Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule for Trading on BOX, 21993-21996 [2013-08650]
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Federal Register / Vol. 78, No. 71 / Friday, April 12, 2013 / Notices
shall be implemented beginning April 8,
2013.15
III. Description of the Proposal
In light of and in connection with the
Limit Up-Limit Down Plan, the
Exchange is amending IM–7080–1
(Trading Conditions During Limit State
or Straddle State) to provide that if the
underlying security has entered a Limit
State or Straddle State, the time in these
States shall not count for purposes of
calculating whether a Market Maker is
fulfilling its obligations for continuous
quotes under BOX Rule 8050(e).
Currently, under BOX Rule 8050(e),
the Exchange requires Market Makers to
enter continuous bids and offers for the
options series to which it is registered
for at least 60% of the time that the
classes in which the Market Maker is
registered are open for trading. The
Exchange’s proposal would suspend a
Market Maker’s continuous quoting
obligation for the duration that an
underlying NMS stock is in a Limit
State or a Straddle State. As a result,
when calculating the duration of time
necessary for a Market Maker to meet its
quoting obligations, such time will not
include the duration that the underlying
is in a Limit State or Straddle State.
IV. Discussion and Commission
Findings
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After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and rules and regulations
thereunder applicable to a national
securities exchange.16 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,17 which, among other
things, requires a national securities
exchange to be so organized and have
the capacity to be able to carry out the
purposes of the Act and to enforce
compliance by its members and persons
associated with its members with the
provisions of the Act, the rules and
regulations thereunder, and the rules of
the exchange, and is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
26, 2013) (Second Amendment to Limit Up-Limit
Down Plan by BATS Exchange, Inc., BATS YExchange, Inc., Chicago Board Options Exchange,
Inc., et al.) and Securities Exchange Act Release No.
69062 (March 7, 2013), 78 FR 15757 (March 12,
2013) (Third Amendment to Limit Up-Limit Down
Plan by BATS Exchange, Inc., BATS Y- Exchange,
Inc., Chicago Board Options Exchange, Inc., et al.)
15 See ‘‘Second Amendment to Limit Up-Limit
Down Plan,’’ supra note 14.
16 In approving the proposed rule changes, the
Commission has considered their impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
17 15 U.S.C. 78f(b).
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principles of trade, to foster cooperation
and coordination with persons engaged
in regulation, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, 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.
The Commission finds that the
proposal to suspend a Market Maker’s
obligations when the underlying
security is in a limit up-limit down state
is consistent with the Act. During a
limit up-limit down state, there may not
be a reliable price for the underlying
security to serve as a benchmark for
market makers to price options. In
addition, the absence of an executable
bid or offer for the underlying security
will make it more difficult for market
makers to hedge the purchase or sale of
an option. Given these significant
changes to the normal operating
conditions of market makers, the
Commission finds that the Exchange’s
decision to suspend a Market Maker’s
obligations in these limited
circumstances is consistent with the
Act.
The Commission notes, however, that
the Plan was approved on a pilot basis
and its Participants will monitor how it
is functioning in the equity markets
during the pilot period. To this end, the
Commission expects that, upon
implementation of the Plan, the
Exchange will continue monitoring the
quoting requirements that are being
amended in this proposed rule change
and determine if any necessary
adjustments are required to ensure that
they remain consistent with the Act
In addition, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Act 18 for approving the proposed
rule change on an accelerated basis. The
proposal is related to the Plan, which
will become operative on April 8,
2013.19 Without accelerated approval,
the proposed rule change, and any
attendant benefits, would take effect
after the Plan’s implementation date.
Accordingly, the Commission finds that
good cause exists for approving the
proposed rule change on an accelerated
basis.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 20 that the
proposed rule change (SR–BOX–2013–
13) is approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–08555 Filed 4–11–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69336; File No. SR–BOX–
2013–19]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Amend
the Fee Schedule for Trading on BOX
April 8, 2013.
