Notice2021-20215
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
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Published
September 20, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 179 (Monday, September 20, 2021)</title>
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[Federal Register Volume 86, Number 179 (Monday, September 20, 2021)]
[Notices]
[Pages 52241-52243]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-20215]
[[Page 52241]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92980; File No. SR-BOX-2021-20]
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
September 14, 2021.
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 September 1, 2021, 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 on
the BOX Options 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, 2021. 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 <a href="http://boxexchange.com">http://boxexchange.com</a>.
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.1. (QCC Rebate). Specifically, the Exchange
proposes to remove the current flat rate rebates for QCC transactions
and establish a QCC rebate tier structure.
By way of background, a Qualified Contingent Cross (``QCC'')
transaction is 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, coupled with
a contra-side order or orders totaling an equal number of contracts.\5\
Currently, the Exchange assesses a fee of $0.17 per contract for Broker
Dealers and Market Makers for all Agency Order, the originating order,
and contra-side orders that are part of a QCC transaction.\6\ The
Exchange currently applies a $0.14 per contract rebate to all QCC
Agency Orders where at least one party to the QCC transaction is a
Broker Dealer or Market Maker and a $0.22 per contract rebate to all
QCC Agency Order when both parties to the QCC transaction are a Broker
Dealer or Market Maker. The above rebates are paid to the Participant
that entered the order into the BOX system.
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\5\ See BOX Rule 7110(c)(6).
\6\ Public Customers and Professional Customers are not assessed
fees for QCC transactions on BOX. The Exchange notes that, under
this proposal, the QCC transaction fees will remain the same.
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The Exchange now proposes to remove the flat rate QCC rebates
currently in place and establish a tiered rebate structure where the
amount of the rebate will be based off of incrementally increasing
volume thresholds of QCC transactions on BOX. The Exchange notes that
the way in which the rebates will be applied to the QCC transactions
remains the same as it is today. The QCC rebates will still be applied
to the QCC Agency Order when both parties to the QCC transaction are a
Broker Dealer or Market Maker. Also, the rebate will continue to be
paid to the Participant that entered the order into the BOX system when
at least one party to the QCC transaction is a Broker Dealer or Market
Maker. Under this proposal, the per contract rebate for QCC
transactions will now be applied according to the volume threshold tier
achieved. Volume thresholds will be calculated on a monthly basis by
totaling the Participant's QCC Agency Order volume on BOX.
Specifically, the Exchange proposes the QCC Agency Order volume
thresholds as follows:
<bullet> To receive the rebate in Tier 1, a Participant must submit
QCC Agency Orders totaling 0 to 1,499,999 contracts per month.
<bullet> To receive the rebate in Tier 2, a Participant must submit
QCC Agency Orders totaling 1,500,000 to 2,499,999 contracts per month.
<bullet> To receive the rebate in Tier 3, a Participant must submit
QCC Agency Orders totaling 2,500,000 to 3,499,999 contracts per month.
<bullet> To receive the rebate in Tier 4, a Participant must submit
QCC Agency Orders totaling 3,500,000 or more contracts per month.
The proposed tiered rebate structure, including volume thresholds
and applicable rebates, will be as follows:
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QCC Agency
Tier Order volume on Rebate 1 (per Rebate 2 (per
BOX (per month) contract) contract)
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1.................. 0 to 1,499,999 ($0.14) ($0.22)
contracts.
2.................. 1,500,000 to ($0.15) ($0.23)
2,499,999
contracts.
3.................. 2,500,000 to ($0.15) ($0.24)
3,499,999
contracts.
4.................. 3,500,000+ ($0.15) ($0.25)
contracts.
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When only one side of the QCC transaction is a Broker Dealer or
Market Maker, Rebate 1 will apply. When both parties to the QCC
transaction are a Broker Dealer or Market Maker, Rebate 2 will apply.
If the Participant qualifies for both rebates, only the larger rebate
[[Page 52242]]
will be applied to the Agency Order.\7\ The Exchange notes that a
similar rebate structure and rebates for QCC transactions exist at
another exchange.\8\
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\7\ The Exchange again notes that this is how BOX currently
assesses the flat rate rebates for QCC transactions.
\8\ See Cboe EDGX Exchange, Inc. (``CboeEDGX'') Fee Schedule.
The Exchange notes that the proposed volume thresholds are slightly
higher than the volume thresholds at CboeEDGX. Also, the Exchange
notes that the rebate amounts in Rebate 1 and Rebate 2 differ
slightly from CboeEDGX. Despite the differences, the Exchange
believes the proposed rebate structure and rebates discussed herein
are reasonable as they provide an incremental incentive for
Participants to strive for the higher tier levels, which provide
increasingly higher rebates for incrementally more QCC volume
achieved, which the Exchange believes is a reasonably designed
incentive for Participants to grow their QCC order flow to receive
the enhanced rebates. Further, the Exchange notes that the QCC
transaction fees at BOX will remain unchanged at $0.17 for Broker
Dealer and Market Maker Agency Orders and Contra Orders for QCC
Transactions. The Exchange notes that CboeEDGX assesses $0.20 to
Broker Dealers and Market Makers for Agency Orders and Contra Orders
for QCC transactions. As such, the Exchange believes the proposed
rebate structure and rebates is reasonable and appropriate.
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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,\9\ 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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\9\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange notes that it 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 Exchange is only one of several
options venues to which market participants may direct their order
flow, and it represents a small percentage of the overall market. The
proposed changes reflect a competitive pricing structure designed to
incentivize market participants to direct their QCC order flow, which
the Exchange believes would enhance market quality to the benefit of
all Participants.
