Document ID: SEC-2013-1347-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2013-07-26T04:00Z

[Federal Register Volume 78, Number 144 (Friday, July 26, 2013)]
[Notices]
[Pages 45279-45282]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17974]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70014; File No. SR-CBOE-2013-072]

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

July 22, 2013.
    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 July 11, 2013, 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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule. First, the 
Exchange proposes to eliminate the $200-per-month Hybrid Quoting 
Infrastructure User Fee, which is assessed to Trading Permit Holders 
(``TPHs'') to help cover the costs associated with hardware and 
maintenance services to third-party vendors that provide quoting 
software used by TPHs to trade on the Exchange's Hybrid Trading System 
(``Hybrid''). This elimination will allow TPHs to avoid paying this 
fee, and may encourage more market participants to trade on CBOE.
    The Exchange also proposes to make an amendment to the Fees 
Schedule regarding Clearing Trading Permit Holder Proprietary 
Facilitation fees. On April 10, 2013, the Exchange amended its Fees 
Schedule to, in part, make more clear the fact that the Exchange will 
assess no Clearing Trading Permit Holder Proprietary transaction fees 
for certain types of facilitation orders (as defined in Footnote 11 of 
the Fees Schedule), including those executed via the Exchange's 
Automated Execution Mechanism (``AIM''), in certain classes.\3\ 
However, regular (non-AIM) electronic Clearing Trading Permit Holder 
Proprietary facilitation orders remained subject to transaction fees. 
The Exchange hereby proposes to cease assessing transaction fees on 
such orders.\4\ This will mean that electronic Clearing Trading Permit 
Holder Proprietary Facilitation orders will be assessed no fees 
regardless of whether they are executed via AIM or the Exchange's 
regular electronic mechanism (placing such executions on the same 
footing with regard to fees).
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    \3\ See Securities Exchange Act Release No. 69422 (April 22, 
2013), 78 FR 25112 (April 29, 2013) (SR-CBOE-2013-042).
    \4\ As such, along with amending the Equity Options Rate Table, 
the ETF and ETN Options Rate Table, and the Index Options Rate 
Table--All Index Products Excluding SPX, SPXW, SPXpm, SRO, OEX, XEO, 
VIX and VOLATILITY INDEXES, to reflect this change, the Exchange 
also proposes to amend Footnote 11 to state that no Clearing Trading 
Permit Holder Proprietary transaction fees will be assessed for 
facilitation orders electronically (including via AIM).
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    Next, the Exchange proposes to amend its Fees Schedule with regard 
to fees for SPXPM. On February 19, 2013, the Exchange adopted a set of 
fees for the trading of SPXPM.\5\ The Customer SPXPM fees were set at 
the same rates as the Customer SPX fees. However, SPXPM trades on the 
Exchange's Hybrid System, while SPX trades on the Exchange's Hybrid 3.0 
trading platform. As such, SPXPM is eligible to trade on AIM, while SPX 
currently does not trade on AIM. Therefore, the Exchange proposes to 
create separate lines for

[[Page 45280]]

Customer rates in SPXPM on the Specified Proprietary Index Options Rate 
Table--SPX, SPXW, SPXpm, SRO, OEX, XEO, VIX and VOLATILITY INDEXES and 
remove SPXPM from those lines listing SPX rates in order to eliminate 
any potential confusion about where SPXPM can trade. The rate amounts 
for SPXPM AIM trades will be listed as the same as for other SPXPM 
trades (as they are now; $0.44 per contract for SPXpm Premium > or = $1 
and $0.35 per contract for SPXpm Premium < $1). The AIM Agency/Primary 
and AIM Contra columns, which reference the AIM Agency/Primary and AIM 
Contra Execution Fees, as well as delineate which securities (and types 
of transactions) are eligible for AIM executions, will be modified to 
state ``SPXpm and VIX Only'' to demonstrate that SPXPM is eligible for 
AIM executions.