Pursuant to Section 19(b)(1) under the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 29,
2013, BOX Options Exchange LLC (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A)(ii) of the
Act,3 and Rule 19b–4(f)(2) thereunder,4
which renders the proposal effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of 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 for trading
on the BOX Market LLC (‘‘BOX’’)
options facility. While the change to the
fee schedule pursuant to this proposal
will be effective upon filing, the change
will become operative on April 1, 2013.
The text of the proposed rule change is
available from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s Internet Web site at https://
boxexchange.com.
21 17
CFR 200.30–3(a)(12).
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).
1 15
18 15
U.S.C. 78s(b)(2)
supra note 15.
20 15 U.S.C. 78f(b)(2).
19 See
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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, Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
BOX Fee Schedule to specify in Section
II (Liquidity Fees and Credits) that when
a non-immediately marketable order
executes against a PIP Order, therefore
becoming an Unrelated Order, it shall be
charged as an Improvement Order.
Currently transactions in the BOX PIP
are either assessed a fee for adding
liquidity or provided a credit for
removing liquidity regardless of account
type.5 PIP Orders (i.e., the agency orders
opposite the Primary Improvement
Order 6) receive the ‘‘removal’’ credit
and Improvement Orders 7 are charged
the ‘‘add’’ fee. PIP transactions in
classes with a minimum price variation
of $0.01 (i.e., Penny Pilot classes where
the trade price is less than $3.00 and all
series in QQQ, SPY, and IWM) are
assessed a fee for adding liquidity of
$0.30, regardless of account type. For
PIP transactions where the minimum
price variation is greater than $0.01 (i.e.,
all non-Penny Pilot Classes, and Penny
Pilot Classes where the trade price is
equal to or greater than $3.00, excluding
QQQ, SPY, and IWM) the fee for adding
liquidity is $0.75, regardless of account
type. These liquidity fees and credits are
part of an Exchange Pilot Program
(‘‘Program’’) that has been in effect on
BOX since February 2012 and was
recently extended through August 31,
2013.8
An Unrelated Order is defined as any
non-Improvement Order entered on the
BOX market during a PIP.9 Currently all
Unrelated Orders are charged as NonAuction Transactions under Section
II.C. of the Exchange’s Fee Schedule and
are subject to a per contract fee of $0.30
for adding liquidity in Penny Pilot
Classes, and $0.75 for adding liquidity
in non-Penny Pilot Classes.
The purpose of this proposed rule
change is to specify that, when an
Unrelated Order that is not immediately
marketable executes against a PIP Order,
it shall be treated as an Improvement
Order and charged the applicable ‘‘add’’
fee under Section II.A of the Exchange’s
Fee Schedule.10 In the current Fee
Schedule the classes to which the
liquidity fees and credits are applied are
described differently in PIP
Transactions compared to Non-Auction
Transactions, therefore creating a
discrepancy in how similar orders are
charged. For example, in Section II.A
(PIP Transactions) the liquidity fees and
credits assessed differ depending on the
Minimum Price Variation of the order.
If the transaction is in a Penny Pilot
Class where the trade price is less than
$3.00 or in all series in QQQ, SPY &
IWM it is assessed an ‘‘add’’ fee or
‘‘removal’’ credit of $0.30. If the
transaction is in a Non-Penny Pilot
Class or in a Penny Pilot class where the
trade price is equal to or greater than
$3.00, excluding QQQ, SPY & IWM,
then it is assessed an ‘‘add’’ fee or
‘‘removal’’ credit of $0.75. In Section
II.C. (Non-Auction Transactions) the
liquidity fees and credits assessed differ
depending if the transaction is in a
Penny Pilot Class ($0.30 ‘‘add’’ fee or
‘‘removal’’ credit) or Non-Penny Pilot
Class ($0.75 ‘‘add’’ fee or ‘‘removal’’
credit).
The proposed change will have no
impact on the liquidity fees charged to
a Participant for a majority of nonimmediately marketable Unrelated
Orders that execute against a PIP Order.
For example, in a Non-Auction NonPenny Pilot transaction, an order that
adds liquidity is currently charged an
‘‘add’’ fee of $0.75. If this order interacts
with the PIP under the current fee
schedule, thereby becoming an
Unrelated Order, the ‘‘add’’ fee remains
the same regardless of the minimum
price variation of the class involved.
