Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Create a New Fee Structure for Complex Orders on the BOX Market LLC Options Facility, 30357-30362 [2013-12169]
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TKELLEY on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 99 / Wednesday, May 22, 2013 / Notices
Investing Fund in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund under rule 12b-1
under the Act) received from a Fund by
the Investing Fund Adviser, Trustee or
Sponsor, or an affiliated person of the
Investing Fund Adviser, Trustee or
Sponsor, other than any advisory fees
paid to the Investing Fund Adviser,
Trustee, or Sponsor, or its affiliated
person by the Fund, in connection with
the investment by the Investing Fund in
the Fund. Any Investing Fund SubAdviser will waive fees otherwise
payable to the Investing Fund SubAdviser, directly or indirectly, by the
Investing Management Company in an
amount at least equal to any
compensation received from a Fund by
the Investing Fund Sub-Adviser, or an
affiliated person of the Investing Fund
Sub-Adviser, other than any advisory
fees paid to the Investing Fund SubAdviser or its affiliated person by the
Fund, in connection with any
investment by the Investing
Management Company in the Fund
made at the direction of the Investing
Fund Sub-Adviser. In the event that the
Investing Fund Sub-Adviser waives
fees, the benefit of the waiver will be
passed through to the Investing
Management Company.
6. No Investing Fund or Investing
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to a Fund) will cause a Fund to
purchase a security in an Affiliated
Underwriting.
7. The Board, including a majority of
the disinterested trustees, will adopt
procedures reasonably designed to
monitor any purchases of securities by
a Fund in an Affiliated Underwriting,
once an investment by an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, including any
purchases made directly from an
Underwriting Affiliate. The Board will
review these purchases periodically, but
no less frequently than annually, to
determine whether the purchases were
influenced by the investment by the
Investing Fund in the Fund. The Board
will consider, among other things: (a)
whether the purchases were consistent
with the investment objectives and
policies of the Fund; (b) how the
performance of securities purchased in
an Affiliated Underwriting compares to
the performance of comparable
securities purchased during a
comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (c)
whether the amount of securities
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purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to ensure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of the Fund.
8. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
9. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), each Investing Fund and the
Fund will execute an Investing Fund
Participation Agreement stating,
without limitation, that their respective
boards of directors or trustees and their
investment advisers, or Trustee and
Sponsor, as applicable, understand the
terms and conditions of the order, and
agree to fulfill their responsibilities
under the order. At the time of its
investment in Shares of a Fund in
excess of the limit in section
12(d)(1)(A)(i), an Investing Fund will
notify the Fund of the investment. At
such time, the Investing Fund will also
transmit to the Fund a list of the names
of each Investing Fund Affiliate and
Underwriting Affiliate. The Investing
Fund will notify the Fund of any
changes to the list of names as soon as
reasonably practicable after a change
occurs. The Fund and the Investing
Fund will maintain and preserve a copy
of the order, the Investing Fund
Participation Agreement, and the list
with any updated information for the
duration of the investment and for a
period of not less than six years
thereafter, the first two years in an
easily accessible place.
10. Before approving any advisory
contract under section 15 of the Act, the
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30357
board of directors or trustees of each
Investing Management Company,
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to an Investing Fund
as set forth in Conduct Rule 2830 of the
NASD.
12. No Fund will acquire securities of
an investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–12146 Filed 5–21–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69599; File No. SR–BOX–
2013–28]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Create a
New Fee Structure for Complex Orders
on the BOX Market LLC Options
Facility
May 16, 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 May 16,
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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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 to create a
new fee structure for Complex Orders
on the BOX Market LLC (‘‘BOX’’)
options facility. Changes to the fee
schedule pursuant to this proposal will
be effective upon filing. 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.
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
TKELLEY on DSK3SPTVN1PROD with NOTICES
The Exchange proposes to amend the
Fee Schedule for trading on BOX to
create a new fee structure for Complex
Orders. The Exchange recently amended
its rules related to trading Complex
Orders 5 on BOX. In particular, the
Exchange amended the BOX Rules to
facilitate interaction on a continuous
and real-time basis among orders on
BOX, consisting of Complex Orders on
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
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the Complex Order Book 6 and interest
on the BOX Book.7 The Exchange is
submitting this filing to describe the
fees that are applicable to Complex
Order transactions.
First, the Exchange proposes to
establish a new section (Section III.
Complex Order Transaction Fees) in the
BOX Fee Schedule to detail the fee and
credit structure for Complex Order
executions (the ‘‘Complex Order Fees’’).
The remaining sections of the Fee
Schedule (Eligible Orders Routed to an
Away Exchange, Technology Fees, and
Regulatory Fees) will be renumbered
accordingly.
The Exchange then proposes to
specify that the Complex Order Fees
will be applied per contract per leg to
all executions of Complex Orders.
Executions of Complex Orders will not
be subject to Sections I (Exchange Fees)
and II (Liquidity Fees and Credits), and
Complex Orders for Mini Options orders
will be assessed 1/10th of the otherwise
applicable Complex Order Fees.
The Exchange also proposes to count
all Complex Order transactions by
Market Makers toward their monthly
average daily volume ‘‘ADV’’ as
outlined in Section I.B. (Exchange Fees).
BOX currently gives volume incentives
for standard transaction fees to Market
Makers that, on a daily basis, trade an
average daily volume, as calculated at
the end of the month, of more than
5,000 contracts on BOX. The Exchange
notes that the Options Regulatory Fee
outlined in Section V (Regulatory Fees)
will apply to Complex Order Fees.8
The Exchange then proposes that
Complex Order Fees will be determined
according to whether the Complex
Order executes against orders on the
BOX Book or against another Complex
Order and according to the account
types of the Participant submitting the
Complex Order and the contra party.
4 17
CFR 240.19b–4(f)(2).
Order’’ is defined as ‘‘any order
involving the simultaneous purchase and/or sale of
two or more different options series in the same
underlying security, for the same account, in a ratio
that is equal to or greater than one-to-three (.333)
and less than or equal to three-to-one (3.00) and for
the purpose of executing a particular investment
strategy.’’ See Securities Release No. 69419 (April
19, 2013), 78 FR 24449 (April 25, 2013) (SR–BOX–
2013–01).
6 ‘‘Complex Order Book’’ is defined as ‘‘the
electronic book of Complex Orders maintained by
the BOX Trading Host.’’ See proposed Rule
7240(a)(6).
