[Federal Register Volume 76, Number 5 (Friday, January 7, 2011)]
[Notices]
[Pages 1203-1205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-92]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63631; File No. SR-CBOE-2010-117]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Order Router Subsidy

January 3, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on December 21, 
2010, Chicago Board Options Exchange, Incorporated (``CBOE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by CBOE. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Chicago Board Options Exchange, Incorporated (``CBOE'' or 
``Exchange'') proposes to extend an existing program, under which it 
currently makes subsidy

[[Page 1204]]

payments to CBOE Trading Permit Holders that provide certain order 
routing functionalities to other Trading Permit Holders and/or use such 
functionalities themselves, to broker-dealers that are not CBOE Trading 
Permit Holders. The text of the [sic] proposed rule change is available 
on the Exchange's Web site (http://www.cboe.org/legal), at the 
Exchange's Office of the Secretary and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CBOE 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. CBOE 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to permit CBOE to extend its program 
under which it enters into subsidy arrangements with persons that 
provide certain order routing functionalities to other persons and/or 
use such functionalities themselves. Under the program as currently in 
effect, CBOE establishes such arrangements only with Trading Permit 
Holders (each, a ``Participating TPH''), and makes payments to 
subsidize their costs associated with providing order routing 
functionalities only to other CBOE TPHs, as well as with using such 
functionalities themselves.\1\
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    \1\ The current CBOE order router subsidy program is described 
in SR-CBOE-2007-34. See Securities Exchange Act Release No. 55629 
(April 13, 2007), 72 FR 19992 (April 20, 2007) (SR-CBOE-2007-34). 
Additionally, the description of the current program was clarified 
in SR-CBOE-2008-27. See Securities Exchange Act Release No. 57498 
(March 14, 2008), 73 FR 55 [sic] (March 20, 2008) (SR-CBOE-2008-27).
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    CBOE proposes to extend the program in two related respects. First, 
CBOE proposes to extend the program to enable CBOE to establish such 
subsidy arrangements with broker-dealers that are not CBOE TPHs (each, 
a ``Participating Non-CBOE TPH''). (The term ``Participant'' as used in 
this filing refers to either a Participating Non-CBOE TPH or a 
Participating CBOE TPH.) Second, CBOE proposes to extend the program to 
permit a Participant to receive subsidy payments for providing an order 
routing functionality to broker-dealers that are not CBOE TPHs.
    SR-CBOE-2007-34 includes a description of the features that an 
order routing functionality of a Participating CBOE TPH must have, and 
the performance requirements that the order routing functionality must 
satisfy, in order to qualify for the program.\2\ The order routing 
functionality of a Participating Non-CBOE TPH would be required to have 
the same features and satisfy the same requirements.
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    \2\ SR-CBOE-2007-34, pp. 3-4 [sic]. Two of the features that an 
order routing functionality must have in order to qualify for the 
program and that are relevant to the best execution obligations of 
users of the functionality are described below in footnote 6.
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    CBOE's subsidy program provides that a Participating CBOE TPH may 
elect to have CBOE perform certain marketing services and/or billing 
services on behalf of the Participating CBOE TPH.\3\ These elections 
would also be available to a Participating Non-CBOE TPH. As with a 
Participating CBOE TPH, if a Participating Non-CBOE TPH elects to have 
CBOE perform marketing services on its behalf, the amount that CBOE 
would pay the Participant for orders routed through the Participant's 
system and executed on CBOE would be reduced from $0.04 per contract to 
$0.03 per contract.\4\ Also as with a Participating CBOE TPH, if a 
Participating Non-CBOE TPH elects to have CBOE perform the service of 
billing CBOE TPHs with respect to the use of the Participant's router, 
the Participant would pay CBOE a service fee of one percent of the fees 
collected by CBOE for that TPH.
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    \3\ SR-CBOE-2007-34, p. 5 [sic].
    \4\ See Securities Exchange Act Release No. 62432 (July 1, 
2010), 75 FR 131 [sic] (July 9, 2010) (SR-CBOE-2010-66).
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    CBOE currently assigns an identification code to each Participating 
CBOE TPH for use on orders that are subject to the subsidy program. 
CBOE would assign such a code to each Participating Non-CBOE TPH. A 
Participating Non-CBOE TPH, or a party using a Participant's order 
routing functionality that is not a CBOE TPH, would need to route its 
orders to CBOE through a CBOE TPH--that is, would need to ``give up the 
name'' of a CBOE TPH. The use of these identification codes would 
provide CBOE with the information that it would need to account for the 
subsidy payments due to Participating Non-CBOE TPHs as it does for the 
payments due to Participating CBOE TPHs.
    CBOE stated in SR-CBOE-2007-34, and affirmed in SR-CBOE-2008-27, 
that nothing about the subsidy program would relieve any CBOE TPH that 
is using an order routing functionality whose provider is participating 
in the program from complying with its best execution obligations.\5\ 
This would continue to be true with respect to all users both CBOE TPH 
broker-dealers and non-CBOE TPH broker-dealers of order routing 
functionalities whose providers participate in the program. 
Specifically, just as with any customer order and any other routing 
functionality, any user whether or not a CBOE TPH of an order routing 
functionality whose provider is participating in the program would have 
an obligation to consider the opportunities for price improvement at 
various markets and whether routing a customer order through an order 
router having the features specified by CBOE would allow for access to 
such opportunities if readily available.\6\ Moreover, any user whether 
or not a CBOE TPH of an order router functionality whose provider is 
participating in the program would need to conduct best execution 
evaluations on a regular basis, at a minimum quarterly, that include 
its use of any router whose provider is participating in the program.
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    \5\ SR-CBOE-2007-34, pp. 5-6 [sic]; SR-CBOE-2008-27, p 4.
    \6\ CBOE's functional requirements state that, in order to be 
eligible for the subsidy program, an order router must (1) cause the 
default destination for an order to be the U.S. options exchange 
with the best bid or offer, except CBOE must be the default 
destination exchange for the individually executed marketable orders 
if CBOE is at the national best bid or offer, but (2) give the user 
the ability to override the default destination for any order on a 
manual, order-by-order, basis. CBOE believes that these requirements 
enable any user of a participating order router to comply with its 
best execution obligations.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Securities Exchange Act of 1934 (``Act''),\7\ in 
general, and furthers the objectives of Section 6(b)(4) \8\ of the Act 
in particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and other persons using its facilities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition that is not

[[Page 1205]]

necessary or appropriate in furtherance of purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \9\ of the Act and subparagraph (f)(2) of Rule 19b-
4 \10\ thereunder, because it establishes a due, fee, or other charge 
imposed by CBOE on any person in that the subsidy arrangement relates 
to fees charged by certain order routing system providers for use of 
their routing systems.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#6012150c054d030f0d0d050e1413201305034e070f16"><span class="__cf_email__" data-cfemail="592b2c353c743a3634343c372d2a192a3c3a773e362f">[email protected]</span></a>. Please include 
File Number SR-CBOE-2010-117 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2010-117. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2010-117 and should be 
submitted on or before January 28, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-92 Filed 1-6-11; 8:45 am]
BILLING CODE 8011-01-P


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