However, this proposed change will
result in a greater ‘‘add’’ fee for orders
in Penny Pilot Classes where the trade
price is equal to or greater than $3.00,
excluding QQQ, SPY, and IWM. For
example, a Non-Auction Penny Pilot
transaction that adds liquidity is
currently charged an ‘‘add’’ fee of $0.30.
Under the proposed change, if this order
interacts with the PIP, thereby becoming
an Unrelated Order, the ‘‘add’’ fee will
remain at $0.30 if the order is in a
Penny Pilot class where the trade price
is less than $3.00 or in QQQ, SPY, and
IWM. The fee will only be raised to
$0.75 if the order is in a Penny Pilot
Class where the trade price is equal to
or greater than $3.00, excluding QQQ,
SPY, and IWM.
The tables below illustrate how the
proposed change will affect the total
charged for each type of transaction.
TRANSACTIONS IN NON-PENNY PILOT CLASSES
Exchange
fee 11
Treated as a Non-Auction Transaction under the current Fee Schedule ...........
Treated as an Improvement Order under the proposed change ........................
5 See
Section II of the BOX Fee Schedule.
Improvement Order is a response to a PIP
auction.
7 A Primary Improvement Order is the matching
contra order submitted to the PIP on the opposite
side of an agency order.
8 See Securities Exchange Act Release Nos. 66278
(January 30, 2012), 77 FR 5590 (February 3, 2012)
(SR–BX–2011–046), (Commission Order Granting
Accelerated Approval of the BOX Credits and Fees
for PIP Transactions on a pilot basis); 66979 (May
14, 2012), 77 FR 29740 (May 18, 2012) (SR–BOX–
2012–002) (Notice of Filing and Immediate
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6 An
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$0.40
0.40
Effectiveness to adopt the Fee Schedule for trading
on BOX which included the Program); and 69054
(March 7, 2013), 78 FR 16025 (March 13, 2013) (SR–
BOX–2013–09) (Notice of Filing and Immediate
Effectiveness to extend the PIP Fee Pilot Program).
9 BOX Rule 7150(a).
10 Because the Unrelated Order is not
immediately marketable, it will rest on the BOX
Book and be charged the appropriate add fee unless
it interacts with a PIP Order. In contrast, when an
immediately marketable Unrelated Order is
received it will execute against the PIP Order under
BOX Rule 7150(j). This proposed rule change does
not affect orders that are immediately marketable
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Add fee
$0.75
0.75
Total
charged
$1.15
1.15
Effect
None.
None.
upon entry to BOX because under the Locked/
Crossed Market plan, an immediately marketable
Unrelated Order may have be [sic] routed from [sic]
away exchange and submitted to BOX. The
Exchange does not believe it should be subject to
the PIP Transaction ‘‘add’’ fee since the Locked/
Crossed Market plan may have required that the
order be sent to BOX and a customer has no control
over where this order is routed.
11 The order will continue to be charged as a NonAuction transaction for purposes of assessing
Exchange Fees under Section I of the BOX Fee
Schedule.
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TRANSACTIONS IN PENNY PILOT CLASSES
Exchange
fee
Treated as a Non-Auction Transaction under the current Fee Schedule ...........
Treated as an Improvement Order under the proposed change (Minimum
Price Variation of 1 Cent).
Treated as an Improvement Order where the under the proposed change
(Minimum Price Variation of > 1 Cent).
Therefore, as demonstrate above, the
only difference in ‘‘add’’ fees is in the
last row of possible orders, here there is
a potential $0.40 fee increase. The
Exchange notes that this proposed
change will only apply to nonimmediately marketable Unrelated
Orders that are entered on the BOX
market.
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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,12 in general, and Section 6(b)(4) of
the Act,13 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.
The Exchange believes it is reasonable
and equitable to treat a non-immediately
marketable Unrelated Order that
executes against a PIP Order as an
Improvement Order for purposes of the
Exchange’s liquidity fees. The PIP
liquidity fees and credits are intended to
attract order flow to the Exchange by
offering incentives to all market
participants to participate in the PIP.