5 ‘‘Complex
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Complex Orders Executed Against
Orders on the BOX Book
In proposed Section III.A, Complex
Orders Executed Against Orders on the
BOX Book, the Exchange proposes to
adopt a fee or credit based on the
Participant’s Account Type.9 This fee
structure will apply when a Complex
Order executes against an order on the
BOX Book. In these transactions the
Exchange proposes to credit $0.35 per
contract per leg for Complex Orders
executed by Public Customers, assess a
fee of $0.45 per contract per leg for
Complex Orders executed by
Professional Customers and Broker
Dealers, and assess a fee of $0.40 per
contract per leg for Complex Orders
executed by Market Makers.
For example, if a Professional
Customer’s Complex Order A+B
executes against orders on the BOX
Book, the Professional Customer will be
charged $0.90 ($0.45 for A, plus $0.45
for B). A Public Customer executing
Complex Order A+B will receive a
credit of $0.70 ($0.35 for A, plus $0.35
for B).
Complex Orders Executed Against Other
Complex Orders
In proposed Section III.B, Complex
Orders Executed Against Other Complex
Orders, the Exchange proposes to adopt
a fee or credit based on the Participant’s
account type and the contra party’s
account type. In these transactions,
Complex Orders in penny pilot classes
will be assessed a lower fee than those
in non-penny pilot classes. This fee
structure will apply when a Complex
Order executes against another Complex
Order on the Complex Order Book.
Specifically, the Exchange proposes to
assess a distinct fee or credit, on a per
contract per leg basis, for Complex
Orders executed against another
Complex Order on the Complex Order
Book by each of Public Customers,
Professional Customers, Broker Dealers
and Market Makers depending upon the
contra order account type in the
transaction.
The Exchange proposes the fees and
credits set forth in the table below (and
included in proposed Section III.B)
when Complex Orders execute against
other Complex Orders on the Complex
Order Book:
7 ‘‘BOX Book’’ (also the ‘‘Central Order Book’’) is
defined as ‘‘the electronic book of orders on each
single series of options maintained by the BOX
Trading Host.’’ See proposed Rule 100(a)(10).
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Penny pilot
classes
Account type
Contra party
Public Customer ..............................
Public Customer ........................................................................................
Professional Customer/Broker Dealer/Market Maker ...............................
Public Customer ........................................................................................
Professional Customer/Broker Dealer/Market Maker ...............................
Public Customer ........................................................................................
Professional Customer/Broker Dealer/Market Maker ...............................
Public Customer ........................................................................................
Professional Customer/Broker Dealer/Market Maker ...............................
Professional Customer ....................
Broker Dealer ...................................
Market Maker ...................................
For example, if a Professional
Customer’s Complex Order A+B in a
penny pilot class executes against a
Public Customer’s Complex Order on
the Complex Order Book, the
Professional Customer will be charged
$0.90 ($0.45 for A, plus $0.45 for B) and
the Public Customer will receive a $0.70
credit ($0.35 for A, plus $0.35 for B). To
expand upon this example, if the
Professional Customer’s same Complex
Order is executed against a Market
Maker’s Complex Order on the Complex
Order Book, the Professional Customer
will be charged $0.40 ($0.20 for A, plus
$0.20 for B) and the Market Maker will
be charged $0.20 ($0.10 for A, plus
$0.10 for B).
TKELLEY on DSK3SPTVN1PROD with NOTICES
Orders on BOX Book Executed Against
Complex Orders
In proposed Section III.C, Orders on
BOX Book Executed Against Complex
Orders, the Exchange proposes to clarify
that orders on the BOX Book that
execute against Complex Orders will be
treated as standard orders for purposes
of the Fee Schedule and continue to be
subject to Sections I (Exchange Fees)
and II (Liquidity Fees and Credits).
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the
Act,10 in general, and Sections 6(b)(4)
and 6(b)(5) of the Act,11 in particular, in
that it provides for the equitable
allocation of reasonable dues, fees, and
other charges among BOX Participants
and other persons using its facilities and
does not unfairly discriminate between
customers, issuers, brokers or dealers.
The Exchange believes that the
proposed Complex Order Fees are
reasonable, equitable and nondiscriminatory. In particular, the
proposed Complex Order Fees will
allow the Exchange to be competitive
with other exchanges and to apply fees
and credits in a manner that is equitable
among all BOX Participants. The
Exchange operates within a highly
competitive market in which market
10 15
11 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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participants can readily direct order
flow to any other competing exchange if
they determine fees at a particular
exchange to be excessive. The proposed
Complex Order Fees are intended to
attract Complex Orders to the Exchange
by offering market participants
incentives to submit their Complex
Orders to the Exchange. The Exchange
believes it is appropriate to provide
incentives for market participants to
submit Complex Orders, resulting in
greater liquidity and ultimately
benefiting all Participants trading on the
Exchange.
The Exchange believes that exempting
Complex Orders from Section I
(Exchange Fees) and Section II
(Liquidity Fees and Credits) is
reasonable, equitable and not unfairly
discriminatory. The proposed Complex
Order Fees are meant to take the place
of Exchange Fees for Complex Order
transactions. The Exchange’s Liquidity
Fees and Credits are intended to attract
order flow to the Exchange by offering
incentives to all market participants to
submit orders to the Exchange and the
Exchange believes that the proposed
Complex Order fee structure will
provided appropriate incentives to
encourage Participants to submit
Complex Orders. The Exchange believes
that exempting Complex Orders from
liquidity fees and credits is reasonable
compared to the similar fees and credits
offered by the other exchanges. The
Exchange believes exempting Complex
Orders from liquidity fees and credits is
not unfairly discriminatory as the
exemption of Complex Order
transactions from exchange fees and
liquidity fees and credits applies
equally to all Participants on the
Exchange.
The Exchange proposes Complex
Order Fees in Mini Options at a rate that
is 1/10th the rate of the otherwise
applicable Complex Order Fees outlined
above. The Exchange believes the
proposed Complex Order Fees
applicable to Mini Options are
reasonable and equitable in light of the
fact that Mini Options have a smaller
exercise and assignment value, 1/10th
that of a standard option contract.
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$0.00
(0.35)
0.45
0.20
0.45
0.20
0.40
0.10
Non-Penny
pilot classes
$0.00
(0.70)
0.80
0.40
0.80
0.40
0.75
0.20
Therefore, assessing 1/10th of the
otherwise applicable Complex Order
Fees is appropriate for Complex Orders
involving Mini Options. Furthermore,
Mini Options have been approved for
trading at several other competing
exchanges and market participants can
readily direct their Complex Order flow
to any these exchanges if they determine
the Exchange’s Complex Order Mini
Option fees to be excessive.