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    \5\ See Securities Exchange Act Release No. 69025 (March 4, 
2013), 78 FR 15076 (March 8, 2013) (SR-CBOE-2013-025).
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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.\6\ Specifically, 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. The Exchange believes that the 
elimination of the Hybrid Quoting Infrastructure User Fee is reasonable 
because it will prevent market participants to whom the fee would 
otherwise apply from having to pay the fee. This change is equitable 
and not unfairly discriminatory because it will apply to all market 
participants.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed change to cease assessing 
transaction fees on regular (non-AIM) electronic Clearing Trading 
Permit Holder Proprietary facilitation orders is reasonable because 
Clearing Trading Permit Holders who would otherwise have had to pay for 
such transactions now will not be required to do so. The Exchange 
believes that this proposed change is equitable and not unfairly 
discriminatory because it will place regular electronic (non-AIM) 
Clearing Trading Permit Holder Proprietary facilitation orders on the 
same footing (with regards to fees) as Clearing Trading Permit Holder 
Proprietary facilitation orders executed in AIM. Further, the Exchange 
believes that it is equitable and not unfairly discriminatory to permit 
Clearing Trading Permit Holders to execute Proprietary Facilitation 
orders electronically for free and not give this opportunity to other 
market participants because Clearing Trading Permit Holders have a 
number of obligations (such as membership with the Options Clearing 
Corporation), significant regulatory burdens, and financial 
obligations, that other market participants do not need to take on. 
Finally, this proposed change applies to all regular electronic (non-
AIM) Clearing Trading Permit Holder Proprietary facilitation orders 
equally.
    The Exchange believes that the clarification regarding SPXPM and 
its eligibility for AIM executions is consistent with the Section 
6(b)(5) \8\ 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 facilitation 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. Making the Fees Schedule 
more clear that SPXPM trades on AIM will remove any potential 
confusion, thereby removing an impediment to and perfecting the 
mechanism of a free and open market and a national market system, and, 
in general, protecting investors and the public interest.
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    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that assessing Customer transactions in 
SPXPM (Premium < $1) a fee of $0.35 per contract is consistent with 
Section 6(b)(4) of the Act,\9\ 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 this is reasonable, as well as 
equitable and not unfairly discriminatory, because it is the same 
amount as is assessed to Customer transactions in SPX (Premium < $1) 
(SPX and SPXPM are based on the same underlying index, the S&P 500). 
The Exchange believes that assessing a higher fee for Customer 
transactions in SPXPM options whose premium is greater than or equal to 
$1.00 than for Customer transactions in SPXPM options whose premium is 
less than $1.00 is equitable and not unfairly discriminatory because 
nearly all options based on the S&P 500 Index are priced at well above 
$1.00. However, most Customers, at the end of an expiration cycle, 
desire to continue to hold options based on the S&P 500 Index 
(including both SPX and SPXPM), and because it is the end of an 
expiration cycle, such options are priced very low. The Exchange 
therefore offers lower pricing for Customer SPX and SPXPM options in 
order to encourage such trading and thus encourage Customers to open 
SPX and SPXPM options positions in the next cycle. As these new 
positions will almost certainly be priced above $1.00, offering the 
lower pricing for SPXPM options whose premium is below $1.00 therefore 
benefits market participants trading SPXPM options whose premium is at 
or above $1.00 by encouraging Customers to open up those positions 
(thereby providing greater liquidity). Further, other options based on 
the S&P 500 Index, such as SPX, offer higher pricing for options with a 
premium of greater than or equal to $1.00 than for those with a premium 
of less than $1.00.
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    \9\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that it is equitable and not unfairly 
discriminatory to offer a higher fee for Customer SPXPM transactions 
(Premium < $1) than for CBOE Market-Maker/DPM/e-DPM/LMM and Clearing 
Trading Permit Holder Proprietary SPXPM transactions (Premium < $1) 
because those market participants undertake certain obligations with 
respect to trading at CBOE, such as quoting obligations (for CBOE 
Market-Makers/DPMs/e-DPMs/LMMs) and membership with the Options 
Clearing Corporation, significant regulatory burdens, and financial 
obligations, (for Clearing Trading Permit Holders) that Customers do 
not undertake. The Exchange believes that it is equitable and not 
unfairly discriminatory to offer a lower Customer fee for SPXPM 
transactions (Premium < $1) than for similar transactions by Joint 
Back-Office, Broker-Dealer, Non-Trading Permit Holder Market-Maker, 
Professional, and Voluntary Professional market participants because 
such market participants often seek to trade with Customers. Further, 
the lower fee for Customers will encourage more Customer trading, which 
provides more liquidity and trading opportunities (with this preferred 
trading partner) for these other market participants. Also, Customers 
are often not as sophisticated market participants, and there is a long 
history of permitting preferential pricing

