Document ID: SEC-2012-1177-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2012-07-19T04:00Z

[Federal Register Volume 77, Number 139 (Thursday, July 19, 2012)]
[Notices]
[Pages 42539-42541]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17574]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67440; File No. SR-CBOE-2012-062]

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 13, 2012.
    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 2, 2012, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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.org/legal), 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 raise from $0.25 per contract to $0.30 per 
contract the fee for electronic executions by voluntary professionals 
and professionals in equity options and index, ETF, ETN and HOLDRs 
options (excluding OEX, XEO, SPXW and Volatility Indexes) classes. The 
Exchange also proposes to raise from $0.45 per contract to $0.60 per 
contract the fee for electronic executions by broker-dealers in non-
Penny Pilot equity options and index, ETF, ETN and HOLDRs options 
(excluding OEX, XEO, SPXW and Volatility Indexes) classes. Transactions 
executed as Qualified Contingent Cross (``QCC'') trades or transactions 
executed through the Exchange's Automated Improvement Mechanism 
(``AIM'') when the professional, voluntary professional or broker-
dealer is on the Agency/Primary side are excepted from these changes.
    These changes are proposed to better reflect the costs associated 
with supporting a larger number of option classes, option series, and 
overall transaction volumes that have grown over time which has caused 
the Exchange to continually invest in software, hardware and personnel, 
including increased costs for network infrastructure and regulatory 
systems. The Exchange also believes that increasing the broker-dealer 
fees for electronic executions by broker-dealers in non-Penny Pilot 
equity options and index, ETF, ETN and HOLDRs options (excluding OEX, 
XEO, SPXW and Volatility Indexes) classes will allow the Exchange to 
compete more effectively by covering these increased costs while still 
subsidizing lower customer fees. The amounts of these new fees are in 
line with those assessed by other exchanges. NASDAQ OMX PHLX LLC 
(``Phlx'') assesses to broker-dealers a fee of $0.60 per contract for 
electronic transactions in non-Penny Pilot options on equities, 
indexes, ETFs, ETNs, and HOLDRs that are multiply-listed.\3\ The NASDAQ 
Options Market (``NOM'') assesses to professional customers a Maker fee 
of $0.30 per contract and a Taker fee of $0.50 per contract for 
electronic transactions.\4\
---------------------------------------------------------------------------

    \3\ See Phlx Fee Schedule, Section II.
    \4\ See NOM Fee Schedule, Section 2(1).
---------------------------------------------------------------------------

    The proposed changes are to take effect on July 1, 2012.
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.\5\ Specifically, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\6\ which provides that 
Exchange rules may provide for the equitable allocation of reasonable 
dues, fees, and other charges among its Trading Permit Holders and 
other persons using its facilities. Increasing fees for electronic 
executions by voluntary professionals and professionals in equity 
options and index, ETF, ETN and HOLDRs options (excluding OEX, XEO, 
SPXW and Volatility Indexes) classes is reasonable because the new 
proposed fee amounts are in line with comparable fees assessed by other 
exchanges.\7\ Further, this would allow the Exchange to recoup costs 
associated with the growth in professional and voluntary professional 
trading volume while continuing to assess such fees at a rate that is 
lower than fees assessed to broker-dealers for similar transactions.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b).
    \7\ See NOM Fee Schedule, Section 2(1).
---------------------------------------------------------------------------

    Increasing fees for electronic executions by professionals and 
voluntary professionals is equitable and not unfairly discriminatory 
and [sic] because of the growth in trading volume that requires the 
Exchange to continually invest in software and hardware (the increase 
in professional and voluntary professional trading volume is much 
greater than any increases in trading volume over the same period of 
time by any other type of Exchange market participant).\8\ Further, 
professionals and voluntary professionals will still be assessed lower 
fees than broker-dealers for electronic executions in equity options 
and index, ETF, ETN and HOLDRs options (excluding OEX, XEO, SPXW and 
Volatility Indexes) classes \9\ (broker-dealers, as Trading Permit 
Holders, have direct access to the Exchange's trade engine, while 
professionals and voluntary professionals do not). CBOE Market-Makers/
DPMs/e-DPMs will be assessed lower fees of $0.20 per contract

[[Page 42540]]

for electronic executions in equity options and index, ETF, ETN and 
HOLDRs options (excluding OEX, XEO, SPXW and Volatility Indexes) 
classes than similar transactions by voluntary professionals and 
professionals because CBOE Market-Makers/DPMs/e-DPMs have burdensome 
quoting obligations which professionals and voluntary professionals do 
not have. Customers are assessed lower fees (and in the case of equity 
options, no fees) \10\ for electronic executions in equity options and 
index, ETF, ETN and HOLDRs options (excluding OEX, XEO, SPXW and 
Volatility Indexes) classes than similar transactions by voluntary 
professionals and professionals because customer order flow brings 
liquidity to the market, which in turn benefits all market 
participants. Clearing Trading Permit Holder Proprietary orders are 
assessed lower fees for electronic executions in equity options and 
index, ETF, ETN and HOLDRs options (excluding OEX, XEO, SPXW and 
Volatility Indexes) classes than similar transactions by voluntary 
professionals and professionals \11\ because Clearing Trading Permit 
Holders have higher capital requirements, must clear trades for other 
market participants, must be members of the Options Clearing 
Corporation, and must back up the trades of the market participants 
that trade through them, obligations that professionals and voluntary 
professionals do not have.
---------------------------------------------------------------------------

