Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule Relating to BOX Connectivity Fees and Port Fees for Trading on the BOX Options Market LLC Facility, 72542-72547 [2024-19952]
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Federal Register / Vol. 89, No. 172 / Thursday, September 5, 2024 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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, security-based swap
submission, or advance notice is
consistent with the Act. Comments may
be submitted by any of the following
methods:
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filings
will also be available for inspection and
copying at the principal office of ICE
Clear Credit and on ICE Clear Credit’s
website at https://www.ice.com/clearcredit/regulation.
Do not include personal identifiable
information in submissions; you should
submit only information that you wish
to make available publicly. We may
redact in part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to file number SR–ICC–2024–009 and
should be submitted on or before
September 26, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–19878 Filed 9–4–24; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules-regulations/self-regulatoryorganization-rulemaking); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
ICC–2024–009 on the subject line.
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Paper Comments
Send paper comments in triplicate to
Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–ICC–2024–009. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules-regulations/self-regulatoryorganization-rulemaking). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change, security-based swap
submission, or advance notice that are
filed with the Commission, and all
written communications relating to the
proposed rule change, security-based
swap submission, or advance notice
between the Commission and any
person, other than those that may be
withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will
be available for website viewing and
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100882; File No. SR–BOX–
2024–19]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fee
Schedule Relating to BOX Connectivity
Fees and Port Fees for Trading on the
BOX Options Market LLC Facility
August 30, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
16, 2024, BOX Exchange LLC (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A)(ii) of the
Act,3 and Rule 19b–4(f)(2) thereunder,4
which renders the proposal effective
upon filing with the Commission. The
Commission is publishing this notice to
16 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
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solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of 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 amend
the Fee Schedule relating to BOX
Connectivity Fees and Port Fees on the
BOX Options Market LLC (‘‘BOX’’)
options facility. The text of the
proposed rule change is available from
the principal office of the Exchange, at
the Commission’s Public Reference
Room and also on the Exchange’s
internet website at https://
rules.boxexchange.com/rulefilings.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule for trading on BOX to
increase BOX Connectivity Fees for 10
gigabit (‘‘Gb’’) Connections, Non-10 Gb
Connections, Financial Information
Exchange (‘‘FIX’’) Ports, SOLA® Access
Information Language (‘‘SAIL’’) Ports,
Drop Copy Ports, and High Speed
Vendor Feed (‘‘HSVF’’) Ports
(collectively ‘‘Connectivity and Ports’’).5
Specifically, the Exchange proposes to
increase its fees for Connectivity and
Ports in Sections III.A.2 and III.B of the
BOX Fee Schedule.
By way of background, a physical
connection is utilized by a Participant
or non-Participant to connect to BOX at
the datacenters where BOX’s servers are
located. BOX currently assesses the
following physical connectivity fees for
5 The Exchange initially filed the proposed
pricing change on June 3, 2024 (SR–BOX–2024–13).
On June 18, 2024, the Exchange withdrew that
filing and submitted SR–BOX–2024–16. The instant
filing replaces SR–BOX–2024–16, which was
withdrawn on August 16, 2024.
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Participants and non-Participants on a
monthly basis: $1,000 per connection
for a Non-10 Gb Connection and $5,000
per connection for a 10 Gb Connection.
The Exchange proposes to increase the
monthly fee for Non-10 Gb Connections
from $1,000 to $1,200 per connection
and from $5,000 to $6,000 monthly fee
for each 10 Gb Connection. The
Exchange notes the proposed fee change
better enables BOX to continue to
maintain and improve its market
technology and services and also notes
that the proposed fee amount, even as
amended, continues to be lower than
the amounts assessed by other
exchanges for similar connections,
except for MEMX where their xNet
Physical Connection is $6,000 per
month, the same price as proposed for
BOX’s 10 GB Connection.6 However,
MEMX does not offer a less expensive
alternative, while BOX will offer a Non10 Gb Connection for $1,200 per month.
Further, BOX currently provides four
types of ports, including: (i) the FIX
Port, which allows Participants to
electronically send orders in all
products traded on BOX; (ii) the SAIL
Port, which allows Market Makers to
submit electronic quotes and orders and
other Participants to submit orders to
FIX ports
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BOX; (iii) the Drop Copy Port, which
provides a real-time feed containing
trade execution, trade correction, trade
cancellation and trade allocation for
regular and complex orders on BOX for
Participants; and (iv) the HSVF Port,
which provides a BOX market data feed
for both Participants and nonParticipants. The Exchange notes that
Participants must connect to a
minimum of one port via FIX or SAIL
and that there is no minimum or
maximum number of ports required for
the Drop Copy Port or the HSVF Port.
Current FIX Port fees are as follows:
BOX monthly port fees
1st FIX Port .........................................................
FIX Ports 2 through 5 .........................................
Additional FIX Ports over 5 ................................
$500 per port per month.
$250 per port per month.
$150 per port per month.
Current SAIL Port fees are as follows:
SAIL ports
BOX monthly port fees
Market Making ....................................................
Order Entry .........................................................
$1,000 per month for all Ports.
$500 per month per port (1–5 Ports).
$150 per month for each additional Port.
The Exchange proposes to increase
FIX Port fees as follows:
FIX ports
BOX monthly port fees
1st FIX Port .........................................................
FIX Ports 2 through 5 .........................................
Additional FIX Ports over 5 ................................
$600 per port per month.
$300 per port per month.
$180 per port per month.
The Exchange proposes to increase
SAIL Port fees as follows:
SAIL ports
BOX monthly port fees
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Market Making ....................................................
Order Entry .........................................................
6 See Cboe EDGX Exchange, Inc. (‘‘Cboe EDGX’’)
Options Fee Schedule (assessing $2,500/month for
a 1Gb physical port and $8,500/month for a 10Gb
physical port). The 1Gb physical port is analogous
to the Exchange’s Non-10 Gb Connection and the
10Gb physical port is analogous to the Exchange’s
10 Gb Connection. See also Cboe Options Fee
Schedule (10 Gb Physical Port $7,000 per month
and 1 Gb Physical Port $1,500 per month). The 1
Gb Physical Port is analogous to the Exchange’s
Non-10 Gb Connection and the 10 Gb Physical Port
is analogous to the Exchange’s 10 Gb Connection.
See also Cboe BZX Exchange, Inc. (‘‘Cboe BZX’’)
Options Fee Schedule (10 Gb physical port $7,500
per month and 1 Gb physical port $2,500 per
month). The 1Gb physical port is analogous to the
Exchange’s Non-10 Gb Connection and the 10Gb
physical port is analogous to the Exchange’s 10 Gb
Connection. The relevant Cboe C2 Exchange, Inc.
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$1,200 per month for all Ports.
$600 per month per port (1–5 Ports).
$180 per month for each additional Port.