The Exchange also believes it is
reasonable, equitable and not unfairly
discriminatory to include Complex
Order transaction volume in each
Market Maker’s ADV calculation
because doing so will provide the
Market Maker with an opportunity to
qualify for discounted fees and,
therefore, further incentivize these
essential Participants to trade more
order flow on the Exchange, which the
Exchange believes will ultimately
benefit all Participants trading on BOX.
Increased Market Maker order flow
will also benefit all market participants
by deepening the BOX liquidity pool,
supporting the quality of price
discovery, promoting market
transparency and improving investor
protection. The Exchange believes that
including Complex Order transaction
volume in the ADV calculation will
provide additional incentive for Market
Makers to increase Complex Order
volume on BOX. Increased Complex
Order volume increases potential
revenue to BOX, allowing the Exchange
to spread its administrative and
infrastructure costs over a greater
number of transactions, which could
lead to lower costs per transaction. The
Exchange believes that the volume
based discounts for Market Makers are
equitable because they are open to all
Market Makers on an equal basis and
provide discounts that are reasonably
related to the value to an exchange’s
market quality associated with higher
levels of market activity, such as higher
levels of liquidity provision and
introduction of higher volumes of orders
into the price and volume discovery
processes.
With regard to the proposed Complex
Order Fees that will be determined
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according to whether the Complex
Order executes against orders on the
BOX Book or against another Complex
Order and according to the account
types of the Participant submitting the
Complex Order and the contra party, the
Exchange believes this fee structure is
reasonable, equitable and nondiscriminatory. The Complex Order
Fees are competitive with the Complex
Order fee structures in place on other
exchanges. Specifically the Exchange is
proposing to adopt Complex Order Fees
similar to the model used by the NYSE
Arca, Inc. (‘‘NYSE Arca’’) that varies the
Complex Order fees and credits
depending on where the Complex Order
executes, and the contra party account
type that the Complex Order interacts
with.12 This model was adopted by
NYSE Arca in 2012 13 and has been
accepted by both the Commission and
the industry. For example, a Public
Customer executing a Complex Order on
NYSE Arca will be charged $0.45 per
contract per leg for penny pilot issues or
$0.82 per contract per leg for non-penny
pilot issues if that order executes on the
regular order book. However, if the same
Complex Order executes against a
Complex Order on the exchange’s
Complex Order Book from a non-Public
Customer (Professional Customer,
Broker Dealer or Market Maker), the
Customer will receive a $0.39 credit per
contract per leg for penny pilot issues
and a $0.75 credit per contract per leg
for non-penny pilot issues. The result of
this structure is that a NYSE Arca
member does not know the fee it will be
charged when submitting a Complex
Order. Therefore, the member must
recognize that it could be charged the
highest applicable fee on the exchange’s
schedule, which may, instead, be
lowered or changed to a credit
depending how its Complex Order
interacts.
The Exchange believes that the
proposed Complex Order Fee model is
reasonable because a Public Customer
submitting Complex Orders on BOX
will recognize that it will not pay a fee
for these transactions. Depending on
where and with whom the Complex
Order executes, the Public Customer
may receive an additional benefit for
submitting the order. Likewise, a
Professional Customer or Broker Dealer
submitting Complex Orders will
recognize that it will not be charged
more than $0.45 in penny pilot issues
and $0.80 in non-penny pilot issues.
The same is true for Market Makers,
who will recognize that their maximum
charge when submitting a Complex
Order will be $0.40 in penny pilot
issues and $0.75 in non-penny pilot
issues.
The Exchange believes it is reasonable
and equitable to assess Complex Order
Fees based upon issue type, where the
Complex Order executes, the account
type of the Participant submitting the
Complex Order and the contra party
account type. The Exchange’s Complex
Order Fees must be competitive with
other exchanges to attract order flow,
execute orders and grow its market. The
Exchange believes the proposed
Complex Order Fees are competitive
with both Arca and ISE.14 The Exchange
notes that submitting Complex Orders to
BOX is entirely voluntary and that
several other competing exchanges
possess similar Complex Order
functionalities, including Arca.
Participants can therefore choose what
type of order to submit to BOX, or direct
their Complex Order flow to any other
exchange if they determine the
proposed Complex Order fee structure
to be unreasonable.
The Exchange believes it is reasonable
and equitable to provide credits for
Public Customer Complex Orders and to
charge fees to Professional Customers,
Broker Dealers and Market Makers when
their Complex Orders execute on the
BOX Book. The Exchange believes that
the proposed $0.35 credit for Public
Customers, $0.45 fee for Professional
Customers and Broker Dealers, and
$0.40 fee for Market Makers strikes an
appropriate balance between the fees
charged for standard orders and the
proposed Complex Order Fees. The
Complex Order Fees will continue to
encourage Participants to execute
Complex Orders by ensuring that they
receive similar incentives regardless of
where their Complex Order executes.
The Exchange believes this will help
attract Complex Order flow to the
Exchange and create increased liquidity,
which will ultimately benefit all
Participants trading on BOX. The
proposed fees and credits are also
competitive with the fees and credits
offered for similar transactions on at
least one other exchange.15
12 See NYSE Arca Options Schedule of Fees as of
May 1, 2013, available at https://
globalderivatives.nyx.com/sites/
globalderivatives.nyx.com/files/
nyse_arca_options_fee_schedule__050113.pdf.
13 See Securities Release No. 68405 (December 11,
2012), 77 FR 74719 (December 17, 2012) (SR–
NYSEArca–2012–137).
14 See International Securities Exchange Schedule
of Fees as of April 1, 2013, available at https://
www.ise.com/assets/documents/OptionsExchange/
legal/fee/fee_schedule.pdf.
15 For Complex Orders that interact with the
regular order book, Arca charges Public Customers
$0.45 or $0.82 (depending on issue), and charges
Broker Dealers $0.48 or $0.87 (depending on issue).
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The Exchange believes providing a
credit to Public Customers for Complex
Orders that execute against orders on
the BOX Book is equitable and nondiscriminatory. The securities markets
generally, and BOX in particular, have
historically aimed to improve markets
for investors and develop various
features within the market structure for
customer benefit. Accordingly, the
Exchange believes that providing a
credit for Public Customer Complex
Order transactions is appropriate and
not unfairly discriminatory. Public
Customers are less sophisticated than
other Participants and the credit will
help to attract a high level of Public
Customer order flow to the Complex
Order Book and create liquidity, which
the Exchange believes will ultimately
benefit all Participants trading on BOX.
