80 FR 17122 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Clarify Certain Statements Made in SR-BOX-2015-03, a Proposed Rule Change Filed by the Exchange on January 9, 2015

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 61 (March 31, 2015)

[Federal Register Volume 80, Number 61 (Tuesday, March 31, 2015)]
[Notices]
[Pages 17122-17124]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-07257]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74576; File No. SR-BOX-2015-16]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Clarify Certain Statements Made in SR-BOX-2015-03, a Proposed Rule 
Change Filed by the Exchange on January 9, 2015

March 25, 2015.
    Pursuant to Section 19(b)(1) under the Securities Exchange Act of 
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on March 16, 2015, BOX Options Exchange LLC (the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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 clarify certain statements 
made in SR-BOX-2015-03, a rule change filed by the Exchange on January 
9, 2015, to implement an equity rights program (the ``VPR Filing''). 
There are no proposed changes to any rule text.

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
    On January 9, 2015, the Exchange filed the VPR Filing to implement 
an equity rights program (the ``VPR Program'').\5\ As provided on page 
4 of 49 of the VPR Filing, Subscribers in the VPR Program have the 
right to acquire equity in, and receive distributions from, BOX 
Holdings Group LLC (``Holdings''), an affiliate of the Exchange, in 
exchange for the achievement of certain order flow volume commitment 
thresholds on the Exchange over a period of five (5) years (and a 
nominal initial cash payment). Specifically, each Volume Performance 
Right (``VPR'') issued to Subscribers under the VPR Program includes an 
average daily transaction volume commitment (``VPR Volume Commitment'') 
with respect to Qualifying Contract Equivalents (as defined on page 6 
of 49 of the VPR Filing) equal to 0.0055% of the Industry ADV \6\ for a 
total of five (5) years.\7\ The calculation of a Contract Equivalent 
depends on the type of account that sends the order flow to BOX, each 
of which has a predetermined ratio assigned to it under the Program: 
Public Customer (0.71), Market Maker (1.10), Broker/Dealer (1.35) and 
Professional Customer (1.35). This predetermined ratio is then 
multiplied by the quantity of options contracts executed by the 
Subscriber on BOX for the Subscriber's own or customer account over a 
certain period to determine the number of Contract Equivalents 
attributed to the Subscriber for that period.
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    \5\ See SR-BOX-2015-03. As noted in the VPR Filing, certain 
aspects of the Program require changes to the company governance 
documents, including the acquisition of equity ownership and any 
right related to such ownership, are contingent upon Commission 
approval of a separate company governance proposed rule change, 
which has yet to be filed.
    \6\ The Industry ADV for a period is calculated by multiplying 
(i) two (2) times (ii) the quotient of (A) the aggregate number of 
cleared U.S. options transactions executed on a U.S. national 
exchange or facility thereof in U.S. listed securities on trading 
days during the period, as reported by the Options Clearing 
Corporation (``OCC''), divided by (B) the number of trading days 
during the period. A ``trading day'' is generally any day on which 
the BOX market is open for business, subject to certain 
qualifications to be defined in the Members Agreement. Certain 
industry transactions are excluded from the calculation of Industry 
ADV as described on pages 9--10 of 49 of the VPR Filing.
    \7\ Each VPR also includes 8.5 unvested new Class C Membership 
Units of Holdings. See page 5 of 49 of the VPR Filing.
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    In describing how Contract Equivalents are calculated in the VPR 
Filing, the Exchange inadvertently used the term ``orders'' to describe 
the option contracts executed by the Subscriber. Specifically, on pages 
5 and 20-21 of 49 of the VPR Filing, the Exchange explained that the 
Contract Equivalent calculation for each of the four categories of 
account types would be based on the quantity of orders executed, 
multiplied by the predetermined ratio assigned to each category. 
However, this description was intended to convey that, in calculating 
the Contract Equivalent for each of the four categories of account 
types under the Program, the Exchange measures the number of contracts 
executed, and then multiples the executed contracts by the 
predetermined ratio for the appropriate category. Accordingly, if a 
Subscriber were to send a single order of 1,000 option contracts to the 
Exchange, and all 1,000 option contracts are executed on BOX (assuming 
none are Excluded Member Contracts, as defined on pages 9-10 of the VPR 
Filing), then the number of Contract Equivalents for that Subscriber 
would be calculated by multiplying the 1,000 contracts (not the single 
order) by the predetermined ratio for the appropriate account type.
    Furthermore, in describing how the Contract Equivalent ratio was 
determined for each of the four account type categories under the 
Program, the Exchange noted, on pages 6, 16, and 20-

