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 (“BOX”)

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), and Rule 19b-4 thereunder, notice is hereby given that on June 18, 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, and Rule 19b-4(f)(2) thereunder, 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 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 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”). 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 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 in line with, or lower than, amounts assessed by other exchanges for similar connections.

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:

Current SAIL Port fees are as follows:

The Exchange proposes to increase FIX Port fees as follows:

The Exchange proposes to increase SAIL Port fees as follows:

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 since these fees were initiated 6 years ago, there has been notable inflation. Particularly, the dollar has had an average inflation rate of 3.69% per year between 2018 and today, producing a cumulative price increase of approximately 24.3% inflation since the connectivity and port fees were initiated. The Exchange again 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.

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. Specifically, the Exchange believes the proposed rule change is consistent with the section 6(b)(5) 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) 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) 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 17 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 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. The Exchange notes that since these fees were initiated 6 years ago, there has been notable inflation. Particularly, the dollar has had an average inflation rate of 3.69% per year between 2018 and today, producing a cumulative price increase of approximately 24.3% inflation since the connectivity and port fees were initiated. For example, BOX's datacenter vendor has increased prices for power and space by 5% per year since at least 2020. Accordingly, 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, notwithstanding the cumulative inflation rate of 24.3%. Further, the Exchange notes that the proposed fees remain in line with, or lower than, amounts assessed by other exchanges for similar connections and ports. For the above reasons, the Exchange believes the proposed change is reasonable. Further, 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 of approximately 24.3% is reasonable because the Exchange is proposing less than the cumulative price increase. The Exchange believes that the proposed 20% increase strikes a balance between market participants' expectations and the rise of inflation.

The Exchange notes that the 2021, 2022, and 2023 inflation rates were higher than any other year since 1991. The Exchange believes that this could not have been reasonably anticipated in 2018 when the current connectivity fees were established. Therefore, this proposal attempts to take into account the higher than expected inflation rates seen since 2021 and the fact that the connectivity fees have not changed since 2018. The Exchange believes further 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.

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. Based on publicly available information, no single options exchange has more than approximately 19% of the market share. 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 4 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, and MIAX Emerald LLC), and an additional options exchange that is expected to launch in 2024 ( i.e., MIAX Sapphire Exchange).

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 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 16 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.” 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.” 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.

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. 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 that trade options, Cboe C2 has 52 Trading Permit Holders (“TPHs”) ( i.e., members), NYSE American Options has 71 members, NYSE Arca Options has 69 members, MIAX Options has 46 members, and MIAX Pearl Options has 40 members. 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). 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.

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 16 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 and Rule 19b-4(f)(2) thereunder, 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 torule-comments@sec.gov. Please include file number SR-BOX-2024-16 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-2024-16. 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-2024-16 and should be submitted on or before July 18, 2024.