Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices 5863 

15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 67813 

(September 10, 2012), 77 FR 56903 (September 14, 

2012) (SR–CBOE–2012–083), Securities Exchange 

Act Release No. 67928 (September 26, 2012), 77 FR 

60161 (October 2, 2012) (SR–CBOE–2012–090), 

Securities Exchange Act Release No. 70705 (October 

17, 2013), 78 FR 63265 (October 23, 2013) (SR– 

CBOE–2013–097), Securities Exchange Act Release 

No. 70845 (November 12, 2013), 78 FR 69168 

(November 18, 2013) (SR–CBOE–2013–104), and 

Securities Exchange Act Release No. 72621 (July 16, 

2014), 79 FR 42616 (July 22, 2014) (SR–CBOE– 

2014–057). 

4 ‘‘End of day’’ refers to data that is distributed 

prior to the opening of the next trading day. 

5 ‘‘Historical’’ COPS data consists of COPS data 

that is over one month old (i.e., copies of the ‘‘endof-day’’ COPS file that are over one month old). 

6FLEX options are exchange traded options that 

provide investors with the ability to customize 

basic option features including size, expiration 

date, exercise style, and certain exercise prices. 

7 ‘‘Indicative’’ values are indications of potential 

market prices only and as such are neither firm nor 

the basis for a transaction. 

8Current FLEX options open interest spans over 

2,000 series on over 300 different underlying 

securities. 

9These values are theoretical in that they are 

indications of potential market prices for options 

that have not traded (i.e., do not yet exist). Market 

participants sometimes express option values in 

percentage terms rather than in dollar terms 

because they find it is easier to assess the change, 

or lack of change, in the marketplace from one day 

to the next when values are expressed in percentage 

terms. 

10Exotic options are options which are generally 

traded OTC and are more complex than standard 

options, usually relating to determination of payoff. 

An exotic option may also include a non-standard 

underlying instrument, developed for a particular 

client or for a particular market. 

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 

10:00 a.m. and 3:00 p.m. Copies of such 

filing will also 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 No. SR–BATS– 

2015–05 and should be submitted on or 

before February 24, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2015–02013 Filed 2–2–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74159; File No. SR–CBOE– 

2015–007] 

Self-Regulatory Organizations: 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Adopt a Box Spread 

Strategy Rebate for Users of the 

Exchange’s Customized Options 

Pricing Service 

January 28, 2015. 

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 January 

15, 2015, Chicago Board Options 

Exchange, Incorporated (the ‘‘Exchange’’ 

or ‘‘CBOE’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to adopt a box 

spread strategy rebate for users of the 

Exchange’s Customized Options Pricing 

Service (‘‘COPS’’). The text of the 

proposed rule change is available on the 

Exchange’s Web site (http://

www.cboe.com/AboutCBOE/

CBOELegalRegulatoryHome.aspx), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

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 adopt a box 

spread strategy rebate for users of the 

Exchange’s COPS.3 COPS provides 

market participants with an ‘‘end-ofday’’ 4 file and ‘‘historical’’ 5 files of 

valuations for Flexible Exchange 

(‘‘FLEX’’) 6 options and certain over-thecounter (‘‘OTC’’) options (collectively, 

‘‘COPS Data’’). Market Data Express, 

LLC (‘‘MDX’’), an affiliate of CBOE, 

offers COPS Data for sale to all market 

participants. COPS Data is available to 

‘‘Subscribers’’ for internal use and 

internal distribution only, and to 

‘‘Customers’’ who, pursuant to a written 

vendor agreement between MDX and a 

Customer, may distribute the Data 

externally (i.e., act as a vendor) and/or 

use and distribute the Data internally. 

