Document ID: SEC-2005-0026-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2005-09-27T04:00Z

[Federal Register: September 27, 2005 (Volume 70, Number 186)]
[Notices]               
[Page 56520-56522]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27se05-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52474; File No. SR-CBOE-2005-72]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change and Amendment No. 1 Thereto Relating to Marketing Fee Assessed 
on Options on DIAMONDS (``DIA'')

September 20, 2005.
    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 September 1, 2005, the Chicago Board Options Exchange, Inc. 
(``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. On September 7, 2005, the CBOE submitted Amendment No. 1 to 
the proposed rule change.\3\ The CBOE has designated this proposal as 
one changing a fee imposed by the CBOE under Section 19(b)(3)(A)(ii) of 
the Act \4\ and Rule 19b-4(f)(2) thereunder,\5\ which renders the 
proposal, as amended, effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange revised the proposed rule 
change to insert rule text that is contained in CBOE's Fees 
Schedules but was omitted from the initial filing.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 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

    The CBOE proposes to amend its marketing fee program to assess the 
marketing fee on options on DIAMONDS[supreg] (``DIA''). The fee would 
be imposed at the rate of $.22 per contract. The Exchange will assess a 
marketing fee on DIA options commencing on September 2, 2005.
    Below is the text of the proposed rule change, as amended. Proposed 
new language is in italics; proposed deletions are in [brackets].
* * * * *
CHICAGO BOARD OPTIONS EXCHANGE, INC.
FEES SCHEDULE
[August 24, 2005] September 1, 2005
    1. No Change.
    2. [Market-Maker, RMM, e-DPM & DPM] Marketing Fee [(in option 
classes in which a DPM has been appointed)] (6) (16)
    3-4. No Change.
    Footnotes:
    (1)-(5) No Change.
    (6) The Marketing Fee will be assessed only on transactions of 
Market-Makers, RMMs, e-DPMs, [and] DPMs, and LMMs at the rate of $.22 
per contract on all classes of equity options, options on HOLDRs, [and] 
options on SPDRs, and options on DIA. The fee will not apply to Market-
Maker-to-Market-Maker transactions. This fee shall not apply to index 
options and options on ETFs (other than options on SPDRs and options on 
DIA). Should any surplus of the marketing fees at the end of each month 
occur, the Exchange would then refund such surplus at the end of the 
month, if any, on a pro rata basis based upon contributions made by the 
Market-Makers, RMMs, e-DPMs, [and] DPMs, and LMMs.
    (7)-(16) No Change.
* * * * *

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 CBOE included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in Item IV below. The CBOE has prepared

[[Page 56521]]

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
    On October 29, 2004, CBOE amended its marketing fee program.\6\ The 
current marketing fee is assessed upon DPMs, e-DPMs, Market-Makers, and 
Remote Market-Makers (``RMMs'') at a rate of $0.22 for every contract 
they enter into on CBOE other than Market-Maker-to-Market-Maker 
transactions (which includes all transactions between any combination 
of DPMs, e-DPMs, Market-Makers, and RMMs). The marketing fee is 
currently assessed in all equity option classes and options on HOLDRs 
\7\ and options on SPDRs,\8\ all of which are classes in which a DPM 
has been appointed. All funds generated by the marketing fee are 
collected by CBOE and recorded according to the DPM, station, and class 
where the options subject to the fee are traded. The money collected is 
disbursed by CBOE according to the instructions of the DPM. Those funds 
are available to the DPM solely for those trading crowds where the fee 
was assessed and may only be used by that DPM to attract orders in the 
classes of options for which the fee was assessed.
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    \6\ For a description of the CBOE's marketing fee program, see 
Securities Exchange Act Release No. 50736 (November 24, 2004), 69 FR 
69966 (December 1, 2004) (SR-CBOE-2004-68).
    \7\ HOLDRs are trust-issued receipts that represent an 
investor's beneficial ownership of a specified group of stocks. See 
CBOE Rule 5.3.07.
    \8\ See Securities Exchange Act Release No. 51052 (January 18, 
2005), 70 FR 3757 (January 26, 2005) (SR-CBOE-2005-05).
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    CBOE now proposes to amends its marketing fee to assess the fee on 
options on DIA, an Exchange Traded Fund (``ETF'').\9\ The marketing fee 
would now be assessed upon LMMs,\10\ as well as Market-Makers, e-DPMs, 
and RMMs at a rate of $0.22 for every contract they enter into on CBOE 
other than Market-Maker-to-Market-Maker transactions (which includes 
all transactions between any combination of LMMs, Market-Makers, e-
DPMs, and RMMs). The Exchange would commence to assess the fee on DIA 
options on September 2, 2005.
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    \9\ ETFs are shares of trusts that hold portfolios of stocks 
designed to closely track the price performance and yield of 
specific indices.
    \10\ Under CBOE rules, LMMs may be appointed in an option class 
for which a DPM has not been appointed. See CBOE Rule 8.15A.
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    Additionally, in option classes like DIA in which an LMM instead of 
a DPM has been appointed,\11\ CBOE proposes to amend its marketing fee 
plan to allow an LMM that has been appointed by the Exchange to perform 
the functions that a DPM typically performs under the marketing fee 
plan. Specifically, the LMM, like the DPM, would be expected to 
negotiate with payment accepting firms to pay for that firm's order 
flow. All funds generated by the marketing fee would be collected by 
CBOE, and disbursed by CBOE according to the instructions of the LMM. 
The Exchange is not making any other changes to its marketing fee plan.
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    \11\ Currently, the only option class in which an LMM instead of 
a DPM has been assigned is the DIA option class and the CBOE has no 
plans to change this at this time. Telephone conversation between 
Michou Nguyen, Attorney Advisor, Division of Market Regulation, 
Commission, and Andrew Spiwak, Assistant Secretary, CBOE, on 
September 7, 2005.
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2. Statutory Basis
    The Exchange believes that its proposal, as amended, is consistent 
with Section 6(b) of the Act \12\ in general, and furthers the 
objectives of Sections 6(b)(4) of the Act \13\ in particular, in that 
it is designed to provide for the equitable allocation of reasonable 
dues, fees, and other charges among CBOE's members.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, will impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change, as amended, has been designated 
as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act \14\ and 
Rule 19b-4(f)(2) \15\ thereunder, because it establishes or changes a 
due, fee, or other charge imposed by the Exchange. Accordingly, the 
proposal will take effect upon filing with the Commission. At any time 
within 60 days of the filing of such 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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ The effective date of the original proposed rule change is 
September 1, 2005, and the effective date of Amendment No. 1 is 
September 7, 2005. For purposes of calculating the 60-day period 
within which the Commission may summarily abrogate the proposal, the 
Commission considers the period to commence on September 7, 2005, 
the date on which the Exchange submitted Amendment No. 1.
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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, as amended, 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-2005-72 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE, 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CBOE-2005-72. 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, as amended, 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. 
Copies of such filing also will be available for inspection and copying 
at the principal office of the 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

[[Page 56522]]

submissions should refer to File Number SR-CBOE-2005-72 and should be 
submitted on or before October 18, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
Jonathan G. Katz,
Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E5-5182 Filed 9-26-05; 8:45 am]

BILLING CODE 8010-01-P