Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fee Schedule for Trading on BOX, 46778-46781 [2012-19082]

Download as PDF 46778 Federal Register / Vol. 77, No. 151 / Monday, August 6, 2012 / Notices that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest, by organizing its Rules in such a way as to make them easy to locate by grouping transaction fees with other transaction fees and creating sections for categories that, in some cases, already exist on the Exchange’s Schedule of Fees, to provide market participants an ability to view fees, which may be applicable to them, in one section or subsection of the Schedule of Fees. The Exchange believes that adopting a Table of Contents will provide greater clarity to the Schedule of Fees and allow market participants to readily locate fees within the Schedule of Fees. B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. mstockstill on DSK4VPTVN1PROD with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. 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 Act.17 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of 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 17 15 U.S.C. 78s(b)(3)(A)(ii). VerDate Mar<15>2010 17:11 Aug 03, 2012 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–ISE–2012–65 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2012–65. 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 (https://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 a.m. and 3 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–ISE– 2012–65 and should be submitted on or before August 27, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–19081 Filed 8–3–12; 8:45 am] BILLING CODE 8011–01–P 18 17 Jkt 226001 PO 00000 Fmt 4703 [Release No. 34–67546; File No. SR–BOX– 2012–010] Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fee Schedule for Trading on BOX July 31, 2012. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on July 27, 2012, 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change BOX Options Exchange LLC (the ‘‘Exchange’’) proposes to amend its Fee Schedule for trading on its options facility, BOX Market LLC (‘‘BOX’’). While changes to the fee schedule pursuant to this proposal will be effective upon filing, the changes will become operative on August 1, 2012. The text of the proposed rule change is available from the principal office of the Exchange, on the Exchange’s Internet Web site at https://boxexchange.com, and at the Commission’s Public Reference Room. 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 2 17 CFR 200.30–3(a)(12). Frm 00098 SECURITIES AND EXCHANGE COMMISSION Sfmt 4703 E:\FR\FM\06AUN1.SGM 06AUN1 Federal Register / Vol. 77, No. 151 / Monday, August 6, 2012 / Notices 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 mstockstill on DSK4VPTVN1PROD with NOTICES 1. Purpose The Exchange proposes to implement a change to the BOX routing fees in Section III of the fee schedule. BOX believes the proposed structure will continue to provide an incentive to BOX Options Participants (‘‘Participants’’) to submit their customer orders for execution on BOX, will aid BOX in recovering some of its costs incurred in providing routing services to Participants, and will discourage potentially abusive and predatory order routing practices to evade fees on other exchanges.5 BOX will continue to provide routing to away exchanges at no charge to Participants that execute more than 55% of their non-Professional, Public Customer transactions 6 on BOX, rather than those orders being executed at other exchanges after BOX routes them to an away exchange. BOX uses third-party broker-dealers to route orders to other exchanges and incurs charges for each order routed to and executed at an away market, in addition to the transaction fees charged by other exchanges. BOX has been providing its routing services to Participants for a limited amount of their Public Customer Orders at no cost and has generally been able to cover such costs with revenue generated from transactions on BOX. In order to better recover BOX’s increasing costs for routing such orders, the Exchange is proposing a modified routing fee structure so that BOX can continue to provide routing services to Participants at no charge if the Participants trade on BOX a greater percentage of their Public Customer volume traded through BOX each month, as opposed to BOX routing those orders away for execution. Currently, if 60% or more of a Participants’ Public Customer Orders 5 Note that BOX does not route broker-dealer proprietary orders and thus does not assess them any routing fees. Based on BOX market data, BOX believes certain Participants are intentionally submitting orders to BOX when limited liquidity is on BOX at the national best bid or offer (‘‘NBBO’’). This limited liquidity is not enough to fill the orders submitted, and thus, BOX is required, in accordance with its obligations to customer orders under the national market system plan for Options Order Protection, to route such orders to a market that is displaying liquidity at the NBBO. 6 For the purposes of the discussion in this proposed rule change, these non-Professional, Public Customer Orders will be referred to as Public Customer Orders. VerDate Mar<15>2010 17:11 Aug 03, 2012 Jkt 226001 executed through BOX each month are routed to and executed at an away exchange, BOX assesses a $0.50 per contract routing fee to all of that Participants’ Public Customer orders routed to an away exchange for execution for the month. If BOX does not have sufficient liquidity at the NBBO to execute Public