The Exchange also believes it is
equitable and not unfairly
discriminatory for BOX Market Makers
to be assessed lower fees than
Professional Customers and Broker
Dealers for Complex Orders that execute
against orders on the BOX Book because
of the significant contributions to
overall market quality that Market
Makers provide. Specifically, Market
Makers can provide higher volumes of
liquidity and lowering their Complex
Order fees will help attract a higher
level of Market Maker order flow to the
Complex Order Book and create
liquidity, which the Exchange believes
will ultimately benefit all Participants
trading on BOX. As such, the Exchange
believes it is appropriate that Market
Makers be charged lower Complex
Order transaction fees. Market Makers
also have additional obligations that are
not applicable to Professional
Customers and Broker Dealers.
As stated above, the Exchange
believes that the Complex Order Fees
proposed for Complex Orders that
execute against other Complex Orders
are reasonable and equitable. The
proposed credits and fees are
competitive with the credits offered for
similar transactions on at least one other
exchange.16
The Exchange also believes it is
reasonable to charge Professional
Customers, Broker Dealers, and Market
Makers less for executions in penny
pilot issues because these classes are
typically the more actively traded and
assessing lower fees will further
incentivize Complex Order transaction
in penny pilot issues on the Exchange,
ultimately benefiting all Participants
trading on BOX. The Complex Order
Fees are competitive with the fees and
credits offered for similar transactions
16 See
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TKELLEY on DSK3SPTVN1PROD with NOTICES
on at least one other exchange.17
Additionally, the Exchange believes it is
reasonable to give a greater credit to
Public Customers in Complex Order
transactions involving non-penny pilot
issues. These classes have wider spreads
and are less actively traded; and giving
a larger credit will further incentivize
Public Customers to trade in these
classes. The proposed Public Customer
credits are competitive with the credits
offered for similar transactions on at
least one other exchange.18
The Exchange believes that it is
equitable and not unfairly
discriminatory to exempt Public
Customers from Complex Order fees
when executing against another Public
Customer’s Complex Order and provide
a credit when the same order executes
against other Participant’s Complex
Orders. As stated above, BOX has
historically tried to develop features
within the market structure for the
benefit of the customer. As such, the
Exchange believes that exempting and
crediting Public Customer Complex
Order transactions is appropriate and
not unfairly discriminatory. Public
Customers are less sophisticated than
other Participants and the Exchange
believes exempting and crediting Public
Customer Complex Order transactions
will help to attract a high level of Public
Customer order flow to the Complex
Order Book and create liquidity, which
will ultimately benefit all Participants
trading on BOX. In addition, the
proposed fees and credits are
competitive with the Complex Order
fees and credits on at least one other
exchange.19
Further, the Exchange believes that
the proposed Complex Order Fees for
Professional Customers, Broker Dealers,
and Market Makers interacting with
other Complex Orders are equitable,
reasonable and not unfairly
discriminatory. Professional Customers,
while Public Customers by virtue of not
being Broker Dealers, generally engage
in trading activity more similar to
Broker Dealer proprietary trading
accounts (more than 390 standard
orders per day on average). The
Exchange believes the relative activity
of Professional Customers will be
17 The ISE assesses Professional Customers and
Broker Dealers $0.40 for Complex Order
transactions in Penny Names and $.84 for Complex
Order transactions in non-Penny Names.
18 At the lowest volume tier level, the ISE gives
Public Customers a $0.33 credit for Complex Order
transactions in Penny Names, and a $0.66 credit for
Complex Order transactions in non-Penny Names.
19 The ISE exempts Public Customers Complex
Orders from fees when trading against another
Public Customer, and gives Public Customers a
$0.33 to $0.66 credit when trading against nonPublic Customers, depending on volume tier.
VerDate Mar<15>2010
16:59 May 21, 2013
Jkt 229001
similar for Complex Orders, and the
higher level of trading activity will draw
a greater amount of BOX system
resources than that of non-professional,
Public Customers. Because this higher
level of trading activity will result in
greater ongoing operational costs, the
Exchange aims to recover its costs by
assessing Professional Customers and
Broker Dealers a market competitive fee
for Complex Order transactions.
Finally, the Exchange believes it is
reasonable, equitable and nondiscriminatory to give Public Customers
a higher credit when their Complex
Orders execute against a non-Public
Customer on the Complex Order Book
and, accordingly, charge non-Public
Customers a higher fee when their
Complex Order executes against a
Public Customer on the Complex Order
Book. The Exchange, and the securities
market generally, aims to improve
markets by developing features for the
benefit of its customers. Similar to the
payment for order flow and other
pricing models that have been adopted
by the Exchange and other exchanges to
attract Public Customer order flow, the
Exchange increases fees to non-Public
Customers in order to provide
incentives for Public Customers. The
Exchange believes that providing
incentives for Complex Order
transactions by Public Customers is
reasonable and, ultimately, will benefit
all Participants trading on the Exchange
by attracting Public Customer order
flow. Accordingly, the Exchange
believes that this fee differential is
appropriate and not unfairly
discriminatory.
The Exchange also believes it is
equitable and not unfairly
discriminatory for BOX Market Makers
to be assessed lower Complex Order
Fees than Professional Customers and
Broker Dealers. As discussed above,
Market Makers provide significant
contributions to market quality and
have additional obligations that
Professional Customers and Broker
Dealers do not.
The Exchange believes that the
proposed Complex Order Fees will keep
the Exchange competitive with other
exchanges and will be applied in an
equitable manner among all BOX
Participants. The Exchange believes the
proposed Complex Order Fees are fair
and reasonable and competitive with
fees in place on other exchanges.
Further, the Exchange believes that the
competitive marketplace impacts the
fees proposed for BOX.
PO 00000
Frm 00095
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30361
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes that the
Complex Order Fees will neither impose
burdens on competition among various
Exchange Participants nor impose any
burden on competition among
exchanges in the listed options
marketplace, not necessary or
appropriate in furtherance of the
purposes of the Act. The proposed
change is designed to create an
appropriate fee structure for Complex
Orders on the Exchange.
The Exchange believes that adopting
Complex Order Fees will not impose a
burden on competition among various
Exchange Participants. BOX currently
assesses distinct standard contract
Exchange fees for different account and
transaction types. The Exchange
believes that applying a fee structure
that is determined by whether the
Complex Order executes against orders
on the BOX Book or against other
Complex Orders, and according to the
account types of the Participant
submitting the Complex Order and the
contra party, will result in Participants
being charged appropriately for these
transactions. Submitting a Complex
Order is entirely voluntary and
Participants can determine which type
of order they wish to submit, if any, to
the Exchange.
Further, the Exchange believes that
this proposal will enhance competition
between exchanges because it is
designed to allow the Exchange to better
compete with other exchanges for
Complex Order flow. In this regard,
Complex Orders are a new order type
being introduced by the Exchange and
BOX is unable to absolutely determine
the impact that the Complex Order Fees
proposed herein will have on trading.