The Exchange believes the proposed changes to the QCC Rebate
structure are reasonable because the proposed changes provide
opportunities for Participants to receive higher rebates for
incrementally increasing the Participant's Agency QCC Order volume. The
Exchange again notes that a volume-based incentive structure exists at
another exchange,\10\ and believes that the proposed tiers are
reasonable, equitable, and non-discriminatory because they are open to
all Participants on an equal basis.
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\10\ See supra note 8.
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The Exchange believes the proposed QCC Rebate tiers are a
reasonable means to encourage Participants to increase their liquidity
on the Exchange, particularly in connection with additional QCC Agency
Order flow to the Exchange in order to benefit from the proposed
enhanced rebates. The Exchange believes that the proposed tiers are
reasonable in that they provide an ample number of opportunities for a
Participant to receive an enhanced rebate for qualifying orders. The
proposed tiers provide an incremental incentive for Participants to
strive for higher tier levels, which provide increasingly higher
rebates for incrementally more QCC Agency Order volume achieved, which
the Exchange believes is a reasonably designed incentive for
Participants to grow their QCC order flow to receive the enhanced
rebates. Further, the Exchange believes the proposed rebate structure
is reasonable, as the fees assessed for QCC transactions on BOX will
remain the same.
The Exchange believes the proposed enhanced rebates are reasonable
and proportionate with the difficulty of the proposed volume threshold
criteria and that the tiers continue to provide an incremental
incentive for Participants to strive for higher tier levels, which
provides increasingly higher rebates for satisfying increasingly more
stringent criteria. As noted above, the Exchange also believes the
proposal to adopt two alternative rebates (depending on the capacity of
the parties to the transaction) is reasonable as this is how the
Exchange currently assesses the flat rate rebates for QCC transactions
today.
Lastly, the Exchange believes that the proposed changes represent
an equitable allocation of fees and is not unfairly discriminatory
because all Broker Dealer and Market Makers will be eligible for the
proposed tiers and corresponding enhanced rebates. Additionally, the
enhanced rebates will apply uniformly to the Participants that reach
the proposed tiers. Further, the Exchange believes that applying the
proposed rebates where at least one party to the QCC transaction is a
Broker Dealer or Market Maker is reasonable, equitable, and not
unfairly discriminatory because Public Customers and Professional
Customers are not assessed fees for these transactions and, in turn, do
not need the incentive of the rebate. As such, the Exchange believes
the proposed changes are equitable and not unfairly discriminatory
because the rebates potentially apply to all Participants that enter
the originating order (except for when both the Agency Order and the
Contra Order are Public Customers or Professional Customers) and
because it is intended to incentivize the sending of more QCC Order to
the Exchange.
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. Rather, as discussed above, the
Exchange believes that the proposed change would encourage the
submission of additional order flow to a public exchange, thereby
promoting market depth, execution incentives, and enhanced execution
opportunities for all Participants. As a result, the Exchange believes
that the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering competition among orders, which promotes
``more efficient pricing of individual stocks for all types of orders,
large and small.
The Exchange believes that the proposed rule change does not impose
any burden on intramarket competition that is not necessary or
appropriate in furtherance of the Act. First, the Exchange notes that
the proposed changes apply uniformly to similarly situated
Participants. The Exchange believes that the proposed changes related
to QCC transactions would not impose any burden on intramarket
competition, but rather, serves to increase intramarket competition by
incentivizing market participants, to direct their QCC orders to the
Exchange, in turn providing for more opportunities to compete at
improved prices. Additionally, the proposed rule change benefits all
market participants as any overall increased liquidity that may result
from the proposed tier incentives benefits all investors by offering
additional flexibility for all investors to enjoy cost savings,
supporting the quality of price discovery, promoting market
transparency and improving investor protection.
Next, the Exchange believes the proposed rule change does not
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As previously
discussed, the Exchange operates in a highly competitive market.
Participants have numerous alternative venues they may participate on
and direct their order flow, including 15 other options exchanges.
Additionally,
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the Exchange represents a small percentage of the overall market. Based
on publicly available information, no single options exchange has more
than 15% of the market share.\11\ Therefore, no exchange possesses
significant pricing power in the execution of order flow. Indeed,
participants can readily choose to send their orders to other exchanges
and off-exchange venues if they deem fee levels at those other venues
to be more favorable. As noted above, the Exchange believes that the
proposed rebates under the QCC rebate tiers is comparable to that of
another exchange offering QCC functionality.\12\ Moreover, the
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. Specifically, 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.'' The fact that this market is
competitive has also long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[n]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .''. Accordingly, the Exchange
does not believe the proposed change discussed herein imposes any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
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\11\ See Cboe Global Markets U.S. Options Market Monthly Volume
Summary (August 16, 2021), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
\12\ See supra note 8.
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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 \13\ and Rule 19b-4(f)(2)
thereunder,\14\ because it establishes or changes a due, or fee.
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7"><span class="__cf_email__" data-cfemail="c3b1b6afa6eea0acaeaea6adb7b083b0a6a0eda4acb5">[email protected]</span></a>. Please include
File Number SR-BOX-2021-20 on the subject line.
Paper Comments
<bullet> 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-2021-20. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-20, and should be submitted on
or before October 12, 2021.
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\15\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20215 Filed 9-17-21; 8:45 am]
BILLING CODE 8011-01-P
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