Currently a Participant that submits an
Unrelated Order which then executes
against a PIP Order receives the same
trading benefit as a Participant who
submits an Improvement Order, but is
sometimes assessed a lesser ‘‘add’’ fee.
While non-immediately marketable
Unrelated Orders are not typically
submitted on the opposite side of a PIP
Order, they should be charged the fair
and appropriate ‘‘add’’ fee once they
execute against a PIP Order.
Furthermore, as demonstrated above
this change will have no impact on the
liquidity fees charged to a Participant
for a majority of non-immediately
marketable Unrelated Orders that
execute against a PIP Order.
The Exchange believes the proposed
change to be reasonable. As noted
above, the fees and credits for PIP
transactions are intended to attract order
flow to the Exchange by offering
incentives to all market participants to
12 15
13 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
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supra, note 8.
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Total
charged
$0.40
0.40
$0.30
0.30
$0.70
0.70
0.40
0.75
1.15
submit their orders to the PIP for
potential price improvement. As a
result, the Exchange credits Participants
who submit a PIP order and collects a
fee from Participants who respond to a
PIP through an Improvement Order. A
non-immediately marketable Unrelated
Order that executes against a PIP Order
as an Improvement Order will not
necessarily result in additional revenue
to the Exchange, but will simply allow
BOX to continue to provide the credit
incentives to Participants to attract
additional order flow to the PIP. In
order to continue to offer these
incentives for price improvement the
Exchange needs to ensure that its
liquidity fees and credits remain
revenue neutral by charging orders that
are executing in the same way the same
fee.
The Exchange believes it is
appropriate to provide incentives to
market participants to use PIP, resulting
in potential benefit to customers
through potential price improvement
and to all market participants to provide
greater liquidity on BOX. The Exchange
believes that treating non-immediately
marketable Unrelated Orders as
Improvement Orders for the purpose of
liquidity fees and credits will not deter
Participants from seeking to add
liquidity to BOX so that they may
interact with other Participants seeking
to remove liquidity.
Furthermore, this change will only
affect the liquidity fees charged for a
small percentage of non-immediately
marketable Unrelated Order transactions
that execute against a PIP Order, those
in Penny Pilot Classes where the trade
price is equal to or greater than $3.00,
excluding QQQ, SPY, and IWM under
the PIP Fee Pilot Program.14 The
Exchange currently offers additional
incentives to market participants for PIP
transactions in these specified classes
because such options have wider
spreads and provide greater opportunity
for market participants to offer price
improvement. The Exchange believes it
is reasonable and equitable to treat a
non-immediately marketable Unrelated
Order that executes against this type of
14 See
Add fee
Effect
None.
None.
Increased by $0.40.
PIP transaction the same liquidity fee
that an Improvement Order would be
charged.
The Exchange believes that treating
non-immediately marketable Unrelated
Orders as Improvement Orders is
equitable and not unfairly
discriminatory because the applicable
liquidity fees will apply uniformly to all
categories of participants, across all
account types. The Exchange operates
within a highly competitive market in
which market participants can readily
direct order flow to other competing
venues if they deem fees at a particular
venue to be excessive. BOX and the
other options exchanges are engaged in
an intense competition on price (and
other dimensions of competition) to
attract order flow from order flow
providers. Accordingly, the fees
assessed by the Exchange must remain
competitive with fees charged by other
venues and therefore must continue to
be reasonable and equitably allocated to
those Participants that opt to send
orders to the Exchange rather than to a
competing venue. Further, the Exchange
believes that the current PIP transaction
liquidity fees and credits it assesses are
fair and reasonable and must be
competitive with fees and credits in
place on other exchanges.