That said, however, the Exchange
believes that the proposed Complex
Order Fees would not impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
Finally, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing exchanges. In
such an environment, the Exchange
must continually review, and consider
adjusting, its fees and credits to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed
rule change reflects this competitive
environment.
E:\FR\FM\22MYN1.SGM
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30362
Federal Register / Vol. 78, No. 99 / Wednesday, May 22, 2013 / Notices
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 20
and Rule 19b–4(f)(2) thereunder,21
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:
TKELLEY on DSK3SPTVN1PROD with NOTICES
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–2013–28 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–2013–28. 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–
2013–28 and should be submitted on or
before June 12, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–12169 Filed 5–21–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69596; File No. SR–NSCC–
2013–06]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Modify Fees Related
to Portfolio Composition File
Reporting in Addendum A of Its Rules
and Procedures
May 16, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 3,
2013, National Securities Clearing
Corporation (‘‘NSCC’’) 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
primarily by NSCC. NSCC filed the
proposed rule change pursuant to
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
20 15
U.S.C. 78s(b)(3)(A)(ii).
21 17 CFR 240.19b–4(f)(2).
VerDate Mar<15>2010
16:59 May 21, 2013
1 15
Jkt 229001
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
Section 19(b)(3)(A)(ii) 3 of the Act and
Rule 19b–4(f)(2) 4 thereunder, so that the
proposed rule change was effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change is to
modify the fee schedule related to
NSCC’s Portfolio Composition File
Reporting in Addendum A of NSCC’s
Rules and Procedures (‘‘Rules’’), as
described below.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
NSCC 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. NSCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of such statements.5
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is for NSCC to revise its fee
schedule (as listed in Addendum A of
its Rules 6) as it relates to charges for
reports on Index Receipt Portfolio
Composition Files. Portfolio
Composition File reports, as currently
offered, contain information on all
Index Receipt Portfolios eligible for
processing by NSCC (‘‘Legacy Files’’).
NSCC releases two Legacy Files each
business day—one file for domestic
portfolios and one for foreign portfolios.
The files are offered both as machine
readable output (‘‘MRO’’) and print
image files. The fee associated with a
Member’s subscription to the Legacy
Files is $125 per file per month.
Pursuant to this proposed rule
change, NSCC implemented new fees
for the offering of an enhanced reporting
interface that allows Members to receive
a Portfolio Composition File that
contains only the Index Receipt
3 15
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
5 The Commission has modified the text of the
summaries prepared by NSCC.
6 NSCC Rules, Addendum A, https://dtcc.com/
legal/rules_proc/nscc_rules.pdf.
4 17
E:\FR\FM\22MYN1.SGM
22MYN1
]]>Agencies
[Federal Register Volume 78, Number 99 (Wednesday, May 22, 2013)]
[Notices]
[Pages 30357-30362]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12169]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69599; File No. SR-BOX-2013-28]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Create a New Fee Structure for Complex Orders on the BOX Market LLC
Options Facility
May 16, 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 May 16, 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
[[Page 30358]]
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).
---------------------------------------------------------------------------
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 to
create a new fee structure for Complex Orders on the BOX Market LLC
(``BOX'') options facility. Changes to the fee schedule pursuant to
this proposal will be effective upon filing. 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.
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 Fee Schedule for trading on BOX
to create a new fee structure for Complex Orders. The Exchange recently
amended its rules related to trading Complex Orders \5\ on BOX. In
particular, the Exchange amended the BOX Rules to facilitate
interaction on a continuous and real-time basis among orders on BOX,
consisting of Complex Orders on the Complex Order Book \6\ and interest
on the BOX Book.\7\ The Exchange is submitting this filing to describe
the fees that are applicable to Complex Order transactions.
---------------------------------------------------------------------------
\5\ ``Complex Order'' is defined as ``any order involving the
simultaneous purchase and/or sale of two or more different options
series in the same underlying security, for the same account, in a
ratio that is equal to or greater than one-to-three (.333) and less
than or equal to three-to-one (3.00) and for the purpose of
executing a particular investment strategy.'' See Securities Release
No. 69419 (April 19, 2013), 78 FR 24449 (April 25, 2013) (SR-BOX-
2013-01).
\6\ ``Complex Order Book'' is defined as ``the electronic book
of Complex Orders maintained by the BOX Trading Host.'' See proposed
Rule 7240(a)(6).
\7\ ``BOX Book'' (also the ``Central Order Book'') is defined as
``the electronic book of orders on each single series of options
maintained by the BOX Trading Host.'' See proposed Rule 100(a)(10).
---------------------------------------------------------------------------
First, the Exchange proposes to establish a new section (Section
III. Complex Order Transaction Fees) in the BOX Fee Schedule to detail
the fee and credit structure for Complex Order executions (the
``Complex Order Fees''). The remaining sections of the Fee Schedule
(Eligible Orders Routed to an Away Exchange, Technology Fees, and
Regulatory Fees) will be renumbered accordingly.
The Exchange then proposes to specify that the Complex Order Fees
will be applied per contract per leg to all executions of Complex
Orders. Executions of Complex Orders will not be subject to Sections I
(Exchange Fees) and II (Liquidity Fees and Credits), and Complex Orders
for Mini Options orders will be assessed 1/10th of the otherwise
applicable Complex Order Fees.
The Exchange also proposes to count all Complex Order transactions
by Market Makers toward their monthly average daily volume ``ADV'' as
outlined in Section I.B. (Exchange Fees). BOX currently gives volume
incentives for standard transaction fees to Market Makers that, on a
daily basis, trade an average daily volume, as calculated at the end of
the month, of more than 5,000 contracts on BOX. The Exchange notes that
the Options Regulatory Fee outlined in Section V (Regulatory Fees) will
apply to Complex Order Fees.\8\
---------------------------------------------------------------------------
\8\ The Options Regulatory Fee is assessed to each BOX Options
Participant for all options transactions executed or cleared by the
BOX Options Participant that are cleared by The Options Clearing
Corporation (OCC) in the customer range regardless of the exchange
on which the transaction occurs.
---------------------------------------------------------------------------
The Exchange then proposes that Complex Order Fees will be
determined according to whether the Complex Order executes against
orders on the BOX Book or against another Complex Order and according
to the account types of the Participant submitting the Complex Order
and the contra party.
