Document ID: SEC-2009-0045-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc
Posted Date: 2009-01-09T05:00Z

[Federal Register: January 9, 2009 (Volume 74, Number 6)]
[Notices]               
[Page 972-975]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09ja09-72]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59193; File No. SR-CBOE-2008-128]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Exchange Fees for Fiscal Year 2009

January 2, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 24, 2008, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``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. CBOE has designated this proposal as one establishing or 
changing a due, fee, or other charge applicable only to a member under 
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.
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    \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).
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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 amend its Fees Schedule to make various 
changes for Fiscal Year 2009. The text of the 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend the CBOE Fees 
Schedule to make various fee changes. The proposed changes are the 
product of the Exchange's annual budget review. The fee changes were 
approved by the Exchange's Board of Directors pursuant to CBOE Rule 
2.22 and will take effect on January 1, 2009.
    The Exchange proposes to amend the following fees:
A. Liquidity Provider Sliding Scale
    The Exchange's Liquidity Provider Sliding Scale program reduces a 
Liquidity Provider's per contract transaction fee based on the number 
of contracts the Liquidity Provider trades in a month.\5\ The sliding 
scale applies to all Liquidity Providers (CBOE Market-Maker, Designated 
Primary Market-Maker (``DPM''), Electronic DPM (``e-DPM'') and Lead 
Market-Maker (``LMM'')) for transactions in all products.\6\
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    \5\ See Section 1 and Footnote 10 of the CBOE Fees Schedule.
    \6\ Contract volume resulting from dividend, merger and short 
stock interest strategies as defined in Footnote 13 of the Fees 
Schedule does not apply towards reaching the sliding scale volume 
thresholds.
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    Under the current program, a Liquidity Provider's standard $.20 per 
contract transaction fee is reduced if the Liquidity Provider reaches 
the volume thresholds set forth in the sliding scale in a month. As a 
Liquidity Provider's monthly volume increases, its per contract 
transaction fee decreases. The first 75,000 contracts traded in a month 
(first tier) are assessed at $.20 per

[[Page 973]]

