81 FR 64249 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule on the BOX Market LLC (“BOX”) Options Facility To Change the Liquidity Fee and Credit Structure for PIP and COPIP Transactions

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 181 (September 19, 2016)

[Federal Register Volume 81, Number 181 (Monday, September 19, 2016)]
[Notices]
[Pages 64249-64250]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-22423]



[[Page 64249]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78830; File No. SR-BOX-2016-44]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Fee Schedule on the BOX Market LLC (``BOX'') Options Facility 
To Change the Liquidity Fee and Credit Structure for PIP and COPIP 
Transactions

September 13, 2016.
    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 September 1, 2016, BOX Options 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 
change [sic] the liquidity fee and credit structure for PIP and COPIP 
Transactions on the BOX Market LLC (``BOX'') options facility. While 
changes to the fee schedule pursuant to this proposal will be effective 
upon filing, the changes will become operative on September 1, 2016. 
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 Web site 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 Section II.A. of the BOX Fee 
Schedule to make changes to the liquidity fees and credits for PIP and 
COPIP Transactions.\5\ Specifically, the Exchange proposes to amend the 
liquidity fees and credits for transactions where the PIP or COPIP 
Order is from the account of a Professional Customer, Broker Dealer or 
Market Maker (``Non-Public Customer''). The Exchange recently 
established separate fees and credits for Non-Public Customer PIP and 
COPIP Transactions.\6\
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    \5\ Transactions executed through Price Improvement Period 
(``PIP'') and the Complex Order Price Improvement Period (``COPIP'') 
auction mechanisms. All COPIP transactions will be charged per 
contract per leg.
    \6\ See Securities Exchange Act Release No. 78618 (August 18, 
2016), 81 FR 57977 (August 24, 2016) (SR-BOX-2016-41).
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    Unlike Public Customer PIP and COPIP transactions, liquidity fees 
and credits for Non-Public Customer PIP and COPIP transactions are only 
assessed if the Non-Public Customer PIP or COPIP Order does not trade 
with its contra order (the Primary Improvement Order). Under the 
current structure, if there are responses in the PIP or COPIP the 
``removal'' credit is applied to the portion of the Non-Public Customer 
PIP or COPIP Order that does not trade with its Primary Improvement 
Order, and the Improvement Order responses are charged the ``add'' fee. 
The Exchange proposes to adjust the fee structure and instead apply any 
``removal'' credits to the Primary Improvement Order instead of the 
Non-Public Customer PIP or COPIP Order. Improvement Order responses 
will continue to be charged the ``add'' fee and the liquidity fee and 
credit rates remain unchanged.
    For example, if a Broker Dealer submits a PIP Order for the account 
of a Non-Public Customer to buy 100 contracts in the PIP and there are 
no responders, the PIP Order would execute against the matching Primary 
Improvement Order to sell 100 contracts and neither Order would be 
assessed a liquidity fee or credit. If, instead, the same PIP Order 
receives an Improvement Order response to sell 75 contracts, the PIP 
Order would execute against the Improvement Order for 75 contracts and 
the Primary Improvement Order for 25 contracts. Liquidity fees and 
credits would be assessed on the 75 contracts which executed against 
the Improvement Order, and under the proposed change, the Broker 
Dealer's Primary Improvement Order, rather than the PIP Order, would 
receive a removal credit for the 75 contracts. Accordingly, the 
Improvement Order response would be charged the add fee for the 75 
contracts, the same as it would be today. The Exchange notes that there 
continue to be no liquidity fees or credits assessed on the remaining 
25 contracts.
    The Exchange also proposes to make other non-substantive edits to 
Section II.A. to clarify and support the proposed change.
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,\7\ 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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    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes amending the Liquidity Fees and Credits for 
Non-Public Customer PIP and COPIP transactions is reasonable, equitable 
and not unfairly discriminatory. Liquidity fees and credits on BOX do 
not directly result in revenue to BOX, but are meant to incentivize 
Participants to attract order flow. The current PIP and COPIP liquidity 
fee and credit structure is designed to incentivize valuable Public 
Customer PIP and COPIP Order flow, which the Exchange does not believe 
is necessary or appropriate for Non-Public Customer PIP and COPIP Order 
flow. The proposed change will shift the liquidity credit to the 
Primary Improvement Order that is submitting the Non-Public Customer 
PIP or COPIP Order to the auction for price improvement. The Exchange 
believes this is equitable and not unfairly discriminatory as the 
Initiating Participant no longer receives the benefit of a guaranteed 
execution against a Public Customer's PIP or COPIP Order \8\ but 
continues to play a

[[Page 64250]]

critical role by guaranteeing the Non-Public Customer PIP or COPIP 
Order an execution at the NBBO or at a better price, and is subject to 
market risk while the Non-Public Customer PIP Order or COPIP Order is 
exposed to other BOX Participants for the price improvement 
opportunity. Therefore, the Exchange believes for Non-Public Customer 
PIP and COPIP Orders it is equitable and not unfairly discriminatory to 
instead provide the liquidity credit to the Initiating Participant's 
Primary Improvement Order so that the Initiating Participant will 
continue to submit Non-Public Customer PIP or COPIP Orders to the PIP 
and COPIP. Further, the Exchange believes that the proposed change will 
have no impact on competition in the PIP or COPIP, as Responders will 
continue to be charged the same liquidity fee.
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    \8\ Under BOX Rule 7150(h)(a) [sic] and 7245(h)(a) [sic] the 
Initiating Participant retains trade allocation privileges upon 
conclusion of the PIP or COPIP for up to forty percent (40%) of the 
remaining size of the PIP or COPIP Order after Public Customer 
orders are satisfied. If only one competing order matches the 
Initiating Participant's Single-Priced Primary Improvement Order at 
the final price level, then the Initiating Participant may retain 
priority for up to fifty percent (50%) of the remaining size of the 
PIP or COPIP Order after Public Customer orders are satisfied.
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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. Specifically, the Exchange 
believes that amending where the liquidity credit is applied in Non-
Public Customer PIP and COPIP Transactions will not impose a burden on 
competition among various Exchange Participants. The Exchange believes 
that the proposed changes will result in these Participants being 
credited appropriately for these transactions.
    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing exchanges. 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.

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-2016-44 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-2016-44. 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 
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; 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-2016-44, and should be 
submitted on or before October 11, 2016.

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22423 Filed 9-16-16; 8:45 am]
 BILLING CODE 8011-01-P