(‘‘Cboe C2’’) fees are the same as Cboe BZX. See
Cboe C2 Options Fee Schedule. See also Nasdaq
PHLX LLC (‘‘Nasdaq Phlx’’) Rules, General 8,
Section 1 ‘‘Co-Location Services, Connectivity to
the Exchange’’ (Fiber Connection to the Exchange
(10Gb Ultra) $15,825 per month and Fiber
Connection to the Exchange (1Gb Ultra) $2,638 per
month) and Nasdaq BX, Inc. General 8, Section 1
(same) and Nasdaq GEMX, LLC General 8, Section
1 (same) and Nasdaq ISE, LLC General 8, Section
1 (same) and Nasdaq MRX, LLC General 8, Section
1 (same) and Nasdaq Stock Market LLC General 8,
Section 1 (same). The 1Gb Ultra is analogous to the
Exchange’s Non-10 Gb Connection and the 10Gb
Ultra is analogous to the Exchange’s 10 Gb
Connection. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE
Chicago Inc., NYSE National, Inc. Connectivity Fee
Schedule (10 Gb LX LCN Circuit $22,000 per month
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and IP Network Access 1 Gb Circuit $2,500 per
month). The IP Network Access 1 Gb Circuit is
analogous to the Exchange’s Non-10 Gb Connection
and the 10 Gb LX LCN Circuit is analogous to the
Exchange’s 10 Gb Connection. See also MIAX
Options Fee Schedule, Section 5)a) (Primary/
Secondary Facility 10 Gigabit ULL Per Connection
$13,500 per month and Primary/Secondary Facility
1 Gigabit Per Connection $1,400 per month) and
MIAX Pearl, LLC Options Fee Schedule (same) and
MIAX Emerald, LLC Options Fee Schedule (same)
and MIAX Sapphire, LLC Options Fee Schedule
(same). The 1 Gigabit is analogous to the Exchange’s
Non-10 Gb Connection and the 10 Gigabit ULL is
analogous to the Exchange’s 10 Gb Connection. See
also MEMX LLC (‘‘MEMX’’) Connectivity Fee
Schedule (xNet Physical Connection $6,000 per
month). The Exchange notes that MEMX only has
one type of connection.
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The Exchange also proposes to
increase Drop Copy Ports, currently
$500 per month, to $600 per month for
each month a Participant is credentialed
to use a Drop Copy Port. Drop Copy Port
fees will remain capped at $2,000 per
month.
The Exchange proposes lastly to
increase HSVF Port fees, currently
$1,500 per month, to $1,800 per month
for each month a Participant or nonParticipant is credentialed to use the
HSVF Port. The Exchange notes that the
proposed fee amounts, even as
amended, continue to be in line with, or
lower than, amounts assessed by other
exchanges for similar ports.7
The Exchange notes that since these
fees were initiated 6 years ago,8 there
has been notable and unanticipated
inflation. Specifically, between 2018
(when the connectivity and port fees
were initiated) and 2024, the Consumer
7 See, e.g., Cboe C2 Exchange, Inc. (‘‘Cboe C2’’)
Options Fee Schedule (assessing $650 per port per
month for Logical Ports (BOE, FIX, Drop) and at
least $1,500 per month for Bulk BOE Ports). The
Exchange notes that Bulk BOE Ports are analogous
to the Exchange’s SAIL Ports and Logical Ports are
analogous to the Exchange’s FIX Ports; Nasdaq
PHLX LLC (‘‘Nasdaq Phlx’’) Rules Options 7,
Section 9 (assessing $650 per month per mnemonic
for FIX Ports and $1,250 per port, per month up to
a maximum of $42,000 per month for SQF Ports).
The Exchange notes that SQF Ports are similar to
SAIL Ports. Under the proposal, Market Makers on
BOX will be assessed $1,200 per month for all SAIL
Ports, compared to Cboe C2 which assesses at least
$1,500 per month for each Bulk BOE Port and
Nasdaq Phlx which assesses $1,250 per port, per
month up to a maximum of $42,000 per month for
SQF Ports. The Exchange notes further that HSVF
Ports allow access to BOX market data and, while
BOX assesses fees for HSVF Ports, it does not assess
market data fees. In contrast, other exchanges assess
market data fees. See, e.g., Nasdaq Phlx Options 7,
Section 10 (assessing $2,000 per month for Internal
Distributors of Top of PHLX Options data); Cboe C2
Options Fee Schedule (assessing a $2,500 per
month C2 Options Top Distribution Fee). The
Exchange notes that Nasdaq Phlx and Cboe C2’s
market data fees are higher than BOX’s proposed
HSVF Port fees.
8 The 10 Gb and Non-10 Gb Connection fees were
initially effective on July 19, 2018. See Securities
Exchange Act Release No. 83728 (July 27, 2018), 83
FR 37853 (August 2, 2018) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Amend the Fee Schedule on BOX Market LLC
(‘‘BOX’’) Options Facility To Establish BOX
Connectivity Fees for Participants and NonParticipants Who Connect to the BOX Network).
These fees were suspended on September 17, 2018
and became effective again on October 31, 2019.
HSVF port fees were increased on January 31, 2018.
See Securities Exchange Act Release No. 82654
(February 7, 2018), 83 FR 6284 (February 13, 2018)
(SR–BOX–2018–04) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Amend Section VI. (Technology Fees) of the
BOX Fee Schedule). SAIL, FIX, and Drop Copy port
fees were established on April 27, 2018. See
Securities Exchange Act Release No. 83197 (May 9,
2018), 83 FR 22567 (May 15, 2018) (SR–BOX–2018–
15) (Notice of Filing and Immediate Effectiveness of
a Proposed Rule Change To Amend the Fee
Schedule on the BOX Market LLC (‘‘BOX’’) Options
Facility To Amend Connectivity Fees and Establish
Port Fees).
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Price Index (‘‘CPI’’) produced a
cumulative price increase of
approximately 25%.9 The CPI is a
measure of the total value of goods and
services consumers have bought over a
specified period. The Producer Price
Index (‘‘PPI’’), which is a measure of
inflation from the perspective of
producers, produced a cumulative price
increase of approximately 15%.10 Both
the CPI and the PPI are considered ‘‘key
data releases, meaning the monthly
indicator is heavily scrutinized by
traders, since they are used by the
Federal Reserve to assess developments
in the economy.’’ 11 Further, the
Employment Cost Index (‘‘ECI’’), which
measures the change in the hourly labor
cost to employers over time, produced
a cumulative price increase of
approximately 25%.12 Notwithstanding
such significant inflation as shown by
these indices, the Exchange has not
increased its connectivity fees during
this time.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.13 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 14 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, 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.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 15 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
9 See https://www.officialdata.org/us/inflation/
2010?amount=1 (Last updated August 14, 2024).
10 See https://data.bls.gov/timeseries/
PCU5182105182105 (Last updated August 13,
2024).
11 See https://www.cmegroup.com/education/
courses/learn-about-key-economic-events/
understanding-consumer-price-index-andproducer-price-index.html.
12 See https://www.bls.gov/eci/tables.htm (Last
updated August 13, 2024).
13 15 U.S.C. 78f(b).
14 15 U.S.C. 78f(b)(5).
15 Id.
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The Exchange also believes the
proposed rule change is consistent with
Section 6(b)(4) 16 of the Act, which
requires that Exchange rules provide for
the equitable allocation of reasonable
dues, fees, and other charges among its
Participants and other persons using its
facilities.
Specifically, the current connectivity
and port fees do not properly reflect the
value of the services and products, as
fees for the services and products in
question have been static in nominal
terms, and therefore falling in real terms
due to inflation. Additionally, exchange
fees are constrained by the fact that
market participants can choose among
18 different venues for options trading,
and therefore no single venue can
charge excessive fees for its products
without losing customers and market
share. The Exchange notes that of the 18
venues, BOX currently offers the lowest
fees for 10 Gb Connections and Non-10
Gb Connections, and after this fee
change will be tied with one other
exchange for the lowest fees for such
connections.17
The Exchange believes the proposed
fee change is reasonable as it reflects a
moderate increase in physical
connectivity and port fees for 10 Gb
Connections, Non-10 Gb Connections,
FIX Ports, SAIL Ports, Drop Copy Ports,
and HSVF Ports. Further, the current
connectivity and port fees have
remained unchanged since 2018.18 The
Exchange notes that since these fees
were initiated 6 years ago, there has
been notable inflation, regardless of
which inflation index is referenced. As
noted above, between 2018 and 2024,
the CPI produced a cumulative price
increase of approximately 25%,19 the
PPI produced a cumulative price
increase of approximately 15%,20 and
the ECI produced a cumulative price
increase of approximately 25%.21 The
Exchange again notes that CPI measures
inflation as experienced by consumers,
and can be used as a gauge for annual
cost escalation in commercial
agreements, PPI measures inflation as
experienced by producers of goods and
services, and ECI measures changes in
the cost of employees to employers over
time. BOX experiences inflation as a
consumer of technology goods and
services, such as servers, network
16 15
U.S.C. 78f(b)(4).
supra note 6.