Complex Orders Executed Against Orders on the BOX Book
In proposed Section III.A, Complex Orders Executed Against Orders
on the BOX Book, the Exchange proposes to adopt a fee or credit based
on the Participant's Account Type.\9\ This fee structure will apply
when a Complex Order executes against an order on the BOX Book. In
these transactions the Exchange proposes to credit $0.35 per contract
per leg for Complex Orders executed by Public Customers, assess a fee
of $0.45 per contract per leg for Complex Orders executed by
Professional Customers and Broker Dealers, and assess a fee of $0.40
per contract per leg for Complex Orders executed by Market Makers.
---------------------------------------------------------------------------
\9\ See BOX Rule 100 Series for definitions of each Participant
Account Type.
---------------------------------------------------------------------------
For example, if a Professional Customer's Complex Order A+B
executes against orders on the BOX Book, the Professional Customer will
be charged $0.90 ($0.45 for A, plus $0.45 for B). A Public Customer
executing Complex Order A+B will receive a credit of $0.70 ($0.35 for
A, plus $0.35 for B).
Complex Orders Executed Against Other Complex Orders
In proposed Section III.B, Complex Orders Executed Against Other
Complex Orders, the Exchange proposes to adopt a fee or credit based on
the Participant's account type and the contra party's account type. In
these transactions, Complex Orders in penny pilot classes will be
assessed a lower fee than those in non-penny pilot classes. This fee
structure will apply when a Complex Order executes against another
Complex Order on the Complex Order Book.
Specifically, the Exchange proposes to assess a distinct fee or
credit, on a per contract per leg basis, for Complex Orders executed
against another Complex Order on the Complex Order Book by each of
Public Customers, Professional Customers, Broker Dealers and Market
Makers depending upon the contra order account type in the transaction.
The Exchange proposes the fees and credits set forth in the table
below (and included in proposed Section III.B) when Complex Orders
execute against other Complex Orders on the Complex Order Book:
[[Page 30359]]
----------------------------------------------------------------------------------------------------------------
Penny pilot Non-Penny
Account type Contra party classes pilot classes
----------------------------------------------------------------------------------------------------------------
Public Customer............................ Public Customer.................... $0.00 $0.00
Professional Customer/Broker Dealer/ (0.35) (0.70)
Market Maker.
Professional Customer...................... Public Customer.................... 0.45 0.80
Professional Customer/Broker Dealer/ 0.20 0.40
Market Maker.
Broker Dealer.............................. Public Customer.................... 0.45 0.80
Professional Customer/Broker Dealer/ 0.20 0.40
Market Maker.
Market Maker............................... Public Customer.................... 0.40 0.75
Professional Customer/Broker Dealer/ 0.10 0.20
Market Maker.
----------------------------------------------------------------------------------------------------------------
For example, if a Professional Customer's Complex Order A+B in a
penny pilot class executes against a Public Customer's Complex Order on
the Complex Order Book, the Professional Customer will be charged $0.90
($0.45 for A, plus $0.45 for B) and the Public Customer will receive a
$0.70 credit ($0.35 for A, plus $0.35 for B). To expand upon this
example, if the Professional Customer's same Complex Order is executed
against a Market Maker's Complex Order on the Complex Order Book, the
Professional Customer will be charged $0.40 ($0.20 for A, plus $0.20
for B) and the Market Maker will be charged $0.20 ($0.10 for A, plus
$0.10 for B).
Orders on BOX Book Executed Against Complex Orders
In proposed Section III.C, Orders on BOX Book Executed Against
Complex Orders, the Exchange proposes to clarify that orders on the BOX
Book that execute against Complex Orders will be treated as standard
orders for purposes of the Fee Schedule and continue to be subject to
Sections I (Exchange Fees) and II (Liquidity Fees and Credits).
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\10\ in general, and Sections
6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees, and other
charges among BOX Participants and other persons using its facilities
and does not unfairly discriminate between customers, issuers, brokers
or dealers.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange believes that the proposed Complex Order Fees are
reasonable, equitable and non-discriminatory. In particular, the
proposed Complex Order Fees will allow the Exchange to be competitive
with other exchanges and to apply fees and credits in a manner that is
equitable among all BOX Participants. The Exchange operates within a
highly competitive market in which market participants can readily
direct order flow to any other competing exchange if they determine
fees at a particular exchange to be excessive. The proposed Complex
Order Fees are intended to attract Complex Orders to the Exchange by
offering market participants incentives to submit their Complex Orders
to the Exchange. The Exchange believes it is appropriate to provide
incentives for market participants to submit Complex Orders, resulting
in greater liquidity and ultimately benefiting all Participants trading
on the Exchange.
The Exchange believes that exempting Complex Orders from Section I
(Exchange Fees) and Section II (Liquidity Fees and Credits) is
reasonable, equitable and not unfairly discriminatory. The proposed
Complex Order Fees are meant to take the place of Exchange Fees for
Complex Order transactions. The Exchange's Liquidity Fees and Credits
are intended to attract order flow to the Exchange by offering
incentives to all market participants to submit orders to the Exchange
and the Exchange believes that the proposed Complex Order fee structure
will provided appropriate incentives to encourage Participants to
submit Complex Orders. The Exchange believes that exempting Complex
Orders from liquidity fees and credits is reasonable compared to the
similar fees and credits offered by the other exchanges. The Exchange
believes exempting Complex Orders from liquidity fees and credits is
not unfairly discriminatory as the exemption of Complex Order
transactions from exchange fees and liquidity fees and credits applies
equally to all Participants on the Exchange.
The Exchange proposes Complex Order Fees in Mini Options at a rate
that is 1/10th the rate of the otherwise applicable Complex Order Fees
outlined above. The Exchange believes the proposed Complex Order Fees
applicable to Mini Options are reasonable and equitable in light of the
fact that Mini Options have a smaller exercise and assignment value, 1/
10th that of a standard option contract. Therefore, assessing 1/10th of
the otherwise applicable Complex Order Fees is appropriate for Complex
Orders involving Mini Options. Furthermore, Mini Options have been
approved for trading at several other competing exchanges and market
participants can readily direct their Complex Order flow to any these
exchanges if they determine the Exchange's Complex Order Mini Option
fees to be excessive.
The Exchange also believes it is reasonable, equitable and not
unfairly discriminatory to include Complex Order transaction volume in
each Market Maker's ADV calculation because doing so will provide the
Market Maker with an opportunity to qualify for discounted fees and,
therefore, further incentivize these essential Participants to trade
more order flow on the Exchange, which the Exchange believes will
ultimately benefit all Participants trading on BOX.
Increased Market Maker order flow will also benefit all market
participants by deepening the BOX liquidity pool, supporting the
quality of price discovery, promoting market transparency and improving
investor protection. The Exchange believes that including Complex Order
transaction volume in the ADV calculation will provide additional
incentive for Market Makers to increase Complex Order volume on BOX.