Customer Orders on BOX, such orders are routed to an away exchange for execution. BOX, however, believes that permitting Participants to continue routing a substantial percentage of outbound Public Customer Orders without any fees is resulting in some Participants intentionally sending orders to BOX when BOX is not at the NBBO, so that the orders will be routed to an away exchange; and BOX believes this activity pattern is designed to evade transaction fees on other exchanges. In part to curtail this activity that BOX believes is designed to take advantage of the BOX routing fee structure, the Exchange proposes this modified routing fee structure that provides an incentive to Participants whom execute a greater percentage of their Public Customer transactions on BOX. The proposed change will have no effect on the billing of orders of non-Participants, including any orders routed to BOX from away exchanges. The Exchange proposes that BOX will continue to route Public Customer Orders to an away exchange without imposing any fee, to the extent that more than 55% of the Participants’ Public Customer Orders sent to BOX each month execute on BOX. Executions on BOX would include orders executing on the BOX Book, or through any other BOX mechanism that may be available to execute Public Customer Orders (e.g., Price Improvement Period, Solicitation or Facilitation Auction Mechanisms). If 45% or more of a Participants’ Public Customer Orders executed through BOX each month are routed to and executed at an away exchange, BOX will assess a $0.50 per contract routing fee to all of a Participants’ Public Customer orders routed to an away exchange for execution for the month. BOX will calculate the percentage of contracts executed on BOX compared to the percentage routed and executed away at the end of each month. Instructing BOX to route orders away if they are not able to be executed on BOX is voluntary for BOX Participants. Participants may choose not to route their Public Customer Orders to another exchange. Participants may also avoid paying the proposed routing fee by choosing to designate their orders as Fill and Kill (‘‘FAK’’). FAK orders are not eligible for routing to away exchanges. PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 46779 FAK orders are executed on BOX, if possible, and then cancelled. Imposing a routing fee structure that provides a benefit to Participants for trading on BOX will allow BOX to recoup a portion of the costs incurred for providing routing services, while also providing an incentive to Participants to trade on BOX and benefit from BOX routing services for a limited amount of their Public Customer Orders at no charge. In contemplation of this proposed fee change, BOX considered the costs incurred for providing routing services and the benefit provided to Participants for whom orders are routed, as well as the revenue the Exchange receives from transactions executed on BOX. The Exchange believes the proposed change to BOX routing fees is fair, equitable, and not unfairly discriminatory as BOX attempts to balance its costs incurred for routing and the benefit for Participants that use the service. Additionally, the Exchange has considered the Exchange costs and the benefits to the BOX market and Participants’ given their ability to have their orders routed to an away exchange. Finally, the Exchange proposes this fee change in part to attempt to balance the costs and benefits considering the volumes of Public Customer transactions routed to away exchanges and the volume of transactions executed on BOX. While changes to the fee schedule pursuant to this proposal will be effective upon filing, the changes will become operative on August 1, 2012. 2. Statutory Basis The Exchange believes that the proposal is consistent with the requirements of Section 6(b) of the Act,7 in general, and Section 6(b)(4) of the Act,8 in particular, in that it provides for the equitable allocation of reasonable dues, fees, and other charges among BOX Options Participants and other persons using its facilities. The Exchange believes the changes proposed are an equitable allocation of reasonable fees and charges among BOX Options Participants. BOX believes that the proposed routing fee structure for routing nonProfessional, Public Customer Orders to other market venues is reasonable because the fee will allow BOX to recoup its transaction costs attendant with offering routing services. BOX uses third-party broker-dealers to route orders to other exchanges and incurs charges for each order routed to and executed at an away market, in addition to the transaction fees charged by other 7 15 8 15 E:\FR\FM\06AUN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(4). 06AUN1 mstockstill on DSK4VPTVN1PROD with NOTICES 46780 Federal Register / Vol. 77, No. 151 / Monday, August 6, 2012 / Notices exchanges. BOX has been providing its routing services to Participants for a limited amount of their Public Customer Orders at no cost and has been able to cover such costs with revenue generated from transactions on BOX. In order to better recover BOX’s increasing costs for routing such orders, the Exchange is proposing a modified routing fee structure. The Exchange believes this routing fee structure will allow BOX to continue to provide routing services to Participants at no charge if the Participants trade a greater percentage of their Public Customer volume traded through BOX each month on BOX, as opposed to BOX routing those orders away for execution. Additionally, BOX believes that assessing its routing fees to