COPS Data consists of indicative 7 and 

implied volatility values for four 

categories of ‘‘customized’’ options. The 

first category of options is all open 

series of FLEX options listed on any 

exchange that offers FLEX options for 

trading.8 The second category is OTC 

options that have the same degree of 

customization as FLEX options. The 

third category includes options with 

strike prices expressed in percentage 

terms. Values for such options are 

expressed in percentage terms and are 

theoretical values.9 The fourth category 

includes ‘‘exotic’’ options.10

The Exchange uses values produced 

by CBOE Trading Permit Holders 

(‘‘TPHs’’) to produce COPS Data. 

Participating CBOE TPHs submit values 

to MDX on options series specified by 

MDX on a daily basis. These values are 

generated by the TPH’s internal pricing 

models. The valuations that MDX 

ultimately publishes are an average of 

multiple contributions of values from 

participating CBOE TPHs. For each 

value provided by MDX through COPS, 

MDX includes a corresponding 

indication of the number of marketmaker contributors that factored into 

that value. 

CBOE TPHs that meet the following 

objective qualification criteria are 

allowed to contribute values to MDX for 

purposes of producing COPS Data. 

Interested CBOE TPHs must be 

approved by the Exchange, have the 


rljohnson on DSK3VPTVN1PROD with NOTICES
5864 Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices 

11See Securities Exchange Act Release No. 72621 

(July 16, 2014), 79 FR 42616 (July 22, 2014) (SR– 

CBOE–2014–057) for a detailed description of the 

Exchange’s COPS Data revenue-sharing plan. 

12The Exchange initially filed the proposed fee 

change on January 2, 2015 (SR–CBOE–2015–001). 

On January 15, 2015, the Exchange withdrew that 

filing and submitted this filing. 

13These details would include the execution 

date, option symbol, put/call, and strike price for 

each of the four options purported to compose the 

box spread. 

14The Exchange will verify that the purported 

box spread was composed of four options, all with 

the same underlying product and expiration date, 

that create a synthetic long and synthetic short 

position. 

15This assumes that the COPS user purchased 0– 

50 valuations per day. The Exchange offers lower 

per-valuation prices based on the number of 

valuations purchased per day (See the COPS Price 

List on the MDX Web site). 

16See CBOE Fees Schedule, Footnote 13. 

17The Commission notes that CBOE’s proposal 

was filed on January 15, 2015, but a prior proposed 

rule change containing the same fee change was 

filed on January 2, 2015 and withdrawn by CBOE 

on January 15, 2015. See infra footnote 12. 

ability to provide valuations to MDX in 

a timely manner each day after the close 

of trading, and sign a services agreement 

with CBOE. Interested CBOE TPHs must 

also have the ability to provide both 

indicative and implied volatility 

valuations on several different types of 

options, including (i) options on all 

open FLEX series traded on any 

exchange that offers FLEX options for 

trading, (ii) options on any potential 

new FLEX options series, (iii) OTC 

options that have the same degree of 

customization as FLEX options, (iv) 

customized options where the strike 

price is expressed in percentage terms 

(the valuations provided to MDX must 

also be expressed in percentage terms), 

and (v) exotic options. In addition, 

interested CBOE TPHs must participate 

in a testing phase with MDX. The values 

submitted by a TPH during the testing 

phase and in live production must meet 

MDX’s quality control standards 

designed to ensure the integrity and 

accuracy of COPS Data. Any TPH that 

meets the COPS qualification criteria 

may contribute to COPS. MDX has 

implemented procedures including 

monthly performance reviews to help 

ensure the integrity and accuracy of 

COPS Data. 

To help ensure that MDX receives 

numerous values from multiple TPHs 

on a consistent basis, MDX shares 

revenue from the sale of COPS Data 

with participating CBOE TPHs.11 The 

fees that MDX charges for COPS Data 

are set forth on the Price List on the 

MDX Web site 

(www.marketdataexpress.com) (‘‘MDX 

Web site’’). MDX currently charges a fee 

per option per day for ‘‘end-of-day’’ 

COPS data. The amount of the fee is 

reduced based on the number of options 

valuations purchased. 