Increased Complex Order volume increases potential revenue to BOX,
allowing the Exchange to spread its administrative and infrastructure
costs over a greater number of transactions, which could lead to lower
costs per transaction. The Exchange believes that the volume based
discounts for Market Makers are equitable because they are open to all
Market Makers on an equal basis and provide discounts that are
reasonably related to the value to an exchange's market quality
associated with higher levels of market activity, such as higher levels
of liquidity provision and introduction of higher volumes of orders
into the price and volume discovery processes.
With regard to the proposed Complex Order Fees that will be
determined
[[Page 30360]]
according to whether the Complex Order executes against orders on the
BOX Book or against another Complex Order and according to the account
types of the Participant submitting the Complex Order and the contra
party, the Exchange believes this fee structure is reasonable,
equitable and non-discriminatory. The Complex Order Fees are
competitive with the Complex Order fee structures in place on other
exchanges. Specifically the Exchange is proposing to adopt Complex
Order Fees similar to the model used by the NYSE Arca, Inc. (``NYSE
Arca'') that varies the Complex Order fees and credits depending on
where the Complex Order executes, and the contra party account type
that the Complex Order interacts with.\12\ This model was adopted by
NYSE Arca in 2012 \13\ and has been accepted by both the Commission and
the industry. For example, a Public Customer executing a Complex Order
on NYSE Arca will be charged $0.45 per contract per leg for penny pilot
issues or $0.82 per contract per leg for non-penny pilot issues if that
order executes on the regular order book. However, if the same Complex
Order executes against a Complex Order on the exchange's Complex Order
Book from a non-Public Customer (Professional Customer, Broker Dealer
or Market Maker), the Customer will receive a $0.39 credit per contract
per leg for penny pilot issues and a $0.75 credit per contract per leg
for non-penny pilot issues. The result of this structure is that a NYSE
Arca member does not know the fee it will be charged when submitting a
Complex Order. Therefore, the member must recognize that it could be
charged the highest applicable fee on the exchange's schedule, which
may, instead, be lowered or changed to a credit depending how its
Complex Order interacts.
---------------------------------------------------------------------------
\12\ See NYSE Arca Options Schedule of Fees as of May 1, 2013,
available at https://globalderivatives.nyx.com/sites/globalderivatives.nyx.com/files/nyse_arca_options_fee_schedule__050113.pdf.
\13\ See Securities Release No. 68405 (December 11, 2012), 77 FR
74719 (December 17, 2012) (SR-NYSEArca-2012-137).
---------------------------------------------------------------------------
The Exchange believes that the proposed Complex Order Fee model is
reasonable because a Public Customer submitting Complex Orders on BOX
will recognize that it will not pay a fee for these transactions.
Depending on where and with whom the Complex Order executes, the Public
Customer may receive an additional benefit for submitting the order.
Likewise, a Professional Customer or Broker Dealer submitting Complex
Orders will recognize that it will not be charged more than $0.45 in
penny pilot issues and $0.80 in non-penny pilot issues. The same is
true for Market Makers, who will recognize that their maximum charge
when submitting a Complex Order will be $0.40 in penny pilot issues and
$0.75 in non-penny pilot issues.
The Exchange believes it is reasonable and equitable to assess
Complex Order Fees based upon issue type, where the Complex Order
executes, the account type of the Participant submitting the Complex
Order and the contra party account type. The Exchange's Complex Order
Fees must be competitive with other exchanges to attract order flow,
execute orders and grow its market. The Exchange believes the proposed
Complex Order Fees are competitive with both Arca and ISE.\14\ The
Exchange notes that submitting Complex Orders to BOX is entirely
voluntary and that several other competing exchanges possess similar
Complex Order functionalities, including Arca. Participants can
therefore choose what type of order to submit to BOX, or direct their
Complex Order flow to any other exchange if they determine the proposed
Complex Order fee structure to be unreasonable.
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\14\ See International Securities Exchange Schedule of Fees as
of April 1, 2013, available at https://www.ise.com/assets/documents/OptionsExchange/legal/fee/fee_schedule.pdf.
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The Exchange believes it is reasonable and equitable to provide
credits for Public Customer Complex Orders and to charge fees to
Professional Customers, Broker Dealers and Market Makers when their
Complex Orders execute on the BOX Book. The Exchange believes that the
proposed $0.35 credit for Public Customers, $0.45 fee for Professional
Customers and Broker Dealers, and $0.40 fee for Market Makers strikes
an appropriate balance between the fees charged for standard orders and
the proposed Complex Order Fees. The Complex Order Fees will continue
to encourage Participants to execute Complex Orders by ensuring that
they receive similar incentives regardless of where their Complex Order
executes. The Exchange believes this will help attract Complex Order
flow to the Exchange and create increased liquidity, which will
ultimately benefit all Participants trading on BOX. The proposed fees
and credits are also competitive with the fees and credits offered for
similar transactions on at least one other exchange.\15\
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\15\ For Complex Orders that interact with the regular order
book, Arca charges Public Customers $0.45 or $0.82 (depending on
issue), and charges Broker Dealers $0.48 or $0.87 (depending on
issue).
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The Exchange believes providing a credit to Public Customers for
Complex Orders that execute against orders on the BOX Book is equitable
and non-discriminatory. The securities markets generally, and BOX in
particular, have historically aimed to improve markets for investors
and develop various features within the market structure for customer
benefit. Accordingly, the Exchange believes that providing a credit for
Public Customer Complex Order transactions is appropriate and not
unfairly discriminatory. Public Customers are less sophisticated than
other Participants and the credit will help to attract a high level of
Public Customer order flow to the Complex Order Book and create
liquidity, which the Exchange believes will ultimately benefit all
Participants trading on BOX.
The Exchange also believes it is equitable and not unfairly
discriminatory for BOX Market Makers to be assessed lower fees than
Professional Customers and Broker Dealers for Complex Orders that
execute against orders on the BOX Book because of the significant
contributions to overall market quality that Market Makers provide.
Specifically, Market Makers can provide higher volumes of liquidity and
lowering their Complex Order fees will help attract a higher level of
Market Maker order flow to the Complex Order Book and create liquidity,
which the Exchange believes will ultimately benefit all Participants
trading on BOX. As such, the Exchange believes it is appropriate that
Market Makers be charged lower Complex Order transaction fees. Market
Makers also have additional obligations that are not applicable to
Professional Customers and Broker Dealers.