18 See supra note 8.
19 See https://www.officialdata.org/us/inflation/
2010?amount=1 (Last updated August 14, 2024).
20 See https://data.bls.gov/timeseries/
PCU5182105182105 (Last updated August 13,
2024).
21 See https://www.bls.gov/eci/tables.htm (Last
updated August 13, 2024).
17 See
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devices, and datacenter space and
power,22 as a provider of an options
market where orders and quotes are
matched and trades and prices are
disseminated, and as an employer. As
such, the Exchange believes that BOX
has exposure to price increases
measured by each of the CPI, PPI, and
ECI. Accordingly, the Exchange believes
that reviewing each index is an
appropriate exercise when determining
the effects of inflation on BOX.
The Exchange notes that the 2021,
2022, and 2023 inflation rates were
historically high.23 The Exchange
believes that this could not have been
reasonably anticipated in 2018 when the
current connectivity fees were
established and that, in these specific
circumstances, a connectivity fee
increase is warranted. Therefore, this
proposal attempts to take into account
the higher than expected inflation rates
seen since 2021 and the fact that BOX’s
connectivity fees have not changed
since 2018.
The Exchange believes that it is
reasonable to increase its fees to
compensate for inflation because, over
time, inflation has degraded the value of
each dollar that the Exchange collects in
fees, such that the real revenue collected
today is considerably less than that
same revenue collected in 2018. The
Exchange notes that this inflationary
effect is a general phenomenon that is
independent of any change in BOX’s
costs in providing its goods and
services. The Exchange believes that it
is reasonable for it to offset, in part, this
erosion in the value of the revenues it
collects. The Exchange notes that
another exchange has filed for increases
in certain connectivity-related fees,
based in part on similar rationale.24
The Exchange believes the proposed
connectivity and port fees are
reasonable as the increases represent a
20% increase from the rates adopted 6
years ago before the historical and
unanticipated rise in inflation. The
Exchange is proposing a 20% fee
increase for each connection and port
type and believes that a 20% price
increase, over a period producing a
cumulative price increase between 15%
and 25% (as seen by the CPI, PPI and
ECI detailed above), is reasonable
22 As an example of rising costs at BOX, the
Exchange notes that BOX’s datacenter vendor has
increased prices for power and space by 5% per
year since at least 2020. BOX also notes that
unregulated competitors providing connectivity and
co-location services often have annual price
increases written into their agreements with
customers to account for inflation and rising costs.
23 See supra notes 19, 20, 21.
24 See Securities Exchange Act Release No.
100513 (July 12, 2024), 89 FR 58460 (July 18, 2024)
(SR–Phlx–2024–27).
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because the proposed fee increases are
broadly in line with those price
increases. Further, the Exchange
believes that the proposed 20% increase
strikes a balance between market
participants’ expectations of the price
for connectivity to BOX and the
historical rise of inflation. The Exchange
notes that the proposed fees remain in
line with, or lower than, amounts
assessed by other exchanges for similar
connections and ports.25 The Exchange
notes further that it does not intend to
adjust connectivity and port fees due to
inflation on an annual basis, rather the
Exchange reiterates that the purpose of
this proposal is to address the
unanticipated and historical rise in
inflation since the adoption of its
connectivity fees in 2018 and, in
particular in 2021, 2022, and 2023.
Additionally, the Exchange believes
the proposed fee increase is reasonable
in light of recent and anticipated
connectivity-related upgrades and
changes. Specifically, BOX has recently
replaced trading servers and added
additional servers to increase
performance and capacity, to increase
competitiveness, and to support growth.
For example, the rapid growth of trading
volumes from 2020 has increased the
number of servers, network devices, and
telecommunications lines required to
keep pace with the growth of trade,
order, and quote data. As part of another
recent change, BOX deployed additional
low latency network switches and
increased its datacenter space. As a
result of these initiatives, BOX
increased its overall hardware footprint
at the datacenters which directly results
in increased support costs at the
datacenter as well.
The goal of the initiatives discussed
above, among other things, is to provide
faster and more consistent order
handling and matching performance for
options, while ensuring quicker
processing time and supporting
increasing volumes. Accordingly, BOX
continuously invests in improvements
that enhance the value of its
connectivity services. The Exchange
expended, and will continue to expend,
resources to innovate and modernize
technology so that it may benefit its
Participants and continue to compete
among other options markets. BOX
regularly invests in efforts to support
and optimize its systems to support
system capacity, reliability, and
performance.
Further, Participants and nonParticipants will continue to choose the
method of connectivity based on their
specific needs and no broker-dealer is
25 See
PO 00000
supra notes 6, 7.
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72545
required to become a Participant of, let
alone connect directly to, BOX. There is
also no regulatory requirement that any
market participant connect to any one
particular exchange. Moreover, direct
connectivity is not a requirement to
participate on BOX. Participants may
choose to connect indirectly to BOX via
a third-party reseller of connectivity.
Additionally, market participants may
choose to connect to other options
exchanges. Indeed, there are currently
17 registered options exchanges that
trade options, many with higher
connectivity and port fees.26 Based on
publicly available information, no single
options exchange has more than
approximately 19% of the market
share.27 Further, low barriers to entry
mean that new exchanges may rapidly
enter the market and offer additional
substitute platforms to further compete
with BOX and the products it offers. For
example, there are 5 exchanges that
have been added in the U.S. options
markets in the last 6 years (i.e., Nasdaq
MRX, LLC, MIAX Pearl, LLC, MEMX
LLC, MIAX Sapphire LLC, and MIAX
Emerald LLC).
The Exchange notes that both
Participants and non-Participants may
purchase connectivity and that either
Participants or non-Participants may
resell such connectivity. This indirect
connectivity is a viable alternative for
market participants to consume market
data from BOX without connecting
directly to BOX (and thus not pay BOX’s
connectivity fees), which alternative is
already being used by both Participants
and non-Participants and further
constrains the price that BOX is able to
charge for connectivity. The Exchange
notes that it could, but chooses not to,
preclude resale of its connectivity. The
Exchange also chooses not to adopt fees
that would be assessed to third-party
resellers on a per customer basis (i.e.,
fee based on number of Participants that
connect to BOX indirectly via the thirdparty). Particularly, these third-party
resellers may purchase BOX’s
connections and resell access to such
connections either alone or as part of a
package of services. The Exchange notes
that multiple Participants are able to
share a single physical connection (and
corresponding bandwidth) with other
non-affiliated Participants if purchased
through a third-party re-seller. This
allows resellers to mutualize the costs of
the connections for market participants
and provide such connections at a price
26 Id.
27 See Cboe Global Markets U.S. Options Market
Volume Summary (August 14, 2024), available at
https://markets.cboe.com/us/options/market_
statistics/.
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that may be lower than BOX charges
due to this mutualized connectivity.
These third-party sellers may also
provide an additional value to market
participants as they may also manage
and monitor these connections.