[[Page 45281]]

treatment of Customers in the options industry (indeed, in a number of 
places, the Exchange Fees Schedule offers lower pricing for Customers 
than for other market participants). Finally, the Exchange believes 
that it is equitable and not unfairly discriminatory to assess a higher 
fee for Customer SPXPM transactions (Premium < $1) than for Customer 
transactions in other index products (including non-proprietary index 
products) (Premium < $1) because the Exchange has expended significant 
resources developing SPXPM and desires to recoup some of such costs.

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule changes 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 rule change to eliminate the Hybrid Quoting 
Infrastructure User Fee will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because it applies to all CBOE market participants. 
The Exchange does not believe that the proposed rule change to cease 
assessing transaction fees on regular (non-AIM) electronic Clearing 
Trading Permit Holder Proprietary facilitation orders will impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because it places regular 
(non-AIM) electronic Clearing Trading Permit Holder Proprietary 
facilitation orders on the same footing (with regards to fees) as 
Clearing Trading Permit Holder Proprietary facilitation orders executed 
in AIM. Further, Clearing Trading Permit Holders have a number of 
obligations (such as membership with the Options Clearing Corporation), 
significant regulatory burdens, and financial obligations, that other 
market participants do not need to take on. Finally, this proposed 
change applies to all regular electronic (non-AIM) Clearing Trading 
Permit Holder Proprietary facilitation orders equally.
    The Exchange does not believe that the proposed clarification 
regarding SPXPM fees will impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act because it merely clarifies the Fees Schedule and also applies 
equally. Further, the Exchange does not believe that assessing Customer 
transactions in SPXPM (Premium < $1) a higher fee than for CBOE Market-
Maker/DPM/e-DPM/LMM and Clearing Trading Permit Holder Proprietary 
SPXPM transactions (Premium < $1) will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because those market participants undertake certain 
obligations with respect to trading at CBOE, such as quoting 
obligations (for CBOE Market-Makers/DPMs/e-DPMs/LMMs) and membership 
with the Options Clearing Corporation, significant regulatory burdens, 
and financial obligations, (for Clearing Trading Permit Holders) that 
Customers do not undertake. The Exchange does not believe that 
assessing Customer transactions in SPXPM (Premium < $1) a lower fee 
than for similar transactions by Joint Back-Office, Broker-Dealer, Non-
Trading Permit Holder Market-Maker, Professional, and Voluntary 
Professional market participants because such market participants often 
seek to trade with Customers. Further, the lower fee for Customers will 
encourage more Customer trading, which provides more liquidity and 
trading opportunities (with this preferred trading partner) for these 
other market participants. Also, Customers are often not as 
sophisticated market participants, and there is a long history of 
permitting preferential pricing treatment of Customers in the options 
industry (indeed, in a number of places, the Exchange Fees Schedule 
offers lower pricing for Customers than for other market participants).
    The Exchange does not believe that the proposed rule changes to 
eliminate the Hybrid Quoting Infrastructure User Fee and to cease 
assessing transaction fees on regular (non-AIM) electronic Clearing 
Trading Permit Holder Proprietary facilitation orders will impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because they may encourage 
other exchanges to adopt fee changes that will provide more attractive 
pricing on such exchanges (thereby enhancing intermarket competition). 
Further, all the proposed rule changes apply only to trading on CBOE. 
Indeed, the Exchange does not believe that assessing Customer 
transactions in SPXPM (Premium < $1) a fee of $0.35 per contract will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because SPXPM is 
only traded on CBOE. To the extent that market participants on other 
exchanges may be attracted to CBOE due to the proposed changes, such 
market participants may always elect to become CBOE market 
participants.

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 \10\ and paragraph (f) of Rule 19b-4 \11\ 
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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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-2013-072 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-2013-072. 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

[[Page 45282]]

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-2013-072, and should be 
submitted on or before August 16, 2013.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17974 Filed 7-25-13; 8:45 am]
BILLING CODE 8011-01-P