Document ID: SEC-2017-0106-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2017-01-25T05:00Z

[Federal Register Volume 82, Number 15 (Wednesday, January 25, 2017)]
[Notices]
[Pages 8477-8479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01604]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79816; File No. SR-CBOE-2017-003]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the Fees Schedule

January 18, 2017.
    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 3, 2017, 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.
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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

    The Exchange proposes to amend its Fees Schedule. The text of the 
proposed rule change is also 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 make a number of amendments to its Order 
Routing Subsidy (ORS) and Complex Order Routing Subsidy (CORS) Programs 
(collectively ``Programs''). By way of background, the ORS and CORS 
Programs allow CBOE to enter into subsidy arrangements with any CBOE 
Trading Permit Holder (``TPH'') (each, a ``Participating TPH'') or Non-
CBOE TPH broker-dealer (each a ``Participating Non-CBOE TPH'') that 
meet certain criteria and provide certain order routing functionalities 
to other CBOE TPHs, Non-CBOE TPHs and/or use such functionalities 
themselves.\3\ (The term ``Participant'' as used in this filing refers 
to either a Participating TPH or a Participating Non-CBOE TPH). 
Participants in the ORS Program receive a payment from CBOE for every 
executed contract for simple orders routed to CBOE through their 
system. CBOE does not make payments under the ORS Program with respect 
to executed contracts in single-listed options classes traded on CBOE, 
or with respect to complex orders or spread orders. Similarly, 
participants in the CORS Program receive a payment from CBOE for every 
executed contract for complex orders routed to CBOE through their 
system. CBOE does not make payments under the CORS Program with respect 
to executed contracts in single-listed options classes traded on CBOE 
or with respect to simple orders. Currently, under both programs the 
Exchange pays a subsidy of $0.02 per contract for all customer (origin 
code ``C'') orders and a subsidy of $0.06 per contract for all non-
customer orders.
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    \3\ See CBOE Fees Schedule, ``Order Router Subsidy Program'' and 
``Complex Order Router Subsidy Program'' tables for more details on 
the ORS and CORS Programs.
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    The Exchange first proposes to exclude customer orders from the 
Programs and eliminate the customer order subsidy. The Exchange also 
proposes to increase the subsidy for non-customer orders from $0.06 per 
contract to $0.07 per contract under both ORS and CORS. The Exchange 
notes that another Exchange with a similar subsidy program also does 
not provide subsidies for customer orders.\4\
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    \4\ See NASDAQ PHLX LLC Pricing Schedule, Section IV(e) [sic], 
Other Transaction Fees, Market Access and Routing Subsidy 
(``MARS'').

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[[Page 8478]]

    The Exchange next proposes to amend one of the system requirements 
under the Programs. Specifically, the Exchange notes that to qualify 
for the subsidy arrangement under ORS and CORS, a Participant's order 
routing functionality has to, among other things, cause CBOE to be the 
default destination exchange for simple (under ORS) and complex (under 
CORS) orders, but allow any user to manually override CBOE as the 
default destination on an order-by-order basis. As the Exchange is 
proposing to eliminate subsidies for customer orders, the Exchange does 
not believe it's necessary to require that CBOE be set as the default 
destination exchange for customer orders. As such, the Exchange 
proposes to amend the Fees Schedule to provide that under the ORS and 
CORS programs, CBOE must be set as the default exchange for non-
customer orders only (and still allow any user to manually override 
CBOE as the default destination on an order-by-order basis).
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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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 
Section 6(b)(4) of the Act,\7\ 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.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the proposed amendments to the 
ORS and CORS Programs are reasonable because the proposed changes still 
affords Participants an opportunity to receive payments to subsidize 
the costs associated with providing certain order routing 
functionalities that would otherwise go unsubsidized. Additionally, the 
Exchange believes the increased $0.07 per contract subsidy for non-
customer orders is reasonable because it is within the range of 
subsidies paid by another exchange under a similar subsidy program.\8\ 
The Exchange also believes it is reasonable, equitable and not unfairly 
discriminatory to maintain a subsidy for non-customer orders only under 
the Programs. Particularly, the Exchange notes that customer orders 
already have the opportunity to earn various rebates, discounts or fee 
caps.\9\ Moreover, the Exchange notes that another exchange also does 
not provide subsidies for customer orders.\10\
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    \8\ See supra note 4.
    \9\ See e.g., CBOE Fees Schedule, Customer Large Trade Discount 
and Volume Incentive Program.
    \10\ See supra note 4.
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    The Exchange believes the elimination of the requirement to set 
CBOE as the default destination for customer orders is reasonable, 
equitable and not unfairly discriminatory because the Exchange will no 
longer be providing a subsidy for such orders.

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. The Exchange does not believe 
that the proposed changes will impose an unnecessary burden on 
intramarket competition because they will apply equally to all 
participating parties. Although the subsidy for orders routed to CBOE 
through a Participant's system only applies to Participants of the 
Programs, the subsidies are designed to encourage the sending of more 
orders to the Exchange, which should provide greater liquidity and 
trading opportunities for all market participants. Additionally, 
although customer orders will no longer be eligible for subsidies under 
the programs, customer orders are eligible for other rebates, discounts 
or fee caps.\11\ The Exchange also does not believe that such changes 
will impose any burden on intermarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. The Exchange 
notes that, should the proposed changes make CBOE more attractive for 
trading, market participants trading on other exchanges can always 
elect to provide order routing functionality to CBOE. Additionally, to 
the extent that the proposed changes to the ORS and CORS Programs 
result in increased trading volume on CBOE and lessened volume on other 
exchanges, the Exchange notes that market participants trading on other 
exchanges can always elect to become TPHs on CBOE to take advantage of 
the trading opportunities.
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    \11\ See e.g., CBOE Fees Schedule, Customer Large Trade Discount 
and Volume Incentive Program.
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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 \12\ and paragraph (f) of Rule 19b-4 \13\ 
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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f).
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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 email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2017-003 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-2017-003. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your

[[Page 8479]]

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-2017-003 and should be submitted on or before 
February 15, 2017.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01604 Filed 1-24-17; 8:45 am]
 BILLING CODE 8011-01-P