Participants based on the percentage of Public Customer Orders traded on BOX is an equitable allocation of a reasonable fee. Based on BOX market data, BOX believes some Participants are intentionally submitting orders to BOX when limited liquidity is on BOX at the NBBO. This limited liquidity is not enough to fill the orders submitted, and thus, BOX is required, in accordance with its obligations to customer orders under the national market system plan for Options Order Protection, route such orders to a market that is displaying liquidity at the NBBO. BOX data indicates that BOX generally routes less than 45% of a Participant’s Public Customer Orders to BOX to an away exchange for execution. Additionally, BOX believes that permitting a Participant to have up to 45% of such orders routed to an away exchange for execution without being assessed any routing fee is reasonable and appropriate. The Exchange believes the proposed routing fee structure is equitable and not unfairly discriminatory because the incentive to trade on BOX is available to all Participants on an equal basis. The Exchange believes it is reasonable and equitable to provide Participants (A) an incentive to trade on BOX, and (B) the ability to route a limited amount of customer orders at no cost, because transactions executed on BOX increase BOX market activity and market quality. Greater liquidity and additional volume executed on BOX aids the price and volume discovery process. Participant trading on BOX also results in revenue that BOX is able to use to provide routing services for a limited amount of customer orders at no cost to Participants. Accordingly, the Exchange believes that the proposal is not unfairly discriminatory because it promotes enhancing BOX market quality. The changes proposed by this filing are VerDate Mar<15>2010 17:11 Aug 03, 2012 Jkt 226001 intended to provide an incentive to BOX Participants to submit orders for execution on BOX, to aid BOX in recovering its increasing routing costs, and to discourage Participants from engaging in abusive and predatory practices to evade fees on other exchanges. Further, BOX operates within a highly competitive market. BOX, however, does not assess ongoing fees for access to BOX market data, or fees related to order cancellation. As stated, BOX incurs costs, including transaction fees at other exchanges, every time it routes a customer order to an away exchange for execution. Providing routing services draws on BOX system resources and routing more and more orders results in greater ongoing operational costs to BOX. As such, BOX aims to recover its increasing costs by assessing Participants fees for routing Public Customer Orders to away exchanges, if those Participants are submitting such orders to BOX so as to evade other exchanges’ fees and take advantage of BOX routing services. BOX therefore believes that assessing the fee only to those Participants that have 45% or more of their Public Customer Orders routed to an away exchange for execution is reasonable, and an equitable allocation of its fees for providing routing services. Finally, the Exchange notes that although routing is available to BOX Participants for customer orders, Participants are not required to use the routing services, but instead, BOX routing services are entirely voluntary. As discussed above, BOX Participants can manage their own routing to different options exchanges or can utilize a myriad of other routing solutions that are available to market participants. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. 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 PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 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, fee, or other charge applicable only to a member. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Exchange Act. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–BOX–2012–010 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BOX–2012–010. 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 (https://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 a.m. and 3 p.m. Copies of the filing also 9 15 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). 10 17 E:\FR\FM\06AUN1.SGM 06AUN1 Federal Register / Vol. 77, No. 151 / Monday, August 6, 2012 / Notices 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– 2012–010 and should be submitted on or before August 27, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–19082 Filed 8–3–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67547; File No. SR–CBOE– 2012–048] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change Relating to Distribution of Auction Messages July 31, 2012. mstockstill on DSK4VPTVN1PROD with NOTICES I. Introduction On June 6, 2012, the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or the ‘‘Exchange’’), filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend rules regarding the universe of eligible responders to certain Exchange auctions and the redistribution of auction messages. The proposed rule change was published for comment in the Federal Register on June 22, 2012.3 The Commission received no comment letters regarding the proposed rule change. This order approves the proposed rule change. II. Description The Exchange proposes to amend several rules that govern its auction mechanisms to, among other things, permit it to broaden the class of persons that may respond to auction messages as well as specifically allow such participants to rebroadcast auction messages in options classes that have 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 67209 (June 18, 2012), 77 FR 37724 (‘‘Notice’’). 