Additionally, clients of these thirdparties may also be able connect from
the same colocation facility either from
their own racks or using the thirdparty’s managed racks and
infrastructure which may provide
further cost-savings. Further, the
Exchange does not receive any
connectivity revenue when connectivity
is resold by a third-party, which often
is resold to multiple customers. Given
the availability of third-party providers
that also offer connectivity solutions,
the Exchange believes participation on
BOX remains affordable
(notwithstanding the proposed fee
change) for all market participants,
including smaller trading firms that may
be able to take advantage of lower costs
that result from mutualized
connectivity.
Accordingly, the vigorous
competition among national securities
exchanges provides many alternatives
for firms to voluntarily decide whether
direct connectivity to BOX is
appropriate and worthwhile, and as
noted above, no broker-dealer is
required to become a Participant of the
Exchange, let alone connect directly to
it. In the event that a market participant
views BOX’s proposed fee change as
more or less attractive than the
competition, that market participant can
choose to connect to BOX indirectly or
may choose not to connect at all and
connect instead to one or more of the
other 17 options markets. As such, BOX
must set its fees, including its fees for
connectivity and ports competitively. If
not, customers may move to other
venues or reduce use of the BOX’s
services. ‘‘If competitive forces are
operative, the self-interest of the
exchanges themselves will work
powerfully to constrain unreasonable or
unfair behavior.’’ 28 Accordingly, ‘‘the
existence of significant competition
provides a substantial basis for finding
that the terms of an exchange’s fee
proposal are equitable, fair, reasonable,
and not unreasonably or unfairly
discriminatory.’’ 29 Disincentivizing
market participants from purchasing
BOX connectivity would only serve to
discourage participation on BOX, which
ultimately does not benefit BOX.
Moreover, if BOX charges excessive
28 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR–NYSEArca–2006–21).
29 Id.
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22:19 Sep 04, 2024
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fees, BOX may stand to lose not only
connectivity and port revenues but also
other revenues, including revenues
associated with the execution of orders.
In summary, the proposal represents an
equitable allocation of reasonable dues,
fees and other charges because BOX’s
connectivity and port fees have fallen in
real terms and customers have a choice
in trading venue and will exercise that
choice and trade at another venue if
connectivity and port fees are not set
such that BOX’s revenues are sufficient
to invest in a competitive connectivity
offering.
As for market participants that
determine to continue to maintain their
current connectivity to BOX, or to
purchase connectivity for business
purposes, those business reasons
presumably result in revenue capable of
covering the proposed fees. Further, for
such market participants that choose to
connect to BOX, the Exchange believes
the proposed fees continue to provide
flexibility with respect to how to
connect to BOX based on each market
participants’ respective business needs.
For example, the amount and type of
ports are determined by factors relevant
and specific to each market participant,
including its business model, costs of
connectivity, how its business is
segmented and allocated, and volume of
messages sent to BOX. Moreover, the
Exchange notes that BOX does not have
unlimited system capacity and the
proposed fees are also designed to
encourage market participants to be
efficient with their respective port usage
and discourage the purchasing of large
amounts of superfluous ports. There is
also no requirement that any market
participant maintain a specific number
of ports and a market participant may
choose to maintain as many or as few
of such ports as each deems
appropriate.30 Further, market
participants are free to reduce or
discontinue use of these ports in
response to the proposed fees.
As noted above, there is no regulatory
requirement that any market participant
connect to any one options exchange,
nor that any market participant connect
at a particular connection speed or act
in a particular capacity on BOX, or trade
any particular product offered on an
exchange. Moreover, membership is not
a requirement to participate on BOX.
Indeed, the Exchange is unaware of any
one options exchange whose
membership includes every registered
broker-dealer. By way of example, while
the Exchange has 54 Participants (i.e.,
members), Cboe BZX has 61 members
30 As noted herein, Participants must connect to
a minimum of one port via FIX or SAIL.
PO 00000
Frm 00183
Fmt 4703
Sfmt 4703
that trade options,31 Cboe C2 has 52
Trading Permit Holders (‘‘TPHs’’) (i.e.,
members),32 NYSE American Options
has 71 members,33 NYSE Arca Options
has 69 members,34 MIAX Options has
46 members,35 and MIAX Pearl Options
has 40 members.36 Accordingly,
excessive fees would simply serve to
reduce demand for these products,
which market participants are under no
regulatory obligation to utilize.
The Exchange believes that the
proposed fee changes are not unfairly
discriminatory because the fees are
assessed uniformly across all market
participants that voluntarily subscribe
to or purchase connectivity or ports.
The Exchange notes that SAIL Port fees
are higher than FIX Port fees, although
both types of ports may be used to enter
orders, only SAIL Ports may be used to
enter quotes. Thus, a Market Maker
entering quotes will be assessed higher
port fees than another Participant
entering orders using a FIX Port. The
Exchange believes that the fee disparity
between SAIL Ports and FIX Ports is not
unfairly discriminatory because SAIL
Ports allow bulk quotes and Market
Maker functions such as Market Maker
Protection. These features allow Market
Makers to maintain and manage large
numbers of quotes which provides
unique value to Market Makers.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed fee change will not impact
intramarket competition because it will
apply to all similarly situated
Participants and non-Participants
equally (i.e., all market participants that
choose to purchase connectivity or
ports).37 The Exchange notes that SAIL
Port fees are higher than FIX Port fees,
although both types of ports may be
used to enter orders, only SAIL Ports
may be used to enter quotes. Thus, a
31 See Securities Exchange Act Release No.
100366 (June 18, 2024), 89 FR 53163 (June 25, 2024)
(SR–CboeEDGX–2024–036).
32 Id.
33 See https://www.nyse.com/markets/americanoptions/membership#directory.
34 See https://www.nyse.com/markets/arcaoptions/membership#directory.
35 See https://www.miaxglobal.com/sites/default/
files/page-files/MIAX_Options_Exchange_
Members_April_2023_04282023.pdf.
36 See https://www.miaxglobal.com/sites/default/
files/page-files/MIAX_Pearl_Exchange_Members_
01172023_0.pdf.
37 The Exchange notes that only Participants may
purchase FIX Ports, SAIL Ports, and Drop Copy
Ports.
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Market Maker entering quotes will be
assessed higher port fees than another
Participant entering orders using a FIX
Port. The Exchange believes that the fee
disparity between SAIL Ports and FIX
Ports is not unfairly discriminatory
because SAIL Ports allow bulk quotes
and Market Maker functions such as
Market Maker Protection. These features
allow Market Makers to maintain and
manage large numbers of quotes which
provides unique value to Market
Makers.
Additionally, the Exchange does not
believe its proposed pricing will impose
a barrier to entry to smaller market
participants and notes that its proposed
connectivity pricing is associated with
relative usage of the various market
participants. For example, market
participants with modest capacity needs
can continue to buy fewer ports than
market participants with greater
capacity needs and the less expensive
Non-10 Gb Connection or may choose to
obtain access via a third-party re-seller.
Accordingly, the proposed connectivity
and port fees do not favor certain
categories of market participants in a
manner that would impose a burden on
competition; rather, the allocation
reflects the network resources
consumed by the various size of market
participants—lowest bandwidth
consuming members pay the least, and
highest bandwidth consuming members
pay the most.