Interpretation .02 to CBOE Rule 6.42 

defines a ‘‘box spread’’ as ‘‘an 

aggregation of positions in a long call 

option and short put option with the 

same exercise price (‘‘buy side’’) 

coupled with a long put option and 

short call option with the same exercise 

price (‘‘sell side’’) all of which have the 

same aggregate current underlying 

value, and are structured as either: (A) 

A ‘‘long box spread’’ in which the sell 

side exercise price exceeds the buy side 

exercise price or (B) a ‘‘short box 

spread’’ in which the buy side exercise 

price exceeds the sell side exercise 

price.’’ Essentially, for our purposes, a 

box spread involves being synthetically 

long an underlying product at one price 

and synthetically short the underlying 

product at a higher price. It is 

constructed through the combination of 

four options. All options have the same 

underlying product and same expiration 

date. The synthetic long position is 

achieved through the purchase of a call 

option and the sale of a put option at the 

same strike price and expiration date. 

The synthetic short position, 

conversely, is achieved through the 

purchase of a put and the sale of a call 

at the same strike price (the strike price 

of the synthetic short is higher than the 

strike price of the synthetic long). 

For example, one could construct a 

1000/2000 box spread in option XYZ 

expiring January 16, 2015. To establish 

the synthetic long, you would buy one 

XYZ call with a strike price of 1000 and 

sell one XYZ put with a strike price of 

1000. Then, to establish the synthetic 

short, you would buy one XYZ put with 

a strike price at 2000 and sell one XYZ 

call with a strike price at 2000. 

The payoff at expiration of a box 

spread is the difference between the 

higher-struck synthetic short minus the 

lower-struck synthetic long. Therefore, 

the value of the box spread employed in 

the example above would be 1000. The 

price of a box spread is the present 

value of the payoff, and therefore, box 

spreads provide useful information 

about interest rate assumptions within 

the options markets. If the box spread in 

the example above was being quoted in 

the market at 999.50, this would imply 

an interest rate of 0.05%. 

COPS users (and potential COPS 

users) are usually interested in a 

number of series (aside from just the one 

included in the box spread). As such, it 

is useful for them to know the implied 

interest rate in the options market. The 

current COPS fee structure would 

require these customers to purchase not 

only the four series in the box spread, 

but also the other series in which their 

primary interest lies. Charging the box 

spread by series makes COPS costprohibitive for some customers. Indeed, 

the Exchange believes that a number of 

potential COPS customers are not using 

COPS because the current fee structure 

(charging for all four valuations of a box 

spread) is deterring these potential 

COPS customers from becoming COPS 

users. 

As such, the Exchange proposes to 

institute a COPS Box Strategy Rebate 

(the ‘‘Rebate’’).12 Under the proposed 

rebate, the Exchange would ultimately 

treat the four orders involved in creating 

the box spread as one series for fee 

purposes. Because Exchange systems are 

not currently configured to recognize 

four separate orders as being part of one 

box spread, the Exchange would make 

available a COPS Box Strategy Rebate 

Request Form (the ‘‘Form’’). This Form 

will be very similar to the Exchange’s 

current ‘‘Strategies Rebate Form’’ and 

would involve listing the relevant trade 

details necessary to denote the four 

series as part of one box spread.13 Once 

the rebate form has been submitted and 

verified by CBOE as having described a 

box spread,14 the TPH will be rebated 

three series’ worth of transaction fees. In 

sum, COPS users purchasing four 

options valuations for a box spread can 

be rebated the cost of three of the 

valuations by submitting the COPS Box 

Strategy Rebate Request Form within 

three days of the end of the month in 

which the box spread valuations were 

purchased. 

So, for example, if a COPS user 

purchased four valuations that made up 

a box spread, he would be charged 

$5.00.15 Upon completing the Form, he 

would then be rebated $3.75. The 

Exchange currently institutes a similar 

rebate process for transaction fees 

assessed to multi-class spread orders, 

short stock interest, reversal, conversion 

(reversals and conversions are 

components of a box spread), and jelly 

roll strategy orders.16

From a practical standpoint for the 

users, the purpose of COPS is to get endof-day valuations. COPS users want to 

know the inputs into an option’s price. 

