Notice2022-17104
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”)
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Published
August 10, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 153 (Wednesday, August 10, 2022)</title>
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[Federal Register Volume 87, Number 153 (Wednesday, August 10, 2022)]
[Notices]
[Pages 48744-48747]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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 <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 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 <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
\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
<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#3b494e575e16585456565e554f487b485e58155c544d"><span class="__cf_email__" data-cfemail="2d5f584148004e4240404843595e6d5e484e034a425b">[email protected]</span></a>. Please include
File Number SR-BOX-2022-24 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-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 (<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-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
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