contract. The next 1,125,000 contracts traded (up to 1.2 million total 
contracts traded--second tier) are assessed at $.18 per contract. The 
next 1.8 million contracts traded (up to 3 million total contracts 
traded--third tier) are assessed at $.15 per contract and the next 1.8 
million contracts traded (up to 4.8 million total contracts traded--
fourth tier) are assessed at $.10 per contract. The next 5.2 million 
contracts traded (up to 10 million total contracts traded--fifth tier) 
are assessed at $.03 per contract. All contracts above 10 million 
contracts traded in a month (sixth tier) are assessed at $.01 per 
contract. The Exchange aggregates the trading activity of separate 
Liquidity Provider firms for purposes of the sliding scale if there is 
at least 75% common ownership between the firms as reflected on each 
firm's Form BD, Schedule A.\7\
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    \7\ A Liquidity Provider's monthly contract volume is determined 
at the firm affiliation level, e.g., if five Liquidity Provider 
individuals are affiliated with member firm ABC as reflected by 
Exchange records for the entire month, all of the volume from those 
five individual Liquidity Providers count towards firm ABC's sliding 
scale transaction fees for that month. If a Liquidity Provider firm 
has nominees that trade independently and have their own profit-loss 
accounts that are separate and distinct from those of other nominees 
of the firm, the independent nominee's individual contract volume 
shall not be grouped with the contract volume of the firm for 
purposes of calculating the firm's sliding scale monthly volume 
total.
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    The Exchange proposes to increase the sliding scale volume 
thresholds for fiscal year 2009 due to increased volume on the 
Exchange. Specifically, the Exchange proposes to change the first tier 
volume threshold from 75,000 contracts to 85,000 contracts, the second 
tier volume threshold from 1,125,000 contracts to 1,265,000 contracts 
(up to 1.35 million total contracts traded), the third tier threshold 
from 1.8 million contracts to 2,075,000 contracts (up to 3,425,000 
total contracts traded), the fourth tier threshold from 1.8 million 
contracts to 2,050,000 contracts (up to 5,475,000 total contracts 
traded), the fifth tier threshold from 5.2 million contracts to 
5,025,000 contracts (up to 10.5 million total contracts traded), and 
the sixth tier threshold from above 10 million contracts to above 10.5 
million contracts. The Exchange does not propose to change any of the 
tier fee rates.
    Currently, the Exchange provides Liquidity Providers with two 
incentives to prepay annual transaction fees. First, in order to be 
eligible to participate in the sliding scale above 1.2 million 
contracts (i.e., at the $.15 per contract rate and lower), a Liquidity 
Provider is required to prepay their transaction fees for the first two 
tiers of the sliding scale for the entire year (i.e., $2.61 million). 
Second, if a Liquidity Provider prepays annual fees for the first four 
tiers of the sliding scale, the Liquidity Provider receives a $600,000 
prepayment discount (total amount of the prepayment would be $7.41 
million instead of $8.01 million). As a result of the volume threshold 
changes described above, the $2.61 million prepayment amount for the 
first two tiers would be revised to $2,936,400. The discount for 
prepaying the first four tiers of the sliding scale would increase from 
$600,000 to $685,000 (total amount of the prepayment would be 
$8,446,400 instead of $9,131,400).
B. Member Firm Proprietary Sliding Scale
    The Exchange's Member Firm Proprietary Sliding Scale program 
reduces a member firm's standard $.20 per contract transaction fee if 
the member firm reaches the volume thresholds set forth in the sliding 
scale in a month.\8\ As a member firm's monthly volume increases, its 
per contract transaction fee decreases. The first 400,000 contracts 
traded in a month are assessed at $.20 per contract. The next 200,000 
contracts traded (up to 600,000 total contracts traded) are assessed at 
$.15 per contract. The next 150,000 contracts traded (up to 750,000 
total contracts traded) are assessed at $.10 per contract and the next 
100,000 contracts traded (up to 850,000 total contracts traded) are 
assessed at $.05 per contract. All contracts above 850,000 contracts 
traded in a month are assessed at $.02 per contract.
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    \8\ See Section 1 and Footnote 11 of the CBOE Fees Schedule.
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    The Exchange proposes to increase the sliding scale volume 
thresholds for fiscal year 2009 due to increased volume on the 
Exchange. Specifically, the Exchange proposes to change the first tier 
volume threshold from 400,000 contracts to 450,000 contracts, the 
second tier volume threshold from 200,000 contracts to 225,000 
contracts (up to 675,000 total contracts traded) and the third tier 
threshold from 150,000 contracts to 175,000 contracts (up to 850,000 
total contracts traded). The fourth tier threshold would remain at 
100,000 contracts (up to 950,000 total contracts traded) and the fifth 
tier threshold would change from above 850,000 contracts to above 
950,000 contracts. The Exchange does not propose to change any of the 
tier fee rates.
    Due to the Exchange's obligation to pay license fees on certain 
products, the Exchange currently assesses a $.10 per contract license 
fee (a total of 10 cents per contract less any surcharge fees already 
assessed) on all licensed products when a firm reaches the fifth tier 
of the sliding scale. The Exchange proposes to increase this charge to 
$.15 per contract for options on the Russell 2000 index (RUT), mini-
Nasdaq-100 index (MNX) and Nasdaq-100 index (NDX) due to the increase 
in the surcharge fees for these products as described in the next 
section below.
    C. Surcharge Fees
    The Exchange currently charges a $.10 per contract surcharge fee on 
all transactions in MNX, NDX and RUT options and on options on the Dow 
Jones Industrial Average (DJX and DXL), excluding public customer 
orders and including voluntary professional and linkage orders.\9\ The 
Exchange proposes to increase the surcharge fee to $.15 per contract 
for transactions in MNX, NDX and RUT options, excluding public customer 
orders and including voluntary professional and linkage orders. The 
surcharge fee is assessed to help the Exchange recoup license fees the 
Exchange pays to index licensors for the right to list these products 
for trading and is similar to surcharge fees charged by other 
exchanges.
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    \9\ See CBOE Fees Schedule, Section 1 (Index Options) and 
Footnote 14.
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D. XSP Transaction Fee
    The Exchange waived transaction fees for all market participants in 
options on the mini-SPX (XSP) beginning on November 19, 2007 for an 
indefinite time period in conjunction with a marketing ``re-launch'' of 
the XSP product.\10\ The Exchange has reevaluated the fee waiver and 
determined to reinstate XSP transaction fees effective January 1, 
2009.\11\
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    \10\ See Securities Exchange Act Release No. 56862 (November 29, 
2007), 72 FR 68918 (December 6, 2007).
    \11\ XSP option transaction fees are assessed pursuant to the 
Index Options transaction fee schedule set forth in Section 1 of the 
Fees Schedule.
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E. Floor Broker Workstation Fees
    The Floor Broker Workstation (FBW) is a system for electronically 
entering and electronically managing orders on the Exchange floor. The 
Exchange currently assesses a fee of $425 per month for FBW 
functionality that is placed on a desktop terminal. The Exchange 
assesses an additional $100 per month ($525 total per month) if the FBW 
application resides on a workstation that also includes certain market 
data functionalities. The Exchange charges a fee of $100 per month per 
login ID for mobile FBWs used in index option trading crowds. No