There are five major inputs into an 

option’s price: (1) Underlying price, (2) 

time to expiration, (3) strike price, (4) 

implied volatility, and (5) interest rates. 

The proposed box spread rebate would 

allow the Exchange to provide COPS 

users with a cost effective method to 

extract implied interest rates. 

The proposed change is to take effect 

on January 2, 2015.17


rljohnson on DSK3VPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 22 / Tuesday, February 3, 2015 / Notices 5865 

18 15 U.S.C. 78f(b). 

19 15 U.S.C. 78f(b)(4). 

20See CBOE Fees Schedule, Footnote 13. 

21 15 U.S.C. 78s(b)(3)(A). 

22 17 CFR 240.19b–4(f). 23 17 CFR 200.30–3(a)(12). 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the Act 

and the rules and regulations 

thereunder applicable to the Exchange 

and, in particular, the requirements of 

Section 6(b) of the Act.18 Specifically, 

the Exchange believes the proposed rule 

change is consistent with Section 6(b)(4) 

of the Act,19 which requires that 

Exchange rules provide for the equitable 

allocation of reasonable dues, fees, and 

other charges among its Trading Permit 

Holders and other persons using its 

facilities. The Exchange believes the 

Rebate is reasonable because it will 

allow COPS users who purchase four 

valuations that make up a box spread to 

only be ultimately charged for one of 

those valuations (thereby saving three 

valuations’ worth of fees). 

The Exchange believes the Rebate is 

equitable and not unfairly 

discriminatory because it will apply to 

all COPS users who purchase four 

valuations that make up a box spread. 

While receiving end-of-day valuations 

via COPS is extremely different than, 

and not really comparable to, trading on 

CBOE, it should be noted that the 

components of a box spread trade, 

reversals and conversions, are also 

subject to rebates.20 From a practical 

standpoint for the users, the purpose of 

COPS is to get end-of-day valuations. 

COPS users want to know the inputs 

into an option’s price. There are five 

major inputs into an option’s price: (1) 

Underlying price, (2) time to expiration, 

(3) strike price, (4) implied volatility, 

and (5) interest rates. The proposed 

Rebate simply allows the Exchange to 

provide COPS users with a cost effective 

method to extract implied interest rates. 

While the Exchange cannot conceive of 

any purpose for COPS users to request 

pricing on a box spread (other than 

those described herein), the Rebate will 

be available to all COPS users. 

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 

necessary or appropriate in furtherance 

of the purposes of the Act. CBOE does 

not believe that the proposed rule 

change will impose any burden on 

intramarket competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act because the 

Rebate will be available to all COPS 

users. CBOE does not believe that the 

proposed rule change will impose any 

burden on intermarket competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act 

because the Rebate only applies to 

CBOE COPS users, and does not affect 

pricing or fees on other exchanges. To 

the extent the Rebate makes CBOE a 

more attractive marketplace for market 

participants on other exchanges, such 

market participants may become CBOE 

market participants (and COPS users). 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

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) 

of the Act 21 and paragraph (f) of Rule 

19b–4 22 thereunder. 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. If the 

Commission takes such action, the 

Commission will institute proceedings 

to determine whether the proposed rule 

change 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 (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2015–007 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2015–007. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (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 

10:00 a.m. and 3:00 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–2015–007 and 

should be submitted on or before 

February 24, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2015–02012 Filed 2–2–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74167; File No. SR–Phlx– 

2014–66] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change To Adopt New 

Exchange Rule 1081, Solicitation 

Mechanism, To Introduce a New 

Electronic Solicitation Mechanism 

January 28, 2015. 

I. Introduction 

On October 14, 2014, NASDAQ OMX 

PHLX LLC (‘‘Exchange’’ or ‘‘Phlx’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 


rljohnson on DSK3VPTVN1PROD with NOTICES