1 15 VerDate Mar<15>2010 17:11 Aug 03, 2012 Jkt 226001 been opened to such responders. The proposed changes would amend Rule 6.13A, relating to the Simple Auction Liaison (‘‘SAL’’); Rule 6.14A, relating to the Hybrid Agency Liaison 2 system (‘‘HAL2’’); and Rule 6.53C, relating to Complex Orders on the Hybrid System, each of which are described in more detail below. In addition, CBOE also proposes to delete Rule 6.14, relating to the Hybrid Agency Liaison system (‘‘HAL’’), because, since the rollout of HAL2 in 2009, the Exchange has phased out HAL and no longer uses it for any classes.4 A. SAL SAL is a feature within CBOE’s Hybrid System designed to provide price improvement over the national best bid or offer (‘‘NBBO’’) by automatically initiating an auction process for an order that is eligible for automatic execution by the Hybrid System (‘‘Agency Order’’).5 Currently, to the extent CBOE has activated SAL for a particular class, Market-Makers with an appointment in the relevant option class and Trading Permit Holders acting as agent for orders resting at the top of the Exchange’s book opposite the Agency Order (‘‘Qualifying Trading Permit Holders’’) are permitted to submit auction responses.6 However, the Exchange may determine, on a classby-class basis, to permit SAL responses by all CBOE Market-Makers in addition to Qualifying Trading Permit Holders.7 CBOE now proposes to eliminate the concept of Qualifying Trading Permit Holders under Interpretation and Policy .05 to Rule 6.13A, and instead provide more broadly that it may determine on a class-by-class basis to permit all Trading Permit Holders,8 rather than just CBOE Market-Makers and 4 See id. at 37725. Further, the Exchange proposes to rename ‘‘HAL2’’ as ‘‘HAL’’ in the CBOE Rules to eliminate any potential confusion investors may have if there was a HAL2 but no HAL. For purposes of this order, however, the Commission is using the current terms to distinguish between ‘‘HAL2’’ and ‘‘HAL.’’ In addition, the Exchange proposes to amend Rules 6.2B, 6.13, 6.14A, 6.25, and 6.53 to delete cross-references to Rule 6.14 and HAL and to correct other cross-references to conform to numbering changes in this proposal throughout the rules. See id. 5 See id. at 37724. The Exchange determines the eligible order size, eligible order types, eligible order origin code (i.e., public customer orders, nonMarket-Maker broker-dealer orders, and MarketMaker broker-dealer orders), and classes in which SAL is activated. See CBOE Rule 6.13A(a). 6 See CBOE Rule 6.13A(b). 7 See CBOE Rule 6.13A, Interpretation and Policy .05. 8 According to CBOE, by definition, all MarketMakers are Trading Permit Holders; therefore, references to ‘‘Trading Permit Holders’’ include all Market-Makers. See Notice, supra note 3, at 37724 n. 3. PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 46781 Qualifying Trading Permit Holders, to respond to SAL auction messages.9 The Exchange also proposes to amend Interpretation and Policy .02 to Rule 6.13A to allow Trading Permit Holders to redistribute auction messages in classes in which the Exchange allows all Trading Permit Holders to submit SAL auction responses.10 Finally, CBOE proposes a new Interpretation and Policy .05 to Rule 6.13A to provide that all pronouncements regarding determinations by the Exchange pursuant to Rule 6.13A and the Interpretations and Policies thereunder will be announced to Trading Permit Holders via Regulatory Circular.11 B. HAL2 HAL2 is a feature within CBOE’s Hybrid System that provides automated order handling in designated classes trading on Hybrid for qualifying electronic orders that are not automatically executed by the Hybrid System.12 For those classes, HAL2 will process (1) an eligible order that is marketable against the Exchange’s disseminated quotation while that quotation is not the NBBO; 13 (2) an eligible order that would improve the Exchange’s disseminated quotation and that is marketable against quotations by other exchanges that are participants in the Options Order Protection and Locked/Crossed Plan; (3) for Hybrid 3.0 classes, an eligible order that would improve the Exchange’s disseminated quotation; and (4) an order submitted to HAL2 as a result of the price check parameters of Rule 6.13(b)(v).14 HAL2 electronically exposes these orders at the NBBO price to allow Market-Makers appointed in that class as well as Trading Permit Holders acting as agent for orders at the top of the Exchange’s book in the relevant series to step-up to the NBBO price.15 Alternatively, the Exchange may determine on a class-byclass basis to make the exposure 9 See id. at 37724. The Exchange also proposes to move this language from Interpretation and Policy .05 to Rule 6.13A to paragraph (b) of Rule 6.13A. 10 See id. 11 See id. at 37725. 12 See CBOE Rule 6.14A. The Exchange determines the eligible order size, eligible order types, eligible order origin code (i.e., public customer orders, non-Market-Maker broker-dealer orders, and Market-Maker broker-dealer orders), and classes in which HAL2 is activated. See CBOE Rule 6.14A(a). 13 Except that HAL2 will not be used to process such an order when the Exchange’s quotation contains resting orders and does not contain sufficient Market-Maker quotation interest to satisfy the entire order. See CBOE Rule 6.14A(a)(i). 14 See CBOE Rule 6.14A(a)(i)–(iv). 15 See Notice, supra note 3, at 37725; CBOE Rule 6.14A(b). The duration of the exposure period may not exceed one second. See CBOE Rule 6.14A(b). E:\FR\FM\06AUN1.SGM 06AUN1