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. With this
proposed rule change, non-immediately
marketable Unrelated Orders executing
against PIP Orders will be subject to fees
that are already in place on the
Exchange. These types of orders are
currently subject to similar ‘‘add’’ fees
and the proposed change will better
align the applicable liquidity fees. The
Exchange does not believe that this
change would disincentives [sic] a
market participant from sending in an
Unrelated Order, in a majority of
situations there would be [sic] change to
the ‘‘add’’ fee assessed and the
Participant submitting the order is
receiving the benefit of executing
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Federal Register / Vol. 78, No. 71 / Friday, April 12, 2013 / Notices
against the PIP Order and the allocation
that follows after the conclusion of the
PIP. The Exchange believes that the
proposed change promotes competition,
as it is designed to allow the Exchange
to continue compete for order flow and
offer greater opportunities for price
improvement. As mentioned above,
liquidity fees and credits do not
necessarily result in additional revenue
to the Exchange, but will simply allow
BOX to continue to provide the credit
incentives to Participants to attract
additional order flow to the PIP. In
order to continue to offer these
incentives for price improvement the
Exchange needs to ensure that its
liquidity fees and credits remain
revenue neutral by charging orders that
are executing in the same way the same
fee.
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.
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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 15
and Rule 19b–4(f)(2) thereunder,16
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 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:
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BOX–2013–19 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.
All submissions should refer to File
Number SR–BOX–2013–19. 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
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BOX–
2013–19 and should be submitted on or
before May 3, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–08650 Filed 4–11–13; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
15 15
16 17
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69341; File No. SR–
NASDAQ–2013–048]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Granting Accelerated Approval of a
Proposed Rule Change To Adopt
Chapter V, Section 3 Subparagraph
(d)(iv) Regarding Obvious Error or
Catastrophic Error Review
April 8, 2013.
I. Introduction
On March 14, 2013, The NASDAQ
Stock Market LLC (‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ‘‘Act’’) 1 and
Rule 19b–4 thereunder,2 a proposed rule
change to provide for how the Exchange
proposes to treat obvious and
catastrophic options errors in response
to the Regulation NMS Plan to Address
Extraordinary Market Volatility (the
‘‘Plan’’). The proposed rule change was
published for comment in the Federal
Register on March 20, 2013.3 The
Commission received one comment
letter on the proposal.4 This order
approves the proposed rule change on
an accelerated basis.
II. Description of the Proposed Rule
Change
Since May 6, 2010, when the financial
markets experienced a severe
disruption, the equities exchanges and
the Financial Industry Regulatory
Authority have developed market-wide
measures to help prevent a recurrence.
In particular, on May 31, 2012, the
Commission approved the Plan, as
amended, on a one-year pilot basis.5
The Plan is designed to prevent trades
in individual NMS stocks from
occurring outside of specified Price
Bands, creating a market-wide limit uplimit down mechanism that is intended
to address extraordinary market
volatility in NMS Stocks.6
In connection with the
implementation of the Plan, the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 69142
(March 15, 2013), 78 FR 17251 (‘‘Notice’’).
4 See Letter to Heather Seidel, Associate Director,
Division of Trading and Markets, Commission, from
Thomas A. Wittman, Senior Vice President, The
NASDAQ Stock Market LLC, dated April 5, 2013
(‘‘Nasdaq Letter’’).
5 Securities Exchange Act Release No. 67091 (May
31, 2012), 77 FR 33498.
6 Unless otherwise specified, capitalized terms
used in this rule filing are based on the defined
terms of the Plan.
2 17
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[Federal Register Volume 78, Number 71 (Friday, April 12, 2013)]
[Notices]
[Pages 21993-21996]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08650]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69336; File No. SR-BOX-2013-19]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fee Schedule for Trading on BOX
April 8, 2013.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of
1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on March 29, 2013, BOX Options Exchange LLC (the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposed rule change pursuant to Section
19(b)(3)(A)(ii) of the Act,\3\ and Rule 19b-4(f)(2) thereunder,\4\
which renders the proposal effective upon filing with the Commission.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of 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 for
trading on the BOX Market LLC (``BOX'') options facility. While the
change to the fee schedule pursuant to this proposal will be effective
upon filing, the change will become operative on April 1, 2013. The
text of the proposed rule change is available from the principal office
of the Exchange, at the Commission's Public Reference Room and also on
the Exchange's Internet Web site at https://boxexchange.com.
[[Page 21994]]
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, Proposed Rule Change
1. Purpose
The Exchange proposes to amend the BOX Fee Schedule to specify in
Section II (Liquidity Fees and Credits) that when a non-immediately
marketable order executes against a PIP Order, therefore becoming an
Unrelated Order, it shall be charged as an Improvement Order.