[[Page 17123]]

21 of 49 of the VPR Filing, that the ratios are weighted in accordance 
with the Exchange's Fee Schedule, such that those account types that 
are charged higher fees by the Exchange have Contract Equivalent ratios 
that are weighted more heavily. While the Exchange believes the 
operating principles of the VPR Program are evident from the VPR 
Filing, we understand the description of the weight assigned to each 
predetermined Contract Equivalent ratio may be confusing, and seek to 
clarify it. Specifically, the Contract Equivalent ratios assigned to 
each of the four account types escalate in accordance with the fees 
charged to the same four account types in the Exchange's Fee Schedule. 
Thus, the categories for which the Exchange earns the highest fees for 
any executed contract (Broker/Dealer and Professional Customer) also 
have the highest Contract Equivalent ratio, and vice versa. Having a 
higher Contract Equivalent ratio requires additional contracts to be 
executed to achieve the number of Qualifying Contract Equivalents 
required to meet the Subscriber's VPR Volume Commitment. Put another 
way, having a lower Contract Equivalent ratio allows a Subscriber to 
reach their VPR Volume Commitment faster as compared to submitting 
contracts with a higher Contract Equivalent ratio. Accordingly, a 
Subscriber executing contracts for the Broker/Dealer and Professional 
Customer account types will take longer to reach their VPR Volume 
Commitment as compared to executing contracts for the Market Maker and 
Public Customer account types, in that more executions will be required 
to achieve the VPR Volume Commitment because it takes 1.35 Broker/
Dealer or Professional Customer executed contracts to equal one (1) 
Qualifying Contract Equivalent. In contrast, a Subscriber executing 
contracts for the Public Customer account type, for which the Exchange 
earns the lowest fees, will reach their VPR Volume Commitment faster as 
compared to executing contracts for the Market Maker, Professional 
Customer and Broker/Dealer account types, in that less contracts will 
need to be executed on behalf of Public Customer accounts than any 
other type of account in order to meet the VPR Volume Commitment 
because it only takes .71 Public Customer executed contracts to equal 
one (1) Qualifying Contract Equivalent. For example if a Subscriber is 
trying to reach 1000 Qualifying Contract Equivalents it would only take 
710 executed Public Customer contracts (1000*0.71 = 710) or 1350 
executed Broker/Dealer contracts (1000*1.35 = 1350) to reach the 1000 
Qualifying Contract Equivalents. This example illustrates how a 
Subscriber can reach their VPR Volume Commitment faster and through 
fewer transactions by executing Public Customer contracts as compared 
to executing Broker/Dealer contracts.
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. In particular, the proposed rule change is reasonable, 
equitable and not unfairly discriminatory because it proposes to 
clarify aspects of the VPR Filing, thereby helping ensure that 
investors and current Subscribers to the VPR Program clearly understand 
how the VPR Program operates. In addition, because the first quarter of 
the VPR Program has not yet completed as of the time of filing this 
proposed rule change, no Quarterly Volume Commitment (as defined on 
page 30 of 49 of the VPR Filing) calculations have been made under the 
Program for any Subscribers. Accordingly, this proposed rule filing 
should provide current Subscribers will sufficient time to resolve any 
potential confusion that stemmed from the description of the VPR 
Program and, specifically, the Contract Equivalent calculation and 
Contract Equivalent ratios, in the VPR Filing before the first 
Quarterly Volume Commitment under the Program is calculated for 
Subscribers.
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    \8\ 15 U.S.C. 78f(b)(4) and (5).
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change will improve competition by clarifying certain 
aspects of the VPR Filing for all market participants.

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-2015-16 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-2015-16. 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 Web site (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 Web site viewing and

[[Page 17124]]

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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BOX-2015-16 and should be 
submitted on or before April 21, 2015.

    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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Brent J. Fields,
Secretary.
[FR Doc. 2015-07257 Filed 3-30-15; 8:45 am]
BILLING CODE 8011-01-P