    \8\ Exchange professional and voluntary professional trading 
volume has increased from 49,313 contract sides in February 2009 to 
3,946,055 contract sides in May 2012.
    \9\ See CBOE Fees Schedule, Section 1, which shows that broker-
dealers are assessed $0.45 per contract for Penny Pilot transactions 
and, following the submission of this proposed rule change, $0.60 
per contract for non-Penny Pilot transactions.
    \10\ See CBOE Fees Schedule, Section 1.
    \11\ See CBOE Fees Schedule, Section 1.
---------------------------------------------------------------------------

    Limiting this increase in professional and voluntary professional 
fees to electronic trading is equitable and not unfairly discriminatory 
because electronic trading by professionals and voluntary professionals 
(greater than 99% of all trading by professionals and voluntary 
professionals on CBOE is done electronically) has caused the increased 
investment in software and hardware, and therefore professionals and 
voluntary professionals who are trading electronically should bear the 
costs related to that increased investment.
    The increased fee for electronic executions by broker-dealers in 
non-Penny Pilot equity options and index, ETF, ETN and HOLDRs options 
(excluding OEX, XEO, SPXW and Volatility Indexes) classes is reasonable 
because the amount is equal to that assessed by other exchanges,\12\ 
and because such increased fees will allow the Exchange to recoup the 
aforementioned costs while also continuing to subsidize lower fees for 
customer transactions in order to compete more effectively.
---------------------------------------------------------------------------

    \12\ See Note 1.
---------------------------------------------------------------------------

    The Exchange's proposal to increase the fee for electronic 
executions by broker-dealers in non-Penny Pilot equity options and 
index, ETF, ETN and HOLDRs options (excluding OEX, XEO, SPXW and 
Volatility Indexes) classes is equitable and not unfairly 
discriminatory because, currently, broker-dealers are assessed higher 
fees as compared to customers, professionals, voluntary professionals, 
CBOE Market-Makers/DPMs/e-DPMs, and Clearing Trading Permit Holders 
(proprietary). Customers are assessed lower fees (and in the case of 
equity options, no fees) for electronic executions in non-Penny Pilot 
equity options and index, ETF, ETN and HOLDRs options (excluding OEX, 
XEO, SPXW and Volatility Indexes) classes because customer order flow 
brings liquidity to the market, which, in turn, benefits all market 
participants. CBOE Market-Makers/DPMs/e-DPMs are assessed lower fees 
for electronic executions in non-Penny Pilot equity options and index, 
ETF, ETN and HOLDRs options (excluding OEX, XEO, SPXW and Volatility 
Indexes) classes than broker-dealers because Market-Makers/DPMs/e-DPMs 
have burdensome quoting obligations which broker-dealers do not have. 
Further, Market-Makers/DPMs/e-DPMs pay a $0.65 per contract Marketing 
Fee for many non-Penny Pilot transactions, which broker-dealers do not 
pay.\13\ This increased fee for non-Penny Pilot broker-dealer 
transactions brings broker-dealer fees for such transactions into a 
closer alignment with the fees paid by Market-Makers/DPMs/e-DPMs.
---------------------------------------------------------------------------

    \13\ See CBOE Fees Schedule, Section 2.
---------------------------------------------------------------------------

    Professionals and voluntary professionals are assessed lower fees 
for electronic executions in non-Penny Pilot equity options and index, 
ETF, ETN and HOLDRs options (excluding OEX, XEO, SPXW and Volatility 
Indexes) classes than broker-dealers because broker-dealers, as Trading 
Permit Holders, have direct access to the Exchange's trade engine, 
while professionals and voluntary professionals do not. Clearing 
Trading Permit Holder proprietary orders are assessed lower fees for 
electronic executions in non-Penny Pilot equity options and index, ETF, 
ETN and HOLDRs options (excluding OEX, XEO, SPXW and Volatility 
Indexes) classes than broker-dealer orders because Clearing Trading 
Permit Holders have higher capital requirements, must clear trades for 
other market participants, must be members of the Options Clearing 
Corporation, and must back up the trades of the market participants 
that trade through them, obligations that broker-dealers do not have.
    Assessing higher fees for broker-dealer transactions in electronic, 
non-Penny Pilot classes is equitable and not unfairly discriminatory 
because in non-Penny Pilot classes the spreads are naturally larger 
than in Penny Pilot classes, and these wider spreads allow for greater 
profit potential. Limiting this fee increase to electronic transactions 
is equitable and not unfairly discriminatory because electronic trading 
requires constant system development and maintenance.
    Finally, the Exchange believes that increasing the fee for 
electronic executions by broker-dealers in non-Penny Pilot equity 
options and index, ETF, ETN and HOLDRs options (excluding OEX, XEO, 
SPXW and Volatility Indexes) classes is equitable and not unfairly 
discriminatory because this will allow the Exchange to compete more 
effectively by covering the increased costs for software, hardware and 
personnel, including increased costs for network infrastructure and 
regulatory systems, while still subsidizing lower customer fees, 
thereby attracting customer order flow, which benefits all market 
participants.

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

    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) \14\ of the Act and paragraph (f) of Rule 19b-4 \15\ 
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,

[[Page 42541]]

or otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2012-062 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-2012-062. 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-2012-062 and should be 
submitted on or before August 9, 2012.
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17574 Filed 7-18-12; 8:45 am]
BILLING CODE 8011-01-P