Currently transactions in the BOX PIP are either assessed a fee for
adding liquidity or provided a credit for removing liquidity regardless
of account type.\5\ PIP Orders (i.e., the agency orders opposite the
Primary Improvement Order \6\) receive the ``removal'' credit and
Improvement Orders \7\ are charged the ``add'' fee. PIP transactions in
classes with a minimum price variation of $0.01 (i.e., Penny Pilot
classes where the trade price is less than $3.00 and all series in QQQ,
SPY, and IWM) are assessed a fee for adding liquidity of $0.30,
regardless of account type. For PIP transactions where the minimum
price variation is greater than $0.01 (i.e., all non-Penny Pilot
Classes, and Penny Pilot Classes where the trade price is equal to or
greater than $3.00, excluding QQQ, SPY, and IWM) the fee for adding
liquidity is $0.75, regardless of account type. These liquidity fees
and credits are part of an Exchange Pilot Program (``Program'') that
has been in effect on BOX since February 2012 and was recently extended
through August 31, 2013.\8\
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\5\ See Section II of the BOX Fee Schedule.
\6\ An Improvement Order is a response to a PIP auction.
\7\ A Primary Improvement Order is the matching contra order
submitted to the PIP on the opposite side of an agency order.
\8\ See Securities Exchange Act Release Nos. 66278 (January 30,
2012), 77 FR 5590 (February 3, 2012) (SR-BX-2011-046), (Commission
Order Granting Accelerated Approval of the BOX Credits and Fees for
PIP Transactions on a pilot basis); 66979 (May 14, 2012), 77 FR
29740 (May 18, 2012) (SR-BOX-2012-002) (Notice of Filing and
Immediate Effectiveness to adopt the Fee Schedule for trading on BOX
which included the Program); and 69054 (March 7, 2013), 78 FR 16025
(March 13, 2013) (SR-BOX-2013-09) (Notice of Filing and Immediate
Effectiveness to extend the PIP Fee Pilot Program).
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An Unrelated Order is defined as any non-Improvement Order entered
on the BOX market during a PIP.\9\ Currently all Unrelated Orders are
charged as Non-Auction Transactions under Section II.C. of the
Exchange's Fee Schedule and are subject to a per contract fee of $0.30
for adding liquidity in Penny Pilot Classes, and $0.75 for adding
liquidity in non-Penny Pilot Classes.
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\9\ BOX Rule 7150(a).
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The purpose of this proposed rule change is to specify that, when
an Unrelated Order that is not immediately marketable executes against
a PIP Order, it shall be treated as an Improvement Order and charged
the applicable ``add'' fee under Section II.A of the Exchange's Fee
Schedule.\10\ In the current Fee Schedule the classes to which the
liquidity fees and credits are applied are described differently in PIP
Transactions compared to Non-Auction Transactions, therefore creating a
discrepancy in how similar orders are charged. For example, in Section
II.A (PIP Transactions) the liquidity fees and credits assessed differ
depending on the Minimum Price Variation of the order. If the
transaction is in a Penny Pilot Class where the trade price is less
than $3.00 or in all series in QQQ, SPY & IWM it is assessed an ``add''
fee or ``removal'' credit of $0.30. If the transaction is in a Non-
Penny Pilot Class or in a Penny Pilot class where the trade price is
equal to or greater than $3.00, excluding QQQ, SPY & IWM, then it is
assessed an ``add'' fee or ``removal'' credit of $0.75. In Section
II.C. (Non-Auction Transactions) the liquidity fees and credits
assessed differ depending if the transaction is in a Penny Pilot Class
($0.30 ``add'' fee or ``removal'' credit) or Non-Penny Pilot Class
($0.75 ``add'' fee or ``removal'' credit).
