Document ID: SEC-2011-1141-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2011-08-09T04:00Z

[Federal Register Volume 76, Number 153 (Tuesday, August 9, 2011)]
[Notices]
[Pages 48931-48933]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20066]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65019; File No. SR-CBOE-2011-073]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend its Fees Schedule and Circular Regarding Trading 
Permit Holder Application and Other Related Fees

August 3, 2011.
    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 1, 2011, the 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, II, and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 and circular 
regarding Trading Permit Holder application and other related fees 
(``Trading Permit Fee Circular'') to amend the fee assessed to Floor 
Broker Trading Permit Holders that conduct a certain level of activity 
in CBOE Volatility Index (``VIX'') options. 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
    CBOE Rule 2.20 grants the Exchange the authority to, from time to 
time, fix the fees and charges payable by Trading Permit Holders. CBOE 
is proposing to amend its Fees Schedule and Trading Permit Fee Circular 
effective August 1, 2011 to amend the fee assessed to Floor Broker 
Trading Permit Holders that conduct a certain level of activity in VIX 
(``VIX Floor Broker Fee'') to assess one $1,000 fee monthly to each 
Trading Permit Holder and TPH organization that maintains one or more 
Floor Broker Trading Permits that collectively meet the criteria for 
the assessment of the VIX Floor Broker Fee rather than assessing the 
Fee to each Floor Broker Trading Permit Holder. CBOE is also proposing 
to eliminate one of the requirements used to calculate the minimum 
level of activity in VIX that subjects a Floor Broker Trading Permit 
Holder to this fee.
    CBOE assesses a tier appointment fee to CBOE Market-Maker Trading 
Permit Holders for certain proprietary classes in recognition of the 
cost to develop those products and of the profit potential in those 
classes.\3\ Additionally, TPH organizations frequently staff more than 
one Market-Maker in the VIX trading crowd, as in doing so, each Market-
Maker present in the trading crowd may participate on a trade.
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    \3\ CBOE Rule 8.3(e) provides that the Exchange may establish 
one or more types of tier appointments. In accordance with CBOE Rule 
8.3(e), a tier appointment is an appointment to trade one or more 
options classes that must be held by a Market-Maker to be eligible 
to act as a Market-Maker in the options class or options classes 
subject to that appointment. CBOE currently assesses a $1,000 
monthly VIX Tier Appointment fee. The VIX Tier Appointment fee is 
assessed to any Market-Maker Trading Permit Holder that either (a) 
has a VIX Tier Appointment at any time during a calendar month; or 
(b) conducts any transactions in VIX at any time during a calendar 
month.
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    In January 2011, CBOE amended its Fees Schedule to establish a fee 
(the VIX Floor Broker Fee) to be assessed to any Floor Broker Trading 
Permit Holder (a) that executes more than 20,000 VIX contracts during 
the month and (b) whose aggregate VIX executed contracts during the 
month comprise more than

[[Page 48932]]