The Exchange notes that the proposed
fees are still lower than many fees for
similar connectivity and ports on other
exchanges and therefore may stimulate
intermarket competition by attracting
additional firms to connect to BOX or at
least should not deter interested market
participants from connecting directly to
BOX. The Exchange believes that this
fee increase will not impose any burden
on intermarket competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes further that, without
this fee increase, it is potentially at a
competitive disadvantage to certain
other exchanges that have in place
higher fees for similar services. Further,
if the changes proposed herein are
unattractive to market participants, BOX
can, and likely will, see a decline in
connectivity and ports as a result. The
Exchange operates in a highly
competitive market in which market
participants can determine whether or
not to connect directly to BOX and how
many ports to purchase, if any, based on
the value received compared to the cost
of doing so. Indeed, market participants
have numerous alternative venues that
they may participate on and direct their
order flow to, including 17 other
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options markets, as well as off-exchange
venues, where competitive products are
available for trading.
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 38
and Rule 19b–4(f)(2) thereunder,39
because it establishes or changes a due,
or fee.
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–2024–19 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–BOX–2024–19. 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 website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–BOX–2024–19 and should be
submitted on or before September 26,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–19952 Filed 9–4–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100878; File No. SR–BX–
2024–030]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Establish Fees
Related to Certain Prospective Costs
of the National Market System Plan
Governing the Consolidated Audit Trail
August 29, 2024.
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 August
15, 2024, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
40 17
38 15
U.S.C. 78s(b)(3)(A)(ii).
39 17 CFR 240.19b–4(f)(2).
PO 00000
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72547
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 89, Number 172 (Thursday, September 5, 2024)]
[Notices]
[Pages 72542-72547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19952]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100882; File No. SR-BOX-2024-19]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee
Schedule Relating to BOX Connectivity Fees and Port Fees for Trading on
the BOX Options Market LLC Facility
August 30, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 16, 2024, BOX Exchange LLC (the ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III, below, which Items
have been prepared by the Exchange. The Exchange filed the proposed
rule change pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ and Rule
19b-4(f)(2) thereunder,\4\ which renders the proposal effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of 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
amend the Fee Schedule relating to BOX Connectivity Fees and Port Fees
on the BOX Options Market LLC (``BOX'') options facility. The text of
the proposed rule change is available from the principal office of the
Exchange, at the Commission's Public Reference Room and also on the
Exchange's internet website at https://rules.boxexchange.com/rulefilings.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule for trading on BOX
to increase BOX Connectivity Fees for 10 gigabit (``Gb'') Connections,
Non-10 Gb Connections, Financial Information Exchange (``FIX'') Ports,
SOLA[supreg] Access Information Language (``SAIL'') Ports, Drop Copy
Ports, and High Speed Vendor Feed (``HSVF'') Ports (collectively
``Connectivity and Ports'').\5\ Specifically, the Exchange proposes to
increase its fees for Connectivity and Ports in Sections III.A.2 and
III.B of the BOX Fee Schedule.
---------------------------------------------------------------------------
\5\ The Exchange initially filed the proposed pricing change on
June 3, 2024 (SR-BOX-2024-13). On June 18, 2024, the Exchange
withdrew that filing and submitted SR-BOX-2024-16. The instant
filing replaces SR-BOX-2024-16, which was withdrawn on August 16,
2024.
---------------------------------------------------------------------------
By way of background, a physical connection is utilized by a
Participant or non-Participant to connect to BOX at the datacenters
where BOX's servers are located. BOX currently assesses the following
physical connectivity fees for
[[Page 72543]]
Participants and non-Participants on a monthly basis: $1,000 per
connection for a Non-10 Gb Connection and $5,000 per connection for a
10 Gb Connection. The Exchange proposes to increase the monthly fee for
Non-10 Gb Connections from $1,000 to $1,200 per connection and from
$5,000 to $6,000 monthly fee for each 10 Gb Connection. The Exchange
notes the proposed fee change better enables BOX to continue to
maintain and improve its market technology and services and also notes
that the proposed fee amount, even as amended, continues to be lower
than the amounts assessed by other exchanges for similar connections,
except for MEMX where their xNet Physical Connection is $6,000 per
month, the same price as proposed for BOX's 10 GB Connection.\6\
However, MEMX does not offer a less expensive alternative, while BOX
will offer a Non-10 Gb Connection for $1,200 per month.
---------------------------------------------------------------------------
\6\ See Cboe EDGX Exchange, Inc. (``Cboe EDGX'') Options Fee
Schedule (assessing $2,500/month for a 1Gb physical port and $8,500/
month for a 10Gb physical port). The 1Gb physical port is analogous
to the Exchange's Non-10 Gb Connection and the 10Gb physical port is
analogous to the Exchange's 10 Gb Connection. See also Cboe Options
Fee Schedule (10 Gb Physical Port $7,000 per month and 1 Gb Physical
Port $1,500 per month). The 1 Gb Physical Port is analogous to the
Exchange's Non-10 Gb Connection and the 10 Gb Physical Port is
analogous to the Exchange's 10 Gb Connection. See also Cboe BZX
Exchange, Inc. (``Cboe BZX'') Options Fee Schedule (10 Gb physical
port $7,500 per month and 1 Gb physical port $2,500 per month). The
1Gb physical port is analogous to the Exchange's Non-10 Gb
Connection and the 10Gb physical port is analogous to the Exchange's
10 Gb Connection. The relevant Cboe C2 Exchange, Inc. (``Cboe C2'')
fees are the same as Cboe BZX. See Cboe C2 Options Fee Schedule. See
also Nasdaq PHLX LLC (``Nasdaq Phlx'') Rules, General 8, Section 1
``Co-Location Services, Connectivity to the Exchange'' (Fiber
Connection to the Exchange (10Gb Ultra) $15,825 per month and Fiber
Connection to the Exchange (1Gb Ultra) $2,638 per month) and Nasdaq
BX, Inc. General 8, Section 1 (same) and Nasdaq GEMX, LLC General 8,
Section 1 (same) and Nasdaq ISE, LLC General 8, Section 1 (same) and
Nasdaq MRX, LLC General 8, Section 1 (same) and Nasdaq Stock Market
LLC General 8, Section 1 (same). The 1Gb Ultra is analogous to the
Exchange's Non-10 Gb Connection and the 10Gb Ultra is analogous to
the Exchange's 10 Gb Connection. See also New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago Inc., NYSE
National, Inc. Connectivity Fee Schedule (10 Gb LX LCN Circuit
$22,000 per month and IP Network Access 1 Gb Circuit $2,500 per
month). The IP Network Access 1 Gb Circuit is analogous to the
Exchange's Non-10 Gb Connection and the 10 Gb LX LCN Circuit is
analogous to the Exchange's 10 Gb Connection. See also MIAX Options
Fee Schedule, Section 5)a) (Primary/Secondary Facility 10 Gigabit
ULL Per Connection $13,500 per month and Primary/Secondary Facility
1 Gigabit Per Connection $1,400 per month) and MIAX Pearl, LLC
Options Fee Schedule (same) and MIAX Emerald, LLC Options Fee
Schedule (same) and MIAX Sapphire, LLC Options Fee Schedule (same).
The 1 Gigabit is analogous to the Exchange's Non-10 Gb Connection
and the 10 Gigabit ULL is analogous to the Exchange's 10 Gb
Connection. See also MEMX LLC (``MEMX'') Connectivity Fee Schedule
(xNet Physical Connection $6,000 per month). The Exchange notes that
MEMX only has one type of connection.
---------------------------------------------------------------------------
Further, BOX currently provides four types of ports, including: (i)
the FIX Port, which allows Participants to electronically send orders
in all products traded on BOX; (ii) the SAIL Port, which allows Market
Makers to submit electronic quotes and orders and other Participants to
submit orders to BOX; (iii) the Drop Copy Port, which provides a real-
time feed containing trade execution, trade correction, trade
cancellation and trade allocation for regular and complex orders on BOX
for Participants; and (iv) the HSVF Port, which provides a BOX market
data feed for both Participants and non-Participants. The Exchange
notes that Participants must connect to a minimum of one port via FIX
or SAIL and that there is no minimum or maximum number of ports
required for the Drop Copy Port or the HSVF Port.