Agencies

[Federal Register Volume 77, Number 151 (Monday, August 6, 2012)]
[Notices]
[Pages 46778-46781]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19082]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67546; File No. SR-BOX-2012-010]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Fee Schedule for Trading on BOX

July 31, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on July 27, 2012, 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.
---------------------------------------------------------------------------

    \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 Substance 
of the Proposed Rule Change

    BOX Options Exchange LLC (the ``Exchange'') proposes to amend its 
Fee Schedule for trading on its options facility, BOX Market LLC 
(``BOX''). While changes to the fee schedule pursuant to this proposal 
will be effective upon filing, the changes will become operative on 
August 1, 2012. The text of the proposed rule change is available from 
the principal office of the Exchange, on the Exchange's Internet Web 
site at https://boxexchange.com, and at the Commission's Public 
Reference Room.

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

[[Page 46779]]

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 implement a change to the BOX routing fees 
in Section III of the fee schedule. BOX believes the proposed structure 
will continue to provide an incentive to BOX Options Participants 
(``Participants'') to submit their customer orders for execution on 
BOX, will aid BOX in recovering some of its costs incurred in providing 
routing services to Participants, and will discourage potentially 
abusive and predatory order routing practices to evade fees on other 
exchanges.\5\ BOX will continue to provide routing to away exchanges at 
no charge to Participants that execute more than 55% of their non-
Professional, Public Customer transactions \6\ on BOX, rather than 
those orders being executed at other exchanges after BOX routes them to 
an away exchange.
---------------------------------------------------------------------------

    \5\ Note that BOX does not route broker-dealer proprietary 
orders and thus does not assess them any routing fees. Based on BOX 
market data, BOX believes certain Participants are intentionally 
submitting orders to BOX when limited liquidity is on BOX at the 
national best bid or offer (``NBBO''). This limited liquidity is not 
enough to fill the orders submitted, and thus, BOX is required, in 
accordance with its obligations to customer orders under the 
national market system plan for Options Order Protection, to route 
such orders to a market that is displaying liquidity at the NBBO.
    \6\ For the purposes of the discussion in this proposed rule 
change, these non-Professional, Public Customer Orders will be 
referred to as Public Customer Orders.
---------------------------------------------------------------------------