As stated above, the Exchange believes that the Complex Order Fees
proposed for Complex Orders that execute against other Complex Orders
are reasonable and equitable. The proposed credits and fees are
competitive with the credits offered for similar transactions on at
least one other exchange.\16\
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\16\ See supra, notes 12 and 14.
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The Exchange also believes it is reasonable to charge Professional
Customers, Broker Dealers, and Market Makers less for executions in
penny pilot issues because these classes are typically the more
actively traded and assessing lower fees will further incentivize
Complex Order transaction in penny pilot issues on the Exchange,
ultimately benefiting all Participants trading on BOX. The Complex
Order Fees are competitive with the fees and credits offered for
similar transactions
[[Page 30361]]
on at least one other exchange.\17\ Additionally, the Exchange believes
it is reasonable to give a greater credit to Public Customers in
Complex Order transactions involving non-penny pilot issues. These
classes have wider spreads and are less actively traded; and giving a
larger credit will further incentivize Public Customers to trade in
these classes. The proposed Public Customer credits are competitive
with the credits offered for similar transactions on at least one other
exchange.\18\
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\17\ The ISE assesses Professional Customers and Broker Dealers
$0.40 for Complex Order transactions in Penny Names and $.84 for
Complex Order transactions in non-Penny Names.
\18\ At the lowest volume tier level, the ISE gives Public
Customers a $0.33 credit for Complex Order transactions in Penny
Names, and a $0.66 credit for Complex Order transactions in non-
Penny Names.
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The Exchange believes that it is equitable and not unfairly
discriminatory to exempt Public Customers from Complex Order fees when
executing against another Public Customer's Complex Order and provide a
credit when the same order executes against other Participant's Complex
Orders. As stated above, BOX has historically tried to develop features
within the market structure for the benefit of the customer. As such,
the Exchange believes that exempting and crediting Public Customer
Complex Order transactions is appropriate and not unfairly
discriminatory. Public Customers are less sophisticated than other
Participants and the Exchange believes exempting and crediting Public
Customer Complex Order transactions will help to attract a high level
of Public Customer order flow to the Complex Order Book and create
liquidity, which will ultimately benefit all Participants trading on
BOX. In addition, the proposed fees and credits are competitive with
the Complex Order fees and credits on at least one other exchange.\19\
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\19\ The ISE exempts Public Customers Complex Orders from fees
when trading against another Public Customer, and gives Public
Customers a $0.33 to $0.66 credit when trading against non-Public
Customers, depending on volume tier.
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Further, the Exchange believes that the proposed Complex Order Fees
for Professional Customers, Broker Dealers, and Market Makers
interacting with other Complex Orders are equitable, reasonable and not
unfairly discriminatory. Professional Customers, while Public Customers
by virtue of not being Broker Dealers, generally engage in trading
activity more similar to Broker Dealer proprietary trading accounts
(more than 390 standard orders per day on average). The Exchange
believes the relative activity of Professional Customers will be
similar for Complex Orders, and the higher level of trading activity
will draw a greater amount of BOX system resources than that of non-
professional, Public Customers. Because this higher level of trading
activity will result in greater ongoing operational costs, the Exchange
aims to recover its costs by assessing Professional Customers and
Broker Dealers a market competitive fee for Complex Order transactions.
Finally, the Exchange believes it is reasonable, equitable and non-
discriminatory to give Public Customers a higher credit when their
Complex Orders execute against a non-Public Customer on the Complex
Order Book and, accordingly, charge non-Public Customers a higher fee
when their Complex Order executes against a Public Customer on the
Complex Order Book. The Exchange, and the securities market generally,
aims to improve markets by developing features for the benefit of its
customers. Similar to the payment for order flow and other pricing
models that have been adopted by the Exchange and other exchanges to
attract Public Customer order flow, the Exchange increases fees to non-
Public Customers in order to provide incentives for Public Customers.
The Exchange believes that providing incentives for Complex Order
transactions by Public Customers is reasonable and, ultimately, will
benefit all Participants trading on the Exchange by attracting Public
Customer order flow. Accordingly, the Exchange believes that this fee
differential is appropriate and not unfairly discriminatory.
The Exchange also believes it is equitable and not unfairly
discriminatory for BOX Market Makers to be assessed lower Complex Order
Fees than Professional Customers and Broker Dealers. As discussed
above, Market Makers provide significant contributions to market
quality and have additional obligations that Professional Customers and
Broker Dealers do not.
The Exchange believes that the proposed Complex Order Fees will
keep the Exchange competitive with other exchanges and will be applied
in an equitable manner among all BOX Participants. The Exchange
believes the proposed Complex Order Fees are fair and reasonable and
competitive with fees in place on other exchanges. Further, the
Exchange believes that the competitive marketplace impacts the fees
proposed for BOX.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the Complex Order Fees will neither
impose burdens on competition among various Exchange Participants nor
impose any burden on competition among exchanges in the listed options
marketplace, not necessary or appropriate in furtherance of the
purposes of the Act. The proposed change is designed to create an
appropriate fee structure for Complex Orders on the Exchange.
The Exchange believes that adopting Complex Order Fees will not
impose a burden on competition among various Exchange Participants. BOX
currently assesses distinct standard contract Exchange fees for
different account and transaction types. The Exchange believes that
applying a fee structure that is determined by whether the Complex
Order executes against orders on the BOX Book or against other Complex
Orders, and according to the account types of the Participant
submitting the Complex Order and the contra party, will result in
Participants being charged appropriately for these transactions.
Submitting a Complex Order is entirely voluntary and Participants can
determine which type of order they wish to submit, if any, to the
Exchange.
Further, the Exchange believes that this proposal will enhance
competition between exchanges because it is designed to allow the
Exchange to better compete with other exchanges for Complex Order flow.
In this regard, Complex Orders are a new order type being introduced by
the Exchange and BOX is unable to absolutely determine the impact that
the Complex Order Fees proposed herein will have on trading. That said,
however, the Exchange believes that the proposed Complex Order Fees
would not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing exchanges. In such an environment, the Exchange must
continually review, and consider adjusting, its fees and credits to
remain competitive with other exchanges. For the reasons described
above, the Exchange believes that the proposed rule change reflects
this competitive environment.
[[Page 30362]]
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 \20\ and Rule 19b-4(f)(2)
thereunder,\21\ because it establishes or changes a due, fee, or other
charge applicable only to a member.
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\20\ 15 U.S.C. 78s(b)(3)(A)(ii).
\21\ 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-2013-28 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-2013-28. 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-2013-28 and should be
submitted on or before June 12, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12169 Filed 5-21-13; 8:45 am]
BILLING CODE 8011-01-P