Current FIX Port fees are as follows:
------------------------------------------------------------------------
FIX ports BOX monthly port fees
------------------------------------------------------------------------
1st FIX Port................. $500 per port per month.
FIX Ports 2 through 5........ $250 per port per month.
Additional FIX Ports over 5.. $150 per port per month.
------------------------------------------------------------------------
Current SAIL Port fees are as follows:
------------------------------------------------------------------------
SAIL ports BOX monthly port fees
------------------------------------------------------------------------
Market Making................ $1,000 per month for all Ports.
Order Entry.................. $500 per month per port (1-5 Ports).
$150 per month for each additional Port.
------------------------------------------------------------------------
The Exchange proposes to increase FIX Port fees as follows:
------------------------------------------------------------------------
FIX ports BOX monthly port fees
------------------------------------------------------------------------
1st FIX Port................. $600 per port per month.
FIX Ports 2 through 5........ $300 per port per month.
Additional FIX Ports over 5.. $180 per port per month.
------------------------------------------------------------------------
The Exchange proposes to increase SAIL Port fees as follows:
------------------------------------------------------------------------
SAIL ports BOX monthly port fees
------------------------------------------------------------------------
Market Making................ $1,200 per month for all Ports.
Order Entry.................. $600 per month per port (1-5 Ports).
$180 per month for each additional Port.
------------------------------------------------------------------------
[[Page 72544]]
The Exchange also proposes to increase Drop Copy Ports, currently
$500 per month, to $600 per month for each month a Participant is
credentialed to use a Drop Copy Port. Drop Copy Port fees will remain
capped at $2,000 per month.
The Exchange proposes lastly to increase HSVF Port fees, currently
$1,500 per month, to $1,800 per month for each month a Participant or
non-Participant is credentialed to use the HSVF Port. The Exchange
notes that the proposed fee amounts, even as amended, continue to be in
line with, or lower than, amounts assessed by other exchanges for
similar ports.\7\
---------------------------------------------------------------------------
\7\ See, e.g., Cboe C2 Exchange, Inc. (``Cboe C2'') Options Fee
Schedule (assessing $650 per port per month for Logical Ports (BOE,
FIX, Drop) and at least $1,500 per month for Bulk BOE Ports). The
Exchange notes that Bulk BOE Ports are analogous to the Exchange's
SAIL Ports and Logical Ports are analogous to the Exchange's FIX
Ports; Nasdaq PHLX LLC (``Nasdaq Phlx'') Rules Options 7, Section 9
(assessing $650 per month per mnemonic for FIX Ports and $1,250 per
port, per month up to a maximum of $42,000 per month for SQF Ports).
The Exchange notes that SQF Ports are similar to SAIL Ports. Under
the proposal, Market Makers on BOX will be assessed $1,200 per month
for all SAIL Ports, compared to Cboe C2 which assesses at least
$1,500 per month for each Bulk BOE Port and Nasdaq Phlx which
assesses $1,250 per port, per month up to a maximum of $42,000 per
month for SQF Ports. The Exchange notes further that HSVF Ports
allow access to BOX market data and, while BOX assesses fees for
HSVF Ports, it does not assess market data fees. In contrast, other
exchanges assess market data fees. See, e.g., Nasdaq Phlx Options 7,
Section 10 (assessing $2,000 per month for Internal Distributors of
Top of PHLX Options data); Cboe C2 Options Fee Schedule (assessing a
$2,500 per month C2 Options Top Distribution Fee). The Exchange
notes that Nasdaq Phlx and Cboe C2's market data fees are higher
than BOX's proposed HSVF Port fees.
---------------------------------------------------------------------------
The Exchange notes that since these fees were initiated 6 years
ago,\8\ there has been notable and unanticipated inflation.
Specifically, between 2018 (when the connectivity and port fees were
initiated) and 2024, the Consumer Price Index (``CPI'') produced a
cumulative price increase of approximately 25%.\9\ The CPI is a measure
of the total value of goods and services consumers have bought over a
specified period. The Producer Price Index (``PPI''), which is a
measure of inflation from the perspective of producers, produced a
cumulative price increase of approximately 15%.\10\ Both the CPI and
the PPI are considered ``key data releases, meaning the monthly
indicator is heavily scrutinized by traders, since they are used by the
Federal Reserve to assess developments in the economy.'' \11\ Further,
the Employment Cost Index (``ECI''), which measures the change in the
hourly labor cost to employers over time, produced a cumulative price
increase of approximately 25%.\12\ Notwithstanding such significant
inflation as shown by these indices, the Exchange has not increased its
connectivity fees during this time.
---------------------------------------------------------------------------
\8\ The 10 Gb and Non-10 Gb Connection fees were initially
effective on July 19, 2018. See Securities Exchange Act Release No.
83728 (July 27, 2018), 83 FR 37853 (August 2, 2018) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Fee Schedule on BOX Market LLC (``BOX'') Options Facility
To Establish BOX Connectivity Fees for Participants and Non-
Participants Who Connect to the BOX Network). These fees were
suspended on September 17, 2018 and became effective again on
October 31, 2019. HSVF port fees were increased on January 31, 2018.
See Securities Exchange Act Release No. 82654 (February 7, 2018), 83
FR 6284 (February 13, 2018) (SR-BOX-2018-04) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Section
VI. (Technology Fees) of the BOX Fee Schedule). SAIL, FIX, and Drop
Copy port fees were established on April 27, 2018. See Securities
Exchange Act Release No. 83197 (May 9, 2018), 83 FR 22567 (May 15,
2018) (SR-BOX-2018-15) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Amend the Fee Schedule on the BOX
Market LLC (``BOX'') Options Facility To Amend Connectivity Fees and
Establish Port Fees).
\9\ See https://www.officialdata.org/us/inflation/2010?amount=1
(Last updated August 14, 2024).
\10\ See https://data.bls.gov/timeseries/PCU5182105182105 (Last
updated August 13, 2024).
\11\ See https://www.cmegroup.com/education/courses/learn-about-key-economic-events/understanding-consumer-price-index-and-producer-price-index.html.
\12\ See https://www.bls.gov/eci/tables.htm (Last updated August
13, 2024).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \15\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with Section 6(b)(4) \16\ of the Act, which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its Participants and
other persons using its facilities.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
\16\ 15 U.S.C. 78f(b)(4).
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Specifically, the current connectivity and port fees do not
properly reflect the value of the services and products, as fees for
the services and products in question have been static in nominal
terms, and therefore falling in real terms due to inflation.
Additionally, exchange fees are constrained by the fact that market
participants can choose among 18 different venues for options trading,
and therefore no single venue can charge excessive fees for its
products without losing customers and market share. The Exchange notes
that of the 18 venues, BOX currently offers the lowest fees for 10 Gb
Connections and Non-10 Gb Connections, and after this fee change will
be tied with one other exchange for the lowest fees for such
connections.\17\
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\17\ See supra note 6.