    BOX uses third-party broker-dealers to route orders to other 
exchanges and incurs charges for each order routed to and executed at 
an away market, in addition to the transaction fees charged by other 
exchanges. BOX has been providing its routing services to Participants 
for a limited amount of their Public Customer Orders at no cost and has 
generally been able to cover such costs with revenue generated from 
transactions on BOX. In order to better recover BOX's increasing costs 
for routing such orders, the Exchange is proposing a modified routing 
fee structure so that BOX can continue to provide routing services to 
Participants at no charge if the Participants trade on BOX a greater 
percentage of their Public Customer volume traded through BOX each 
month, as opposed to BOX routing those orders away for execution.
    Currently, if 60% or more of a Participants' Public Customer Orders 
executed through BOX each month are routed to and executed at an away 
exchange, BOX assesses a $0.50 per contract routing fee to all of that 
Participants' Public Customer orders routed to an away exchange for 
execution for the month. If BOX does not have sufficient liquidity at 
the NBBO to execute Public Customer Orders on BOX, such orders are 
routed to an away exchange for execution. BOX, however, believes that 
permitting Participants to continue routing a substantial percentage of 
outbound Public Customer Orders without any fees is resulting in some 
Participants intentionally sending orders to BOX when BOX is not at the 
NBBO, so that the orders will be routed to an away exchange; and BOX 
believes this activity pattern is designed to evade transaction fees on 
other exchanges. In part to curtail this activity that BOX believes is 
designed to take advantage of the BOX routing fee structure, the 
Exchange proposes this modified routing fee structure that provides an 
incentive to Participants whom execute a greater percentage of their 
Public Customer transactions on BOX. The proposed change will have no 
effect on the billing of orders of non-Participants, including any 
orders routed to BOX from away exchanges.
    The Exchange proposes that BOX will continue to route Public 
Customer Orders to an away exchange without imposing any fee, to the 
extent that more than 55% of the Participants' Public Customer Orders 
sent to BOX each month execute on BOX. Executions on BOX would include 
orders executing on the BOX Book, or through any other BOX mechanism 
that may be available to execute Public Customer Orders (e.g., Price 
Improvement Period, Solicitation or Facilitation Auction Mechanisms). 
If 45% or more of a Participants' Public Customer Orders executed 
through BOX each month are routed to and executed at an away exchange, 
BOX will assess a $0.50 per contract routing fee to all of a 
Participants' Public Customer orders routed to an away exchange for 
execution for the month. BOX will calculate the percentage of contracts 
executed on BOX compared to the percentage routed and executed away at 
the end of each month.
    Instructing BOX to route orders away if they are not able to be 
executed on BOX is voluntary for BOX Participants. Participants may 
choose not to route their Public Customer Orders to another exchange. 
Participants may also avoid paying the proposed routing fee by choosing 
to designate their orders as Fill and Kill (``FAK''). FAK orders are 
not eligible for routing to away exchanges. FAK orders are executed on 
BOX, if possible, and then cancelled. Imposing a routing fee structure 
that provides a benefit to Participants for trading on BOX will allow 
BOX to recoup a portion of the costs incurred for providing routing 
services, while also providing an incentive to Participants to trade on 
BOX and benefit from BOX routing services for a limited amount of their 
Public Customer Orders at no charge.
    In contemplation of this proposed fee change, BOX considered the 
costs incurred for providing routing services and the benefit provided 
to Participants for whom orders are routed, as well as the revenue the 
Exchange receives from transactions executed on BOX. The Exchange 
believes the proposed change to BOX routing fees is fair, equitable, 
and not unfairly discriminatory as BOX attempts to balance its costs 
incurred for routing and the benefit for Participants that use the 
service. Additionally, the Exchange has considered the Exchange costs 
and the benefits to the BOX market and Participants' given their 
ability to have their orders routed to an away exchange. Finally, the 
Exchange proposes this fee change in part to attempt to balance the 
costs and benefits considering the volumes of Public Customer 
transactions routed to away exchanges and the volume of transactions 
executed on BOX. While changes to the fee schedule pursuant to this 
proposal will be effective upon filing, the changes will become 
operative on August 1, 2012.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\7\ in general, and Section 
6(b)(4) of the Act,\8\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees, and other charges among 
BOX Options Participants and other persons using its facilities. The 
Exchange believes the changes proposed are an equitable allocation of 
reasonable fees and charges among BOX Options Participants.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    BOX believes that the proposed routing fee structure for routing 
non-Professional, Public Customer Orders to other market venues is 
reasonable because the fee will allow BOX to recoup its transaction 
costs attendant with offering routing services. BOX uses third-party 
broker-dealers to route orders to other exchanges and incurs charges 
for each order routed to and executed at an away market, in addition to 
the transaction fees charged by other