[[Page 974]]

fee is assessed for mobile FBWs used in equity option trading crowds. 
Additionally, the Exchange assesses DPMs a fee of $100 per month per 
login ID for use of an FBW, whether it is a desktop FBW or a mobile 
FBW.
    The Exchange proposes to eliminate all of the distinctions 
described above and charge a fee of $355 per month per login ID for use 
of any FBW, whether a mobile FBW or a desktop (stationary) FBW. FBW 
fees are charged to assist the Exchange in offsetting the cost of 
making FBWs available to members.
F. Position Transfer Fee
    CBOE Rule 6.49A provides for a special procedure to permit option 
positions to be offered on the floor of the Exchange in the event that 
the positions are being transferred as part of a sale or disposition of 
all or substantially all of the assets or options positions of the 
transferring party where the transferring party would not continue to 
be involved in managing or owning the transferred positions. The rule 
also provides for off-floor transfers of positions based on certain 
specified exemptions, as well as with the approval of the Exchange's 
President under extraordinary circumstances.
    The Exchange regularly accommodates both on-floor and off-floor 
transfers of positions. The primary reason that members prefer to 
transfer positions as opposed to trading out of them is that 
transferring positions affords a reduction in administrative overhead 
and cost. In the typical situation, a member is undergoing a structural 
change and a one-time movement of positions offers efficiency in that 
process.
    Exchange Trading Floor Liaison and Help Desk staff participate in 
on-floor transfers by reviewing, preparing and executing the process, 
which can take several hours depending upon the size and number of 
classes involved.\12\ Off-floor transfers are reviewed and approved by 
management of the Exchange's Market Regulation Department. Reviewing 
the position transfer data may take little time or several hours, again 
depending upon the size and number of classes involved.
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    \12\ The procedure for on-floor transfers of positions is set 
forth in Rule 6.49A(c).
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    The Exchange proposes to establish a fee for options position 
transfers to help offset the Exchange's costs to provide the services 
described above. The Exchange proposes to charge $.02 per contract side 
for all options contracts transferred pursuant to Rule 6.49A. The fee 
would be capped at $25,000 per transfer. The Exchange believes the 
proposed position transfer fee is reasonable in that even with the 
proposed fee the position transfer process provides members with 
significant cost savings as compared to the transaction fee costs that 
a member would incur by trading out of the positions.
G. PAR Workstation Fee
    PAR Workstations are touch screen terminals designed to allow 
electronic representation of orders routed to it. PAR Workstations have 
been in service for many years with no user fee assessed by the 
Exchange. The Exchange proposes to assess a $100 per month fee for use 
of a PAR Workstation, in order to help offset hardware costs incurred 
by the Exchange in making PAR Workstations available to members.
H. Miscellaneous Changes
    The Exchange proposes the following housekeeping changes to its 
Fees Schedule. The Exchange proposes to delete a sentence in Footnote 1 
of the Fees Schedule relating to a transaction fee waiver for binary 
options that expired on October 1, 2008.\13\ The Exchange also proposes 
to delete certain charges under the Trade Processing section (Section 
9) of the Fees Schedule because those fees are no longer charged. 
Specifically, the Exchange proposes to delete the RAES Market Maker 
Input charge because the RAES system is no longer in use, and the CBOE 
Hand Held Terminal Input charge because such terminals also are no 
longer in use.
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    \13\ See Securities Exchange Act Release No. 58127 (July 9, 
2008), 73 FR 41140 (July 17, 2008).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (``Act'') \14\ 
in general, and furthers the objectives of Section 6(b)(4) of the Act 
\15\ in particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among CBOE 
members and other persons using its facilities. The Exchange believes 
the Liquidity Provider and Member Firm Proprietary Sliding Scale fee 
discounts are reasonable and appropriate in that they are based on the 
amount of business transacted on the Exchange. The Exchange believes 
the other proposed fee changes are equitable and reasonable in that 
they are designed to recoup or help offset costs incurred by the 
Exchange in making products and services available to members.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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 necessary or appropriate in 
furtherance of the 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 has become effective pursuant to Section 
19(b)(3)(A) of the Act \16\ and subparagraph (f)(2) of Rule 19b-4 \17\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(2).
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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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2008-128 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-CBOE-2008-128. 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

[[Page 975]]

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 inspection and copying in the Commission's Public 
Reference Room on official business days between the hours of 10 a.m. 
and 3 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of CBOE. 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-2008-128 and should be submitted on 
or before January 30, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E9-156 Filed 1-8-09; 8:45 am]

BILLING CODE 8011-01-P