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\10\ Because the Unrelated Order is not immediately marketable,
it will rest on the BOX Book and be charged the appropriate add fee
unless it interacts with a PIP Order. In contrast, when an
immediately marketable Unrelated Order is received it will execute
against the PIP Order under BOX Rule 7150(j). This proposed rule
change does not affect orders that are immediately marketable upon
entry to BOX because under the Locked/Crossed Market plan, an
immediately marketable Unrelated Order may have be [sic] routed from
[sic] away exchange and submitted to BOX. The Exchange does not
believe it should be subject to the PIP Transaction ``add'' fee
since the Locked/Crossed Market plan may have required that the
order be sent to BOX and a customer has no control over where this
order is routed.
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The proposed change will have no impact on the liquidity fees
charged to a Participant for a majority of non-immediately marketable
Unrelated Orders that execute against a PIP Order. For example, in a
Non-Auction Non-Penny Pilot transaction, an order that adds liquidity
is currently charged an ``add'' fee of $0.75. If this order interacts
with the PIP under the current fee schedule, thereby becoming an
Unrelated Order, the ``add'' fee remains the same regardless of the
minimum price variation of the class involved.
However, this proposed change will result in a greater ``add'' fee
for orders in Penny Pilot Classes where the trade price is equal to or
greater than $3.00, excluding QQQ, SPY, and IWM. For example, a Non-
Auction Penny Pilot transaction that adds liquidity is currently
charged an ``add'' fee of $0.30. Under the proposed change, if this
order interacts with the PIP, thereby becoming an Unrelated Order, the
``add'' fee will remain at $0.30 if the order is in a Penny Pilot class
where the trade price is less than $3.00 or in QQQ, SPY, and IWM. The
fee will only be raised to $0.75 if the order is in a Penny Pilot Class
where the trade price is equal to or greater than $3.00, excluding QQQ,
SPY, and IWM.
The tables below illustrate how the proposed change will affect the
total charged for each type of transaction.
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\11\ The order will continue to be charged as a Non-Auction
transaction for purposes of assessing Exchange Fees under Section I
of the BOX Fee Schedule.
Transactions in Non-Penny Pilot Classes
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Exchange Total
fee \11\ Add fee charged Effect
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Treated as a Non-Auction Transaction $0.40 $0.75 $1.15 None.
under the current Fee Schedule.
Treated as an Improvement Order under 0.40 0.75 1.15 None.
the proposed change.
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[[Page 21995]]
Transactions in Penny Pilot Classes
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Exchange Total
fee Add fee charged Effect
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Treated as a Non-Auction Transaction $0.40 $0.30 $0.70 None.
under the current Fee Schedule.
Treated as an Improvement Order under 0.40 0.30 0.70 None.
the proposed change (Minimum Price
Variation of 1 Cent).
Treated as an Improvement Order where 0.40 0.75 1.15 Increased by $0.40.
the under the proposed change
(Minimum Price Variation of > 1 Cent).
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Therefore, as demonstrate above, the only difference in ``add''
fees is in the last row of possible orders, here there is a potential
$0.40 fee increase. The Exchange notes that this proposed change will
only apply to non-immediately marketable Unrelated Orders that are
entered on the BOX market.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\12\ in general, and Section
6(b)(4) of the Act,\13\ 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.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
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The Exchange believes it is reasonable and equitable to treat a
non-immediately marketable Unrelated Order that executes against a PIP
Order as an Improvement Order for purposes of the Exchange's liquidity
fees. The PIP liquidity fees and credits are intended to attract order
flow to the Exchange by offering incentives to all market participants
to participate in the PIP. Currently a Participant that submits an
Unrelated Order which then executes against a PIP Order receives the
same trading benefit as a Participant who submits an Improvement Order,
but is sometimes assessed a lesser ``add'' fee. While non-immediately
marketable Unrelated Orders are not typically submitted on the opposite
side of a PIP Order, they should be charged the fair and appropriate
``add'' fee once they execute against a PIP Order. Furthermore, as
demonstrated above this change will have no impact on the liquidity
fees charged to a Participant for a majority of non-immediately
marketable Unrelated Orders that execute against a PIP Order.