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The Exchange believes the proposed fee change is reasonable as it
reflects a moderate increase in physical connectivity and port fees for
10 Gb Connections, Non-10 Gb Connections, FIX Ports, SAIL Ports, Drop
Copy Ports, and HSVF Ports. Further, the current connectivity and port
fees have remained unchanged since 2018.\18\ The Exchange notes that
since these fees were initiated 6 years ago, there has been notable
inflation, regardless of which inflation index is referenced. As noted
above, between 2018 and 2024, the CPI produced a cumulative price
increase of approximately 25%,\19\ the PPI produced a cumulative price
increase of approximately 15%,\20\ and the ECI produced a cumulative
price increase of approximately 25%.\21\ The Exchange again notes that
CPI measures inflation as experienced by consumers, and can be used as
a gauge for annual cost escalation in commercial agreements, PPI
measures inflation as experienced by producers of goods and services,
and ECI measures changes in the cost of employees to employers over
time. BOX experiences inflation as a consumer of technology goods and
services, such as servers, network
[[Page 72545]]
devices, and datacenter space and power,\22\ as a provider of an
options market where orders and quotes are matched and trades and
prices are disseminated, and as an employer. As such, the Exchange
believes that BOX has exposure to price increases measured by each of
the CPI, PPI, and ECI. Accordingly, the Exchange believes that
reviewing each index is an appropriate exercise when determining the
effects of inflation on BOX.
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\18\ See supra note 8.
\19\ See https://www.officialdata.org/us/inflation/2010?amount=1
(Last updated August 14, 2024).
\20\ See https://data.bls.gov/timeseries/PCU5182105182105 (Last
updated August 13, 2024).
\21\ See https://www.bls.gov/eci/tables.htm (Last updated August
13, 2024).
\22\ As an example of rising costs at BOX, the Exchange notes
that BOX's datacenter vendor has increased prices for power and
space by 5% per year since at least 2020. BOX also notes that
unregulated competitors providing connectivity and co-location
services often have annual price increases written into their
agreements with customers to account for inflation and rising costs.
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The Exchange notes that the 2021, 2022, and 2023 inflation rates
were historically high.\23\ The Exchange believes that this could not
have been reasonably anticipated in 2018 when the current connectivity
fees were established and that, in these specific circumstances, a
connectivity fee increase is warranted. Therefore, this proposal
attempts to take into account the higher than expected inflation rates
seen since 2021 and the fact that BOX's connectivity fees have not
changed since 2018.
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\23\ See supra notes 19, 20, 21.
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The Exchange believes that it is reasonable to increase its fees to
compensate for inflation because, over time, inflation has degraded the
value of each dollar that the Exchange collects in fees, such that the
real revenue collected today is considerably less than that same
revenue collected in 2018. The Exchange notes that this inflationary
effect is a general phenomenon that is independent of any change in
BOX's costs in providing its goods and services. The Exchange believes
that it is reasonable for it to offset, in part, this erosion in the
value of the revenues it collects. The Exchange notes that another
exchange has filed for increases in certain connectivity-related fees,
based in part on similar rationale.\24\
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\24\ See Securities Exchange Act Release No. 100513 (July 12,
2024), 89 FR 58460 (July 18, 2024) (SR-Phlx-2024-27).
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The Exchange believes the proposed connectivity and port fees are
reasonable as the increases represent a 20% increase from the rates
adopted 6 years ago before the historical and unanticipated rise in
inflation. The Exchange is proposing a 20% fee increase for each
connection and port type and believes that a 20% price increase, over a
period producing a cumulative price increase between 15% and 25% (as
seen by the CPI, PPI and ECI detailed above), is reasonable because the
proposed fee increases are broadly in line with those price increases.
Further, the Exchange believes that the proposed 20% increase strikes a
balance between market participants' expectations of the price for
connectivity to BOX and the historical rise of inflation. The Exchange
notes that the proposed fees remain in line with, or lower than,
amounts assessed by other exchanges for similar connections and
ports.\25\ The Exchange notes further that it does not intend to adjust
connectivity and port fees due to inflation on an annual basis, rather
the Exchange reiterates that the purpose of this proposal is to address
the unanticipated and historical rise in inflation since the adoption
of its connectivity fees in 2018 and, in particular in 2021, 2022, and
2023.
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\25\ See supra notes 6, 7.
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Additionally, the Exchange believes the proposed fee increase is
reasonable in light of recent and anticipated connectivity-related
upgrades and changes. Specifically, BOX has recently replaced trading
servers and added additional servers to increase performance and
capacity, to increase competitiveness, and to support growth. For
example, the rapid growth of trading volumes from 2020 has increased
the number of servers, network devices, and telecommunications lines
required to keep pace with the growth of trade, order, and quote data.
As part of another recent change, BOX deployed additional low latency
network switches and increased its datacenter space. As a result of
these initiatives, BOX increased its overall hardware footprint at the
datacenters which directly results in increased support costs at the
datacenter as well.
The goal of the initiatives discussed above, among other things, is
to provide faster and more consistent order handling and matching
performance for options, while ensuring quicker processing time and
supporting increasing volumes. Accordingly, BOX continuously invests in
improvements that enhance the value of its connectivity services. The
Exchange expended, and will continue to expend, resources to innovate
and modernize technology so that it may benefit its Participants and
continue to compete among other options markets. BOX regularly invests
in efforts to support and optimize its systems to support system
capacity, reliability, and performance.
Further, Participants and non-Participants will continue to choose
the method of connectivity based on their specific needs and no broker-
dealer is required to become a Participant of, let alone connect
directly to, BOX. There is also no regulatory requirement that any
market participant connect to any one particular exchange. Moreover,
direct connectivity is not a requirement to participate on BOX.
Participants may choose to connect indirectly to BOX via a third-party
reseller of connectivity. Additionally, market participants may choose
to connect to other options exchanges. Indeed, there are currently 17
registered options exchanges that trade options, many with higher
connectivity and port fees.\26\ Based on publicly available
information, no single options exchange has more than approximately 19%
of the market share.\27\ Further, low barriers to entry mean that new
exchanges may rapidly enter the market and offer additional substitute
platforms to further compete with BOX and the products it offers. For
example, there are 5 exchanges that have been added in the U.S. options
markets in the last 6 years (i.e., Nasdaq MRX, LLC, MIAX Pearl, LLC,
MEMX LLC, MIAX Sapphire LLC, and MIAX Emerald LLC).
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\26\ Id.
\27\ See Cboe Global Markets U.S. Options Market Volume Summary
(August 14, 2024), available at https://markets.cboe.com/us/options/market_statistics/.
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The Exchange notes that both Participants and non-Participants may
purchase connectivity and that either Participants or non-Participants
may resell such connectivity. This indirect connectivity is a viable
alternative for market participants to consume market data from BOX
without connecting directly to BOX (and thus not pay BOX's connectivity
fees), which alternative is already being used by both Participants and
non-Participants and further constrains the price that BOX is able to
charge for connectivity. The Exchange notes that it could, but chooses
not to, preclude resale of its connectivity. The Exchange also chooses
not to adopt fees that would be assessed to third-party resellers on a
per customer basis (i.e., fee based on number of Participants that
connect to BOX indirectly via the third-party). Particularly, these
third-party resellers may purchase BOX's connections and resell access
to such connections either alone or as part of a package of services.
The Exchange notes that multiple Participants are able to share a
single physical connection (and corresponding bandwidth) with other
non-affiliated Participants if purchased through a third-party re-
seller. This allows resellers to mutualize the costs of the connections
for market participants and provide such connections at a price
[[Page 72546]]
that may be lower than BOX charges due to this mutualized connectivity.
These third-party sellers may also provide an additional value to
market participants as they may also manage and monitor these
connections. Additionally, clients of these third-parties may also be
able connect from the same colocation facility either from their own
racks or using the third-party's managed racks and infrastructure which
may provide further cost-savings. Further, the Exchange does not
receive any connectivity revenue when connectivity is resold by a
third-party, which often is resold to multiple customers. Given the
availability of third-party providers that also offer connectivity
solutions, the Exchange believes participation on BOX remains
affordable (notwithstanding the proposed fee change) for all market
participants, including smaller trading firms that may be able to take
advantage of lower costs that result from mutualized connectivity.
