, and box spread strategies capped 
at $1,000 per day if more than one class of options or $700 per day 
if in a single class of options; dividend strategies capped at 
$1,100 per day; all strategies capped at $65,000 per month per 
member organization).
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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,\10\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other

[[Page 48746]]

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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    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange notes that it operates in a highly competitive 
environment. Indeed, there are currently 16 registered options 
exchanges that trade options. Based on publicly available information, 
no single options exchange has more than 16% of the market share and 
currently the Exchange represents only approximately 6% of the market 
share.\11\ The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Particularly, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \12\ As stated 
above, the Exchange 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. The proposed fee changes reflect a 
competitive pricing structure designed to incentivize market 
participants to direct their order flow to the Exchange.
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    \11\ See Cboe Global Markets U.S. Options Market Month-to-Date 
Volume Summary (June 16, 2022), available at https://markets.cboe.com/us/options/market_statistics/.
    \12\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    The Exchange believes the proposed change is reasonable, equitable, 
and not unfairly discriminatory as there are other exchanges with 
similar fees or fee caps for strategy orders \13\ and the proposed fees 
are uniformly applicable to all Participants. The Exchange also 
believes the proposed change would further incentivize certain 
Participants to execute strategy QCC Orders on BOX and may encourage 
Participants to aggregate all types of strategy orders (i.e. QCC Orders 
and Qualified Open Outcry (``QOO'') Orders) at BOX as a primary 
execution venue. The Exchange believes that Participants may 
consolidate different order types for execution on a single exchange 
because it increases the volume counted towards volume-based fee 
incentives, in particular, the Tiered Volume Rebate for Non-Auction 
Transactions in Section IV.A.1., of BOX's Fee Schedule, which provides 
Participants with incentives to achieve certain volume thresholds on 
BOX. To the extent that the proposed change attracts more strategy 
orders to BOX, some of which may be executed as QCC Orders and others 
as QOO Orders, this increased order flow may make BOX a more 
competitive venue for order execution.
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    \13\ See supra note 9.
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    The Exchange also believes that the ever-shifting market share 
among the exchanges from month to month demonstrates that market 
participants can shift order flow or discontinue or reduce use of 
certain categories of products, in response to fee changes. 
Accordingly, competitive forces constrain options exchange transaction 
fees. Stated otherwise, changes to exchange transaction fees can have a 
direct effect on the ability of an exchange to compete for order flow. 
The Exchange believes the proposed change is a reasonable attempt to 
further incentivize certain Participants to execute strategy orders on 
BOX and in turn to increase the depth of its market to the benefit of 
all market participants. The Exchange also notes that Participants may 
avail themselves to the proposed strategy order pricing or they can opt 
for similar offerings at several other exchanges.\14\
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    \14\ See supra note 9.
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    The Exchange believes that not allowing strategy QCC transactions 
to be eligible for a rebate is reasonable, equitable and not unfairly 
discriminatory because, as proposed, a fee is not assessed for these 
transactions. As such, the Exchange believes that Participants do not 
require additional incentives to execute these transactions on BOX. The 
QCC Rebate and Tiers detailed in Section IV.D.1 of the BOX Fee Schedule 
were designed to reduce the QCC fees assessed to Participants in 
Section IV.D. The proposal discussed herein is to assess no fee on 
strategy QCC Orders therefore there is no fee to reduce. Further, the 
Exchange believes that it is reasonable, equitable and not unfairly 
discriminatory to not count strategy QCC Order volume towards QCC Tiers 
because the Exchange does not believe that Participants need additional 
incentives to transact strategy QCC Orders on BOX.
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to continue to count strategy QCC transactions 
toward the Tiered Volume Rebate for Non-Auction Transactions in Section 
IV.A.1., which provides Participants with incentives to achieve certain 
volume thresholds on BOX. These volume tiers are designed to reflect a 
reasonable and competitive pricing structure, to incentivize market 
participants to direct their order flow to BOX, and to enhance market 
quality. The Exchange believes that allowing strategy QCC orders to 
count toward customer volume tiers is equitable and not unfairly 
discriminatory because BOX has historically aimed to improve markets 
for investors and develop various features within the market structure 
for public customer benefit. The Exchange believes further that 
allowing strategy QCC orders to count toward Market Maker volume tiers 
is equitable and not unfairly discriminatory because of the significant 
contribution to overall market quality that Market Makers provide. 
Specifically, Market Makers provide higher volumes of liquidity which 
ultimately benefits all Participants trading on BOX.

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 proposed change is designed to attract additional order flow to 
BOX. The Exchange believes that the proposed change could further 
incentivize certain market participants to direct their strategy QCC 
Orders to BOX. As noted herein, the proposed strategy QCC Order fees 
would be applicable to all similarly situated market participants, and, 
as such, the proposed change would not impose a disparate burden on 
competition among Participants on BOX.
    Further, the Exchange also does not believe that the proposed fees 
will impose any burden on intermarket competition that is not necessary 
or appropriate in furtherance of the Act because, as noted above, 
competing options exchanges currently have similar fees in place in 
connection with strategy orders.\15\ Because competitors are free to 
modify their own fees or fee caps in response to competing exchanges, 
BOX believes that the degree to which changes in this market may impose 
any burden on competition is limited. Further, the Exchange believes 
that the proposed change could promote competition between BOX and 
other execution venues, including those that currently offer similar 
strategy order fees or fee caps. Finally, 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

[[Page 48747]]

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.
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    \15\ Id.
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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 \16\ and Rule 19b-4(f)(2) 
thereunder,\17\ because it establishes or changes a due, or fee.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 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-2022-24 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-2022-24. 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-2022-24, and should be submitted on 
or before August 31, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17104 Filed 8-9-22; 8:45 am]
BILLING CODE 8011-01-P