30% of the Floor Broker Trading Permit Holder's exchange-wide total 
executed contracts.\4\ This fee was implemented to reflect the 
opportunity provided to agents servicing customers in such a high-
volume, fast-growing product. In addition, CBOE implemented this fee 
for Floor Broker Trading Permit Holders in an effort to equalize this 
opportunity between Market-Makers and Floor Brokers in VIX options. 
Specifically, the VIX Floor Broker Fee is assessed to CBOE Floor Broker 
Trading Permit Holders in recognition of the type of business that is 
conducted in VIX options classes through solicitation of interest for 
contra parties on orders.
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    \4\ See Securities Exchange Act Release No. 63706 (January 12, 
2011), 76 FR 3184 (January 19, 2011) (SR-CBOE-2011-004).
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    CBOE is proposing to simplify the manner in which this fee is 
assessed by (i) allocating one fee to each Trading Permit Holder or TPH 
organization that maintains more than one Floor Broker Trading Permit 
and that collectively through those Floor Broker Trading Permits meets 
the criteria to be assessed the VIX Floor Broker Fee rather than to 
assess the VIX Floor Broker Fee in that instance for each of the 
individual Floor Broker Trading Permits; and (ii) removing the 
criterion for the assessment of the fee that looks to aggregate VIX 
executed contracts during the month in relation to a Floor Broker 
Trading Permit Holder's exchange-wide total executed contracts. 
Instead, the only applicable requirement for assessment of the fee 
would be the current first criterion (i.e. whether more than 20,000 VIX 
contracts have been executed during the month). For example, under the 
proposal, if Trading Permit Holder A has one Floor Broker Trading 
Permit that is utilized to execute VIX options transactions (acronym 
ABC), Trading Permit Holder A will be assessed a single $1,000 monthly 
fee if ABC's executions exceed 20,000 contracts per month. If Trading 
Permit Holder B has two Floor Broker Trading Permits that are utilized 
to execute VIX options transactions (acronyms DEF and XYZ), the VIX 
executions of DEF and XYZ shall be aggregated for purposes of 
determining this additional monthly fee and Trading Permit Holder B 
shall be charged a single $1,000 fee for the combined VIX executions 
through DEF and XYZ if the executions exceed 20,000 contracts per 
month. Thus, if DEF executes 15,000 VIX contracts and XYZ executes 
10,000 contracts in August 2011, Trading Permit Holder B will be 
assessed a single $1,000 VIX Floor Broker Fee for the month of August 
2011.
    CBOE believes the proposal to allocate one fee to each Trading 
Permit Holder or TPH organization, as applicable, is reasonable and 
appropriate in that each Market-Maker present in the VIX trading crowd 
has the ability to participate on a trade, regardless of whether those 
Market-Makers are associated with the same TPH organization. However, 
for Floor Broker Trading Permit Holders, each Trading Permit Holder or 
TPH organization, as a single agent, is limited in their ability to 
participate on behalf of any account in which the Trading Permit Holder 
has an interest or on behalf of a non-Market-Maker customer to a single 
Floor Broker Trading Permit Holder.\5\ The presence of multiple Floor 
Broker Trading Permit Holders that are associated with the same TPH 
organization does not provide additional participation rights. Only one 
Floor Broker Trading Permit Holder associated with a TPH organization 
representing such a proprietary or non-Market-Maker customer account 
may participate on each transaction. Therefore, CBOE believes the 
assessment of one VIX Floor Broker fee to each Trading Permit Holder or 
TPH organization is appropriate and reasonable to ensure it is in 
congruence with that level of opportunity available to Floor Broker 
Trading Permit Holders in comparison to Market-Makers.
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    \5\ See CBOE Rule 6.55.
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    In addition, the proposal will level the playing field between 
Trading Permit Holders and TPH organizations that maintain multiple 
Floor Broker Trading Permits in VIX rather than one Floor Broker 
Trading Permit in VIX. Under the existing structure, Trading Permit 
Holders may have only one Floor Broker Trading Permit assigned to 
execute orders in VIX but may have others providing VIX orders to that 
particular Floor Broker for execution. This enables these Trading 
Permit Holders and TPH organizations to avoid being assessed more than 
one VIX Floor Broker Fee. Thus, this proposal will eliminate the 
disparity between the VIX Floor Broker Fees that are assessed to those 
Trading Permit Holders or TPH organizations that elect to maintain 
multiple Floor Broker Trading Permits to execute VIX orders and those 
that choose to only maintain one Floor Broker Trading Permit to execute 
VIX orders.
    In addition, by removing the 30% aggregate calculation, affiliated 
Trading Permit Holders and TPH organizations will be able to better 
monitor whether the fee will be assessed throughout the month. Based on 
the numbers generated for May 2011, the removal of this criterion would 
not subject additional Trading Permit Holders to the fee.
    In addition to the proposed changes to the Fees Schedule described 
above, CBOE is proposing to revise its regulatory circular that sets 
forth the existing Trading Permit Holder application and other related 
fees. The Exchange proposes to revise this circular to incorporate the 
changes to Section 10 of the CBOE Fees Schedule that are described 
above. The proposed changes to the circular are included as Exhibit 2 
to the Form 19b-4.
2. Statutory Basis
    The proposed rule change will treat all Trading Permit Holders in 
the same manner and is equitable and not discriminatory in that there 
is an objective test for the application of this fee. CBOE believes 
this proposal is reasonable in that, based on the data for May 2011, 
the removal of the criterion that aggregates VIX executed contracts 
during the month to determine if the aggregated amount comprises more 
than 30% of the Floor Broker Trading Permit Holder's exchange-wide 
total executed contracts does not appear to increase, in and of itself, 
the number of Trading Permit Holders that are subject to this fee. In 
addition, CBOE believes the assessment of one VIX Floor Broker fee to 
each Trading Permit Holder or TPH organizations is reasonable to ensure 
it is in congruence with that level of opportunity available to Floor 
Broker Trading Permit Holders as compared to the level of opportunity 
available to Market-Makers. Further, the assessment of one fee to each 
Trading Permit Holder or TPH organization ``levels the playing field'' 
for Trading Permit Holders and TPH organizations that maintain more 
than one Floor Broker Trading Permit to execute orders in VIX options. 
Accordingly, the Exchange believes that the proposed rule change is 
consistent with Section 6(b) of the Act,\6\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \7\ in particular, in that 
it is designed to provide for the equitable allocation of reasonable 
dues, fees, and other charges among persons using its facilities.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 purposes of the Act.

[[Page 48933]]

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 \8\ and subparagraph (f)(2) of Rule 19b-4 \9\ 
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.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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-2011-073 on the subject line.

Paper Comments

     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-2011-073. 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 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 No. SR-CBOE-2011-073 and should be 
submitted on or before August 30, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20066 Filed 8-8-11; 8:45 am]
BILLING CODE 8011-01-P