[[Page 46780]]

exchanges. BOX has been providing its routing services to Participants 
for a limited amount of their Public Customer Orders at no cost and has 
been able to cover such costs with revenue generated from transactions 
on BOX. In order to better recover BOX's increasing costs for routing 
such orders, the Exchange is proposing a modified routing fee 
structure. The Exchange believes this routing fee structure will allow 
BOX to continue to provide routing services to Participants at no 
charge if the Participants trade a greater percentage of their Public 
Customer volume traded through BOX each month on BOX, as opposed to BOX 
routing those orders away for execution.
    Additionally, BOX believes that assessing its routing fees to 
Participants based on the percentage of Public Customer Orders traded 
on BOX is an equitable allocation of a reasonable fee. Based on BOX 
market data, BOX believes some Participants are intentionally 
submitting orders to BOX when limited liquidity is on BOX at the NBBO. 
This limited liquidity is not enough to fill the orders submitted, and 
thus, BOX is required, in accordance with its obligations to customer 
orders under the national market system plan for Options Order 
Protection, route such orders to a market that is displaying liquidity 
at the NBBO. BOX data indicates that BOX generally routes less than 45% 
of a Participant's Public Customer Orders to BOX to an away exchange 
for execution. Additionally, BOX believes that permitting a Participant 
to have up to 45% of such orders routed to an away exchange for 
execution without being assessed any routing fee is reasonable and 
appropriate.
    The Exchange believes the proposed routing fee structure is 
equitable and not unfairly discriminatory because the incentive to 
trade on BOX is available to all Participants on an equal basis. The 
Exchange believes it is reasonable and equitable to provide 
Participants (A) an incentive to trade on BOX, and (B) the ability to 
route a limited amount of customer orders at no cost, because 
transactions executed on BOX increase BOX market activity and market 
quality. Greater liquidity and additional volume executed on BOX aids 
the price and volume discovery process. Participant trading on BOX also 
results in revenue that BOX is able to use to provide routing services 
for a limited amount of customer orders at no cost to Participants. 
Accordingly, the Exchange believes that the proposal is not unfairly 
discriminatory because it promotes enhancing BOX market quality. The 
changes proposed by this filing are intended to provide an incentive to 
BOX Participants to submit orders for execution on BOX, to aid BOX in 
recovering its increasing routing costs, and to discourage Participants 
from engaging in abusive and predatory practices to evade fees on other 
exchanges.
    Further, BOX operates within a highly competitive market. BOX, 
however, does not assess ongoing fees for access to BOX market data, or 
fees related to order cancellation. As stated, BOX incurs costs, 
including transaction fees at other exchanges, every time it routes a 
customer order to an away exchange for execution. Providing routing 
services draws on BOX system resources and routing more and more orders 
results in greater ongoing operational costs to BOX. As such, BOX aims 
to recover its increasing costs by assessing Participants fees for 
routing Public Customer Orders to away exchanges, if those Participants 
are submitting such orders to BOX so as to evade other exchanges' fees 
and take advantage of BOX routing services. BOX therefore believes that 
assessing the fee only to those Participants that have 45% or more of 
their Public Customer Orders routed to an away exchange for execution 
is reasonable, and an equitable allocation of its fees for providing 
routing services.
    Finally, the Exchange notes that although routing is available to 
BOX Participants for customer orders, Participants are not required to 
use the routing services, but instead, BOX routing services are 
entirely voluntary. As discussed above, BOX Participants can manage 
their own routing to different options exchanges or can utilize a 
myriad of other routing solutions that are available to market 
participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act.

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, fee, or other 
charge applicable only to a member.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Exchange Act.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BOX-2012-010 on the subject line.
Paper Comments
     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2012-010. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also

[[Page 46781]]

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-
2012-010 and should be submitted on or before August 27, 2012.
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19082 Filed 8-3-12; 8:45 am]
BILLING CODE 8011-01-P
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