The Exchange believes the proposed change to be reasonable. As
noted above, the fees and credits for PIP transactions are intended to
attract order flow to the Exchange by offering incentives to all market
participants to submit their orders to the PIP for potential price
improvement. As a result, the Exchange credits Participants who submit
a PIP order and collects a fee from Participants who respond to a PIP
through an Improvement Order. A non-immediately marketable Unrelated
Order that executes against a PIP Order as an Improvement Order will
not necessarily result in additional revenue to the Exchange, but will
simply allow BOX to continue to provide the credit incentives to
Participants to attract additional order flow to the PIP. In order to
continue to offer these incentives for price improvement the Exchange
needs to ensure that its liquidity fees and credits remain revenue
neutral by charging orders that are executing in the same way the same
fee.
The Exchange believes it is appropriate to provide incentives to
market participants to use PIP, resulting in potential benefit to
customers through potential price improvement and to all market
participants to provide greater liquidity on BOX. The Exchange believes
that treating non-immediately marketable Unrelated Orders as
Improvement Orders for the purpose of liquidity fees and credits will
not deter Participants from seeking to add liquidity to BOX so that
they may interact with other Participants seeking to remove liquidity.
Furthermore, this change will only affect the liquidity fees
charged for a small percentage of non-immediately marketable Unrelated
Order transactions that execute against a PIP Order, those in Penny
Pilot Classes where the trade price is equal to or greater than $3.00,
excluding QQQ, SPY, and IWM under the PIP Fee Pilot Program.\14\ The
Exchange currently offers additional incentives to market participants
for PIP transactions in these specified classes because such options
have wider spreads and provide greater opportunity for market
participants to offer price improvement. The Exchange believes it is
reasonable and equitable to treat a non-immediately marketable
Unrelated Order that executes against this type of PIP transaction the
same liquidity fee that an Improvement Order would be charged.
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\14\ See supra, note 8.
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The Exchange believes that treating non-immediately marketable
Unrelated Orders as Improvement Orders is equitable and not unfairly
discriminatory because the applicable liquidity fees will apply
uniformly to all categories of participants, across all account types.
The Exchange operates within a highly competitive market in which
market participants can readily direct order flow to other competing
venues if they deem fees at a particular venue to be excessive. BOX and
the other options exchanges are engaged in an intense competition on
price (and other dimensions of competition) to attract order flow from
order flow providers. Accordingly, the fees assessed by the Exchange
must remain competitive with fees charged by other venues and therefore
must continue to be reasonable and equitably allocated to those
Participants that opt to send orders to the Exchange rather than to a
competing venue. Further, the Exchange believes that the current PIP
transaction liquidity fees and credits it assesses are fair and
reasonable and must be competitive with fees and credits in place on
other exchanges.
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. With this proposed rule change,
non-immediately marketable Unrelated Orders executing against PIP
Orders will be subject to fees that are already in place on the
Exchange. These types of orders are currently subject to similar
``add'' fees and the proposed change will better align the applicable
liquidity fees. The Exchange does not believe that this change would
disincentives [sic] a market participant from sending in an Unrelated
Order, in a majority of situations there would be [sic] change to the
``add'' fee assessed and the Participant submitting the order is
receiving the benefit of executing
[[Page 21996]]
against the PIP Order and the allocation that follows after the
conclusion of the PIP. The Exchange believes that the proposed change
promotes competition, as it is designed to allow the Exchange to
continue compete for order flow and offer greater opportunities for
price improvement. As mentioned above, liquidity fees and credits do
not necessarily result in additional revenue to the Exchange, but will
simply allow BOX to continue to provide the credit incentives to
Participants to attract additional order flow to the PIP. In order to
continue to offer these incentives for price improvement the Exchange
needs to ensure that its liquidity fees and credits remain revenue
neutral by charging orders that are executing in the same way the same
fee.
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 \15\ and Rule 19b-4(f)(2)
thereunder,\16\ because it establishes or changes a due, fee, or other
charge applicable only to a member.
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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend the rule
change if it appears to the Commission that the action is necessary or
appropriate in the public interest, for the protection of investors, or
would otherwise further the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BOX-2013-19 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.
All submissions should refer to File Number SR-BOX-2013-19. 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
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BOX-2013-19 and should be
submitted on or before May 3, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08650 Filed 4-11-13; 8:45 am]
BILLING CODE 8011-01-P