Accordingly, the vigorous competition among national securities
exchanges provides many alternatives for firms to voluntarily decide
whether direct connectivity to BOX is appropriate and worthwhile, and
as noted above, no broker-dealer is required to become a Participant of
the Exchange, let alone connect directly to it. In the event that a
market participant views BOX's proposed fee change as more or less
attractive than the competition, that market participant can choose to
connect to BOX indirectly or may choose not to connect at all and
connect instead to one or more of the other 17 options markets. As
such, BOX must set its fees, including its fees for connectivity and
ports competitively. If not, customers may move to other venues or
reduce use of the BOX's services. ``If competitive forces are
operative, the self-interest of the exchanges themselves will work
powerfully to constrain unreasonable or unfair behavior.'' \28\
Accordingly, ``the existence of significant competition provides a
substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \29\ Disincentivizing market participants
from purchasing BOX connectivity would only serve to discourage
participation on BOX, which ultimately does not benefit BOX. Moreover,
if BOX charges excessive fees, BOX may stand to lose not only
connectivity and port revenues but also other revenues, including
revenues associated with the execution of orders. In summary, the
proposal represents an equitable allocation of reasonable dues, fees
and other charges because BOX's connectivity and port fees have fallen
in real terms and customers have a choice in trading venue and will
exercise that choice and trade at another venue if connectivity and
port fees are not set such that BOX's revenues are sufficient to invest
in a competitive connectivity offering.
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\28\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\29\ Id.
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As for market participants that determine to continue to maintain
their current connectivity to BOX, or to purchase connectivity for
business purposes, those business reasons presumably result in revenue
capable of covering the proposed fees. Further, for such market
participants that choose to connect to BOX, the Exchange believes the
proposed fees continue to provide flexibility with respect to how to
connect to BOX based on each market participants' respective business
needs. For example, the amount and type of ports are determined by
factors relevant and specific to each market participant, including its
business model, costs of connectivity, how its business is segmented
and allocated, and volume of messages sent to BOX. Moreover, the
Exchange notes that BOX does not have unlimited system capacity and the
proposed fees are also designed to encourage market participants to be
efficient with their respective port usage and discourage the
purchasing of large amounts of superfluous ports. There is also no
requirement that any market participant maintain a specific number of
ports and a market participant may choose to maintain as many or as few
of such ports as each deems appropriate.\30\ Further, market
participants are free to reduce or discontinue use of these ports in
response to the proposed fees.
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\30\ As noted herein, Participants must connect to a minimum of
one port via FIX or SAIL.
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As noted above, there is no regulatory requirement that any market
participant connect to any one options exchange, nor that any market
participant connect at a particular connection speed or act in a
particular capacity on BOX, or trade any particular product offered on
an exchange. Moreover, membership is not a requirement to participate
on BOX. Indeed, the Exchange is unaware of any one options exchange
whose membership includes every registered broker-dealer. By way of
example, while the Exchange has 54 Participants (i.e., members), Cboe
BZX has 61 members that trade options,\31\ Cboe C2 has 52 Trading
Permit Holders (``TPHs'') (i.e., members),\32\ NYSE American Options
has 71 members,\33\ NYSE Arca Options has 69 members,\34\ MIAX Options
has 46 members,\35\ and MIAX Pearl Options has 40 members.\36\
Accordingly, excessive fees would simply serve to reduce demand for
these products, which market participants are under no regulatory
obligation to utilize.
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\31\ See Securities Exchange Act Release No. 100366 (June 18,
2024), 89 FR 53163 (June 25, 2024) (SR-CboeEDGX-2024-036).
\32\ Id.
\33\ See https://www.nyse.com/markets/american-options/membership#directory.
\34\ See https://www.nyse.com/markets/arca-options/membership#directory.
\35\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf.
\36\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf.
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The Exchange believes that the proposed fee changes are not
unfairly discriminatory because the fees are assessed uniformly across
all market participants that voluntarily subscribe to or purchase
connectivity or ports. The Exchange notes that SAIL Port fees are
higher than FIX Port fees, although both types of ports may be used to
enter orders, only SAIL Ports may be used to enter quotes. Thus, a
Market Maker entering quotes will be assessed higher port fees than
another Participant entering orders using a FIX Port. The Exchange
believes that the fee disparity between SAIL Ports and FIX Ports is not
unfairly discriminatory because SAIL Ports allow bulk quotes and Market
Maker functions such as Market Maker Protection. These features allow
Market Makers to maintain and manage large numbers of quotes which
provides unique value to Market Makers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed fee change will
not impact intramarket competition because it will apply to all
similarly situated Participants and non-Participants equally (i.e., all
market participants that choose to purchase connectivity or ports).\37\
The Exchange notes that SAIL Port fees are higher than FIX Port fees,
although both types of ports may be used to enter orders, only SAIL
Ports may be used to enter quotes. Thus, a
[[Page 72547]]
Market Maker entering quotes will be assessed higher port fees than
another Participant entering orders using a FIX Port. The Exchange
believes that the fee disparity between SAIL Ports and FIX Ports is not
unfairly discriminatory because SAIL Ports allow bulk quotes and Market
Maker functions such as Market Maker Protection. These features allow
Market Makers to maintain and manage large numbers of quotes which
provides unique value to Market Makers.
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\37\ The Exchange notes that only Participants may purchase FIX
Ports, SAIL Ports, and Drop Copy Ports.
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Additionally, the Exchange does not believe its proposed pricing
will impose a barrier to entry to smaller market participants and notes
that its proposed connectivity pricing is associated with relative
usage of the various market participants. For example, market
participants with modest capacity needs can continue to buy fewer ports
than market participants with greater capacity needs and the less
expensive Non-10 Gb Connection or may choose to obtain access via a
third-party re-seller. Accordingly, the proposed connectivity and port
fees do not favor certain categories of market participants in a manner
that would impose a burden on competition; rather, the allocation
reflects the network resources consumed by the various size of market
participants--lowest bandwidth consuming members pay the least, and
highest bandwidth consuming members pay the most.
The Exchange notes that the proposed fees are still lower than many
fees for similar connectivity and ports on other exchanges and
therefore may stimulate intermarket competition by attracting
additional firms to connect to BOX or at least should not deter
interested market participants from connecting directly to BOX. The
Exchange believes that this fee increase will not impose any burden on
intermarket competition not necessary or appropriate in furtherance of
the purposes of the Act. The Exchange believes further that, without
this fee increase, it is potentially at a competitive disadvantage to
certain other exchanges that have in place higher fees for similar
services. Further, if the changes proposed herein are unattractive to
market participants, BOX can, and likely will, see a decline in
connectivity and ports as a result. The Exchange operates in a highly
competitive market in which market participants can determine whether
or not to connect directly to BOX and how many ports to purchase, if
any, based on the value received compared to the cost of doing so.
Indeed, market participants have numerous alternative venues that they
may participate on and direct their order flow to, including 17 other
options markets, as well as off-exchange venues, where competitive
products are available for trading.
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 \38\ and Rule 19b-4(f)(2)
thereunder,\39\ because it establishes or changes a due, or fee.
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\38\ 15 U.S.C. 78s(b)(3)(A)(ii).
\39\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend 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 [email protected]. Please include
file number SR-BOX-2024-19 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-BOX-2024-19. 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 website (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 website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-BOX-2024-19 and should be
submitted on or before September 26, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19952 Filed 9-4-24; 8:45 am]
BILLING CODE 8011-01-P
